Here’s the six things that stood out to me in Aotearoa’s political economy in the last day around housing, climate and poverty:

* Chris Bishop has dumped his plan to dismantle regional councils and replace them with mayoral committees, instead telling councils to present their amalgamation plans to the Government within 90 days or ‘we will do it for you.’

* The ultimatum is the latest in a multi-decade series of Government pleadings and orders to councils under both Labour and National to amalgamate to find synergies and make it easier to find private capital for infrastructure. It’s driven by their bipartisan and doctrinaire belief that central Government should squeeze itself under 30% of GDP. To do that, it always needs to get someone else to pay for the infrastructure to cope with the migration-led population growth the Government enables and benefits from. Meanwhile, councils get none of the GST or PAYE from population growth, but own 35% of infrastructure, and get 11% of taxes to fund it.

* Unions Wellington will present an in-sourcing proposal to the Wellington City Council tonight, estimating the Council could save $65 million by bringing legal and engineering work back in-house.

* The Investigation of the Day is from Chris Knox and Ben Leahy at NZ Herald-$ documenting how Kainga Ora has sold 777 state homes for $330 million since July 2025, including 34 Auckland homes sold for 13% less than their 2024 Council Valuations (CVs).

* Business groups and unions have written a joint letter to Employment Relations Minister Brooke van Velden calling for changes to Health and Safety law changes that exempt small businesses and loosen laws written after the Pike River disaster.

* Deep-dive of the day: FTAlphaville’s Robin Wigglesworth wrote overnight global oil analysts were increasingly worried about a growing risk of a ‘non-linear spike’ in oil prices as oil stocks near rock bottom.

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An eternal hunt for magical merger gains & private capital

The magical thinking goes on and on. It’s about time someone called b******t on it because it’s not working. It never worked. It won’t work. But it goes on because the eternal hunt for the magic solution to infrastructure funding that doesn’t require ratepayers or taxpayers to pay allows everyone to believe in the magic, without taking the tough decisions. Denial, delay and deflection are essential tools for modern politicians.

For at least 20 years Governments of both the Labour and National varieties have been on a quest to squeeze the size of central Government below 30% of GDP, while also trying to get someone else to pay to build and maintain the infrastructure needed to cope with the migrant-led population growth enabled by their central Governments, which collected all the GST and PAYE from that growth.

The problem is councils own 35% of the infrastructure and get just 11% of all taxes, and none of the GST and PAYE. So the incentives to unleash population growth are horribly skewed, leading to population growth without the infrastructure and constant fights between councils and the Government over who will and should pay.

Government doesn’t want to pay because that would imply higher taxes. Councils don’t want to pay because that implies higher rates. Government loves population growth because it buys easy and fast GDP growth without the immediate need for investment funded by either (or both) taxes or debt. So we end up with a constant fight between councils and Government, with councils calling for shares of GST and capital grants from Government, and the Government telling the councils they need to spend less on ‘nice to haves’ and bring in private capital to fund the infrastructure.

Both Labour and National have tried to rewrite the laws to make it easier for both councils and the Government to bring in private capital to pay for infrastructure. Labour tried in 2020 with the Infrastructure Funding and Financing (IFF) Act, which was supposed to unleash a welter of council bond issues from special purpose vehicles to private investors, which would be funded by levies on homeowners in new developments. It was modelled on the Milldale development on the North Shore.

But just two projects used the IFF in five years because it was more expensive than simply issuing council or Government bonds and it turns out bond investors didn’t want fiddly and small scale bonds linked to specific projects. It also didn’t take into account that densification plans actually needed water and transport network-wide investments, rather than greenfield investment, which the IFF was designed for.

Bishop is now trying to amend the IFF to make it easier to do bigger and wider deals that include both NZTA and KiwiRail, and that incorporate changes to development levies that are also being proposed, which are also designed to front load and offload the big capital costs of infrastructure to the new residents of cities and new home owners. That’s different from the 1930s to 1990s when existing taxpayers and ratepayers fronted up as a group to pay upfront so that future residents would get the benefits. Then along came the theory that existing residents shouldn’t pay for new ones (but should collect the benefits).

Abracadabra all over again. And again. And again.

It’s a dumb and failed idea that simply led to population growth without enough well-maintained infrastructure, and allowed both politicians and voters to pretend they could have it all.

Aside from the IFF reform and the development levy reform, both Labour and National Governments have believed the magic solution required both a new Resource Management Act and bigger councils able to do bigger projects with bigger bond issues that fund managers might actually bother to look at and analyse. The theory was that (somehow) merged councils would be more efficient too.

The model here is the ‘Super City’ that slammed together the Auckland Councils. To be fair, it has eventually led to some more public transport projects and the Auckland Unitary Plan, but I have yet to see proof it actually reduced costs per extra household.

Auckland is a special case too. It does have the scale for a single big Council. Canterbury and Wellington might, but even then the gains are small. Labour tried to solve the water infrastructure part of the issue with Three Waters, which National, ACT and NZ First picked off with a campaign targeted at the co-governance aspect of it. National has now co-opted Three Waters in its Local Water Done Well plan, shorn of co-Governance and many of the scale benefits.

Both were designed to smuggle user pays for water across most councils who had yet to adopt the Auckland/Watercare model of using meters and volumetric charging. To create all these synergies and ‘big deals,’ the Government needs more amalgamations. The trouble is local voters don’t want them, and neither do local politicians.

So we now have another attempt to force them through, despite National saying in the last election campaign they would not do that and were all in favour of ‘localism.’

‘I didn’t need a mandate’

Bishop acknowledged that yesterday, saying:

“We didn’t campaign on local government reform. That doesn’t mean the Government can’t do it.” Bishop in the news conference below.

Give up already on the 30%. There’s good reasons why it has to rise.

The guts of all this is the Government is still hunting for the magical solution when bond investors and ratings agencies have been saying forever that all they want are simple Government and council bonds they can easily analyse and rely on. They are cheaper and easier to get, but require both central and local Government to accept that the size of Government has to rise above 30% of GDP in the long run.

There’s good reasons for that change in the structure of the economy and the role of Government, including:

* an ageing population inevitably costs Government a bigger share of GDP to look after, if it keeps the current promises of NZ Superannuation and publicly-funded healthcare;

* healthcare costs keep rising because new drugs and technologies keep getting invented which are good, and the obesity and mental healthcare crises are increasing costs in the long run;

* climate change is lifting the costs of transport and water infrastructure; and,

* a population growing at 1.5-2.0%, as New Zealand has on average for the last 25 years, cannot grow sustainably without a bigger commitment to publicly-funded infrastructure, which is the cheapest, simplest and fastest kind.

Briefly in the news this morning

In Aotearoa’s political economy

The Government told councils to propose amalgamations within 90 days or they would do it for them; and, ANZ reported spending through its cards in April fell 2.4% from March sales increased fuel spending forced consumers to cut discretionary spending elsewhere.

In Geopolitics & the Global Economy

The Strait of Hormuz remains effectively closed for a 67th day, despite US Navy efforts to open it up. Just one vehicle carrier got through with an escort yesterday, when normally as many as 140 ships would transit in a day. Iran kept firing missiles and drones at the UAE overnight and the US Navy said it had destroyed six small boats and shot down numerous missiles and drones.

However, the conflict hasn’t escalated beyond that. US Secretary of War Pete Hegseth said the ceasefire remained in place and the Pentagon said Iran’s attacks had not reached its threshold for a breach of the ceasefire. So oil prices fell a bit. Meanwhile, oil industry analysts are increasingly worried stocks are running low, creating a growing risk of a ‘non-linear spike’ in oil prices, as FTAlphaville’s Robin Wigglesworth wrote overnight.

My Pick n’ Mix

* Scoop: Hannah McCullum for Newsroom Pro-$: New school curriculum cuts mention of ‘mental health’

* Investigation: Ben Leahy & Chris Knox for NZ Herald-$: Auckland’s ‘goldmine’ state home sell-off mapped out, sweeping offload nets $330m nationwide

* Deep-dive: Auckland Uni’s Jay Marlowe and Timothy Fadgen for The Conversation: Is New Zealand sliding toward a US-style approach to immigration and asylum?

* Analysis: Jonathan Milne for Newsroom: Carrot and stick: Govt backs some councils to merge, others in fight for life

* Column: Joel MacManus for The Spinoff: New Zealand’s immigration debate is like something out of the 1870sAct is chasing NZ First who are chasing the anti-immigration vote.

* Good news: Jimmy Ellingham for RNZ: New wetland could strip Lake Horowhenua of its ‘most polluted’ label

Video of the day: I had a chat with the NZ Herald

Cartoon of the day: Who will look after old David?

Timeline-cleansing Nature Pic:

Ka kite anō

Bernard

PS: Here’s the PDF of the presentation used in the video above.

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