Labour not buying govt's tax cuts line

The Labour Party is ripping today's Budget apart before it has been delivered, and it doesn't buy the government line that the tax cuts are a fair deal.

Prime Minister John Key says "really wealthy" people will probably find themselves paying considerably more tax because of changes to the property regime and the closing of tax avoidance loopholes.

Finance Minister Bill English says that "by and large" the high income earners will be paying higher effective tax rates on property.

"National is in overdrive hyping up this budget as fair for all and nobody loses out," Labour's finance spokesman David Cunliffe said

"Tell that to someone on $40,000 or $70,000 who are going to get $5 a week maximum out of this budget - and that's before you take into account their rent going up or those sneaky little price rises that come in on the back of GST, or the downstream inflation that causes."

Cunliffe said people are going to find out that someone on the prime minister's salary is getting an extra $350 a week, and the top private sector chief executives are getting $2000 a week more.

"Kiwi fairness is about spreading it around and allowing everybody to get ahead, not just the guys at the top getting further ahead."

Cunliffe said he didn't believe the government's claims that wealthy people are going to pay more tax.

"The main hit is only through rental property, and high wealth individuals don't get all of it from property income," he said.

"The fat cats with the corporate trusts won't be hit."

In Parliament yesterday Key faced questions from Labour leader Phil Goff about why people shouldn't envy rich people who are going to get even more money.

Key said those paying the top personal rate - which cuts in at 38%on income of $70,000 and is expected to come down to 33 - included skilled professionals like doctors, engineers and scientists who were critical to the economy.

"Those people are in demand all around the world and we need to have their careers here, and for them to be put to work in New Zealand," he said.

Goff said if the tax changes are going to be fiscally neutral, as the government says they will, then middle and lower income earners will get less.

Key said that wasn't the case.

"The good news for them is that they will be getting more," he said.

"The interesting thing is that someone earning $60,000 a year, with no children, who waited 10 years under a Labour government to get absolutely not a cracker, will be getting more in the budget tomorrow than he or she might expect."

Tax cuts for all, but rich fiddlers may not smile

Prime Minister John Key has confirmed that all personal tax rates will be cut in today's Budget.

He has heralded a sock-it-to-the-rich approach towards those who fiddle with their tax liability by sheltering income in trusts and companies.

And, in a bid to counter Labour's pre-emptive attack against the highest paid getting the biggest tax cuts, Mr Key is promoting it heavily as a "fairer tax system".

"We will be making sure that all New Zealanders, the wealthy included, pay their fair share," he told Parliament yesterday.

"The rich, by and large, do not pay the top personal tax rate. Really wealthy people will probably find they are paying considerably more tax as a result of the Budget ... not less."

Mr Key spent yesterday building the expectation of low- and middle-income earners, at least those not receiving Working for Families tax credits.

He effectively rejected speculation, including in the Herald, that middle-income earners will not get much out of the Budget once the GST rise from 12.5 per cent to 15 is factored in.

He told reporters that all rates - including the 33c rate - would be cut.

But he would not comment on whether thresholds might be adjusted to allow people to earn more before the next rate kicks in.

Someone earning $60,000 a year with no children "who waited 10 years under a Labour Government to get absolutely not a cracker" would be getting more in the Budget than they expected, the Prime Minister said.

He was acutely aware that low-income earners would like to earn better wages, and that was done through economic leadership.

"For nine years [under Labour], we waited for that and it never came. Tomorrow, the bus is arriving here in Parliament."

Personal tax rates at present are 12.5c (on income up to $14,000), 21c ($14,001 to $48,000), 33c ($48,001 to $70,000) and 38c ($70,001-plus).

One scenario would see the 38c rate cut to 33, the 33c to 30c, the 21c to 19c and the 12.5c to 10c.

Mr Key rejected suggestions by Labour leader Phil Goff that curbing tax breaks on investment properties would force rent rises from landlords and add to the burden of the 30 per cent of New Zealanders who rented.

The PM said the Treasury's advice was that the effects would be negligible.

Finance Minister Bill English said the tax system had been "allowed to fall into a state of disrepair". The tax base would be extended beyond the current definition of income.

The present diversity of rates encourages people to shelter income in trusts, companies and portfolio investment entities to cut their tax liability.

The current top personal tax rate is 38c, the trust rate 33c and the company rate 30c. This has led to many on the top rate organising their affairs to cut their tax liability or reduce income for the purposes of receiving Working for Families payments, calculating child support and making student loan repayments.

The Tax Working Group report in January argued for alignment of tax rates.

GST rise will give overseas web firms edge say retailers

Retailers say the looming rise in GST will give online merchants overseas an even bigger price advantage.

Private imports under $400 in value come into the country free of GST so the rise from 12.5 per cent to 15 per cent - likely to be announced in next week's Budget and imposed in October - makes overseas-sourced goods even more attractive.

The sharp appreciation of the New Zealand dollar against European currencies during the past six months has made online shopping even cheaper, although retailers who import from that region have also benefited.

Retail Association chief executive John Albertson said his members wanted GST on all goods bought privately overseas, excluding gifts. This would help New Zealand businesses and give the Government tax revenue worth as much as $500 million.

"It's not a fair cop. We don't mind competing but it's very hard competing with 15 per cent already tied behind your back," he said.

"We are not wanting to turn the clock back and deny the existence of web sales but we would appreciate a level playing field."
Especially galling for retailers was when customers used them to research products in their shops then bought them through overseas websites.

"You'll get people putting staff to tremendous trouble trying on sports shoes, say 'thanks very much' and go off an buy them online," Albertson said.

It is estimated between $1.2 billion and $3 billion is spent on goods by New Zealanders and, according to researchers The Nielsen Company, 17 per cent of this is spent overseas.

Most overseas online shopping is done in Australia and the United States.

Easy-to-ship goods such as DVDs, CDs, computer software and books are the most popular, accounting for more than 35 per cent of online buys abroad in each category.

More than 40 per cent of online spending on travel-related services is done through overseas websites, Nielsen says.

Albertson said the problem of tax on online purchases was an international one. In the US courier companies were charged with collecting state taxes in some cases. Albertson said it might be possible to collect tax through credit-card transactions.

NZ dollar gains on euro after rescue package

After strengthening throughout the day yesterday against the greenback and the yen - as markets reacted to a €750 billion ($NZ1.3t) emergency loan plan to prevent a European sovereign debt crisis from spreading - the New Zealand dollar started weakening from about 8pm.

The kiwi climbed from around US70.70c early Saturday to near US72.95c before falling away to be at US72.27c by 8am today. Similarly it climbed from around 65 yen to above 68 yen, then eased to 67.37 yen at today's local open.

The euro initially rallied against the US dollar after the emergency plan was announced but then gave up gains as enthusiasm for the bailout faded and investors focused on whether the plan would be effective.

The NZ dollar started rising from below 0.5570 euro around 10pm to be at 0.5649 euro by 8am today.

In its morning briefing notes, ANZ said currencies went through "wild gyrations" yesterday and overnight as markets took stock of the European package.

"It appeared to be heavy on hope and desperate for detail delivering a subsequent move down for the EUR."

After a bumpy night against the Australian dollar, the kiwi was slightly higher at A80.08c at 8am from its 5pm level of A79.95c.
ANZ said that resulting aussie strength from the Australian budget coming out today, with expectations of a return to surplus two years earlier than previously forecast, should ensure the cross did not move above strong selling interests around the A80.50c level.

The trade weighted index lifted to 68.54 at 8am from 68.20 at 5pm.

- NZPA

Eurozone bailout lifts Oz market

The Australian sharemarket closed sharply stronger on renewed investor confidence after a crisis package was agreed to help bail out troubled eurozone economies.

Brokers said bargain hunters bought into market-leading resource and banking sectors, in contrast to Friday's sharp selloff that capped five consecutive trading days of losses.

The benchmark S&P/ASX200 index gained 119.1 points, or 2.66 per cent, to 4599.8, while the broader All Ordinaries index added 114.8 points, or 2.55 per cent, to 4622.2 points.

On the Sydney Futures Exchange the June share price index futures contract was 145 points higher at 4619 points, on a volume of 57,580 contracts.

The announcement in Europe of a €750 billion ($1.34 trillion) package of crisis aid for troubled eurozone countries boosted sentiment from the local market's opening.

Sharp rises in the big mining and banking stocks may have also been as much a result of investors buying stocks that had been cheapened by the severe falls on the market last week, RBS Morgans private client adviser Bill Bishop said. "Investors think the two huge mining companies got pretty cheap, and that probably accounts for it as much as anything," he said.

BHP Billiton gained A$1.50, or 4 per cent, to A$39 and Rio Tinto added A$3.82, or 5.88 per cent, to A$68.80.
A lot more explanation was needed on how the European package would work before confidence could be restored in the global economy, Bishop said.

"The market is assuming it is all fixed, on the other hand the reports I have seen suggest it only looks like it has been all fixed," Bishop said.

"I think the Dow Jones futures have helped and the market is wishing desperately to believe that the Europeans are going to fix their problems."

- AAP

$1 trillion to rescue Europe

The European Union's 27 finance ministers have agreed on the creation of a 'European stabilisation mechanism'. Photo / AP
The European Union's 27 finance ministers have agreed on the creation of a 'European stabilisation mechanism'. Photo / AP

European policymakers have unveiled an unprecedented loan package worth more than $1 trillion and a programme of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.

Jolted into action by last week's slide in the currency and soaring bond yields in Portugal and Spain, the 16 euro nations agreed to offer financial assistance worth as much as €750 billion ($1.3 trillion) to countries under attack from speculators. The European Central Bank will counter "severe tensions" by purchasing government and private debt.

"The message has gotten through: the euro zone will defend its money," French Finance Minister Christine Lagarde said after the 14-hour meeting.

Under pressure from the US and Asia to stabilise markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and muffle speculation that the 11-year-old euro might break apart.

The two-pronged offensive pushed up the euro 1.4 per cent. New Zealand's NZX-50 rose 0.37 per cent, while Australia's ASX200 climbed 2.66 per cent. In Japan, the Nikkei gained 1.6 per cent.
"This is Shock and Awe, Part II and in 3-D," said Marco Annunziata, chief economist at UniCredit Group in London.

"This truly is overwhelming force, and should be more than sufficient to stabilise markets in the near term, prevent panic and contain the risk of contagion."

The steps came after failure to contain Greece's fiscal crisis triggered a 4.1 per cent drop in the euro last week, the biggest weekly decline since the aftermath of Lehman Brothers' collapse. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 per cent to 237.18.

The ripple effect in the US, including a brief 1000-point drop in the Dow Jones Industrial Average, prompted President Barack Obama to call German Chancellor Angela Merkel and French President Nicolas Sarkozy to urge "resolute steps" to prevent the crisis from cascading around the world.

Under the loan package, euro-area governments pledged €440 billion in loans or guarantees, with €60 billion more in loans from the EU's budget and as much as €250 billion from the International Monetary Fund.

"I think they will have bought themselves a significant amount of time to do the right thing," said Barry Eichengreen, an economics professor at the University of California, Berkeley.

In a step that skirts EU rules barring direct central bank lending to governments, the ECB said it will conduct "interventions" to ensure "depth and liquidity" in markets.
The purchases will be sterilised, meaning they won't increase the overall money supply in the financial system.

The ECB also reactivated unlimited fixed-rate offerings of three-month loans, a key tool in the ECB's efforts to fight the credit crisis. It will also reactivate dollar swaps with the Federal Reserve.

In Brussels, finance ministers from the 16-nation euro region - joined by ministers from the 11 EU countries outside the euro - raced against time to weld the contingency lending arrangements before markets opened in Asia.

Inability to craft a convincing package in time would have left deficit-plagued countries at the mercy of the "wolfpack behaviour" of speculators, Finance Minister Anders Borg of Sweden, a non-euro member, said as the meeting began.

The new war chest would be used for countries such as Portugal or Spain in case their finances buckle.

Deficits are set to reach 8.5 per cent of gross domestic product in Portugal and 9.8 per cent in Spain this year, above the euro region's 3 per cent limit.

Both countries pledged "significant" additional budget cuts in 2010 and 2011, which will be outlined in May, an EU statement said.

Greece, the epicentre of the debt crisis, has already won a €110 billion aid package after agreeing to unprecedented austerity measures.

The cuts sparked riots in Athens last week, leading to three deaths and stoking concerns that the Government won't be able to implement all the steps.
European governments endorsed their €80 billion share last week, and the IMF cleared the way to pay its €30 billion share on Sunday.

- BLOOMBERG

Google Readies Its E-Book Plan, Bringing in a New Sales Approach

Google Inc. plans to begin selling digital books in late June or July, a company official said Tuesday, throwing the search giant into a battle that already involves Amazon.com Inc., Apple Inc. and Barnes & Noble Inc.

Google has been discussing its vision for distributing books online for several years and for months has been evangelizing about its new service, called Google Editions. The company is hoping to distinguish Google Editions in the marketplace by allowing users to access books from a broad range of websites using an array of devices, unlike rivals that are focused on proprietary devices and software.

Chris Palma, Google's manager for strategic-partner development, announced the timetable for Google's plans on Tuesday at a publishing- industry panel in New York.

Google says users will be able to buy digital copies of books they discover through its book-search service. It will also allow book retailers—even independent shops—to sell Google Editions on their own sites, giving partners the bulk of the revenue.

The company would have copies on its servers for works it strikes agreements to sell. Google is still deciding whether it will follow the model where publishers set the retail price or whether Google sets the price.

While Mr. Palma didn't go into details, users of Google Editions would be able to read books from a web browser—meaning that the type of e-reader device wouldn't matter. The company also could build software to optimize reading on certain devices like an iPhone or iPad but hasn't announced any specific plans.

By contrast, Amazon's digital book business is largely focused on its Kindle e-reader and Kindle software that runs on some other hardware.

The project is Google's attempt to crack into the market of distributing current and backlist works.

Publishers have yet to publicly commit to participate in the service but Google isn't expected to run into much trouble getting them to join. Publishers tend to believe the more outlets to sell books the better. Even the smallest independent bookstore will have access to a sophisticated electronic-book sales service with a vast selection of titles.

"This levels the retail playing field," said Evan Schnittman, vice president of global business development for Oxford University Press. "And as a publisher, what I like is that I won't have to think about audiences based on devices. This is an electronic product that consumers can get anywhere as long as they have a Google account."
He said Google Editions will also be critical because it represents "the ultimate test" of whether the ability to search, find and instantly buy content will generate significant gains in revenue. "This tears down barriers," he added.

Retail isn't Google's calling card, but the company has an online store for Android apps, sells software for businesses and it sells a phone.

Google may struggle to build awareness about the service. It is hoping users click to buy books through its Book Search product, which has a relatively small following compared to its overall search service. It is also betting on other book resellers to push and promote Google Editions themselves. Whether they do so will probably depend on how much revenue they are generating.

The online sales effort is separate from Google's fight to win rights to distribute millions of out-of-print books through its digital book settlement with authors and publishers. U.S. District Court Judge Denny Chin is expected to rule in that case soon.

Tuesday's industry event, at Random House's Manhattan offices, was titled: "The Book on Google: Is the Future of Publishing in the Cloud?" Tuesday's panel was presented by Publishers Weekly and sponsored the Book Industry Study Group.

Yahoo boosts profit on advertising rebound, Microsoft search-pact revenue

YAHOO'S first-quarter net income more than doubled as the internet heavyweight began to reap rewards from an improving online-advertising market, as well as its recent search pact with Microsoft.

A sharp rebound in display advertising enabled California-based Yahoo to report its first revenue growth since the third quarter of 2008, although a 14 per cent drop in search-advertising revenues tamped down overall revenue growth.

Chief executive Carol Bartz said in a conference call with analysts: “The economy continues to improve” and advertisers’ “purse-strings are starting to loosen up”.

The internet giant also began to show benefits from its search agreement with Microsoft, which paid an unexpected one-time “net transition cost reimbursement” of $US43 million ($46m) to cover costs that Yahoo incurred in 2009 as well as in the first quarter of 2010.

“It's unexpected and probably the biggest driver of the bottom-line upside surprise,” said Benchmark Capital analyst Clayton Moran.

Yahoo also received $US35 million from Microsoft for search operating costs, an ongoing reimbursement provided for in the two companies' recently implemented search pact. The company said it expects to receive between $US75m and $US85m in ongoing quarterly reimbursements under terms of the deal.

Chief financial officer Tim Morse told a conference call: “The $US35 million for search operating expenses represent the initial step on the path to the long-term cost savings we anticipate as a result of the alliance.”

Since taking the helm of Yahoo early last year, CEO Bartz has pushed to turn around the company by focusing on core web properties and its display advertising business.

Yahoo said revenue from its display advertising business climbed 20 per cent from the same period last year, reflecting a rebound in the online advertising market.

During the quarter, Yahoo launched its 10-year revenue-sharing partnership with Microsoft, aimed at challenging Google’s dominance of the online-search market.

Under the pact, Microsoft's Bing will power searches on Yahoo’s web properties. Data from web research firms indicate Yahoo has stabilised its declines in market share and may be expanding it.

Ms Bartz said she expected Yahoo’s search share to “trend up” during the second quarter, which would reverse several quarters of losses in market share.

Yahoo’s search share rose to 16.9 per cent in March from 16.8 per cent in the prior month, according to comScore. It was the first increase since Microsoft launched its revamped Bing search engine last year. The two companies' combined share in the search market has remained relatively stable since, while Google's share has also held firm around 65 per cent.

In the most recent period, Yahoo reported that operating search advertising revenue dropped 14 per cent, after posting its first sequential quarter of growth in a year in the fourth quarter.

Yahoo posted a profit of $US310.2m, up from $US117.6m, a year earlier.

Total revenue increased 1.1 per cent to $US1.6 billion, in line with the company's January forecast of $US1.58bn to $US1.68bn. But net revenue, after traffic acquisition costs, was at $US1.13bn, slightly below Wall Street expectations of $US1.17bn.

Gross margin crept higher to 55.8 per cent from 55.7 per cent.

TelstraClear looks to cut 120 jobs

Australian owned telecommunications company TelstraClear is looking to cut 120 call centre jobs in New Zealand, moving the service to Manila in the Philippines.

The Engineering, Printing and Manufacturing Union (EPMU) condemned the proposal and said it believed 170 jobs would be affected.

TelstraClear told Fairfax's BusinessDay 120 jobs were under consideration, including 75 in Christchurch, but it was only a proposal at this stage.

TelstraClear spokesman Chris Mirams said the proposal was about better customer service but admitted it would also save the company millions of dollars.

"We've been making the case to keep these jobs in New Zealand since last November when TelstraClear said they were conducting a feasibility study into shifting their call centres offshore.

Today they told us they thought the case for going offshore stacked up," EPMU organiser John Kerr said.

"This is all about accessing so-called cheap labour overseas but comes at an enormous price for our members, many of whom are just starting out and have young families to support."

Kerr said the proposal did not even make good business sense as potential damage to TelstraClear's brand was enormous.

Yahoo profit nearly trebles

SUNNYVALE, California - Yahoo's first-quarter earnings nearly tripled as the internet company's revenue edged up for the first time in more than a year.

The results released on Tuesday, local time, represented Yahoo's best quarterly performance since it hired CEO Carol Bartz to engineer a turnaround 15 months ago.

The performance reflected an upturn in online advertising, the main source of Yahoo's income. Advertisers have been spending more freely in recent months amid signs that the US economy has emerged from its worst recession in more than 70 years.

Display advertising, a category that includes online billboards and other visual marketing campaigns, surged 20 per cent from last year, Yahoo said.

The company earned $310.2 million, or 22 cents per share, in the January-March period. That compared with income of $117.6 million, or 8 cents per share, a year ago.

The results were boosted by the recent sale of an email service and the initial payments from Microsoft to cover some of the costs of a search advertising partnership between the two companies.

Excluding those one-time gains, Yahoo said it would have earned 15 cents per share. That figure easily topped the average estimate of 9 cents per share among analysts polled by Thomson Reuters.

"We had a good quarter, delivering income from operations higher than our outlook," Bartz said in a statement.

Revenue was up 1 per cent to $1.6 billion. Although modest, the gain represented the first time Yahoo's quarterly revenue has increased since the third quarter of 2008.

After subtracting commissions paid to its advertising partners, Yahoo's revenue totaled $1.13 billion - about $40 million below analyst estimates.

Yahoo shares climbed 13 cents in Tuesday's extended trading after finishing the regular session at $18.38, down a penny.

- AP

Food, petrol price hike tipped to push inflation up

Inflation data is tipped to reveal an overall rise in prices in the March quarter, but economists are at odds over the fate of interest rates.

Statistics New Zealand will release the Consumer Price Index (CPI) for the three months ending March tomorrow.

Lifts in food and petrol prices are picked to help push the rate of inflation above the Reserve Bank's forecast of 0.3 per cent.

Westpac economists predict a much stronger 0.7 per cent rise in inflation and have backed market expectations that the central bank will raise the Official Cash Rate (OCR) in June.

But ANZ economists expect the Reserve Bank will sit on interest rates until the second half of the year. First-quarter inflation was likely to be 0.5 per cent and take annual inflation to 2.2 per cent, they said, with lifts in education fees and rents contributing to inflationary pressure.

But the CPI result on its own may not be enough to force a June jump in the OCR, they said.

Weak retail trade statistics for February – core retailing dropped 0.9 per cent or $35m – indicated retailers may have cut prices by more than expected. Activity in the residential construction sector had been weak, while an anaemic labour market was keeping labour cost pressure contained.

"Our monthly inflation gauge rose strongly in January and February but dipped in March," ANZ said. "While we expect a climbing trajectory for inflation over 2010, the patchiness of the recovery is likely to contribute to a more patient policy response.

"More concrete signs of economic recovery becoming established are likely to be another prerequisite for the Reserve Bank moving, but we believe they will not be evident until the second half of 2010."

Westpac economists said their bullish forecast reflected "inconsequential quarterly volatility, rather than a generalised lift in inflation".

Food prices rose about 1 per cent in the quarter, and petrol prices 3.6 per cent – but neither increase was expected to be long-lasting or important.

Construction cost inflation jumped to 1 per cent after five subdued quarters, which was higher than Reserve Bank expectations and would be food for thought for the central bank, they said. Construction costs tended to be one quarter behind house prices – which rose rapidly last year, and anecdotal evidence pointed to rising costs.

"We are definitely plumping for a June hike, because it is highly likely that the Reserve Bank will receive an upside surprise on CPI." Inflation for the three months ending June was likely to be 0.3 per cent – balancing out the first-quarter result – with the effects of the strong kiwi dollar last year still evident and non-tradable inflation still low, they said.

But the impact of the emissions trading scheme and the signalled rise in GST later this year would probably push annual total inflation closer to 5 per cent for a year or so.