One of New Zealand's richest men says our tax rules "favour the old and rich" and the overheated property market is exacerbating social divisions. In a speech to the NZ Initiative think tank in Auckland last night, Stephen Jennings also said low productivity growth, weak global linkages and rising inequality, particularly in the education system, were additional challenges facing New Zealand. Rising house prices and immigration-fuelled economic growth were masking an underlying "iceberg that lies ahead". "As weaknesses compound each other, economic or social crises will become increasingly likely," he said. "We are sleepwalking into an economically ugly place." Jennings' warning is likely to grab the attention of New Zealand's political and business establishment, given his standing in the world of finance. The Taranaki-born former Treasury economist, whose wealth was estimated at $980 million by the National Business Review last year, co-founded Moscow-based investment bank Renaissance Capital, which played a pivotal role in the development of Russia's capital markets. UK-based Jennings, who was heavily involved in New Zealand's Rogernomics-era economic liberalisation, said a basic principle of fair and efficient taxation was that all income should be taxed equally. "The taxation of housing and many other assets in New Zealand does not meet this test," he said. Jennings, 55, said capital gains taxes raised some relatively complex technical issues, but these had been resolved in many countries. "Partial solutions like taxing the gains of foreign house owners are a cop out and will create new distortions without addressing the underlying issues," he said. In an interview with the Business Herald, Jennings said social divisions would only worsen if such issues were not addressed. He conceded that he owned property in New Zealand, and he wasn't young. "But what about our children and grandchildren and people on low incomes who have no hope of buying a house? What I'd say to those [older, property-owning] people is we're storing up social and political problems that are going to come home and bite us."
But what about our children and grandchildren and people on low incomes who have no hope of buying a house? What I'd say to those [older, property-owning] people is we're storing up social and political problems that are going to come home and bite us.Jennings said New Zealand's housing affordability issues didn't make sense given only a tiny percentage of the country was built upon. "It's purely a planning and regulatory issue," he said. "They're issues that could be resolved." He said social inequality could start manifesting itself in New Zealand politics in a similar way to the upheaval being seen in Britain following last month's Brexit vote and the rise of presidential hopeful Donald Trump in the United States. "We could have the Trump, UK and European-type situation," Jennings said. "That could be us next year." In his speech, he said New Zealand's "decile divide" - in which 35 per cent of students in lower decile schools leave without NCEA Level 2 compared with 12 per cent in high decile schools - was a big concern. "OECD data show we have one of the widest gaps between rich and poor when it comes to reading and that this hasn't closed despite increased talk about raising achievement for priority learners," Jennings said. "From an equity perspective there are clearly major problems with our education systems." He also used his speech to take aim at New Zealand's primary industries sector, saying its ownership and governance arrangements in processing and marketing needed to be reviewed.
OECD data show we have one of the widest gaps between rich and poor when it comes to reading and that this hasn't closed despite increased talk about raising achievement for priority learners."In too many instances, including the dairy industry, the incentives for world-class performance and innovation simply aren't strong enough. I saw first hand how Fonterra failed to capture a massive market opportunity in Russia while Nestle and Danone built new multi-billion dollar businesses." Jennings, who is building large-scale satellite cities across Africa through his land development firm, Rendeavour, also encouraged New Zealand businesses to take a closer look at the African continent. He said many opportunities existed for Kiwi firms, particularly in the agriculture space. Jennings has been a key proponent of the "Africa rising" narrative around the continent's economic growth story. But questions have been raised about that view following the slump in commodity prices - which has badly affected many African economies - and fears that projections of middle class growth had been overstated and economic expansion was often only benefiting a small elite. Jennings, however, remains bullish on Africa's prospects. "There's no doubt that the Africa rising narrative was right and there's no doubt in my mind that its going to continue for a very long time," he told the Business Herald. Jennings last week reached an out-of-court settlement in a defamation suit against Fairfax Media over an article published last year about his business dealings in Kenya and Russia. Around a week after the publication, Fairfax published a retraction and apology which said the article "may have been interpreted as implying that Mr Jennings' business activities in those countries were unethical and open to criticism". Yesterday, Jennings wouldn't reveal a figure on the settlement, only saying it was a "substantial sum". He said he decided to settle when he received an "acceptable" offer from Fairfax. "I achieved what I wanted to achieve without going to court," he said. "It was a bit of an unfortunate situation but it's been good to put it to bed and move on." Jennings said the proceeds of the settlement would be donated to charities in Africa and Taranaki.