New Zealand Engineering 1997 July

Editorial

Engineers' Capitalism

Peter King, Editor

The news that MAS Technology is to bypass the New Zealand stock exchange entirely and seek listing on the United States NASDAQ exchange should be seen for what it is - recognition that internet trading offers international choice to New Zealand investors and a complete vote of no confidence in New Zealand financial markets to meet the needs of high growth technology companies. That Vortec also plans to head for NASDAQ, and that internet entrepreneur Steve Outtrim took his Sausage Software to Australia to list his company last year, merely reinforces what many engineers have long known - New Zealand investment markets are risk averse, technologically illiterate and only of interest to the insurance giants and banks which support them.

And look where it gets them. The New Zealand Stock Exchange top 40 index bobs along where the tide went out after the stock market crash in October 1987 while the Dow Jones hits new highs every other month. Worse, many funds managers here can't seem to even out-perform the market averages such as TeNZ. Meanwhile the Reserve Bank is forced to keep monetary targets tight because the minute it loosens its grip, banks drop interest rates, and the Auckland property market overheats, generating inflation.The side effect of this is to force our exchange rate up making our engineered products less attractive internationally.

Let us not forget that before the pound became a petrocurrency British engineering was held in far greater regard than it is today. In my personal view it was not British culture or lack of respect for engineering which toppled once mighty British engineering firms (who had done pretty well against their German counterparts during World War II), but the complacency of an oil fired exchange rate which made making things economically unfeasible. By contrast Japan has never let its currency dominate its engineering base.

Given all this surely Reserve Bank Governor Don Brash's mild call for a capital gains tax on commercial housing property should be given more consideration than it has received to date. As with the imposition of a carbon tax there is absolutely no reason at all why such taxes should not be fiscally neutral. To introduce a serious carbon tax could easily go hand in hand with a minor reduction in company tax, to introduce a property capital gains tax could go hand in hand with a slight reduction in personal income tax.

In the end the design of a tax regime is a normative exercise. Do we want a country that lurches from property boom to bust and back every five years or do we want a country where people try to get the price of housing down, reduce their use of fossil fuels, and invest in bright new engineering start-ups.

But how would all those Auckland MPs with investments in commercial housing fare then?