Briefly for all subscribers, the key things to know from Aotearoa-NZ’s political economy around housing, poverty and climate on Tuesday, July 22 are:

* Inflation figures have confirmed the Government’s economic strategy is failing, with the economy sinking into stagflation just over a year out from the next election. See more below in The Lead and in the podcast above.

* Unlike after previous big rate-cutting cycles, the housing market is not firing up and business investment is stalled. That’s because bank lending is restricted and house sales are frozen in the headlights of prices being 10-20% below their peaks. See more below in The Lead and in the podcast above.

* Environment Canterbury (ECan) has approved dairy conversions for over 15,000 additional cows in six months, Charlie Mitchell reports in a scoop for The Press-$ this morning. See more in Climate Picks ‘n’ Mixes below.

* There are just 153 families getting the maximum FamilyBoost payment, OIA queries by Labour have found. Via NZ Herald. See Numbers of the Day below.

* Today’s Chart of the Day is via Ganesh R Ahirao from his substack post about how Effective Marginal Tax Rates on families receiving income-tested benefits such as Working For Families and the Accommodation Supplement are now up over 97% in some cases.

* Today’s must-read from Eloise Gibson for RNZ about climate change risks for home owners: Can households really assess their own risk? See Picks ‘n Mixes below

Paying subscribers hear more detail, analysis and commentary in the podcast above and get the links and sourcing below the paywall, along with my full Picks ‘n’ Mixes for this morning. I’ll open it up for all to read, listen and share if paying subscribers give it more than 100 likes.

The Lead: When relying on rate cuts alone doesn’t work

Inflation figures yesterday from Statistics New Zealand have confirmed the Government’s strategy of relying on tight budget policy, tax cuts for savers and lower mortgage rates for homeowners, in order to fire up the housing market and then economic growth, just isn’t working.

Instead:

* inflation is rising back towards 3% later this year from 2.5% early in 2025, with prices of ‘essentials’ ie food, rent, rates, electricity and petrol rising twice as fast as disposable income for renters;

* GDP is falling, with the RBNZ’s NowCast forecast seeing a 0.3% contraction in the June quarter;

* the housing market is stalled, with house prices falling and taking an average of 48 days to sell, nine days longer than the average since 2008;

* mortgage rates have stopped falling, thanks to higher global interest rates and financial market views there are only one or two more OCR cuts to come;

* employment is still falling; and,

* business investment is now so weak that banks have not lent any net new money to non-landlord businesses and farmers since May last year.

It worked before. Why not this time?

PM Christopher Luxon and Finance Minister Nicola Willis bet on a strategy that cuts in Government spending growth would take inflation pressure off the Reserve Bank, encouraging deeper cuts in the Official Cash Rate, which would in turn boost household spending, business investment, employment and the housing market, as it has before. It may have helped the RBNZ cut 225 basis points in a year, although the bank itself is noncommittal on the scale of the help from fiscal policy. Also, the Government itself has increased a swathe of fees and charges, along with triggering big rates increases by freezing capital grants to councils.

Regardless, the strategy is failing because:

* the housing market is not firing up, despite 225 basis points of rate cuts;

* business investment is flat because renting households, who don’t save, are cutting spending in the face of real wage deflation; while,

* those on higher incomes benefitting from tax breaks and high term deposit rates are simply increasing their savings.

Indicative of the savings glut depressing spending in shops and on building sites and hardware stores, household term deposits have risen by $25 billion to $262 billion since the election in 2023. They are up from $184 billion just before Covid hit. That fact is the most surprising for any believing ‘there is no money’ and ‘everyone is suffering through a cost of living crisis. Young renters are doing most of the suffering.

To cap it off, business investment has stalled because of a lack of consumer spending by those spending 100% of their income. When landlords see rent inflation has stalled, along with house sales volumes, and so they don’t want to or can’t gear up more to buy more homes or build more, they:

* put more money into term deposit accounts or repay debt;

* don’t spend it in shops and hardware stores.

Why this time is different

The Government’s strategy is conventional and has worked to lift GDP after past recessions and rate-cut cycles in 2001/02, 2008/09, 2015/16 and 2019/20. But this time:

* there are tougher Reserve Bank capital restrictions on banks;

* there are lending restrictions on both first-home buyers (LVRs) and rental property investors (DTIs) (There were no LVRs and DTIs or tougher bank capital requirements in 2001/02, 2008/09 and 2019/20), and,

* this time house prices are substantially below their previous peaks and not forecast to hit record levels again for as much as nine years since the 2021 peak, while the 2008/09 gap between peaks was barely three years.

And unlike the past National-led Government from late 2008 to 2017, this one has cut Government investment spending on roads, hospitals and schools, and delivered tax cuts that benefited savers more than renters and homeowners with big mortgages. The last National-led Government steered away from big Government job cuts and tightening benefit indexation when it was elected. It also promised to avoid the ‘Mother of All Budget’ benefit cuts of 1991 and pledged big new road spending. It also added to the fiscal stimulus in the wake of the Canterbury earthquakes in 2010/11.

Instead, this Government embarked on restructures and thousands of public service job cuts as soon as it was elected, and immediately froze new spending and infrastructure planning for public housing, roading, council grants and new hospitals. The idea was this would allow the RBNZ cut the OCR more and faster.

The money is not circulating

The trouble was the current Government also depended on those cuts firing up a surge of lending into the housing market to increase sales volumes and the flow of cash around the economy. That didn’t happen this time because sellers wanted to wait for house prices to rebound, and buyers weren’t able to easily borrow more.

Depending on rate cuts to create economic growth has left the Government as a hostage to Reserve Bank capital and lending rules, both of which are not expected to change much pre-election, without much more aggressive intervention by Willis.

It is also hostage to a housing market where prices could remain below their peaks for a decade, freezing in place those sellers who would normally use fresh record-highs to extract equity and either upsize or downsize into new homes.

Quote of the day: Real spending and GDP pressure

“If GDP is to pick up meaningfully then household consumption has to rise. With effective real disposable incomes under so much pressure there is very little chance of an increase in real spending.” BNZ’s Stephen Toplis in his CPI note

Chart of the day: A 97% tax rate

Numbers of the day: 900, 153 & $470 million

* Rafaella Melo for Hawkes Bay Today: 900 women waiting, but doctor can’t help

* Julia Gabel for NZ Herald: 153 families get maximum FamilyBoost credit

* Cameron Smith for NZ Herald: KiwiSaver Hardship withdrawals hit $470m

My Pick ’n’ Mix Sixes for Tuesday, July 22

Politics

* Adam Pearse for NZ Herald-$: RBNZ chair denies conflict of interest\

* Paula Penfold for Stuff: Justice appointee resigns after Stuff reveals flawed CV

* Neil Sands for Law News: Minister adopts Uber’s wish-list

* 3News via Stuff: Willis blames ‘rainbow toilets’ as inflation hits 12-month high

* Op-Ed by Mike Smith via Melanie Nelson’s substack: :NZ for Sale: What the Overseas Investment Act changes really mean.

* Op-Ed by Auckland Uni’s Jane Kelsey for The Conversation: Why has a bill to relax foreign investment rules had so little scrutiny?

Economy & Business

* Sky Network TV says it is buying Discover NZ (TV3) for $1

* Scoop by Mandy Te for Interest: Research sheds light on how NZ's uber rich achieve offshore secrecy

* Michael Morrah for NZ Herald: Greyhound racing: TAB may cover rehoming under new laws

* Brian Easton for Interest: The reality of fiscal constraints

* Andy Haldane for FT-$:Fiscal populism’ is coming for central banks

* Monique Steele for RNZ: Mars, Nestlé bankroll Fonterra's low-emitting farmers

Housing

* Frances Chin for The Post-$: Greens look to rates system to relieve residents, target landbankers. Mayoral candidate Alex Baker and the Green Party have independently come up with near-identical policies targeting landbanking.

* Deep-dive by OneRoof: Has NZ’s next leaky building crisis already begun?

* Anonymous for The Spinoff: Why can’t we ever finish anything? A council planner at their wits’ end. The government’s recent directive is a 'massive sucker punch', writes one council planner.

* NZ Herald: A third of new builds in Auckland are failing final inspections

* Deep-dive by Nicholas Pointon for NBR-$: Land lease communities an Australian phenomenon. Australian land lease communities would seem a natural fit in New Zealand, so why aren’t they?

* Lane Nichols for NZ Herald-$: Key report ‘wasn’t requested’ — vendor.

Transport, Infrastructure & Councils

* Nick James for RNZ: Can the national ticketing project get back on track?

* Matt Lowrie for Greater Auckland : Auckland Transport have released their latest work studying the impacts of a potential congestion charging scheme.

* Column by Hayden Donnell for The Spinoff: Better things… are… possible?What is this strange feeling? Could it be hope? About Auckland?

* Column by Joel MacManus for The Spinoff: The government’s misleading case for rates caps.

* Zita Campbell for LDR via NZ Herald: Gisborne does not back LGNZ campaign against rates-capping

* Tina Law for The Press-$: Unpopular changes to busy Christchurch roundabout actually worked, new report says

Poverty & health

* NZ Herald: New research points to growing poverty crisis

* Hikitea Ropata for E-tangata: ‘Why are there more vape shops than GPs in my suburb?’

* Gabi Lardies for The Spinoff: Curtain banks are in hot demand. Curtains are the most used intervention by the Healthy Homes Initiative.

* Dr Oz Mansor on his substack: More measles. Three weeks of notifications; Hydatid case; Pertussis national epidemic; and winter illness.

* Anna Leask for NZ Herald: 'Not sick enough for help': Endometriosis patient ‘rejected’ by public health system

* Dr Bex via her substack: Accessible public toilets are important, basic infrastructure. Pushing back on the "woke nonsense" foolishness.

Climate

* Matt Whineray interviewed by Eloise Gibson for RNZ: Chair of panel behind climate change report on govt buyouts says they never meant to suggest there should be no Government help

* RNZ: 'Great Rides' need double the money to keep running smoothly

* Max Frethey for LDR via RNZ: Kaiteriteri beach's water rating downgraded after 'alarm' level test results

* RNZ: Waitangi Tribunal pushes pause on seabed mine claim

* Peter de Graaf for LDR via 1News: Ten years of boiling water in Kāeo: 'They just can't rely on' it

* Op-Ed by Peter Meihana, Corey Hebberd & Shaun Paul Williams for The Spinoff: Rising seas threaten to swallow one of NZ’s oldest settlement sites – new research

Docs of the day

* CPAG report: Families below the Income Floor face growing crisis – new research

* The Investor Group on Climate Change: The Financing Australia’s Corporate Climate Transition report finds disconnect between ambition and reality.

* Stats NZ: Annual inflation at 2.7 percent in June 2025

* Transpower: Designing a future grid blueprint. First consultation document

* Post-cabinet news conference video via RNZ

* RNZ: Four-day work week reduces burnout and improves job satisfaction - study

Cartoon of the day: In the right direction?

Ka kite ano, Bernard

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