Greece- what went wrong?

I have not seen a country go bankrupt before. It would be interesting to see one happen but I wouldn't wish that on any one. It would mean that foreign creditors would grab what was owed and the infrastructure like power plants, roads, water supply would not belong to the Greeks any more. How sad!

Wait a minute! Isn't that what the NZ National government is wanting to do? Sell off our assets! But we're far from bankrupt!!! It just doesn't make sense! Our state owned enterprises generate hundreds of millions a year for the government; selling it off is like killing the goose that lays the golden egg.

Quoting from UK's Telegraph on Greece:
Currently, tax collection is a bad joke. The self-employed systematically dodge taxes, and since they account for around 35pc of the workforce, and include many doctors and lawyers as well as a plumbers, Greece simply doesn't raise enough taxes to finance its bloated public sector.

NZ has the same problem although no where near Greece's extend. The NZ Inland Revenue Department released in a report saying that for every 100 million they spend on tax investigations, they recover 400 million tax dollars. You can imagine the amount of tax dodging that goes on even in this supposedly honest country.

I am about to embark on self employment; why on earth would I want more tax investigations on the self employed? First of all, I'll only be a small fish in a sea of sharks. Second of all, most of my friends and family are salary and wage earners who are not able to dodge any taxes. I am sick of the middle class bearing the brunt of the tax burden.

A Greek on the street of Athens was interviewed just a couple of days ago, saying "Apart from Tourism and a few Olive trees, Greece doesn't produce anything else". Why is that? The government of Greece has neglected the importance of development on their economy. From 2005-2010, Greece had only spend 0.6% of their GDP on Research & Development. This is far below the average of 2% for OECD countries.

NZ spend just 1.2% of GDP on R&D. Although much better than Greece, NZ is at only 60% of average. All OECD countries with at least 2% of R&D spending had economic growth of 2% or more.Only exception being Iceland because their financial system fell over during the global financial crisis.

The above graph is from an R&D magazine. NZ with its number of scientist and engineers should be spending at least 2% on R&D; that is 67% more than what we're spending now. I know so many scientist and engineers that are under employed, Phds who are only teaching secondary schools, etc. With an increase in R&D spending, we could fully employ these people to create innovations that'll bring us much better economic growth.

Well, if Greece really does fall over; let it be a warning on the importance of tax collection and adequate R&D spending.

Not doing too bad, could be doing much better too!

The New Zealand economy is almost stagnant. Our GDP has only grown by 1.5% in 2010. In comparison to China (10%), Singapore (14%) and Australia (2.7%); our growth has been miserable. However, it is doing much better than Spain, Ireland and Greece which are experiencing negative growth.

NZ is smack in the middle of all OECD countries in terms of growth. Obviously we have done a few things right to be way ahead of Spain, Ireland and Greece but have been inadequate in many ways to lag behind South Korea (6.1%), Japan (3.9%) and Australia.

NZ balance of payment stands at -3.21% of GDP compared to Spain (-5.23%) and Greece (-10.84%). Before the global financial crisis, the labour government finance minister Michael Cullen made a concerted effort in paying down our debt. Critics said that he should have given tax cuts in those good years but thankfully he didn't. As the saying goes "Make hay while the sun shines", Michael Cullen has put NZ is a healthy position now to weather the current economic downturn.

Ireland has one of the lowest corporate tax rates in the world. It was touted as the Celtic Tiger for this and look where it is now. Constraint by the EU to keep debt under control and with not enough tax revenue, it has cut spending by 6 billion in 2010. This has resulted in their negative economic growth and high unemployment rate (14.6%). I can remember before the financial crisis, many right wing supporters complained that NZ is not emulating the success of Ireland, those people have now suddenly gone very quiet.

NZ and Ireland both have the same population of around 4.5million. NZ had a healthier balance of payments and so we only had to cut spending by about a third of what Ireland did. It is the governments duty to maintain or increase spending during economic hard times when private business cut back on spending. Otherwise, the economy would shrink and unemployment rise. Government spending was how the United states lifted itself out of the great depression. But how is it possible to increase spending given that we have to keep the balance of payment under control?

Tax avoidance is the key issue here. It has been estimated that the government loose 300 million a year just from tax hidden by trusts alone. The government could recover billions if it investigated these trusts and other tax avoidance like GST, property trading etc. The Inland Revenue estimates that for every 100 million it uses to investigate fraud, it has recovered 400million. When the National government came into power in 2008, one of the first thing it did was to downsize the IRDs tax investigation team and stopping many of their high profile cases. Talk about the rich protecting their own, Dodgy!

And now the National government wants to sell our state owned power utilities to pay off our debt. Well, if it allowed IRD to recover those taxes avoided, it wouldn't need to sell our assets. The National government is simply letting the filthy rich buy up our public assets with avoided tax that should belong to the public, no wonder the rich are getting richer and the middle class is just floundering.

It is simply unfair to let the middle class salary and wage earners shoulder most of the tax burden.