Labour is giving opposition politicians plenty of issues to exploit as it is stalled by ‘an end-of-year fug’

If  it’s  true  that Labour’s great run is  now  ending,  Opposition parties  should  be vibrating  with  new-found  confidence.

This  may be the   case   with  ACT,  but  so far  there has  been  little sign of  it in National.  In fact   judging  by  the  volume of  speculation  about  National’s leadership  among  the  political  cognoscenti  in  the  weekend  media, the  inner  circle of  the party is stressed  out over  its  leadership.

A  party on top of  its  game certainly would  be  scoring  some   big  hits. On the  other  hand  it  may  be  argued that  the  preoccupation with  Covid has stifled interest  in other political  issues.

Still, as  economic uncertainty  deepens, and  managing the  Covid  Delta  variant  exposes the  government’s vulnerability, the   country  is  looking   again for  something  different,  if only  to  measure  accurately how  the government is  performing.

Beyond  the  leadership issue, the  problem   for  National   is  that it  does  not speak  to  all  elements  of  its  base. It  appears  singularly  out of  tune with  the  regions  and particularly   with  farmers, who are  facing  vocal  lobby groups campaigning  against  what they call  “dirty  dairying”—  never  mind  it is dairy export earnings  that  are sustaining the country’s  balance of payments.

NZ has yet to announce climate-warming pledge for Glasgow summit but RBNZ is developing guidance for our finance sector

The clock is ticking on global warming, the  Dominion-Post  warned this  week ahead of  the Climate Change Summit in Glasgow. 

The  opening  paragraph  of  the  report  was  ominous: 

“Even after  countries — excluding NZ — unveiled  ambitious new  pledges  to  cut emissions,  it’s still  not  enough to achieve the global of 1.5 degrees  Celsius of climate warming,  a  new  report  found.”

The  article  points  out that NZ  has been  notably  absent   from the burst of  announcements that have been made, but  suggests we may  make our declaration in Glasgow.

It  argues that, as  a  small economy,  NZ’s nationally determined contributions (NDCs) will  not sway  the  dial  much.

But Green  co-leader  James Shaw,  who is  representing  NZ  at  the  conference, may  find anything he says is not  greeted  with applause.  NZ, like  Australia,  is  regarded  as  a  laggard  on  climate  change.

Grimes’ grouches with the effects of govt policies on Kiwis’ wellbeing may sting more than the Groundswell protest

The  Ardern  government may  have been  stirred,  but  it  wasn’t  shaken,    by  the  nationwide protest  by  farmers  last  Friday.  And no matter how  far  the protest may have  turned   heads   in  the  rest  of  the  population,   it  leaves  farmers  no  further   advanced  in  persuading  ministers  to  modify  or  revise  the  policies  which  their  action targeted.

So  if  ministers  won’t  back  down  on their  environmental reforms or their climate change  policies,  where   can  the  farmers  go?  Parade  through  Wellington  to  Parliament?   Mount a 24-hour  vigil  in  Parliament  Grounds?

So  far  there has  been   silence  from the  originators   of  the   Groundswell  and if  there  is  a  new  sense of  unity  in  the  rural regions,   it   has yet  to  be  channelled into the  kind  of  pressure that   automatically  achieves  change.

Farmers may be disenchanted with being  told  how to farm, but the  evidence of climate  change  has  been  rammed   home in  the  provinces  in  recent  days hard  enough  to  convince  churlish  sceptics  of  the  need  for urgent  climate  action.

Rising prices raise the prospect of householders bringing Ardern down from the clouds of adoration

The Labour  government has  floated  skyward on  a  cloud of public  adoration  for  many months  now and,  given the  conviction of  those  who  believe Jacinda Ardern  can  do  no wrong,  may  do so   for  as  long again.

On  the other  hand, harsh  realities  may  be  hitting  home,  at least  in  some  households.

This  week  Statistics  NZ  reported consumer prices rose a massive 1.3% (quarter on quarter) in the June quarter.  This was stronger than the  expectation of a 0.9% lift (3.0% year on year).

Annual CPI inflation rose to 3.3%, breaking through the top of the Reserve  Banks target band, and a post-2008 high.

ANZ  Bank  economists  had  one  word  for that:  “Monstrous”.

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.

Woods sticks to her script (a list of what the government has done) after economist rails about housing

As Minister of Housing, she is acutely aware of how decades of under-investment in infrastructure and the building of affordable homes has led us to where we are today, Megan Woods said yesterday.

Great.  But what is being done about it?

Plenty – but nothing that hasn’t been announced already, it seems.

At least, not according to the speech which Woods delivered to the InfrastructureNZ conference.

Woods ticked off a list of programmes already under way and legislation already passed, and she reiterated the Government’s intention to replace the Resource Management Act.  But an audience of infrastructure buffs hoping to be the first to hear of new initiatives would have been disappointed.

Woods’ speech was among the new posts on the Beehive website, since we last checked.

Among the others:

Keeping track of our railways investments: more than $4bn has gone into a revitalisation programme including a new maintenance facility

When shunted out of Parliament at the general election (their likely fate if Shane Jones fails to win Northland), New Zealand First’s MPs at least will be able to look back at their contribution to the revitalisation of the country’s railways.

Mind you, they are doing this with our money and the billions of dollars debt we will be expected to pay back.  And whether the revitalisation makes good economic sense is open to argument because the investment has been huge.

The Government has already committed more than $4 billion to bring New Zealand’s rail network back from the brink after decades of under-investment, Infrastructure Minister Shane Jones said in a press statement which he and State Owned Enterprises Minister Winston Peters released to announce the latest investment.

This is a $39 million investment to build a new rail maintenance facility in Christchurch, which will support hundreds of construction jobs and ensure a strong future for South Island rail, they said.

Almost 300 people will be needed to construct the new facilities in Waltham over the next two to three years and (Peters said) KiwiRail has assured him  it will be using local civil contractors and material suppliers wherever possible  in addition to its own staff.

Govt will help us find forgotten money – it will also enable the RBNZ to hire more staff to (hopefully) protect our finances

Latest from the Beehive –

Our immediate reaction was to be grateful on learning from a Beehive press statement headline that  the government is Protecting Kiwis with stronger financial supervision

Our second reaction was to wonder exactly how it intends strengthening this supervision.

The answer is that a new five-year funding agreement with the Reserve Bank will provide it with an annual average budget of $115 million, up $35 million from this financial year.

The bank expects staff levels to rise 58% to 468 during that period.  To do what?

Not only does the government intend protecting our financial wellbeing, however.  It also aims to boost the finances of some people by introducing a law change to make it easier for forgotten funds in institutional accounts to be returned to their rightful owners.

Revenue Minister Stuart Nash has introduced an amendment to the Unclaimed Money Act 1971. It will update the rules controlling forgotten sums of money held by banks or other financial institutions and professional bodies.

The long list of institutions which hold money on behalf of clients includes banks and building societies, lawyers’ trust accounts, sharebrokers, real estate agents, auctioneers, insurance companies, motor vehicle dealers and company liquidators.

It’s not too long ago that mention of QE was derided as “nuttynomics” and “wacky”

Quantitative easing has slipped comfortably into the vocabularies of commentators discussing the policy response to the Covid-19 crisis.

A post at Investopedia describes quantitative easing (QE) as a form of unconventional monetary policy in which a central bank purchases longer-term government securities or other types of securities from the open market to increase the money supply and encourage lending and investment.

Buying these securities adds new money to the economy and serves to lower interest rates by bidding up fixed-income securities. At the same time, it greatly expands the central bank’s balance sheet.

When short-term interest rates are at or approaching zero, normal open market operations, which target interest rates, are no longer effective, so instead a central bank can target specified amounts of assets to purchase. Quantitative easing increases the money supply by purchasing assets with newly created bank reserves in order to provide banks with more liquidity.

The RBNZ’s staff numbers surge – but the governor warns he wants more (especially for supervision)

Staff expenses at the Reserve Bank  – which have increased by an average 4.4% a year since 2009/11 – surged by 14.8% in the 12 months to 2018/19.

Total staff numbers increased by an average 3.4 a year during those nine years  but shot up by 19  in 2018/19 from 255 to 274.

But wait.  We need more – or rather, the governor says he needs more.

The Taxpayers Union reckons we should ignore him.

According to the Dominion-Post, Adrian Orr this week told a parliamentary select committee the bank is anticipating “a much more significant increase” over its next five-year funding period.

“The begging letter is on its way to the Treasury for inspection and then we will be going into our funding agreement discussion with the Minister of Finance in mid-March,” he said.

Orr told Parliament’s Finance and Expenditure select committee he was not comfortable talking about the scale of the possible resourcing increase ahead of those discussions, but said it was “30 per cent perhaps”.

“The biggest percentage change in staff would be in supervision.”