Questions

1. Questions Growing up to Business

2. How we get prosperity into all homes • Education / Retraining • Jobs • Higher salaries • Higher salaries requires more profitable businesses • More profitable businesses • Better economic framework for business • Significant changes to monetary policy, tax and banking regulations Grow the size of the economic pie

3. We don’t know what we don’t know • Children • Think money comes out of a Hole in the wall • Employees • Think more $/ hour • CEO / Manager • Think reduce cost to buy/make • Increase price to sell • Directors and owners • Think shareholder value • Cost of capital • ROI • Corporate responsibility Understanding wealth creation

4. So why am I here New Zealand is strategically challenged • No Vision or Strategic Imperatives Identified • Our current course will soon lead us to Iceland's demise • The “free market” is enslaving us in debt • Via speculating boomers, Banks & Monetary policy • The left has passively participated • Not playing to our strengths as a nation • We don’t know our enemies • Economic Sovereignty must be our goal That’s what drives me and that’s what I am going to talk about

5. Can you trust my opinions? Previous Experience • Avnet Asia Pty Ltd: Senior VP (Singapore) • Prolificx Ltd: Founder and CEO • Endace Ltd: Founder former CEO / Chairman Currently • Imarda Ltd: Founder / Chairman and CEO • Endace Ltd: Director • Swaytech Ltd: Founder / Director • Northstar Logistics Pty Ltd: Founder and Director • Storm Distribution Ltd: Founder / Director • The Demo Room: Founder / Director

6. Benefit to the country in the last 12 months Earned over $80 million in foreign currency Employed over 170 people (120 in New Zealand) Average salaries over twice the national average Corporate and PAYE Tax contributions circa $5 million • Support another 125 entrepreneurs and in 7 years that could mean • 10 billion in high tech exports. • 15 thousand high paid jobs

7. My Vision for New Zealand I want New Zealand to be the exemplar among small economies on how to build a sustainable, high-wage, high growth, hi-tech economy that benefits all it’s citizens, while fiercely protecting it’s economic sovereignty and ensuring we create new strategic options for generation X & Y

8. Lofty ideas, or a deliverable vision? “If you have built castles in the air, your work need not be lost; that is where they should be. Now put foundations under them” Henry David Thoreau Strategic Planning Must • Start with a vision from the leader (or leadership team) • Have strategicimperatives clearly identified • Put strategies in place that will deliver the strategic imperatives • Contain tactical actions plans (TAPs) that will deliver the strategies

9. But how depressed do you want to be?

10. How we got there….simple anology • Wealthy couple in their 50s • with good education and jobs, with children at university • Lifestyle is high • mums income is modest but completely disposable • Father dies unexpectedly • and suddenly the world is a very different place • Mum maintains lifestyle • at previous levels but the money in doesn’t match money out • The bank points out that the house has increased in value • and perhaps a small mortgage is the answer • Spending continues un-interrupted. • No attempt to increase income or decrease spending • Children leave home and repeat the behavior • Bank forecloses on their houses and then mums

11. My analogy of New Zealand • In the 50s the boomers arrived • No 5 in the OECD thanks to primary exports to England • Our protected export market suddenly died • Population pretend nothing had changed and maintained current lifestyle • Borrow and hope inflation, future commodity prices or another generation will take care of the debt • Behavior becomes intergenerational and accepted as normal and sustainable • New Zealand lines up with Iceland

12. No magic bullet! Many things contributed to this problem

13. How to destroy economic sovereignty RBNZ Forecasts higher inflation Consumption increases RBNZ Increases Interest Rates This attracts foreign funds House / Farm prices increase NZ money supply increases More careless lending NZ$ exchange rate increases Financial Failures Tradable economy stalls Carry trade drives up NZ$

14. Export vulnerability (2007) [D] Volume of currency traded Country’s GDP Value of exports Country’s GDP Country’s GDP World GDP = x ÷ Don’t have our form of monetary policy !

15. Monetary policy does matter(example) Monetary Policy Demand for Credit Asset Appreciates Yes Floating Where does the bank get the best return X No Pegged Money to lend X No Managed The monetary polices of Korea and Singapore are designed to protect their productive economy

16. The extent to which NZD is traded (2007) Times GDP Volume of currency traded Country’s GDP =

17. FX traders love volatility

18. Trade Weighted Index matters • Like Singapore, we need to protect our exporters by managing the exchange rate within acceptable bounds relative to our trading partners.

19. OCR only effects tradable inflation

20. Tax policy matters Do I invest in property that • I can leverage cheap long term bank money • I get a tax write off against my PAYE • The asset typically appreciates • I am aligned to in interests of 90% of the population and therefore politicians Or Do I invest in a business that • I pay a premium for money and then only short term • I get no tax write off against my PAYE • The asset (business) requires constant reinvestment • I become the minority in society with no caregivers

21. Stability matters • Would you invest in an exportbusiness where… • revenue could vary by 60% (while your production is constant) • your funding could not be guaranteed beyond a few months • the cost of funding was linked to property speculation and inflation This is why New Zealand has one of highest participation rates and one of the lowest productivity rates

22. Capital Gains Tax matters CGT exists in • Australia • UK • USA New Zealand • (without it) over shot all other property bubbles New Zealand

23. The results….. Business v Housing (excluding agriculture)

24. Equity matters and its eroding! • A stalled export sector is only part of the damage caused by the inflow if capital • Not surprisingly the increased debt is eroding our net equity to GDP New Zealand Net International Asset Position

25. Banking behavior REALLY matters • Banks took advantage of the last upswing • They managed the inflow of funds attracted by the workings of the OCR mechanism • The inflow was then passed on to eager property investors • Dramatically increasing national debt • Lifting the OCR, exchange rate and thus killing exports

26. Banks via the OCR fueled the last bubble • Money in circulation increased as the OCR went up • Flooding the market place with money will fuel inflation • Which will further increase the OCR

27. Know your enemy (economically) • Australia and its banking system are farming our best… • People • Companies • Investments • Ideas • Last year the big four Aussie banks made total profits of $3.6 Billion • The rest of the NZX 50 made only $2.8 Billion

28. The scourge of property speculation • The pyramid selling scheme that is property speculation • doesn’t create any sustainable jobs; • earn any foreign currency or • pay any tax • Yet its existence has • created a vacuum to suck in foreign capital (and increase our national debt) • drives up interest rates via the OCR as the property markets become inflationary • drives up the exchange rate as the OCR increases • made our housing amongst the least affordable in the OECD

29. Remove the “poverty tax” • Bill and Jim work together • Bill invests in property Jim doesn’t • Bill gets deductions against his PAYE reducing his tax • Jim must therefore carry a higher % of the tax burden • When Bill sells his house he doesn’t have to repay • The lost tax, or the lost tax and interest or the lost tax interest and opportunity cost • So in effect a portion of Jims earnings (via tax) has ended up in Bills pocket. • This process is a poverty tax on all hardworking productive New Zealanders. • Why would you allow something that is actually destroying our country become a tax on our poorest people and our exporters.

30. You have to plan to succeed Types of Capital management techniques Objective of capital management techniques

31. Singapore is an acknowledged success

32. Singapore delivers

33. Singapore has no natural resources

34. Current account gives options

35. What I would do • Stop unproductive property speculation • CGT or ring fence losses against PAYE? • Get investment flowing into productive businesses • Requires tax incentives • Adopt a monetary policy that gives stability to exporters to make long term investments • Singapore would be a good reference point

36. What I would do • Progressively introduce compulsory superannuation. • a must for regaining economic sovereignty • stimulates our flagging capital markets • lifts the value of our companies • Vary contributions to superannuation according to inflationary conditions • Recapitalise Kiwi Bank for market share growth • Hardwire Kiwi Banks behavior into our RBNZ direction settings as part of monetary policy.

37. Yes we need a bigger Kiwi Bank!

38. What I would do • Create national hero's of our entrepreneurs • Support them to create new innovative export focused businesses • Encourage any possible moves in farming into higher yielding specialist products • reduce the need for over farming • selling on commodity pricing

39. What I would do • Protect strategic assets as opportunities for national competitive advantage • Power Generation • Power reticulation • Telecom • Air NZ • Ports etc • Privatise activities like NZTE Focus 150% on regaining Economic Sovereignty

40. Summary • New Zealand’s economic fortunes start with a vision • Left and Right is irrelevant to 80% of the population • Right and Wrong is relevant to 100% of the population If you don’t know where your going any road will get you there • The country needs a strategic and coherent vision • With strategic imperatives, strategies and tactics to deliver the Vision

41. Some parting thoughts for us all “Try not to become a man of success but a man of value” Albert Einstein “Men do less than they ought, unless they do all they can” Thomas Carlyle

42. Questions Growing up to Business

43. Productive Economy Council’s Visionsaid in plain English • We should aspire to be the exemplar among small economies on how to play to our strengths instead of allowing the world to play to our weaknesses • We can build a new sustainable and high value export economy that compliments our existing exporters • We must ensure the benefits of success are distributed equitably to all our citizens instead of allowing land and building ownership to suck up all the available wealth and investment

44. Productive Economy Council’s Visionsaid in plain English • Success will come from fiercely protecting our ability to control our own destiny (our economic sovereignty) and making New Zealand “the place to live and work” for the worlds best and brightest. • We are small so play to our strength, be nimble and fast in everything we do. • Our ultimate goal is to create a better New Zealand, where our children and grandchildren have choices about their future that we don’t enjoy today