The Chinese Curse is Upon Us

The Coming Tax on Agricultural Exports

When economic times get tough, venal governments tend to do stupid things. Throw into the mix falling polls, a looming election, and a predilection for cynical manipulation and anything could happen.

We believe the “ride” this year will be a case of “living in interesting times”—to employ the phrase of the ancient Chinese curse. The Labour-led Government is facing its first real test of economic harder conditions. For nearly nine years it has sailed before winds of a remarkably benign economic environment. It has cynically worked to turn this benefit to its own political advantage, to line its own pockets, sacrificing the longer term good of the country and its people. Now the jig is up.

Throughout the more benign years, the Government has deliberately taken the opportunity to become more centralist, more statist, and more intrusive than any previous government in New Zealand's history. It has taxed more, charged more, spent more, regulated more with a deliberate (and acknowledged) strategy of making itself the “natural” party of government. The more people it can make suck off the government tit, the more it can create a political constituency that believes it needs government assistance to survive, then the more the electorate becomes dependant (economically, socially, psychologically, and spiritually) and can be expected to vote accordingly. The god of government has consequently come to resemble a vast swelling Jabba the Hutt—a huge slug, feeding off its dependant slaves.

But when times get tough things can go awry—and quite quickly. An electorate that has been carefully groomed to rely on the Slug providing can get very angry, very quickly when bread, milk and cheese become too expensive. It is precisely during such a period as this that we can expect the Labour-led Government to flail in desperation.

We at Contra Celsum expect that these desperate times will produce some really desperate measures from the Slug. What is likely?

Here is what we believe will be being “hatched” right at this moment in the Slughive. (Please understand we are not insiders—but truth will out, and the Government's patterns are far too well known. It will be thinking and acting in character.)

Any time soon, the Government will announce a special tax will be levied on agricultural exports. Fonterra and dairy farmers will be the real target. Funds raised from the tax will be used to subsidize the price of food staples (bread, milk, meat, butter, cheese, etc). This targeted taxation will have a number of beneficial political spin-offs.

Firstly its political damage will be minimal. It will offend the agricultural sector—but that sector no longer carries large political clout. Given the list vote, and the swelling urban population, political power has moved to the major cities. This policy will buy huge numbers of votes and only an irrelevant sector of the electorate will pay. There is absolutely no political downside.

Secondly, it will demonise a segment of the population—in this case, dairy farmers—in the time honoured way that New Zealand has done for decades. Dairy farmers and Fonterra are the latest “tall poppy”; they are extracting windfall profits; they are benefiting from the suffering of others. You can see how it will so easily be spun, because it is appealing to that most basic venal instinct of a statist culture—envy. “Ah, yes, dairy farmers—you owe this tax to us all. Pay your dues you bloated leeches! We need to eat bread—and, oh, yes, buy the Lotto tickets and the beer.” We believe that the vast majority of the electorate will believe this tax is fundamentally equitable. It will ensure its popularity amongst the chattering classes. Institutionalised envy harvests many, many votes.

Thirdly, it will show that the Slug really does care for its slaves, and is working creatively and energetically (if that is not an oxymoron) for the “ordinary bloke.” NZ First will back it to the hilt. Again, no political downside.

Fourthly, imagine how it will be used to prove the Slug's green credentials. Dairy, after all, is our worst polluter. It contributes significantly to greenhouse gases (remember the Fart Tax proposal). This will help restrict the untrammelled expansion of dairying by greedy capitalist farmers and would-be farmers who are lining their own pockets at the expense of humanity and the environment. The Greens will applaud.

Sound far-fetched. Well, no. Governments are under pressure all around the world to bring down food prices. A growing number have introduced taxes on agricultural exports. Included in the list are: Cambodia, Indonesia, Kazakhstan, Russia, Argentina, Ukraine and Thailand. They have all applied taxes on agricultural exports in an attempt to increase domestic supplies of food. (The Economist, March 27, 2008). It is only a matter of time before a similar measure is proposed in New Zealand. All we need is Sweden added to the list, and Bob's your uncle. Electoral desperation makes it all the more likely it will be rammed through very quickly.

The Economist goes on to describe how destructive these measures really are. Firstly, they increase the global prices for food by restricting the supply on global markets. Prices ratchet up faster and further. Secondly, they reduce economic incentives for farmers, leading to less production overall. Food shortages grow worse. Potentially productive land is left lying unfarmed. Again, prices rise further.

The more prices rise, the greater the incentive to hoard. Supply reduces still further, prices rise yet again. According to The Economist, “The more prices rise, the greater the incentive to hoard, which creates an upward price spiral. Across Asia, restrictions on the export of rice have helped increase its cost on world markets by about 75%. . . . Meanwhile, there is talk that importers, like China and Japan, are stockpiling rice to safeguard supplies.”

Taxes on agricultural exports have the effect that all taxes have: what you tax, you get less of. A tax on agricultural exports in New Zealand will be like throwing high octane fuel on the fire. It will make the cost of food rise further, requiring more subsidy, more taxes, more government spending. Our most productive industry will be weakened. Everyone will be poorer overall.

David Lange once said, famously and fatuously, that he could not support an economic policy which had the effect of increasing the income of everyone, but which widened the gap between rich and poor. Envy indeed.

In the face of harder economic times, we are about to see another take on Lange's doctrine. We believe Labour is deliberately promoting economic policies that will have the effect of making everyone poorer, but at least the rich will be less rich. And it feels better about that. It is already well down that track with its barmy carbon trading scheme and with other anti global warming “initiatives”. A tax on agricultural exports will be the next logical step.

But, hey, these are mere trifles amongst friends, as long as the Slug is returned to the Treasury Benches.