I have nothing against the idea of a “financial hub” per see. We can make an argument for “infant industries” or “positive spillovers” to justify government involvement. However, the burden of proof is on those making the claims.
That is why the Herald story on this makes me suspicious.
Making New Zealand an international finance centre with “middle and back-office functions” in the funds management industry was one of the recommendations of the Capital Markets Taskforce report last month.
It found the “hub” notion viable but kept the detail of its advice on how to implement the plan out of the report, giving it directly to Mr Key instead.
Usually, people avoid putting things into reports and give them straight to ministers when their analysis is suspect …
Furthermore, look at these claims:
Mr Key says early advice is that between 3000 and 5000 jobs could be created if the plan comes off.
The benefit would be the creation of back-room jobs and taxing the fund administrators. The funds themselves would not be taxed.
On the face of it this is fine. We shouldn’t tax the funds as we are just an intermediatary – we should tax the value added bit. Cool. Furthermore, there are jobs, implying that value is being added which creates labour income, cool.
However, HOW do they plan to make us a hub. This is the important question. Do these jobs come from subsidising an industry and thereby moving workers from one sector to another. If so there are opportunity costs – and we better well have some damn good analysis about why market prices aren’t providing the right signal.
Now, it is trivial to state that a government action COULD have a positive impact – give me a possible policy and I can make up a model that would make it sound like a good thing to do. In truth, we need details so we can ask if we think it WILL have a positive impact – a situation which is only a small subset of all the “could” situations.
And of course, to do that we would actually have to see some analysis – which we have been told was not put in the report.