Posted by MT from his Soapbox

Another week and the headlines have been dominated by the financial woes of a small, remote storm-swept island….yep NZ and Iceland have more in common than most Kiwis would like to acknowledge. It’s a little known fact that NZ actually led the world into recession at the end of June (GDP has already fallen 0.5% in the first half of this year). Well we do like to be first.

The reason why is painfully simple; the average Kiwi is spending a dollar and twelve cents for every dollar they have earned. As students of the Micawber principle will know, this inevitably leads to an unhappy ending.

So what has the money been spent on ? Houses. NZ has no stamp duty, no capital gains tax and loses incurred on property rented out can be written off against income tax. End result – what the IMF reckons is the third most over valued housing market in the world (behind Spain and Ireland).

There is something of a correction underway, house prices are now tanking (down over 5% in the last three months), but it still has a way to go I suspect.

This all wrecks havoc with the currency. Since the advent of the euro and other countries pegging currencies to the US dollar, the poor Kiwi dollar is now one of the smallest major currencies traded globally. Ripples in the exchange markets in London and New York are huge waves by the time they hit NZ.

Last week alone the Kiwi dollar bought anything between 55 and 65 US cents, a huge range in five days. This makes it very difficult for small to medium companies to trade off-shore. It also means more $100M a year is spent on foreign exchange costs, much of it for trade with Australia. And it plays havoc with the tourism industry.

There is a very strong case for currency union with Australia, which comes up for debate from time to time. After all, Sydney is closer to Auckland than it is to Perth. Whether the global meltdown is finally the trigger to make it happen, we’ll have to wait and see.

You may not be entirely surprised to learn that little of this has come up in the election campaign, though John Key is finding out that making a fortune as an investment banker for Merrill Lynch is maybe not the best CV just at the moment.

The polls which were showing a National lead of over 10% at the start of the campaign have narrowed to between 3 – 6 %. 26 days to polling day.