The Kākā by Bernard Hickey

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night featured co-hosts Bernard Hickey & Peter Bale talking with regular guests Cathrine Dyer and Robert Patman and special guest Sanjana Hottotuwa about the importance and meaning of Donald Trump’s new US National Security Strategy document for Aotearoa and the world.

The Hoon’s podcast version above was recorded on Thursday night during a live webinar for over 200 paying subscribers and was produced and edited by Simon Josey.

The Hoon won the silver award for best current affairs podcast in last year’s New Zealand Podcast awards.

(This is a sampler for all free subscribers and anyone else who stumbles on it. Thanks to the support of paying subscribers here, we’re able to spread my public interest journalism here about housing affordability, climate change and poverty reduction other public venues. Join the community supporting and contributing to this work with your ideas, feedback and comments, and by subscribing in full. Remember, all students and teachers who sign up for the free version with their .ac.nz and .school.nz email accounts are automatically upgraded to the paid version for free. Also, here’s a couple of special offers: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)

Ngā mihi nui.

Bernard

PS: Here’s a cookie recipe Peter recommends. Apropos of some good news.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

Briefly in Aotearoa’s political economy around housing, poverty and climate on Friday Thursday, December 5:

* Treasury released Crown Accounts for the first four months of the financial year yesterday that showed the Budget deficit was $704 million worse than forecast in May at $4.94 billion, largely due to lower than forecast tax revenues because of this year’s economic contraction.

* However, the Government’s cash needs were $802 million lower than forecast because of lower-than-forecast capital expenditure.

* Under instructions to raise as much cash as possible, the IRD quietly announced a proposal last night to start taxing company loans over the value of $50,000 to shareholders as dividends after a year. The loans by 119,000 companies, about 16% of all of New Zealand’s companies, are to 165,000 shareholders and were worth $29 billion at the end of March 2024. It has yet to be approved by Cabinet and would apply to loans made from yesterday.

* The Government yesterday rejected all of the Climate Commission’s advice on meeting its 2050 targets. (See links below and in Friday’s Early Bird)

* Commerce Commission Chair John Small has declared the electricity system a market failure. (See links below and in Friday’s Early Bird)

* Transport Minister Chris Bishop has suggested their may be less need for the Government’s $56 billion Roads of National Significance (RONS) programme if congestion charging reduces demand for more motorways. (See links below and in Friday’s Early Bird)

Join us as a paying subscriber to get more analysis and detail in the podcast above and below the paywall fold, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also enable me to do this journalism. If paying subscribers ask in the comments below and ‘like’ the article more than 100 times, I will open it up for full public reading, listening and sharing later today.

The Lead: IRD to dig out more tax from SMEs

The Government is now in spiral of having to crack down on overdue and unpaid taxes from small businesses in order to make up the lost tax revenues from budget cuts to capital expenditure on construction and infrastructure.

The irony and unintended consequence is the very act of clawing back more tax from small business owners is it often pushes them into liquidation and the owners into bankruptcy, in part because the usual pool of ever-rising equity in those small business owners’ homes hasn’t risen in the last two years.

This spiralling pressure on the Government to get more revenue to make up for slower than expected income tax and GST revenues was evident in yesterday’s Crown Accounts, which showed lower than forecast tax revenues widened the Budget Deficit for the first four months of the current financial year to June 30, 2026 by $704 million more than expected to $4.94 billion. It’s also $1 billion higher than a year ago.

Despite that, the Government’s cash deficit and borrowing requirement was $802 million less than expected because of delays to capital expenditure. This also adds to the downward spiral in revenues as more construction firms are liquidated, thanks to less Government work than expected. Here’s Treasury’s explanation:

“The core Crown residual cash deficit of $3.7 billion was $0.8 billion smaller than forecast, mainly due to lower than forecast net core Crown capital cash outflows ($2.2 billion), offset in part by higher than forecast net core Crown operating cash outflows ($1.3 billion). The lower than forecast net core Crown capital outflows was owing to lower than forecast net advances and net purchase of investments with othe government agencies.” Treasury in the Crown Accounts for the four months to the end of October.

IRD tips over small firms and finds unpaid loans to shareholders

The other irony, perhaps, is that it is tax collection arm of the Government, IRD, that is often the one tipping these companies over.

Now the IRD has seen an opportunity to raise more funds, in part because many of these companies being liquidated are owed billions by their owner-operators, who have ‘lent’ money from their companies to themselves, partly, the IRD says, because it might reduce their tax bills.

That was clear in the IRD’s proposal last night to start taxing those loans to shareholders as a dividend if they’re not repaid within a year and are over $50,000. This may seem an obscure thing, but the numbers are currently huge. The IRD has said the new tax treatment would only apply from yesterday, if agreed by Cabinet, but as of March 31, 2024, there was $29 billion owed to 119,000 companies, 16% of all New Zealand’s companies, by 165,000 shareholders.

Here’s the IRD explanation (bolding mine):

“When a shareholder borrows a large amount from their company and does not promptly pay it back, they can pay less tax compared to shareholders in other companies who receive taxable dividends or taxpayers who earn income as sole traders, partners or salaries. This is because when shareholders receive dividends and other payments from their companies, the funds are fully taxed at the shareholder’s marginal rate (up to 39%). In contrast, when a shareholder receives funds from their company in the form of a loan, the company will often only be required to pay a small amount of tax on the loan interest each year.

“In addition, Inland Revenue is concerned the current rules often fail to collect tax on the funds left in the hands of the shareholder when a company is wound up. This is because the rules do not provide a clear date for when income arises on outstanding loans when the lending company is removed from the Companies Register.

“Inland Revenue is concerned that the way shareholder loans are taxed, together with the differences in tax rates, means that the current tax system provides an unintended tax advantage when companies lend funds to shareholders, compared with paying taxable dividends.” IRD consultation paper.

IRD is also worried that size and number of these loans has been rising faster than taxable income, and the tax base generally. It points out Australia, the UK and Canada don’t leave these loans lightly taxed.

“We are concerned that the high value of shareholder loans suggests that our current rules relating to shareholder loans are less effective than rules in other jurisdictions at requiring the loan be repaid within a certain period of time or before the company goes out of existence. This can result in the tax advantage becoming a permanent advantage for the shareholder if the loan is never repaid.

“Inland Revenue data also shows that over a six-year period from 1 April 2019 to early 2025 nearly 15% of all companies removed from the Companies Register were owed money by their shareholders at the time they were removed. In aggregate, those companies were owed over $2 billion by their shareholders.” IRD consultation paper

IRD argues the new rules would encourage repayment and ensure IRD gets more in liquidation situation.

“We expect that, if implemented, the measures in this issues paper would encourage the timely repayment of shareholder loans and reduce the use of long-term company loans to shareholders. This is expected to increase the funds available to a company to invest in its business.

“It may also reduce the likelihood of a liquidation and could potentially increase the amount that can be used to pay Inland Revenue and other creditors if a liquidation occurs.” IRD consultation paper

IRD doesn’t say how much extra it could raise, but a conservative estimate would be in the hundreds of millions. Regardless, if approved by Cabinet, it will add extra cashflow pressure on SMEs, a constituency the Government may not want to alienate.

The Daily Chart Pack

In the political economy: IRD sees an opportunity…

…in the much faster growth of loans than taxable income....

…especially by landlords, real estate agents and farmers.

In the economy…building work improved a bit, but is still down on 2023

…which has lifted liquidations to a 14-year-high, triggered mostly by IRD.

My Pick n’ Mix of links elsewhere

* Tom Pullar-Strecker for The Post-$: Return to surplus at risk unless operating allowance is cut – ANZ ‘Treasury accounts show continued deterioration in “Obegal” balance from the Budget forecast, ahead of Half Year Economic and Fiscal Update.’

* Sam Smith for Stuff: A generational split emerges within National on house prices

* Op-Ed by Vic Uni Political Science lecturer Luke Oldfield for The Post-$: How Chris Bishop is trying to turn the Kiwi dream into a support base. ‘The promise of property ownership will be a necessary plank in how any government is to win elections in the years to come.’

* Op-Ed by Phil Goff for NZ Herald-$: Why a rates cap isn’t the answer for local Government ‘The CRL deal left Aucklanders paying billions in costs other Kiwis don’t face.’

* Sharon Bretkelly for RNZ/Newsroom’s The Detail: Finish line in sight for the City Rail Link ‘The opening has been pushed back again, the price is extraordinary, but Auckland’s City Rail Link is expected to deliver the region the wow factor.’

See more in today’s Early Bird post.

Cartoon: Tell them they’re dreamin’

Timeline-cleansing nature pic:

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night featured Bernard Hickey talking with regular guest Cathrine Dyer and special guest Lawyers for Climate Change Executive Director Jessica Palairet about this weeks news on climate change.

Bernard also talked with tax policy expert and accountant Terry Baucher about the IRD’s announcement yesterday it wants to tax company loans to shareholders as dividends if they’re not repaid within a year. As of March 31, 2024, 119,000 companies are owed $28 billion by 165,000 shareholders. Terry has a podcast on Interest.co.nz.

The Hoon’s podcast version above was recorded on Thursday night during a live webinar for over 200 paying subscribers and was produced and edited by Simon Josey.

The Hoon won the silver award for best current affairs podcast in last year’s New Zealand Podcast awards.

(This is a sampler for all free subscribers and anyone else who stumbles on it. Thanks to the support of paying subscribers here, we’re able to spread my public interest journalism here about housing affordability, climate change and poverty reduction other public venues. Join the community supporting and contributing to this work with your ideas, feedback and comments, and by subscribing in full. Remember, all students and teachers who sign up for the free version with their .ac.nz and .school.nz email accounts are automatically upgraded to the paid version for free. Also, here’s a couple of special offers: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)

Ngā mihi nui.

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

Briefly in Aotearoa’s political economy around housing, poverty and climate on Wednesday, December 3:

* The Government has effectively reneged on New Zealand’s Paris Agreement commitment to halve our climate emissions by 2030 from 2005 levels, or buy emissions credits offshore.

* Until now, the Government has left the impression it might spend billions on credits offshore if its first choice of reducing domestic emissions failed, albeit without enough certainty for Treasury to specify a contingent liability in the Crown Accounts. The suspicion was always that the Government would renege, which the Treasury knew or assumed, due to its decision on the liability.

* Yesterday Finance Minister Nicola Willis ruled out buying credits offshore, which are now needed given the Government has rolled back a range of emissions reductions policies over the last two years.

* Meanwhile, Standard & Poors warned the Government last night that its rates cap on councils could cause credit rating downgrades, which would make it harder and more expensive for councils to borrow to fund the infrastructure the Government wants built.

Join us as a paying subscriber to get more analysis and detail in the podcast above and below the paywall fold, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also enable me to do this journalism. If paying subscribers ask in the comments below and ‘like’ the article more than 100 times, I will open it up for full public reading, listening and sharing later today.

Willis reneges on Paris climate deal in plain sight

Finance Minister Nicola Willis yesterday effectively reneged on New Zealand’s commitments under the Paris agreement to cut our climate emissions by 50% from 2005 levels by 2030, telling MPs and reporters in Parliament yesterday that the Government simply would not pay.

She just came out and said it: ‘No, New Zealand wouldn’t pay to buy the billions of dollars worth of overseas emissions credits now needed.’

There have been hints and prevarications that New Zealand would renege on the deal from various lower ranked ministers, including Trade Minister Todd McClay and Deputy PM and ACT Leader David Seymour. But there had never been an unequivocal rejection of the need to buy credits overseas. Climate Change Minister Simon Watts has always been careful to say he didn’t want to buy credits, but hoped another way could be found, including further reducing domestic emissions.

That internally inconsistent message ended yesterday.

Speaking to reporters in Parliament, Willis said former climate minister James Shaw signed New Zealand up to an “extravagant” Nationally Determined Contribution (NDC). She was then asked if New Zealand would buy credits offshore.

“Look, the Prime Minister, me, the climate change minister, have said again and again that we do not think it’s in New Zealanders’ best interest to send checks for billions of dollars offshore. New Zealanders who are struggling to put food on the table are not going to thank us for having a performative awards ceremony after we write billion-dollar cheques to other countries to meet a Paris target that James Shaw set. No, that’s not our priority.” Nicola Willis speaking to reporters via Newsroom

The exchange came after Green Co-Leader Chloe Swarbrick challenged Willis and Treasury in the committee hearing on why Treasury had not accounted for the emissions credits as a likely liability in the Crown Accounts.

‘The maths do not maths’

Swarbrick told RNZ afterwards it was “wishful thinking” that New Zealand could remain committed to Paris without buying carbon credits.

“We are potentially on the hook for tens of billions of dollars, and all [Willis] can say is we’re not going to to send those tens of billions of dollars offshore, which then begs the question of how we’re going to meet our [commitment] as the government is domestically shredding climate action here at home.

“The maths do not maths. You cannot have it both ways.” Chloe Swarbrick via RNZ

The Daily Chart Pack:

In the economy, OECD sees NZ GDP growth at the bottom of the pack…

…with unemployment still at 5.0% in election year…

…with growth much slower than Treasury’s May Budget forecasts.

In politics, the Roy Morgan poll sees the Govt improving…

…but the right track/wrong track rating still lags consumer confidence.

My Pick n’ Mix of links elsewhere

* Deep-dive by Farah Hancock for RNZ: How many of the government’s 9 key targets has it achieved?

* Deep-dive by Toby Manhire for The Spinoff: Juggernaut 2: The seven generations fight. ‘The unlikely story of a landmark decade in Treaty settlements.’

* NZ Herald: Cost-of-living pressures driving more middle and high income earners to seek financial help

* Bernard Orsman & Tom Rose for NZ Herald: Funding squeeze: Rates cap row puts CRL and ferries in the firing line

* Ellen O’Dwyer for RNZ: Critics launch campaign against second Mt Vic tunnel

* Deep-dive by Nick Carey for Reuters: China floods the world with gasoline cars it can’t sell at home.

* Scoop by Derek Cheng for NZ Herald-$: Government ponders overturning court ruling, saving billions in veterans’ support payments

Cartoon: Seymour’s Kitchen Rule: ‘Eat your greens…’

Timeline-cleansing nature pic:

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

Briefly in Aotearoa’s political economy around housing, poverty and climate on Tuesday, December 2:

* The Government has announced plans to specify council rates increases in a range of 2-4% from mid-2029, which is a higher range and later than some councils expected. That would outlaw zero rates increases and tie rates to a range between Consumer Price Inflation and GDP growth.

* However, the rates controls don’t cover water charges, other fines and fees, and do not exclude spending on roads, rail and bridges, which councils had hoped for.

* Auckland Mayor Wayne Brown, who has just confirmed a 7.9% rate hike, said the rates cap wouldn’t work. He said much of the increase was related to demands by the Government and a rates cap would just handicap those investments, such as the City Rail Link (CRL). Brown said: If they want a rates cap, we’ll end up with a CRL with no trains or drivers.”

* In my view, most of the rates increases are caused by the Government withdrawing or delaying capital grants for water networks and roads, the Government’s own project spending forcing matching council spending, climate-change-related spending, including $600 million alone to buy out land redzoned by the Auckland Anniversary and Gabrielle floods, a decade of capital spending on infrastructure maintenance and renewal of an average of 76% of depreciation, and higher interest rates caused by the Reserve Bank’s tighter monetary policy.

* Potential solutions to this breakdown in financial relations include the Government providing capital grants and regular funding help, including the Government paying rates on Crown land, the Government rebating GST on rates and construction materials used in a council area, and the Government rebating GST from tourism spending in council areas.

Join us as a paying subscriber to get more analysis and detail in the podcast above and below the paywall fold, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also enable me to do this journalism. If paying subscribers ask in the comments below and ‘like’ the article more than 100 times, I will open it up for full public reading, listening and sharing later today.

Govt hits councils for rate hikes caused by Govt

Unintended consequences and surprisingly negative feedback loops beckon for the Government if it actually proceeds with its 2-4% rates restrictions announced yesterday. The move seems to be politically appealing in the short run, but may frustrate the Government’s own hopes for growth in the long run, as well as reflect badly on the Government’s own investment restrictions since its late 2023 election.

The performance of PM Christopher Luxon and Local Government Minister Simon Watts yesterday hit all the click-baiting hot buttons of an electorate angry about price increases.

“Rates are taking up more of household bills, and some communities have faced double-digit increases year after year. This is unsustainable and is only adding to the cost of living for many Kiwis.

“Ratepayers deserve councils that live within their means, focus on the basics and are accountable to their community. The Government’s decision to introduce a cap on rates will support that ambition and protect local government’s social license for the long term.” Simon Watts in a statement.

However, a closer examination of the rates and fee increases measured by Stats NZ and cited by the Reserve Bank in its Monetary Policy Statement (Figure 2.14 on page 16) last week showed the prominent role of the Government itself in first causing the inflation, and then adding to it.

Why councils put up rates

Watts and Luxon framed the rates guide as a response to councils ‘over-spending’ on ‘nice-to-haves,’ with Luxon calling on councils to “stop the dumb stuff.”

But the increased council spending and resulting rates increases have been caused mostly by factors out of their control, and have followed long periods of not spending enough on maintenance and renewal of existing infrastructure.

Those outside factors included:

* the Government withdrawing or delaying capital grants for water networks and roads in early 2024;

* the Government’s own project spending forcing matching council spending on both capital investment and operational spending, with the City Rail Link being the primary example;

* climate-change-related spending, including $600 million alone to buy out land redzoned by the Auckland Anniversary and Gabrielle floods;

* a decade of capital spending on infrastructure maintenance and renewal at an average of 76% of depreciation and 81% of budgeted spending; and,

* higher interest rates caused by the Reserve Bank’s tighter monetary policy.

‘You’ll kill off the growth you want’

Auckland Mayor Wayne Brown was scathing about the plan.

“How else does the government think we’re going to pay for what Auckland needs and for things like the City Rail Link - which were the result of decisions made by previous governments and councils?

“I’m an advocate for getting value for money for Aucklanders. That means knowing the problem we’re fixing before we fix it. Putting a cap on rates isn’t going to solve anything. It will just defer it for a couple of years then ratepayers will be paying even more.

“The main reason rates will go up next year is because we have to pay for the City Rail Link - a project the government is jointly responsible for. If they want a rates cap, we’ll end up with a CRL with no trains or drivers.” Wayne Brown via RNZ

Infrastructure New Zealand CEO Nick Leggett was worried the rates cap would handicap infrastructure spending.

“Any form of rate capping must not come at the expense of building desperately needed new infrastructure and maintaining the crucial assets local governments already own.

The Government’s proposed rate capping policy risks weakening councils at a time when the country urgently needs stronger, better-resourced local government to maintain and build the infrastructure communities rely on.

“This is a blow to the infrastructure sector already under immense stress.

“How are councils going to pay for new infrastructure or fix what they’ve already got when their primary funding tool is being restricted without any credible alternatives being offered?” Infrastructure NZ CEO Nick Leggett via a statement.

The Daily Chart Pack:

The seasonal rise in consumer demand for loans is kicking in…

…but business credit demand remains at 2023 levels…

…partly because company liquidations are at a 14-year high.

57% feel locked out of home-ownership & 46% have given up…

…while 66% of GenZ buyers got deposit from family, Lotto or inheritance

My Pick n’ Mix of links elsewhere

Paying subscribers can find the full Picks ‘n Mixes online only here:

* Rachel Graham for RNZ: Mouldy school lunches: ‘Evidence that some had eaten some of this putrid stuff’

* Thomas Manch for BusinessDesk-$: Infrastructure Com not let in on RONS

* Phil Pennington for RNZ: Infrastructure Com wants phased approach to RONS

* Mihingarangi Forbes for Mata/RNZ: How police lost two houses, and an iwi’s trust

* Column by Duncan Greive for The Spinoff: The signs all point to the end of NZ’s property obsession. ‘Millennials and gen Z are investing in shares, while politicians are looking to nudge capital away from housing and into business.’

* Op-Ed for the PHCC: Reconsidering our low-risk alcohol advice: The dark influence of the alcohol industry

My curated ‘Picks ‘n Mixes’ of links to news, analysis, commentary and cartoons elsewhere are available in full only online below to paying subscribers in the ‘Early Bird’ as it has too many links to email the full version.

Cartoon: Dear Santa…

Timeline-cleansing nature pic: Merry (early) Christmas

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night featured co-hosts Bernard Hickey and Peter Bale talking with regular guests Cathrine Dyer and Robert Patman and a special guest about the economy, politics, geopolitics and climate change.

This week’s special guest was new leader of The Opportunity Party, Quilae Wong.

This week:

* Bernard and Peter talked with Quilae ‘Q’ Wong about The Opportunity Party’s name change, her background, her ambitions, the party’s land tax policy, the ‘Abundance’ agenda and the issue of wasted votes.

* Bernard and Peter talked with Robert about Donald Trump and Vladimir Putin’s latest attempt to railroad Ukraine into a capitulation, along with Europe’s reaction.

* Bernard and Peter talked with Cathrine about New Zealand giving up on phasing out fossil fuels (Marc Daalder’s piece in Newsroom), the abandonment of a big carbon capture scheme ( Kate Newton’s piece for RNZ), and Kirsty Johnston’s deep-dive for RNZ about the oil and gas industry capturing the Government’s climate policies.

* Bernard talked about the RBNZ’s rate cut and the economy’s outlook, along with the tragic loss of the first contributory pension scheme in 1975.

The Hoon’s podcast version above was recorded on Thursday night during a live webinar for over 200 paying subscribers and was produced and edited by Simon Josey.

The Hoon won the silver award for best current affairs podcast in last year’s New Zealand Podcast awards.

(This is a sampler for all free subscribers and anyone else who stumbles on it. Thanks to the support of paying subscribers here, we’re able to spread my public interest journalism here about housing affordability, climate change and poverty reduction other public venues. Join the community supporting and contributing to this work with your ideas, feedback and comments, and by subscribing in full. Remember, all students and teachers who sign up for the free version with their .ac.nz and .school.nz email accounts are automatically upgraded to the paid version for free. Also, here’s a couple of special offers: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)

Ngā mihi nui.

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

Briefly in the news in Aotearoa’s political economy around housing, poverty and climate on Wednesday, November 26:

* RMA Reform, Housing and Infrastructure Minister Chris Bishop announced plans last night to abolish regional councils to “simplify how we plan our cities and regions and make it far easier to build the future New Zealanders deserve.”

* But in my view, it’s another attempt to try to squeeze out cost savings to pay for new and existing infrastructure for ongoing strong population growth, when the real problem is a self-imposed limit on using the Crown’s balance sheet to do it, while also pursuing strong population growth to juice GDP and house prices.

* Bishop described the reforms as the biggest since 1989, but they’re actually another attempt to make the 1989 reforms work. Those reforms were based around restricting the size of Government and it’s gross debt to 30% of GDP.

* That self-imposed and now-unnecessary restriction may have allowed proper maintenance of infrastructure without population growth in the first decade after 1989, but it hasn’t worked for the last 20 years because population growth driven by migration has been closer to 1.5-2%.

* The United States may unwittingly be about to spark a debate within New Zealand about the unstated-but-very-real bipartisan strategy of using temporary-worker-led migration to pump up economic growth and house prices without having to take on much more public debt to pay for infrastructure.

* 1News’ Logan Church reported last night the Trump Administration has directed the US Embassy in Wellington to collect evidence of “migrant-related crimes and human rights abuses facilitated by people of a migration background,” warning New Zealand “not to accept the globalised migration narrative”.

* In my view, this might spark a much-needed debate on how to match up our true infrastructure and investment ambitions with our population ‘strategy’. I’d prefer a high population growth strategy, but that would also require a larger Government balance sheet and a land tax.

* Elsewhere in the news, the UK, the EU and Pacific nations backed a roadmap away from fossil fuels at COP30, but New Zealand didn’t sign up, Marc Daalder reports for Newsroom-Pro-$ this morning

Join us as a paying subscriber to get more analysis and detail in the podcast above and below the paywall fold, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also enable me to do this journalism. If paying subscribers ask in the comments below and ‘like’ the article more than 100 times, I will open it up for full public reading, listening and sharing later today.

More magical thinking to extend the 1989 reforms

1989 was the fulcrum upon which Aotearoa turned, and not necessarily for the better. Even now, we measure any change against that starting point.

It is effectively year zero in our political economy because it’s the year the Public Finance Act 1989 and the Reserve Bank of New Zealand Act 1989 passed into legislation. It was the year more than 850 local authorities were amalgamated into 86 city, district and regional councils under then-Labour Minister of Local Government Michael Bassett, thanks to the Local Government Amendment Act 1989. And it was the year the Resource Management bill was introduced into Parliament by then-Labour Prime Minister and Minister for the Environment Geoffrey Palmer.

These four acts are the foundation of our governmental, economic and budgetary frameworks that have underpinned everything ever since. Along with the Employment Contracts Act 1991, they form the settlement of the 1984-1991 reforms that ended the post-war era of high taxes, high investment, big Government and tight Government control of prices, wages, imports, exports and foreign exchange.

I would describe these four legislative milestones of 1989 as the four horsemen of our political and economic apocalypse. But it wasn’t obvious at the time they would ride together in a way that would leave us with:

* a $100 billion infrastructure deficit and no clear way to fund the extra $100 billion needed to cope with just 0.5% population growth in the next 30 years;

* the most expensive housing to rent or buy in the developed world (still);

* worsening public health;

* an exodus of 200 New Zealanders a day to live and work elsewhere, including in Australia; where,

* real wages rose 30% above New Zealand’s in the wake of the 1989 reforms.

These reforms to deregulate trade, foreign exchange, capital movements, wages and prices at the same time as slashing income taxes and consolidating local government may well have worked, if a key assumption made at the time had turned out to be true.

Four horseman assumed 0.5% population growth

The 1989 reforms were predicated on the idea that New Zealand had stopped growing its population quickly through migration and a falling birth rate meant it had plenty of infrastructure to accommodate growth. At most, politicians and planners expected population growth of 0.5% per annum over the next 40 years and that our population would be 3.9 million by 2021.

Instead, the average growth rate since 1989 was 1.2% and our population is now 1.4 million more than the architects of 1989 expected. Population growth between 2002 and 2006 averaged 1.5%, thanks to fast migration of temporary workers who often ended up with permanent residency. Excluding the Covid travel restriction years, our population grew an average of 1.8% per annum in the 10 years to 2024, again, thanks to fast migration of temporary workers, many of whom got permanent residency if they were here during Covid.

This influx was generated, allowed and shaped by both National-led and Labour-led Governments, including the 2005-08 and 2017-20 terms, when the avowedly anti-migration party New Zealand First was in Government with Labour. Population growth averaged 1.6% in NZ First’s first term with Labour and 1.7% in its second term.

Instead, we accidentally on purpose grew the population 1.5% to 2.0%

This would have been sustainable if the Government had continued to tax, borrow and invest as it had during the 50 years to 1989, but that was not allowed under the combination of the RBNZ Act, the Public Finance Act, the Local Government Amendent Act and the Resource Management Act. Whether by design or coincidence, these four horseman of our apocalyspe worked perfectly to stop the proper maintenance and renewal of existing infrastructure, and the expansion of water, electricity, roading and public transport networks to cope with the extra 1.4 million people.

A gnarly and wicked combined effect

Here’s how it worked:

* the Reserve Bank Act 1989 gave the bank independence and a single inflation target of (eventually) around 2%, which it achieved by applying very high interest rates between 1989 and 2009, and then again from 2022 to 2025;

* those high interest rates made borrowing for infrastructure relatively more expensive than in the decades before 1989 for both the private sector and Government itself, and forced planners to assume very high interest rates in their cost-benefit calculations, which made most large and long-term projects uneconomic;

* the Public Finance Act 1989 specified the reduction of Government debt to ‘prudent’ levels by the Government running balanced budgets over the long run, which effectively precluded using borrowing to pay for infrastructure for population growth;

* Treasury, Labour and National interpreted that “prudent” word to mean the size of Government should always trend back towards or stay under 30% of GDP and gross Government debt should be in or below the 20-30% of GDP range;

* the Local Government Amendment Act 1989 reforms also specified councils couldn’t run operating deficits or build up debt much, which meant they tried to block or stop the funding of new water networks and other infrastructure to enable expansion, along with systematically investing less in capital than they booked in depreciation; and,

* the Resource Management Act gave councils the perfect tool to block development and avoid running deficits or building up debt, because it allowed them to block development on environmental grounds through three separate layers of governance.

A quest for the magical ‘solution’ to unlock the growth restraints

Ever since, and particularly since 2000, politicians, voters, ratepayers, developers, economists and Uncle Tom Cobbly have blamed councils and the RMA for the growth blockages. The ever-present assumption was that growth could be found without the need for more central Government borrowing and investment, if only:

* councils could be stopped ‘wasting money’ on unnecessary bureaucracies and ‘nice-to-haves’ such as convention centres, special event incentives and public transport;

* councils could amalgamate into an ever-smaller number of ever-larger councils to ‘reduce duplication’ and ‘achieve efficiencies;

* councils would encourage and allow the private sector to fund and/or own the buses/water networks/electricity networks/road networks et al through privatisation and/or Public Private Partnerships (PPPs); and,

* the RMA could be tweaked or rewritten to remove the ‘excuses’ for councils either outright rejecting new developments.

The RMA was amended dozens of times (2009, 2013, 2017) before being replaced in 2023, and then replaced again this year. The assumption was always that just a few more tweaks would remove the blockages.

The unchallenged assumptions were that:

* population growth of 0.5% was going to happen;

* or that population growth of 1.5% could happen; or,

* infrastructure maintenance and investment to match population growth was possible with a Government limited to 30% of GDP per year and debt of 20-30% of GDP.

So here we go again…

Chris Bishop’s announcements last night fit perfectly into this pattern of magical thinking to make 1.5% population growth fit into a Government limited to 30% of GDP per year and debt of 20-30% of GDP.

In my view, removing one layer of local Government won’t change the underlying drivers of the RBNZ Act, the Public Finance Act and the amended Resource Management and Local Government Acts.

Councils are still being forced by their balanced budget mandates, along with a soon-to-be introduced rates cap, to avoid investing in infrastructure for growth, while the economics and politics of privatisation and PPPs mean fast and large infrastructure funding from off the Government’s balance sheet is impossible.

How it could be done differently

There are a few solutions that might work, including:

* limiting population growth to 0.5% per annum by restricting issuance of temporary and permanent work and residency visas, including for students and tourists;

* replacing the Public Finance Act with one focused on ensuring investment to cater for 1.5% population growth on average;

* replacing the Reserve Bank Act to focus on encouraging investment in businesses and infrastructure to create jobs, real wage growth and gross national disposable income growth per capital; and,

* introducing the tax on land and/or wealth tax that was designed to complete the full suite of reforms in 1989 to match up with the RBNZ, PFA, RMA and LGA Acts.

Then-Labour Finance Minister David Caygill proposed a Capital Gains Tax in December 1989 to complete the suite of reforms that included nearly-flat income taxes, a Goods and Services Tax (GST) and the removal of tax incentives for pension savings.

Accidentally on purpose, the failure to introduce the CGT, in combination with:

* the PFA/LGA/RMA restrictions on infrastructure investment for new housing;

* an unstated-but-real-and-bipartisan policy of using population growth to juice total GDP;

* an unforseen loosening of lending restrictions for mortgages by banks freed up by the Banking (Prudential Supervision) Act 1989; and,

* a once-in-100-years fall in mortgage rates from an average of 15.5% in 1989 to as low as 3% in early 2021; led to:

* house price to income ratios rising from around two to around 10; and,

* rental affordability worsening to the worst in the OECD.

A land levy would pay for NZ-as-climate-haven to grow to 19.1m

In my view, a 0.5% per annum levy on the value of all residential-zoned land, with multiples for homes and land not occupied at all, or not by the owner (ie 1.0% for rentals & holiday homes and 1.5% for un-built-on land-banked land, would fix that 1989-sized hole in our economic framework. It would also fund the necessary infrastructure and operational spending at local and central Government level to cope with 1.5% to 2.0% population growth for the next 50-80 years, by allowing us to build enough water networks for the warm, healthy homes needed to make housing affordable.

By the way, if we continue with the 1.5%-2.0% population growth rate we’ve had over most of the last 20 years, New Zealand’s population would be 19.1 million by 2100. By then, with no change in global emissions policies, the planet could warm by as much as 4.4 degrees above pre-industrial levels.

In my view, we are likely to be have to become, or choose to become a climate haven because Aotearoa-New Zealand is the only country in the world that is far enough away from another country to not be reachable in a rubber dinghy or small boat.

The Daily Chart Pack:

The RBNZ sees growth of 0.6% & 0.4% in Q3 & Q4…

…which is seen slow enough to encourage a 25 bps OCR cut today

My Pick n’ Mix of links elsewhere

Paying subscribers can find the full Picks ‘n Mixes online only here:

* Marc Daalder for Newsroom Pro-$: Govt backtracks on commitment to fossil fuel phase-out ‘Australia, the UK, the EU and Pacific nations backed a roadmap away from fossil fuels at COP30, but NZ didn’t sign up.’

* Column by Joel MacManus for The Spinoff: New Zealand has a boomer problem. ‘We have too many boomers and not enough young workers to fund their retirements. National thinks its new KiwiSaver policy could be the answer. ‘

* Deep-dive by Isaac Davison for Stuff: Duty lawyer drought in wine country: Why this town is relying on help from afar. ‘Lawyers are driving more than four hours and even flying between islands to fill vacancies at the short-staffed Blenheim District Court.’

* Deep-dive by Chelsea Daniels & Matt Nippert for NZ Herald: How a Pacific flag ended up at the centre of a global oil-smuggling row

* Deep-dive via WSJ-$ (gift link): Robots and AI Are Already Remaking the Chinese Economy

Cartoon: Corolla on its own

Timeline-cleansing nature pic: Nosey parker.

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night featured co-hosts Bernard Hickey and Peter Bale talking with regular guests Cathrine Dyer and Robert Patman and a special guest about the economy, politics, geopolitics and climate change.

This week’s special guest was Drive Electric Chair Kirsten Corson.

This week:

* Bernard and Peter talked about Peter’s work on a CEO profile special series of articles for BusinessDesk-$, including that Brian Roche’s favourite book was by Jo Nesbo.

* Bernard, Peter and Cathrine talked about the Government’s decision this week to slash penalties for importing high emissions vehicles to save buyers of double-cab utes hundreds of dollars.

* Peter and Robert talked about Donald Trump’s attacks on the rules of international law, referring to this article by Philippe Sands in The Guardian. They also talked about the latest secret peace deal for Ukraine agreed between the United States and Russia, but which didn’t include Ukraine or Europe.

* Bernard and Kirsten talked about the state of climate policy in the wake of the shredding of the clean car discount scheme.

The Hoon’s podcast version above was recorded on Thursday night during a live webinar for over 200 paying subscribers and was produced and edited by Simon Josey.

The Hoon won the silver award for best current affairs podcast in last year’s New Zealand Podcast awards.

(This is a sampler for all free subscribers and anyone else who stumbles on it. Thanks to the support of paying subscribers here, we’re able to spread my public interest journalism here about housing affordability, climate change and poverty reduction other public venues. Join the community supporting and contributing to this work with your ideas, feedback and comments, and by subscribing in full. Remember, all students and teachers who sign up for the free version with their .ac.nz and .school.nz email accounts are automatically upgraded to the paid version for free. Also, here’s a couple of special offers: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)

Ngā mihi nui.

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

Briefly in the news in Aotearoa’s political economy around housing, poverty and climate on Wednesday, November 19:

* An extra 1,967 people have been put in prison since late 2023, increasing the total population by September 30 to a record-high 10,860, which PM Christopher Luxon said yesterday was “a good thing” and he wasn’t worried about the cost, saying: “We make no apologies about that. The cost will be what the cost will be.” (RNZ)

* Luxon also acknowledged yesterday the Government would fail to achieve its already-extended target of recruiting an extra 500 Police officers to reach a total of 10,711 by November 27 (next Thursday), describing it as a “stretch target” and adding: “It’s taking longer than we had hoped for. It’ll be what it will be.” (RNZ)

* Luxon said a year ago of the target: “We’re going to do it. Judge me by the results when we get there.”

* One reason for the failure to hit the target is that 212 officers had resigned and moved to Australia to become officers there, including between 50-60 who went to Northern Territory, where Police pay a housing allowance of $32,000 a year, on top of a starting salary of A$140,000. (1News)

* Meanwhile, the day after it emerged Housing Minister Chris Bishop had moved funds from Kāinga Ora’s cancelled house-building programme to build a bridge in his Lower Hutt electorate, NZ Herald-$ reported this morning that 402 of the 642 applications for emergency housing in Auckland in August were declined.

* The Government is now spending $1.9 billion a year housing nearly 11,000 prisoners (an average of $173,000 per prisoner per year) and has signed off on plans to spend billions more to build another 2,190 prison beds in the next four years.

* Also since its formation in late November 2023, the Coalition Government has cancelled plans to build another 3,500 Kāinga Ora homes and has removed 2,500 people from emergency housing in motels, some of whom it does not know where they ended up. Charities helping the homeless say many have ended up sleeping in doorways, tents and under motorway bridges, including over 600 in Auckland.

* Many of the rough sleepers have gone to Hospital A&E departments over winter with ailments picked up living in the open, forcing the Government to spend hundreds of millions more on pre-fabricated A&E beds, and some have ended up in prison at a cost of almost $500 per night.

* But businesses want even more people churning through the country. BusinessNZ called this morning for an extra 250,000 workers by 2045, suggesting average net migration be increased to 125,000 per year to reach a total population of 10 million by 2060, almost double the current population of 5.3 million, which it said “would require a policy and infrastructure shift.”

Join us as a paying subscriber to get more analysis and detail in the podcast above and below the paywall fold, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also enable me to do this journalism. If paying subscribers ask in the comments below and ‘like’ the article more than 100 times, I will open it up for full public reading, listening and sharing later today.

Churning & burning to imprison more & house less

The numbers are remorseless and confronting, let alone the political commentary around them.

The Government has increased the prison population by 1,967 to a record-high 10,860 since its formation in late November. It is now spending over $1.9 billion a year housing them and plans to add another 2,189 beds over the next four years.

PM Christopher Luxon was asked about the record-high number of prisoners and the failure to recruit the 500 extra Police officers yesterday.

“Absolutely, that’s a good thing. Yep, good thing.

“I understand the financial implication of restoring law and order in New Zealand, but we make no apologies about that. The cost will be what the cost will be.” PM Christopher Luxon

To investigate, arrest and accuse them of crimes, the Police are spending $3 billion a year and the Government has a target to increase the number of officers by 500 to 10,071 by next Thursday. Treasury said the target was now unlikely to be achieved until September of next year.

Housing shortage a big reason for exodus of officers to Australia

One reason it will fail to meet the target is churn of almost 40% of that recruitment number to Australia. 1News reported last night 212 officers had resigned and emigrated to to Australia to become officers there, including 50-60 who went to Northern Territory. Police confirmed there had been 670 vetting requests from Australian Police for New Zealand officers in the last two years.

“We’ve been ramping up our recruitment, probably post Covid significantly. So we have been going to other other states, and New Zealand a number of cases. I think this is probably the fourth time in the last two or so years.” Northern Territory Police Acting Superintendent Serge Bouma

Bouma said housing was a major draw for New Zealand officers.

“One of the big, big ticket items that we offer to every single sworn police officer is housing, housing support.”

(If officers do not take a department-leased home) “we will supplement your income at I think currently, it’s just shy of $32,000 a year over and above your normal income as a tax allowance.”

“A new constable would be on about $140,000 Australian (before allowances, penalties and overtime) Bouma

Police Commissioner Richard Chambers said he hoped some would come home, noting there had been enquiries from 16 of the 212 about coming home.

The Daily Chart Pack: Churning, burning & sleeping rough

In politics, NZ’s prison population hits a record high…

…while the number of rejected bids for housing support rises.

My Pick n’ Mix of links elsewhere

* Investigation by Kirsty Johnson for RNZ: How the fuel of ‘last resort’ became New Zealand’s first choice

* Investigation by Farah Hancock for RNZ: Luxon’s broken promise on feral cats

* Deep-dive Daniela Maoate-Cox for The House via RNZ: How a ‘loophole’ resulted in 11-day submission period on fast-track amendments law

* Sue Teodoro for Stuff: ‘If towns can’t grow, the region can’t grow’ ‘Builder laments development woes“The number one issue for me is the uncertainty,” Greytown-based master builder and construction company owner Paul Southey says in relation to current development restrictions.’

* Libby Kirkby-McLeod for RNZ: Refuge organisations shocked at increase in women needing to escape abuse

* Anne Gibson for NZ Herald-$: Retiree kept waiting for $515k, Metlifecare cites housing market for unsold apartment

Cartoons: The winner grins and the apple rots

Timeline-cleansing nature pic: ‘Well, hello…’

Ka kite ano

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night featured co-hosts Bernard Hickey and Peter Bale talking with regular guest Cathrine Dyer, and a special guest about the economy, politics, geopolitics and climate change.

This week’s special guest was The IDEA Charitable Trust’s Max Rashbrooke

Our topics this week were:

* Bernard and Peter talked about the BBC’s crisis.

* Bernard, Peter & Cathrine talked about the COP30 conference and Cathrine’s article on it for The Conversation.

* Bernard, Peter and Max talked about IDEA’s proposal for a Kids Kiwisaver.

* Bernard, Peter and Max talked about Max’s column for The Spinoff this week on how the left’s arguments against the Government’s debt aversion aren’t working, and what ‘jujitsu’ tactic might work better.

The Hoon’s podcast version above was recorded on Thursday night during a live webinar for over 200 paying subscribers and was produced and edited by Simon Josey.

The Hoon won the silver award for best current affairs podcast in this year’s New Zealand Podcast awards.

(This is a sampler for all free subscribers and anyone else who stumbles on it. Thanks to the support of paying subscribers here, we’re able to spread my public interest journalism here about housing affordability, climate change and poverty reduction other public venues. Join the community supporting and contributing to this work with your ideas, feedback and comments, and by subscribing in full. Remember, all students and teachers who sign up for the free version with their .ac.nz and .school.nz email accounts are automatically upgraded to the paid version for free. Also, here’s a couple of special offers: $3/month or $30/year for under 30s & $6.50/month or $65/year for over 65s who rent.)

Ngā mihi nui.

Bernard

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit thekaka.substack.com/subscribe