Matt Nolan

Government investment: Saviour or Villain?

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We have a guest post over at No Minister.

The conclusion:

Ultimately, I doubt that the government has a role in investing in large scale projects in the absence of “externalities”. The best thing the government can do is make sure that the economic environment is open and transparent – such that firms with greater technical knowledge, and a better understanding or the risk-return trade-off, can invest in the most efficient way possible. The purpose of government is to oil the wheels of commerce – not to build the cogs.

Matt Nolan

Thinking about the decline in the exchange rate

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Our dollar has fallen markedly in recent days. This is illustrated in a post from Kiwiblog (*)

There are two main ways that the falling dollar impacts on New Zealanders

  1. It now requires more NZ dollars to buy goods from overseas,
  2. We now get given the equivalent of more NZ dollars for things we sell overseas.

So our export “income” will increase but the price we pay for imports rises.

So when you think about how this decline will impact on you, you need to think about your exposure to these two different facets of our trade relationship. If you are involved with an industry that exports things – this is likely to be a good time for you. If you are an avid purchaser of books on amazon.com, this is not such a good time for you. Damn it – and I’m going on holiday in a month 😛

Will Taylor

Warehouse Extra is Gone!

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One of the longer takeover sagas appears to have ended with the warehouse having announced its decision to end the warehouse extra format. This will effectively clear the way for either of the big two supermarkets to take over the warehouse. This is because the commerce commission is of the opinion that the warehouse would be a “maverick”. No-one really agrees on what this means so I won’t try and explain it, but given the ambiguity of the term it’s interesting the commission became so fixated on it.

For those of you who don’t know how competition law works you compare the factual of the merger going through with the counter factual of the merger not happening. With the warehouse extra no longer existing going forward, therefore merger will not eliminate the “third player” from the grocery market and enhance competition in the grocery market will be no different in the factual then in the counter factual.

Two things to look out for concerning this are

  • The Commission’s response
    They really don’t want this merger to happen
  • Whether or not the supermarket that takes over the warehouse rolls out extra in the future.
    We discussed on the blog before that we (at least I) think competition would actually be increased if one of the supermarkets is able to roll out the extra format.

Watch this space!

Matt Nolan

RBNZ to cut rates today?

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So a whole bunch of central banks have cut rates overnight (ht Rates Blog, Big Picture). Australia cut 100 basis points the other day.

If the RBNZ ever cut rates inter-meeeting, it would currently sound like a fair time. In order to avoid it sounding like a panic they could say:

  1. Funding costs have risen markedly, and the Bank’s goal is to keep funding pressures consistent with their goal in September until the next meeting – ergo, we need an OCR cut,
  2. The Bank wishes to keep a certain interest rate differential with the rest of the world. With the rest of the world (virtually) cutting 50 basis points more than we had anticipated in September, it seems appropriate to lower our OCR by 50 basis points now.

Today is the 9th of October – the meeting is in 19 days. I think there is a fair chance the RBNZ may be pushed into cutting today, or at least announcing it.

I don’t have a problem with them doing it – as long as they are willing to lift rates relatively once (if) funding pressures ever come off.

Update: Ipredicit puts up a prediction stock on a possible cut today!!! (ht Nigel Pinkerton)

Update 2: The collapse in our currency (the TWI has fallen to 60 – we are talking 2003 levels) may prevent the Bank cutting. However, I am not sure how much attention investors are actually giving to our OCR at the moment – as a result, the cut may not have a big impact on the dollar (relative to global events).

Update 3: Good articles by David Hargreaves. Looks like the RBNZ will not go after this statement.

Matt Nolan

Taxes are self-funding?

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I just read this over at the Hive:

“New operating allowances will be the same for National over the next three years as they would be under Labour. National’s rebalancing of the tax system is self-funding and requires no cuts to public services or additional borrowing.”

What the hell? Self-funding? We aren’t on that side of the Laffer curve. But then we hear that:

Mr English says over the next term of government the total cost of National’s personal tax cuts is balanced by the revenue savings from:
Changes to KiwiSaver.
Discontinuing the R&D tax credit.
Replacing Labour’s proposed tax cuts.

Ahhhh. Ok, so by tax system they are talking about other areas (like Kiwisaver) where they are cutting spending.

So just to be clear, it isn’t that the tax cuts that are self financing – the set of changes to tax and spending packages are expected to be neutral, whew!

Matt Nolan

2008 Election: Tax offer comparisons

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Kiwiblog (*, *) and the Standard (*) discuss the size and scope of the tax cut. (Note: some of the discussion can be viewed as partisan).

NZIER economist Patrick Nolan created a calculator that allows you to compare the packages on offer from Labour and National for yourself (Media release, Calculator). Enjoy!

Note:  Other NZIER calculators can be found here.