Well done, Minister – almost $1bn of spare Covid cash is found and Robertson lands a new job to keep an eye on his colleagues

Yes, Grant Robertson’s pre-Budget speech has now been posted on the Beehive website and we can officially confirm that not all funding allocated in the COVID Response and Recovery Fund has been spent. Our Finance Minister has almost $1 billion of unspent dosh to play with (and the Taxpayers Union is reminding him he is under not obligation to spend it).

He also confirmed he has a new job (but we imagine he won’t be relinquishing any of the others).  He will be leading the establishment of a team which will ride shotgun on the implementation of “critical” initiatives.

This means he will set up a new team to do the PM’s job of ensuring ministers actually do what she wants them do and what they are paid to do, in other words.

As part of the Budget preparation, Robertson told the Wellington Chamber of Commerce, he asked each Minister to look again at COVID spending for which they were responsible to see if it was  still needed or is still a priority, and whether underspends could be reprioritised.

And hey – this exercise has yielded around $926 million worth of savings. Continue reading “Well done, Minister – almost $1bn of spare Covid cash is found and Robertson lands a new job to keep an eye on his colleagues”

No need to worry; the consensus says inflation isn’t going to be a problem

Ever since the 2008 financial crisis, pessimists have been saying we are due a global inflation surge. So far they’ve been wrong. The world’s economies, particularly the rich ones, have sucked up fiscal and monetary stimulus and the biggest official concern has usually been that the inflation rate is too low.

But even a stopped clock eventually shows the right time.  Given Covid-induced monetary and fiscal overdrive, might the worriers finally be proved right?

Continue reading “No need to worry; the consensus says inflation isn’t going to be a problem”

Financial Times chips in with some advice to our Finance Minister on the folly of adding housing to central bank’s deliberations

A Financial Times leader delivers advice that Finance Minister Grant Robertson should (but probably won’t) consider.

Essentially, the advice is to resist the temptation to  involve the central bank in the challenge of slowing the rise in house prices.

Changing regulation and reforming planning law is a smarter way to go.

The FT observes that – to many – it may seem obvious that the central bank quantitative easing programmes launched after the 2008 financial crisis have led to inflation, as money printing inevitably does.

But the inflation has shown up in booming stock markets, high prices for art and collectibles, and surging cryptocurrencies.  Rather than higher consumer prices, cheap money has led to asset price inflation.

In this reading, the FT says, central banks should reconsider their stimulus policies because they are only delaying and deepening the eventual bust.

Furthermore, according to the critics, stimulus is increasing wealth inequality and worsening housing crises.  Higher asset prices increase the net worth (as measured by market prices) of those who already have substantial wealth while leaving the position of those without assets unchanged.

Similarly, it pushes home ownership further out of the reach of those lacking in savings or inheritances — inflation that shows up in assets but not wages is particularly bad news for affordability.

The FT explains that this is why New Zealand’s government has instructed our  central bank to consider the effect of its policies on the housing market.

The centre-left administration of Jacinda Ardern has said that while the Reserve Bank will remain independent, it will have to take into account the government’s objective of “sustainable house prices”, which includes taming investor demand, when making policy decisions.

It is true that a fall in interest rates will increase asset prices, all other things being equal. Lowering the cost of borrowing should make it more attractive to buy long term assets, such as housing, that bring benefits that can last for decades.

Indeed, encouraging investment spending is part of a central bank’s motivation for cutting rates.

But to refer to a change in the price of assets relative to everything else as inflation — which means a change in the value of money — is a misnomer. A change in a particular set of prices is not the same as a change in all prices: houses have become relatively more expensive to all other goods and services in the economy, not just the Kiwi dollar.

Engineering deflation in consumer prices to address the particular, idiosyncratic, problems of the housing market would be a serious mistake. Using tighter monetary policy to reduce the price of real estate would also have the effect of reducing workers’ wages — a central bank-induced recession would ultimately do little for affordability.

Interest rates cannot be used to solve every problem and central banks have struggled enough to try to hit their existing inflation targets.

As the institution responsible for financial stability in New Zealand, the Reserve Bank should consider whether it has all the necessary “macroprudential” tools to address concerns about the housing market.

In November it already announced tighter restrictions on high loan-to-value mortgages. Requiring would-be homeowners to have bigger deposits will do little to address concerns about affordability, however.

Central banks, however, make a convenient scapegoat for politicians who are unwilling to take on the vested interests that can create an artificial scarcity of housing even in a land-rich country such as New Zealand.

Changing regulation and reforming planning law is a more sensible way to address the deficiencies of the housing market than running a monetary policy that would not be justified by the inflation and unemployment data.

In short, to solve New Zealand’s housing problems, “Ardern’s administration will need to look much closer to home”.

Robertson – of course – seems unlikely to be greatly bothered by the Financial Times, having  disregarded the advice of the governor of the Reserve Bank on this matter.

RNZ reported him as saying the government needs to use all the economic tools available to try to control escalating house prices.

Robertson is defending his decision to change the Reserve Bank’s remit to include house prices in its monetary policy considerations.

That is despite the bank’s governor, Adrian Orr, warning him last year that that was not a good idea.

Robertson said the government is not saying the Reserve Bank should be responsible for house prices – but the government needs to pull every lever within its power to tackle the housing issue.

The government was not suggesting the house-price crisis was entirely the responsibility of the Reserve Bank, Robertson said.

“What we are saying is that all parts of the apparatus need to be working towards these goals.”

Robertson said the government has been considering a wide range of options on both the supply and demand side of the housing market.

The Great Reset: Deputy PM pulls the plug on Magic Talk audience after reacting (badly) to questions about a conspiracy

None of our readers should be surprised to hear of a politician ducking questions.  But Deputy PM Grant Robertson’s handling of questions about “The Great Reset” and what he did subsequently bear closer examination.

The questions posed by host Peter Williams appeared designed to give Magic Talk Mornings listeners a better understanding of this Great Reset caper and whether New Zealand would be involved.

But Roberson dismissed the phrase as a conspiracy theory and – we are told – will no longer appear on the show.

As far as Point of Order can ascertain The Great Reset is an initiative of the World Economic Forum which has triggered conspiracy theories among reactionaries who fear it is part of a vile Marxist plot to over-tax them or otherwise do them a serious economic mischief.

But there are umpteen conspiracy theories around all sorts of things, including Covid-19 and the vaccines to deal with it.  Will Robertson no long be talking about them, either?

The WEF says on its website:

There is an urgent need for global stakeholders to cooperate in simultaneously managing the direct consequences of the COVID-19 crisis. To improve the state of the world, the World Economic Forum is starting The Great Reset initiative. Continue reading “The Great Reset: Deputy PM pulls the plug on Magic Talk audience after reacting (badly) to questions about a conspiracy”

Dairy prices and Fonterra’s re-establishment as a global  leader should be celebrated far beyond the cowsheds

The New Zealand economy, although battered  by the  Covid-19 pandemic, has  moved   into 2021  in  better  shape  than  anyone  might have predicted  just six months ago.

To  a degree  this has been due  to  the  continuing vibrant performance  in the export  sector  particularly  by the  primary industries. This  week  there  was a  fresh surge  of  confidence   within that sector  because of the signal from the big dairy co-op, Fonterra, in lifting its  milk payout  forecast.

Fonterra  now expects to pay farmers between $6.90-$7.50kg/MS. That is up 20c a kg from its previous forecast range of $6.70 -$7.30.

Analysts  had  seen this  coming  and  as  Point  of Order  has contended  in recent  posts  it is the  message the  rural regions  needed as  they made  plans for  the  coming year. Continue reading “Dairy prices and Fonterra’s re-establishment as a global  leader should be celebrated far beyond the cowsheds”

Can the world economy continue to float on a cushion of debt?

Monetary policy is difficult.

Economist Scott Sumner describes in his blog how the thinking of an intellectual giant like John Maynard Keynes evolved through three distinct phases in the 1920s and 30s.  As the man himself is reputed to have said “When the facts change, I change my mind.  What do you do?”.  Sumner then argues that the thinking of the economics profession repeated pretty much the same pattern of evolution over the last decades of the twentieth century.  

It makes a persuasive case for intellectual humility in general, and in monetary policy in particular.  Even more so in unusual times.  The forcefulness and fluency of experts can conceal the fact that they are testing new ideas when they make policy.

Continue reading “Can the world economy continue to float on a cushion of debt?”

We can learn from Australia about becoming too reliant on trade with China

So  how is  NZ Inc  doing  in this pandemic?    OK, you  might  say.  Take  for  example  NZ’s  external  trade.  NZ  has  posted   its  biggest  external    trade surplus in 28 years as  Covid-19  led  to a sharp fall in imports.

For the  month of  October  there was a deficit of  $501m, just under  half  the  size of the deficit  the  previous October.

All up, international trade has proved  remarkably  resilient – a welcome boost for a  small importing economy like  NZ. And there  are signs  the  economy is strengthening,  says  ASB  economist Nat  Keall.

He said that on the same day the NZ sharemarket rose to a new record.

But despite the positive signals, exporters  can’t  rest  on their  laurels.  Indeed, fruit  exporters  are already under the  pump  as  they  face  shortages  of  workers  for  coming  crop  harvests. Continue reading “We can learn from Australia about becoming too reliant on trade with China”

Covid: an endgame taking shape?

Things are moving fast on Covid, perhaps faster than we realise.  But as Europe painfully grinds its way through a second lockdown, it’s easy to miss this.

First of all, it’s more of a lockdown-lite this time.  Policy is more nuanced and – although most people are too polite to say – has more or less converged on a Swedish approach.

Secondly, the second wave so far looks less deadly. Excess mortality is considerably below the levels of earlier in the year. And while the institutional response hardly rates as an exemplar, there are plenty of signs of successful adaptation, of government policy certainly and, perhaps more importantly, of individual and business behaviour.

Continue reading “Covid: an endgame taking shape?”

NZ chooses hope over fear – we’ll find out which was the wiser choice

Viewed from the far side of the world, Jacinda Ardern’s triumphant re-election suggests an extraordinary level of hope and expectation behind the voters’ decision.  If it can’t be managed down, it’s hard to see how it can be met.

The opposition National Party were singularly unsuccessful in tapping into voters’ fears for the future and selling themselves as the safer option.  Instead, they appear to have leaked voters predisposed to such fears to the ACT party.  

Given that their signature tune in recent years has been the argument we can finesse the ‘hard choices’ more realistically and efficiently than the Labour party, they should not be altogether surprised that middling voters grasped at the government’s suggestion that some hard choices might be avoided altogether (for you and your family, and maybe even for the country).

Continue reading “NZ chooses hope over fear – we’ll find out which was the wiser choice”

Covid news not bad; political and economic news not good

This far into the epidemic it’s interesting what we know and extraordinary what we don’t. Which is more significant: the knowledge or the ignorance?

So what is happening:

  • Daily cases in many European countries are rising sharply but recorded death and excess mortality rates are not – so far.
  • In the US, the daily case and death rates have been falling for two months, from a late summer bump.
  • And in Australia and New Zealand, we are seeing just how hard it is to eliminate the disease.

The data has lots of possible interpretations, which certainly helps if you’ve got a particular case to support.  But one piece of good news is that the fear factor is coming in at the lower end of expectations.

Continue reading “Covid news not bad; political and economic news not good”