Land Tax rears its head at last

Yesterday Arthur Grimes, the Reserve Bank Chairman, raised the possibility of a Land Tax to help lower Income Tax as well as a rise on GST.

I’m stunned. It’s rare that proposals like these ever see the light of day and even then receive due merit and attention. It’s a fabulous idea as those who have been advocating this for many years an attest to. It’s good to see it has been picked up on some local blogs.

The concept of taxing resources and consumption as opposed to labour is extremely sound and progressive. This approach has major benefits in several areas: social, economic and environmental.

It does not penalise work, it promotes it.

It is easy to collect and probably easier to monitor.

It focuses attention on consumption and management of resources which we know will be a challenge in the future.

It promotes the efficient allocation of land. A common tactic in many cities has been to sit on vacant land in order to drive rents higher. A Land Tax may deter this type of hoarding.

Whilst it is unlikely to make much headway now it is hopefully the start of a bigger debate on how we should raise revenue for the government.

Sooner or later people may realise that the government can simply raise revenue by issuing interest free money but that’s probably for another day

Any land tax reformers out there please make yourself known.

Guilt Trip: Travelling in the 21st Century

Leo Hickman, a Guardian columnist, published an interesting book called “Final Call - In search of the True Cost of our Holidays”. Its reviewed here and I’ve made a few comments on it.

Eco tourism is all the rage these days and rightly so. We should always consider the impact of where we go and what we do. But as consumers of goods, services and exotic holidays we expect the price to reflect the cost of what we are paying for. If it doesn’t is that our fault or problem?

Well that’s where the consideration or “ethics” of your decision comes into play. I’m in favour of travel as it expands the mind. body and soul. It allows us to gain a different and newer perspective on the world. But do we dare look beneath the surface as Leo has done?

I’m reminded of the excellent Stephen Frears film “Dirty Pretty Things” about the  immigrant workers who keep London going at night whilst people sleep easy. Crap working conditions for service staff are nothing new so why should it be any different on holiday?

What should happen is that people get paid proper wages and work in decent conditions. Then it’s up to them whether to take a job or not. Madeleine Bunting deals with this issue quite well in her book “Willing Slaves” which also looks at the guest worker phenomenon.

My interest is more in the environmental sphere. Simply put we should be paying the Trucost of our activities. How we get that is a bit trickier but doable.  I’ve looked at this before and having been to the UK recently its clear that this issue is center stage.

We must move quickly to connect external environmental costs with the pricing mechanism. Once a cost has been calculated (carbon, nitrogen runoff, water) then that cost gets added in at the point of extraction, abstraction or manufacture. The EC (external cost) flows back to an Environmental Contingency Fund where it sits (in sovereign bonds) until it can be put towards paying for the exact cost that was incurred, whether that is planting some forests to sequester carbon, cleaning a river or fencing land or implementing new water management processes.

As much as we would like it to be, it isn’t (as yet) an exact science. But it will alert consumers to the true cost of the good and allow them to make more accurate purchasing decisions.

Then maybe we can actually enjoy our holiday instead of worrying about how much damage we’re doing to “the planet”.

Fed readies for another cut as markets hit and hope

As the Fed prepares for another rate cut, probably 25bps, possibly 50, markets are resilient in the face of what is still a horrendous credit meltdown. With Merrill Lynch reporting a monumental loss last week, it is clear that banks are still clearing away the debris of the last few months and the real impact may not be felt for some time.

Never mind the jokes (you can’t bail out anything with a siv)around the Super SIVs: the great $100bln bailout plan hatched by some genius to support the market. Similar to the rescue plan post LTCM crash, it basically involved the market coming in to buy its own distressed assets. Liquidity is the mantra but holding up the market is the reality.

Everything is under water so its a game of smoke and mirrors. As I’ve said before its a rational response to a difficult situation. The social impact of a complete financial crash is not something anyone wants to see but the longer we put off the necessary surgery the worse it will be.

The credit bubble of the last 15 years is over. The balloon has too many holes in it and its a waste of time pumping more air into it.  Satayjit Das, author of Traders, Guns and Money lays it all out in this paper. Its worth a read.

Remember remember the 5th of November

I finally got round to watching the film “V for Vendetta“. Shades of 1984 and more recently Children of Men. It’s quite topical given the current issue of domestic terrorism and how to deal with it.

In New Zealand we are still experiencing protests against the mass raid on people suspected of unlawful activities under the Supression of Terrorism Act. What constitutes terrorism on a domestic scale? And more to the point how far can the authorities go in their protective capacities?

This is not an easy question to answer. Intelligence services are meant to forewarn and forestall any action against the State. This will always lead to a presumption of guilt even though an act may not have been carried out. This leaves a bit of a vacuum in the traditional legal process of innocent until proven guilty.

The authorities are stuck in a tight spot here. Blamed for not preventing an attack and blamed for arresting innocent people.

For activists of a more moderate nature this presents potential pitfalls. How far can you go? Certainly for activists with a bent for civil non-violent disobedience this can put them squarely in the firing line.

It seems to me that New Zealand is better than most. At least the media, with their general liberal bias, have no problem in reporting openly what takes place. In the US this may not be so easy. There is considerable concern over the loss of civil liberties and privacy for even the average citizen.

There’s no easy answer. That’s why governance and participation in the democratic process is so important. As long as there are clear sanctions against governments and those in power, through the ballot box, and freedom to air grievances then there is a balance.

However, when fear takes over then there is a big problem. If this is really happening in the US then one can only hope for some change and for the issue to be aired openly in the electoral debate.

Fear and freedom have a lot in common. You cannot be free if you live in fear.  Whilst I think we are still fortunate in NZ in our openness we still need to keep an watchful eye.

Meanwhile be careful out there on the 5th November

Managing our well being with a little help

Obesity, alcohol and smoking are 3 serious health issues that many countries are struggling with. A rather interesting and challenging proposal has been put forward by Julian Le Grand, a former Blair advisor, which has been dubbed as “libertarian paternalism”.

It’s kind of kooky but has some merits once you wade through the initial reactions. The idea of getting a permit to smoke is not likely to win much support but what it does is create an extra layer in the choice process. If we assume that people are not rational actors (opposite to received economic theory) then asking them to consider the choice before they make it may have some merit.

This is a similar approach that I have often thought might work with drugs, namely that you have to apply for a permit to gain access to the required drug from a doctor. Implicitly this means rocking up and saying yes i’m an addict and a need a prescription. You then get your drug for example heroin, which would be pure and therefore less harmful, from the medical authorities.

We know what a healthy and balanced lifestyle looks like but for many that is a pipe dream. Could this proposal help or is it just another bad idea with good intentions?

G7 get jiggy on the Yuan

The G7 communiques are out (i can’t find a link at the moment as i have it direct from a trading platform) and there is one clear story and several cloudy ones. The main thrust is that they would like to see the Yuan quicken its appreciation. Well looking at China’s trade surplus that’s pretty obvious. One only has to remember the famous Yen “endaka” from 1971 to 1995 when the $ fell from 360 to just below 80 Yen.

How far will the Yuan rise is anyone’s guess. The day it floats and becomes fully convertible will see a huge increase in volatility and speculative financial flows. However a floating Yuan would actually be beneficial in regulating global imbalances in trade and economic growth.

The Chinese are well aware of it and are probably not minded to open the doors to the Magic Kingdom just yet. They hold the balance of power at the moment and wont be pushed until they are ready. Still continued pressure will eventually tell.

However, it’s not just the Chinese getting a telling off. Some mention has been made of Asia as a whole and of course this refers to Japan. Whilst there was no specific mention of the Yen this will certainly not be lost on those with substantial short yen positions. There was mention of an improving economic situation in Japan and that exchange rates should reflect fundamentals.

The risk inherent in global carry trades was mentioned specifically by Juncker (Luxembourgs PM) saying they wanted the market to be aware of the risks of one way bets, specifically in the foreign exchange markets.

Paulson (US Treasury Sec) mentioned clearly and loudly that the US believed in a strong dollar. Added to that were moans from the ECB crew about the strength of the Euro and how they were bearing the brunt of $ weakness.

The Canadians jumped in on this wagon too noting the Loony is now 3% stronger than the Greenback. Strange times indeed.

So what does all this mean. Well for me it could means the $ depreciation is nearing an end or at least getting into the red zone. From a market perspective i would say NZ/Yen is due for more pounding (back below 80 again) given this is regarded as the major one way bet in the fx markets. The Euro may reverse back to 1.35, the C$ back above parity and the A$ probably could do with a small dusting (maybe down to 85cts).

Stocks could also get pounded this week. Who knows? It’s not a week to be hugely long and comfortable.

FX rates are elastic things and when they get stretched the bounceback (as we saw in August) can be pretty fierce.

P.S. Others may interpret the communique differently so feel free to give me some of your views.