KEY POINTS:
Here is an earlier selection of Your Views:
Martina Himme
In my opinion, it is of utmost importance to keep inflation low, and the reserve bank should be left to ensure this. However, I do believe the government should change the unfair tax laws in regards to investment property. If interest payments and depreciation are tax deducted, the property is used for commercial gain and there for any capital gain should be liable for tax. This would discourage speculators and ease demand and price pressures, especially on the lower end of the housing market, where first home buyers are trying to get a foot in.
Gerald (Auckland)
Just increase the 15 per cent non-resident tax. That will reduce the foreign investments and give the power back to the NZ government.
Austin (Kaiapoi)
The Government has the housing market back to front. For low income earners and first home buyers they should allow mortgage interest to be deducted from their taxes. They should also be allowed to claim for depreciation. The way it is the fat cats with second homes can claim for rental properties - a deduction for mortgage interest plus claim for depreciation which is in essence an interest free load from the government. The capital gain is tax free. The government then tries its usual bottom of the cliff approach and offers income assistance etc to low income earners. The inflation can be controlled by the government instituting a capital gains tax on second properties, abolishing depreciation allowances and not allowing a deduction for interest payments on these secondary houses.
Geoff Davies
Cullen should take measures to cool the housing market by means other than interest rates. For example, require a certain percentage of a house price as a deposit if the house is being bought as an investment. Also he could make a few changes to the laq trust scheme as this has become just a tax dodge.
Alex (Japan)
Firstly, Cullen has a poor command on the exchange rate. The NZD did not pause or fall following his clumsy speech. No, as things are setup there is very little he can do except cut spending. Govt spending is not something you can turn off and on like tap water. Is the NZD really overvalued? Perhaps it is, but then so is the Euro, the Pound and many other currencies because the USD is so weak! Even if we pegged the Kiwi to a basket of currencies it would still be high - perhaps in the mid-70s against the USD? It wouldn't stop the carry trade. But the real problem is inflation. The Reserve Bank needs to figure out what prices are rising and why? If the housing market is the problem - then the govt must legislate to dampen the price rises. They don't know what to do - and that's why Cullen made his daft speech. That is unnerving, although counter intuitive. I think the govt should build apartment buildings in Auckland financed by that foreign capital and put controls on the purchase of land/houses by foreigners. We should use their money to our benefit to build things we need and prohibit foreign purchase of second and third homes in NZ.
Buy Kiwi$
The thing that surprises me most about Dr Cullen and his partner in crime, (dozy duck), have done in making such a noise about section 12 of the Reserve Bank act is to now make the level of the kiwi dollar, interest rates (and thus mortgage rates) and the plight of NZ exporters as much a political consideration as it is economic. Dr Bollard will use his best efforts to gain some control but Cullen has now assumed ultimate responsibility for the results if things go bad.
If he does act, then was he right to?
If he doesn't act, why not!
He has usurped the independence of the Reserve Bank merely by drawing attention to these powers. He has given the hedge funds and carry traders a political as well as economic angle to attack the kiwi dollar, handed the opposition parties a large stick (interest and exchange rates) to beat up Labour with when they are already behind in the polls and not that far out from an election. Well done that pair of buffoons!
Timothy Marshall
The Bretton Woods accord that collapsed after World War 2 (where currencies were all pegged) was only meant to be a temporary situation. Instead today we have an infatuation. Quite simply the market is not always the most optimal way to allocate resources and do business. Companies perform better than the market because humans work together and dynamic when the short-term profit motive is discarded for long-term dynamisms. In a similar way our economies overvalued currency shows how the market fails. Today's highly mobile capital is dangerous. Capital flight can occur within hours. Take a look back at the Asian Crisis. I could go on to talk about the failure of the World Bank and IMF here and their obsession with freemarket policies (although their poster child - China does not operate in a free market and is communist with a majority of production done by the state). What I will say is that the way the world evaluates the market needs to be rethought. Perhaps inequality is increasing between the rich and poor. Remove China out of the equation and it certainly is. Perhaps the market shouldn't the market and hot capital shouldn't determine our future.
Mike (Auckalnd)
What is really happening here is a breakdown of democracy. Dr Cullen has many options at his disposal to help reduce inflationary pressure such as, cutting immigration, cutting government spending, bringing in capital gains tax or other capital controls. He cannot use these tools however because of the looming election next year. So this is where democracy fails. Dr Cullen should be acting in the best interests of New Zealand and our people, not in the interests of preserving his own job. I say bring in five year election terms so that any government can have a decent chance of implementing tough measures for the greater good of New Zealand.
Raj Subramanian
The blame is on successive governments, not the Reserve Bank. World has taken a full circle on views about government expenditure. Western countries are cutting taxes thereby indicating they are prepared to concentrate on their core activity. Here I understand we got a small economy. But, still government's lack expertise of managing total macro economy of the country. That is why when Government takes 39 per cent taxes they are controlling 39 per cent of the economy of the country and leaving only the remaining 61 per cent in the hands of private sector. Add that to the 12.5 per cent GST. It comes to 51.5 per cent. Add property taxes, custom/excise and other duties and it may exceed 60 per cent. Private sector control only 40 per cent of the economy of this small economy. New Zealand is not different from the other nations till 5 to 10 years ago. But any NZ government should understand the global trend before it is too late. It is a fallacy to think that higher taxes bring in higher taxes. Contrary to that was proved in many countries including 198-1990s India, and current USA. By lowering taxes they are getting more revenue, because of expanded business activity. It will be short term thinking for Finance Minister to intervene. Let him try other options of currency pegging to basket of currencies or Merger of currency with Australian dollar, announce a time frame for cutting taxes substantially, leave the main objective of Reserve Bank as inflation control and allow a .5 per cent allowance up to 3.5 per cent. Encourage private entrepreneurs with the Kiwi saver money to start ventures on the models of our own successful industries. Government did well in the headline rates for companies. But a lot to be done, done fast, started immediately.
Michael Dunshea
I don't think the Government should alter the Reserve Bank's primary price control objective. However, I do think they should consider other tools to help the Reserve Bank achieve that goal. My understanding of monetary policy is that is deters us from spending by making credit more expensive, spending is curtailed, relieving pressure on prices. Why not use a fiscal tool to constrain our spending. Cullen has suggested a surcharge on mortgage rates, but that unfairly singles out just one group of consumers. How about a much wider tax base, give every taxpayer a kiwi saver account and alter the deduction rate to dampen down spending. It's not even a tax just forced retirement saving.
Oto
This may be a simplistic view, but it seems to me that the property boom is being fueled by borrowing foreign money which has been invested in New Zealand.
As interest rates rise, more investment money comes into New Zealand, pushing up the exchange rate and inflation. If interest rates were lowered then this foreign money would leave New Zealand. There would then be less liquidity to feed the borrowings of the property market, thereby slowing its assent, reducing interest rates for the remainder of the economy, reducing overall inflation and lowering the exchange rate at the same time.ie - we would be living within our means and using New Zealand's money to grow New Zealand.
Edward
Now, this call to curb another interest rate hike makes a lot more sense. It's what NZ needs urgently. I shudder when I read about opinions that the official cash rate must continue to rise in order that the NZ$ will depreciate and only then will inflation be brought under control. If that is what it takes, the NZ economy will go into a tailspin recession from which it will be very painful to extricate. As we have repeatedly seen, higher OCR pushes up the NZ$ and causes more harm to the export sector. It increases consumption of imported goods, encourages more travels overseas, and ultimately causes more inflation. Higher OCR also increases financial costs, discourages active business investments, curtails employment. Any which way you look at it, the NZ economy will suffer. If other developed countries can avoid pushing up OCR, why can't New Zealand?
JD (Auckland)
NZ no longer has control over its political gender but is governed and influenced by overseas puppet masters of a more powerful origin.we are just the meat on the barb for the likes of world bank,new world order and g8.communism is coming back . Let's celebrate that after all its about global control and you can't have that if we are a country of civil liberties.
A socialist capitalist
Quote from:
Johnny (Lower Hutt):"Show me a caring capitalist and I'll show you a vegetarian wolf". Bill Gates and Warren Buffet just to name two.
OK your turn..show me 2 vegetarian wolves!
Japan
In regards to what Earl Mardle said that the NZ$ was just following the trend of the slumping US$.Have you seen the charts for the NZD? Against the Yen it was 45Yen to a $ 6/7 years ago. Now its 98yen to a $. It was 40UScents for 1NZ$ Now its 80. If this isn't soaring I dont know what is!
Michael O'Meara
This Tory yank is probably the same person that told NZ to have a free floating currency in the 1980's when he worked for president Regan and now its not appropriate in his eyes. Why doesn't the government make the NZ dollar less attractive by using a Tory idea like "Think Big" and waste NZ taxpayers dollars by investing in essentially useless projects like say a tunnel to the Chatam islands.
Austrokiwi (Vienna)
NZ's finance minister is revealing his socialist spots. Unfortunately he appears to be following the example of Sir Robert Muldoon and wants to take political control of the economy. Unfortunately too many people have forgotten or not even experienced the days of a "planned economy" that was typified by the wage and price freeze of the late 70's and early 80's. Therefore they have no understanding of the damage to NZ Dr Cullen is threatening..With the smacking bill, defacto regulations on what children can eat at school will Kiwis resident in NZ soon be told where they can live and what jobs they must do. National might 'find they are justified in pulling out the cossacks advert out of their archives for next years election.
Russ
Michael Cullen should put his hands in his pockets and keep his mouth shut, he has already done enough damage to this country. He will go down in history as being more fiscally reckless that Sir Robert Muldoon. We are now firmly in the grip of global bond markets, we cannot reduce demand on our high interest rates. Checkmate Dr Cullen - what now?
Atwade
Why blame the banks? They operate like any other business to maximise their profits, and have naturally taken advantage of loose monetary policy over recent years to increase lending in the residential housing sector where, compared to business, risk assessment is straightforward and security excellent (except where LTV ratios are excessive.) The present situation has been caused by a power crazed Prime Minister heading an increasingly desperate dministration overpriming the pump. Unfortunately for them the economy is peaking too early and may well turn to custard before the election.
Fearless (Auckland)
Re the exchange rate, a couple of points need to be made. Firstly, all we hear is the cross-rate against the US dollar. Against the Australian dollar, we were nudging 92 cents a decade ago. Secondly, the US dollar is at an all-time low against major world currencies - Americans are complaining about the cost of travel for the first time in years.Yes, our trade prices may well be defined in US dollars, but with the degree of hedging undertaken by primary industry, and all-time highs in commodity prices, are we really in a "death spiral"? By all means let's see interest rates fall - in a small economy where cost-plus (sorry, "user pays") monopoly or duopoly pricing is the norm, interest costs are a significant burden - for businesses and householders. Let's drop interest rates, bring down costs, and if the dollar falls so be it - and then you'll have importers, not exporters, squealing about falling margins. In the end, does any of it really matter?Muldoon turned us into a nation of amateur economists. Yet the most fun is to be had in countries whose economies are anything but S&P- and Moody's-approved. We take it all a bit seriously. Don't worry, be happier.
Ian Morine
It is obvious that Bill English (another ex National Party leader, now deputy and finance spokesperson) is more concerned about the welfare of his "currency speculator" mates, than he is of his "Kiwi constituency", with his unwavering support of the outdated, "prehistoric" and useless Reserve Bank Act (only days ago, English stated that he would reduce the level of National Superannuation if he became Finance minister next year !). Does Bill English have a political "death wish" and why did they install this man as the Nats Finance spokesperson ? Even "conservative" Dr Cullen is admitting that the single-minded focus on inflation that Roger Douglas installed in 1985 must change to reduce interest rates and the value of the NZD, reducing the pain for the income earners of the country - exporters - and rebalance the economy!
Ryan
Cullen is right. The RBNZ need to keep prices stable. But they cannot do that with an out of control exchange rate. Such a small economy get whacked around more by its exchange rate than by its domestic controls. Mr English does not understand the implications. He is just opposing for arguments sake and needs to get a grip on our current global liquidity issues.
P.Blake
Rob Muldoon pleaded with David Lange not to float the NZ dollar,the rest is history.
Phil
It has been apparent for over a decade through two governments that the relationship between demand for money and the cost of money supply is not the nice little curve that theoretical economists portray. Secondly an increase in demand will put pressure on supply and force the cost of money up but increasing the cost when that is inevitably accompanied by an increase in supply will not reduce demand in the same way. There are many reasons for this, not least of which is that lenders are finding other ways to reduce the cost of borrowing as interest rates increase. For example free banking facilities must be worth a couple of percentage points to many borrowers. Inflation can cause problems but so can other issues. Finance policy is always run on the basis of the last war the economists fought. They used to make full employment the number 1 priority after fighting the depression. Now they make inflation the number 1 priority after fighting stagflation. This is lazy and uninmaginative policy-making.
Andrew
I wouldn't want my currency pegged to a bankrupt and politically unstable state like the US. The NZD's value has just as much to do with USD weakness as it does NZD strength. If we produce quality goods that the world wants, which we do, then we should still be able to compete even at higher exchange rates as markets will pay a premium for the quality of our goods. A lot of New Zelander's are also benefitting from the strong NZD as imports (including oil!) are cheaper. But of course we are more competitive with a lower dollar. Cullen is right at this time to remind the market that the Reserve Bank's monetary policy can be amended by government. Personally I would be in favour of the Reserve Bank having a wider remit than just inflation - and this would not be out of line with other Central Banks like the Reserve Bank of Australia where the currency and employment levels as well as inflation are also taken into account.
Wal
Its ridiculous to contemplate a peg to the US dollar.A better idea would be to seek safety in numbers ie to become the seventh state of Australia. At the moment being such a small country with such a small economy you are leaving yourself open to market manipulation. We would have a common currency and you could keep your national rugby and netball teams. It would also enable kiwis to attain a higher standard of living.
Kit (Christchurch)
It seems that New Zealands "Regulate the Econmony" tool kit has one tool. It's always home owners and businesses that end up suffering increased interest rates, causing hardships to ordinary people and increased profits for banks. Why can't our Government just remove our ability to increase inflation by applying an immediate inflationary savings tax and channel this additional personal "inflationary savings tax" (for want of a better word) into our a separate personal retirement or superanuation (can't be accessed till your retire or die)fund.If this is not possible for goodness sake at least we could direct our hard earned additional inflationary sacrifice to some deserving causes (or sick health budget for example.) Just don't gift it for goodness sake to the bottom line profits of banks - don't they earn enough already.
Prema
Soaring New Zealand Dollar, high interest rates and high property markets are created by speculators, be it real-estate agents or bankers. Well! Common sense says that if interest rates rises investors will definitely put in their money and NZ dollar will soar. Strong NZ dollar will make imports cheaper and carnage of exporters. Due to high interests rates too much money will accumulate in the banks and they are used to fuel the property markets. Greedy foreign investors in hands with local real-estate agents and bankers cream the property markets leaving the NZ citizens high and dry. As mentioned in an article in NZ Herald, economy is on dead spiral. So what's the solution to this mania? If I was in Bollard's or Cullen's place I would drop the interest rates to below the Oz and clamp down on property market. Crack down on all the real estate agents who put Flyers in post box promising high price for their house. Many agents I spoke with often says "Owners are overseas". Who the hell are these owners who are enjoying tax free profits at our costs? Can anybody explain?
Ian
Cullen has been in power far too long.He along with Clark have lost the plot. Just take a look at monetary, growth and inflation policy of NZ under their watch and compare it with Australia and you see that they have squandered 5-7 years and put NZ behind Australia by the same amount. I'm afraid he or she are no longer qualified nor responsible enough to be on governing positions. I'm afraid it is going to be along time till Oct/Nov 08 when the country can have it's say and see these too and all their merry men and women off. Meanwhile we all suffer, the country gets further and further behind where it should be, and they hang onto power like parasites. The real shame is there is no team within Labour to roll them which is another sad incitement on the quality of people in Labour. They can't even deal with their own issues internally and are lame ducks. And these same twits are writing the election funding legislation, talk about insider trading. Surely such legislation is a multiparty issue. NZ needs some check and balance mechanisms on politicians, parties and governments. An election every 3 years is obviously not working.
Grant
Sorry weren't the Nats saying a little while ago that the Labour Govt should step in? Now the Govt is stepping in Nats's are saying don't step in.
Edward (Auckland)
What a fool. If Cullen wants no one to invest in New Zealand for the next 20 years, all he has to do is intervene in the dollar.The dollar is a symptom of the Labour Government's wildly excessive overspend. Central and local government are budgeted to spend $73 billion this year compare to only $43 billion five years ago.This has led to an economy fueled by consumption, not production. All this money, huge surpluses and is the health system any better, have enough houses been produced to meet demand, no, no and no again.It really is your fault Dr Cullen.
D.Gray (Waiheke)
Cullen needs to check that the Reserve Bank statistical information is not incorrectly analysed. Borrowers borrow money to keep their businesses going and also to buy other currencies while our dollar is at an artificial high value.Overseas investers are buying NZ property and borrowing from local banks on short term loans. When the NZ dollar falls to more realistic levels they will refinance from overseas and make a saving on the property the equivalent of the level of the fall in value of the NZ dollar.The high value of our dollar makes imported goods cheap so then people are tempted to buy them, it makes NZ- made goods uneconomic to produce so the business goes broke. The only people making any money are the currency speculators. This all could be sorted if the interest rates were reduced, it would trigger a fall in the value of the our dollar,the speculators would be gone overnight,our manufacturers could try to survive, at least with a fighting chance.The reserve bank is bankrupting this country!
Steve
I do wish people would stop saying the NZ$ is over valued - it is valued by the market, not Michael Cullen, Alan Bollard or anyone else. Its value in a free market, by definition, is exactly right. The market values our $ based on a whole range of factors which economists can bore you to death with but the bottom line is Cullen, or anyone else for that matter, can't talk the $ down. It is, in the medium - long term, only a change in economic fundamentals that will materially change the value of the $. The government needs to address government spending, competiveness, the RMA (free up more land for development faster) etc. The kicker is means less not more government, which is an anathema to a socialist government.
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