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Tuesday, July 26, 2005

Death (of oil) and Taxes

I got sent this link today (pdf file - about 750kb). A thorough, rational appraisal of the different methods of assessing EUR and the date of peak oil. Best of all he is a fellow New Zealander, and therefore a top bloke.

Now for the taxes part...

We are two months out from a general election here in NZ, and while it doesn't attract the same febrile panegyrics and excoriations as an election in the States, there is the usual amount of obfuscation and bribery.

The central issue (it must be the central issue because that is what the two main parties are telling us) this time around is tax. The incumbent Labour party has had the good fortune to hold power during a period of particularly sunny economic weather for the country; high commodity prices for our agricultural produce, a good immigration rate and relatively beneficial exchange rates. They have been running a reasonable surplus, which they have been using to retire debt and save for a rainy day.

The opposition party, National, led by the former Reserve Bank governor (our version of Alan Greenspan) have promised that they will give all and sundry a tax break. This tactic was partly inspired by a dead-fish budget which had been rumoured to include tax relief, and which has now been dubbed the chewing gum budget because it offers the average wage earner 70 cents or so a week in three years time.

Now, I don't really care who gets into government, but I really do hate to see a former central banker lying through his teeth about economic matters (you'd think I would have got used to it by now). He knows perfectly well that whatever surplus is present at the moment is going to evaporate in the face of a falling exchange rate, rising energy costs and the end of the bull market in property.

And he may well say that neither he nor anyone can say exactly what will happen in the future, and he may spin some supply side fairy-tale about tax cuts stimulating the economy, but he cannot deny the demographic reality we face. Like all western nations, New Zealand is staring down the barrel of increased social security (particularly health) costs, as the baby-boomers reach retirement age.

The amount of shortfall we are facing would shock some people, I would have thought, but the message is just lost in the noise. So I have to sit here and watch political parties that are dominated by that very same generation argue over whether we should have one last hurrah now or wait to spend it all later. It makes me sick.

Interestingly, two well respected commentators have expressed the opinion that whoever does get into government may well have really lost as we confront the reality of stormy economic times. Racing for second place, as one of them put it.