Who’d be an economist? Are we about to boom, or straight to bust? Are house prices starting to tick up again, or about to plummet? Is NZ in recession, or have we avoided it? Despite there being an entire industry dedicated to ‘reading the tea leaves’, we are often provided with evidence that those who supposedly ‘know’ what’s going to happen, really have no clue.
But it’s not all their fault. If economics is a science (debatable), it’s a social science. Which is to say, it’s affected by humans, and we – the humans – screw up the ‘sciency’ part. For example, prior to an election, economic activity slows down while we wait to see who gets into government next. Then, irrespective of who gets to hold the baubles of power, economic activity picks right back up, as if by clockwork. So, if the economic activity is going to pick back up irrespective of who gets into power, why does it slowdown in the first place? Because: humans.
Compounding an already complex situation is a greater level of economic headwinds and tailwinds than usual. But here’s the thing; if you’re reading this then odds are, you’re not in a position to meaningfully affect the course of the economy at a national level. It’s a bit like the weather, all we can do is hope for the best and prepare for the worst. This is a nice way of us saying “suck it up and play the hand that you’re dealt”, because in reality, you don’t have much say in the economic conditions.
So, if you’ve got debt, be prepared for increasing rates. If you’re in business, put your best foot forward. And importantly, be choosey about which ‘experts’ you listen to! Of course, if you’re feeling stuck, please, get in contact.
Tax and incentives
With the election cycle comes the usual ‘lolly scramble’ of tax measures. This time around, both sides of the political spectrum have presented poorly thought out (and even more poorly priced) policies that are bound to have perverse unintended consequences. We’d love to see a comprehensive overhaul of tax legislation, but it looks like we’ll be waiting at least another 3 years – and based on the current crop of politicians of all stripes, probably much longer.
Here’s one of our issues, it’s a question of incentives. Take Working For Families for example. It’s a system that works well for families that are completely static in their circumstances –particularly their income and the hours that they work. Unfortunately, for many that rely on Working For Families, their incomes and hours they work are anything but static, in which case, it turns from something ‘helpful’ into something punitive. Alarmingly, in certain circumstances, the combination of increasing tax rates and abatement of working for families can lead to an effective tax rate in excess of 60%! Once that happens, the recipients can find themselves in debt to IRD as these credits get clawed back. Here and here are couple of examples.
While in theory, it’s a helpful system, in practice it can end up harming those that it is supposed to help. And this is just one example of perverse incentives driven by the tax system. So, if you get cornered by a politician out campaigning, ask them to stop messing about on the fringes and go for some proper tax reform.
Incorporated societies act changes
Finally, if you’re involved with a club or society, some changes to the Incorporated Societies Act will likely affect you. We’ve written to clubs for whom we prepare annual accounts to outline the changes but if you’re involved in a club and want to know more, get in contact.