Knock on effects of benefit cuts

[Realist]

Consider the scenario where about half the beneficiaries became ineligible...

So you realise that's 200,000 squatters - right?
200,000 overdue rents, every week ad infinitum (most beneficiaries don't have HNZ access)
Landlords go under, banks have to recall mortgages for landlords at high risk
An oversupply of properties, property prices plummet
Banks have to raise rates to cover losses and cover higher wholesale rates
OCR up due to increased risk premium
Currency plummets, fuel increases -> inflation -> still higher interest rates -> more mortgage defaults -> government debt servicing becomes a BIG problem -> IMF bailout???

Then there's the crime issue, higher home and contents insurance premiums etc

As for taxpayers...having to compete with downward pressure on wages, desperate people don't work for minimum wage, they'd be happy at $8 an hour, under the table of course. IRD would be irrate at that. The question becomes, how long can you remain a tax payer (i.e. in employment)

Personally I'd prefer the tax, rather than:

Higher interest rates
Higher insurance premiums
Personal risk due to crime
Energy/import price inflation
Wages lowering and job insecurity
Paying for supermax prisons ($91,000 each person you know)

Put it this way, NZ wouldn't be a pretty place, you'd want plane ticket, not a job. Hmmm and as for the Tourist/Immigrant Student/Immigrant Retirement industry? Overseas retirees did wonders for Tauranga's real estate prices by the way - hint.

Insurance is duplicious and doesn't work all too efficiently, Americans are learning this slowly with their health system. Besides, if you had to pay insurance to guard against unemployment - then even the 17.5% tax is a rip off. What with the increased mortgage on a depreciated property, the crime effect, the lower wages, the increased import prices etc...

A good economy always has spare capacity in the workforce
A good economy always has population growth

Tax is the price you pay for job security, it keeps other bidders at bay. Children raised on DPB become tax payers too someday, assuming there are jobs...in other words, they're supposed to be an INVESTMENT - dur.

Welfare is not a poverty trap, a poverty trap is when you are homeless and don't have the resources to present yourself for a job...I cannot believe we are taking advice from an American. In America, the good old USA, many people are so desperate that prison accomodation and food is a welcome gift if all else fails.

Benefits keep you alive, they are not a life. Enjoy trying to hold down your job if these dreamers get their way.

[Keithw]

Oh SurRealist
I think you need to get off whatever it is that you are taking and start taking your happy pills instead.
I think maybe you have been spending too much time over at interest dot co

Your points of issue are mostly valid, but your expected outcomes are mostly the opposit to real life experience.

"Consider the scenario where about half the beneficiaries became ineligible..."

"So you realise that's 200,000 squatters - right?"
uhh not for long its not. 21 days in arrears & a couple of weeks later the tenancy tribunal will order their eviction. Time for new tenants. - even at lower rent, some tenants are better than squatting tenants.

"200,000 overdue rents, every week ad infinitum " 4 - 6 weeks actually
"(most beneficiaries don't have HNZ access)" not sure what basis you have for that statement, would be interested in your explanantion

"Landlords go under" a few might- most wont

" banks have to recall mortgages for landlords at high risk" a possibility, but since it didn't happen last year after a major financial meltdown, it is probably not that likely.
Calling in mortgages is one of the last things banks want to do, it creates major problems for them- search this forum

"An oversupply of properties, property prices plummet" we have an oversuppply of property right now & prices haven't plummetted, in fact today QV released last months house price report & they are still over 8% higher than last year and only about 4% down on the 2007 peak. the 30% doomsayers fail to account for human nature.

"Banks have to raise rates to cover losses and cover higher wholesale rates"
Theyve already done that, & will continue to do so slowly for the next year or so, but we are still over 2% below historical averages.

"OCR up due to increased risk premium" raised .25% yesterday and will continue to slowly raise to historical average.

"Currency plummets," uhh no it wont. It jumped UP by over a cent upon the OCR increase yesterday. each increase makes it more attractive for carry trades.- thats money coming INTO the country, until something spooks them.

"fuel increases -> inflation -> still higher interest rates -> more mortgage defaults -> government debt servicing becomes a BIG problem -> " we already have all these right now and will continue to have them- life goes on.
The beneficiary payments are a major reason the Govt has a servicing problem- not enough workers & FAR to many beneficiaries- including those with $100k incomes receiving WFF !!!

"IMF bailout???"
After half of Europe, the UK, the USA & various other countries. by that time there will be a lot more to think about than worrying about the consequences of cutting beneficiary payments.

"Personally I'd prefer the tax, rather than:

Higher interest rates
Higher insurance premiums
Personal risk due to crime
Energy/import price inflation
Wages lowering and job insecurity
Paying for supermax prisons ($91,000 each person you know)"

And thats exactly what the Govt wants you to think, because in the end they will achieve both- tax & your list.

[Realist]

"So you realise that's 200,000 squatters - right?"
uhh not for long its not. 21 days in arrears & a couple of weeks later the tenancy tribunal will order their eviction. Time for new tenants. - even at lower rent, some tenants are better than squatting tenants.

Where are the resources to evict 200,000 occupants in 21 days? Which countries army would you hire and at what cost?

"200,000 overdue rents, every week ad infinitum " 4 - 6 weeks actually

You cannot find an additional 200,000 Occupants who actually have the money and wherewithal to stay in houses with recurrent squatting problems in 4-6 weeks, more like 4-6 years.

"Landlords go under" a few might- most wont

More like a few thousand. Remember that the scenario is a shortfall of 200,000 occupants. That impacts landlord cashflow fatally with repercussions to be felt across the entire sector.

" banks have to recall mortgages for landlords at high risk" a possibility, but since it didn't happen last year after a major financial meltdown, it is probably not that likely.
Calling in mortgages is one of the last things banks want to do, it creates major problems for them- search this forum

The global credit crunch has not directly impacted NZ to a great extent yet because our banks were not directly exposed to the collateralised debt obligations anyway.

Landlords unable to pay the mortgage means banks sell the houses quickly. Of course they wouldn't want to, afterall the glut of property on the market would devalue the very asset base they would be trying to stabilise. They would have to do it in order to shore up their asset base, it would be catch 22. If they failed to get the balance right, which could be an impossible task, then they would require a government bail out.

"An oversupply of properties, property prices plummet" we have an oversuppply of property right now & prices haven't plummetted, in fact today QV released last months house price report & they are still over 8% higher than last year and only about 4% down on the 2007 peak. the 30% doomsayers fail to account for human nature.

Of course they haven't plummeted, the over suppply is nothing at this point in time. The oversupply resulting from the mortgagee sales (due to 200,000 less occupants) would be catastrophic however. Today's figures are irrelevant to the above scenario.

"Banks have to raise rates to cover losses and cover higher wholesale rates"
Theyve already done that, & will continue to do so slowly for the next year or so, but we are still over 2% below historical averages.

Present day losses are nothing compared to what would happen as a result of 200,000 occupants failing to pay rent.

"OCR up due to increased risk premium" raised .25% yesterday and will continue to slowly raise to historical average.

The OCR didn't go up in relation to risk premium, it increased to circumvent the materialisation of future inflation, better to raise early and slow, rather than hard and late.

"Currency plummets," uhh no it wont. It jumped UP by over a cent upon the OCR increase yesterday. each increase makes it more attractive for carry trades.- thats money coming INTO the country, until something spooks them.

Yes exactly, until something "spooks" them, in other words until the perceived risk increases beyond the allocated risk premium. Of course the currency appreciates if the risk is the same and the rate increases! The OCR increase was nothing to do with risk, it was simply to curb future inflation.

"fuel increases -> inflation -> still higher interest rates -> more mortgage defaults -> government debt servicing becomes a BIG problem -> " we already have all these right now and will continue to have them- life goes on.

Wrong, the currency is stable, fuel imports and inflation is being kept in check. What I am talking about is a vicious cycle as a result of a massive shock to the real estate sector were Paula Bennett to get her way.

The beneficiary payments are a major reason the Govt has a servicing problem- not enough workers & FAR to many beneficiaries- including those with $100k incomes receiving WFF !!!

Right, however, paradoxically it gets worse when the benefit payments are stopped because as I mentioned, the interest rate increases while tax take goes down (due to downward wage pressure and less demand). The government might save a few billion on benefits but has to shell out on crime, plus remain liable for many more billions to prop up weakened banks.

"IMF bailout???"
After half of Europe, the UK, the USA & various other countries. by that time there will be a lot more to think about than worrying about the consequences of cutting beneficiary payments.

UK and USA will be fine, worst case scenario, they can inflate out of debt. The problem with Europe is, there is too much disparity between the economies, so they have to resort to wealth redistribution among the member states in order to try to correct the imbalance before they can do that. The idea with inflating your way out of debt is that you're not supposed to implode your economy first, you keep the liquidity running.

"Personally I'd prefer the tax, rather than:

Higher interest rates
Higher insurance premiums
Personal risk due to crime
Energy/import price inflation
Wages lowering and job insecurity
Paying for supermax prisons ($91,000 each person you know)"

And thats exactly what the Govt wants you to think, because in the end they will achieve both- tax & your list.

No, the government just wants power. In order to get power they offer more to voters than they can deliver sustainably. Labour uses debt, National uses money from state assets, each appeals to a different voter base, that is their existence. Everything else is a side effect.

[tricky]

Consider the scenario where about half the beneficiaries became ineligible...

Can you expand on how this would happen?
Or is this a fictitious, dreamworld, 'what if' scenario?

And what do you mean by ineligible? Ineligible for what?
Are you thinking the govt would stop all benefits to 50% of their customers? Or just accomodation benefits?

Or do you prefer to just say '200,000 squatters - what are you going to do?'

My reply would be 'I'll tell you when I see 200,000 squatters'

[Realist]

Can you expand on how this would happen?
Or is this a fictitious, dreamworld, 'what if' scenario?

My point exactly, it is a dreamworld scenario and is not feasible.

And what do you mean by ineligible? Ineligible for what?
Are you thinking the govt would stop all benefits to 50% of their customers? Or just accomodation benefits?

Well according to Bennett, she wants a time limit on benefits. Even if she made it a 5 year limit (the study group is talking 3-5 years) then half the beneficiaries would receive nothing, (178,000 are 7+ year recipients - so go figure where the 200,000 figure comes from).

[eri]

unemployment's not working

people get better

quicker

when they are working

perpetual benefits

benefit no one

http://www.parliament.nz/en-NZ/PB/Business/QOA/7/0/d/49HansQ_20100325_00000008-8-Welfare-Reforms-Addressing-Long-term-Welfare.htm

http://www.guardian.co.uk/politics/2010/may/27/iain-duncan-smith-welfare-dependency

[Keys]

Realist.

Your scenario requires all beneficiaries to be booted off their income source at one time. This is an unrealistic assumption. You also assume all beneficiaries will do nothing about it. Your post makes so many assumptions it is not really a valid discussion point. Try to get some more credibility by posting things which are worthwhile. You've also managed to master the "quote" function in two posts. Therefore you know about these forums. Are you someone else and using a second log in ID? If so, what's the point?

[McDuck]

Bravo!

A very interesting concept.

Perhaps you have overstated the case, but the basic idea is sound.

Yes I agree, reducing the money supply to the lazy will reduce the money supply to rentals.

Not saying that all people claiming assistance are lazy.

But many abuse the system....it's human nature.

good thinking, I have not heard this idea before.

[Realist]

unemployment's not working

people get better

quicker

when they are working

Not exactly, statistics are in the eye of the beholder, it's a self selecting sample actually. People who get better then get a job then get better still. Anyway, that's a blanket statement and depends on what the illness is, depression is a comorbidity of many illnesses so of course it helps that component -if the depression is not too severe. More money tends to improve overall health too incidentally. So, whose jobs will be given up in order to get these people off benefits? You need to create jobs in order to get people off benefits, unless you want the above scenario to play out that is.

perpetual benefits

benefit no one

That begs the question, why are people on benefits then?

[Realist]

Realist.
Your scenario requires all beneficiaries to be booted off their income source at one time.

No, only those who have been on the benefit for 5+ years - see above.

You also assume all beneficiaries will do nothing about it.

No, I said some will commit crimes, some will find jobs 'under the table' (thereby putting taxpayers onto the dole queue), I also said some will become homeless etc. Let me guess, in your view they are going to all get jobs and be good little automata? whose jobs?

Your post makes so many assumptions it is not really a valid discussion point. Try to get some more credibility by posting things which are worthwhile.

Obviously an initial assumption needs to be made in order to consider the scenario in the first place (i.e. that Bennett gets her way), after that it's all logical deduction. I don't need credibility, just use your own mind and work the scenario through yourself - it's quite logical when you know how our economy works. Property is the cornerstone of liquidity, liquidity is king. Kill rents and you kill the liquidity machine.

You've also managed to master the "quote" function in two posts. Therefore you know about these forums. Are you someone else and using a second log in ID? If so, what's the point?

Or I could have just mastered it on another forum

[eri]

That begs the question, why are people on benefits then?

for a variety of reasons

many, because they have decided to retire early at the tax payers expense,

these many are increasing in number and are threatening to bring the whole 1938 mickey savage system down

then nz will be forced to dump it and move to the international norm of an insurance system paid for by the tax payer and only funding a year or 2 of benefits

those who want to keep the 1938 labor system should be fighting harder to get the bludgers off it before this happens

and you call yourself a realist

[Realist]

In order to prevent economic shock, the social welfare system would need to be dismantled gradually. A three year term time doesn't allow National to do that successfully, much better they sell state assets than deleverage a fragile economy (when banks offer 95% leverage again, it's not fragile). Most of the benefit money goes straight back into taxpayers hands anyway

[eri]

in order to avoid a hangover

you can keep drinking

it's called alcoholism

and it ends in death

http://www.nzherald.co.nz/social-welfare/news/article.cfm?c_id=322&objectid=10649803

ACC has halved its number of clients on weekly compensation for more than a year from a peak of 29,000 in 1997 to 15,000 today. a saving of 14,000
In the same period Work and Income's sickness and invalids' benefit rolls have gone from 80,000 to 141,000. a blow-out of 61,000

[Realist]

Or you could just reduce gradually?

ACC has halved its number of clients on weekly compensation for more than a year from a peak of 29,000 in 1997 to 15,000 today. a saving of 14,000

That's because they brought back lump sum payouts.

In the same period Work and Income's sickness and invalids' benefit rolls have gone from 80,000 to 141,000. a blow-out of 61,000

That's because the unemployment benefit got harder to stay on.

[McDuck]

And entry level jobs can be pretty dull.
It's one thing for a school leaver to endure a few years of low level work, knowing that they can work their way up in time.
I can't see that situation being too rewarding to a person who has been used to sleeping in all day, saying up all night and doing what they more or less please.
All the while forgetting that the rest of us are carrying them.
Sometimes people need to have no way back in order to move foward.