The Kākā by Bernard Hickey

Briefly in the news in Aotearoa’s political economy around housing, poverty and climate on Wednesday, November 12:

* A fresh debate has blown up around whether the Government should sell state assets to fund investment in hospitals, roads and schools. Proponents describe this as ‘asset recycling’ and frame it as simply making the most efficient use of the Government’s balance sheet.

* PM Christopher Luxon even went as far as to say on Monday evening that the Government had a “lazy balance sheet,” which is a corporate term to describe a company that isn’t using its balance sheet, both its assets and debt, as aggressively as it should to maximise shareholder equity. Interest

* Luxon was referring to the asset side of the balance sheet, as the Treasury was last Friday in its once-every-four-years Investment Statement. But both he and the Treasury are ignoring the other side of the balance sheet, debt, which is something corporate investors don’t do.

* In my view, Luxon and the Treasury are right to view the Government’s balance sheet as lazy, but for debt, not assets. New Zealand’s Government has a positive net worth after including assets and the NZ Super Fund of 43.6% of GDP, largely because the Government hasn’t used debt to invest to keep up with population growth and maintain existing infrastructure.

* The Government and Aotearoa would get a much better ‘return on equity’ by using leverage to build up its assets and the wellbeing of its people.

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.

Yes, PM, NZ does have a lazy balance sheet

The debate about asset sales has broken out again after Treasury suggested ‘asset recycling’ in its once-every-four-years investment statement last Friday. PM Christopher Luxon was asked on Monday and again yesterday if a second-term National Government would ‘recycle assets’ to ‘optimise the Government’s asset mix.’ He agreed, but wasn’t specific about what could be sold or how the money could be reinvested.

Luxon said he wanted to optimise the Crown’s balance sheet and overall fiscal performance, as Interest’s Dan Brunskill reported late on Monday. He said that didn’t necessarily mean selling assets to reduce debt, it could also mean encouraging commercial entities to deliver stronger returns.

“As a former business guy, you just don’t want lazy balance sheets.

“You want to optimize your profit and loss statement, that’s strongly connected to your balance sheet, and you want to be … actually maximising your balance sheet really effectively.” Luxon quoted by Dan Brunskill via Interest.

In my view, New Zealand’s Government has a balance sheet that it should use to invest in infrastructure and people to improve productivity and wellbeing. That’s because over the last 20 to 30 years, we haven’t done that in a way that keeps up with population growth.

However, the political debate is very much focused on the idea that we can’t borrow to do that and that if the government needs to invest in things, it needs to sell things first. This is the idea described as asset recycling. It’s a framing and a phrase that’s used by those who are keen on asset sales and want to present it as a simple swap, ie ‘we sell this asset that we no longer need and then we invest it in hospitals or roads or schools.’

But this framing does ignores the other side of the balance sheet: debt.

The Prime Minister, a former CEO of Air New Zealand, likes to present or frame his job and the government as similar to a business, often using business language to describe it. However, one of the ways that businesses and investors often talk about balance sheets of companies when there is an opportunity to improve its performance is to talk about the company having a ‘lazy balance sheet.’

When businesses talk about lazy balance sheets, they often talk about a business which doesn’t have enough debt, which has not geared up its balance sheet to increase return on equity. If you have borrowed money to invest in an asset and your equity rises in value, then you get a much faster rise in equity if you have used it to buy or create that asset.

So fund managers in businesses that have very solid cash flows will often suggest management borrow to either buy assets or return capital to shareholders. The risks are that a company borrows too much and goes bankrupt if its cash flow dries up. That’s less of an issue for a government, as it has the power to tax. Also, the size of the Crown’s balance sheet is so large, that it can absorb shocks.

NZ’s balance sheet is very lazy, but on the debt side, not on the asset side

New Zealand’s net debt is in fact not only low, it’s non-existent. That’s because New Zealand has a lot of assets on the other side of the balance sheet, in particular New Zealand Superfund, but also enormous amounts of land and other buildings and various businesses that mean New Zealand is actually in a net equity position with net worth of 43.6% of GDP. But that’s not how it’s usually described.

You will have heard the government and the Treasury talk about New Zealand’s net core Crown debt being in a dangerously high position and that we need to stop spending and try to repay debt. But that’s actually not true, as the chart below shows.

The New Zealand Government’s debt is actually incredibly low, relative to other countries and relative to the Government’s assets. Also, net interest costs are around 1% of Government’s income. If you were a homeowner and you went to your bank and said you were worried about high debt because your interest costs were 1% of your disposable income, the bank would say not to worry too much and that you should borrow to ensure you have a warm, dry home and that your kids are growing up safely. And that’s the case where we are with the government’s balance sheet.

So in my view, the government is right to think about the government having a lazy balance sheet, but not in an asset sense, in a debt sense.

Chart of the day: New Zealand’s lazy balance sheet

My short Pick n’ Mix of links elsewhere

Politics and the Economy

* Thomas Coughlan & Jamie Ensor for NZ Herald: Ex-Police Commissioner Coster on leave from new job after damning report

* Giles Dexter for RNZ: Congestion charging legislation passes third reading

* Craig McCulloch for RNZ: ‘He’s been here 50 years’: Luxon brushes off Peters’ asset sales attack

* Ric Stevens for Open Justice via RNZ: Hawke’s Bay director jailed 14 years for exploiting, raping workers

* Russell Palmer for RNZ: Labour ‘absolutely’ comfortable if Te Pāti Māori does not return to Parliament

* RNZ Morning Report: ‘Tawdry, silly argument’: Peters lays into asset sales

Housing, Climate & Poverty

* Laura Walters for Newsroom Pro-$: Survivors say Crown apology proves ‘hollow’ 12 months on ‘A year on from the PM’s apology to those abused in state care, survivors say they are still waiting for proper redress, accountability and closure.’

* Greg Ninness for Interest: Housing values flat overall but notable declines in Auckland, Whangarei and Tauranga, QV says ‘QV says Auckland housing values have posted some significant declines with the biggest falls in the city’s central and southern districts’

* David Hargreaves for Interest: Some soothing news for the RBNZ ahead of OCR decision - inflation expectations muted ‘RBNZ survey shows expectations of the future level of inflation have barely changed and remain ‘anchored’ near 2% despite the rise in actual annual inflation to 3%’

* Greg Ninness for Interest: Rental figures are good news for tenants but landlords won’t be happy ‘Latest rental data suggests strong supply of rental housing is pushing down rents’

* Column by Joel MacManus for The Spinoff: The government’s homelessness ‘ban’ may not be as ridiculous as it sounds. ‘The only cure for homelessness is homes, but responsible policing plays an important role in manage the symptoms.’

* Pokere Paewai for RNZ: Human rights complaint filed over treatment of Māori

Cartoon: The past and the future

Timeline-cleansing nature pic: Cirque de Tui

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 the news in Aotearoa’s political economy around housing, poverty and climate on Friday, November 7:

* Despite pledges the Government is ramping up capital spending to reduce infrastructure deficits and spark economic growth, Treasury yesterday published accounts for the first three months of the financial year showing the Government’s capital investment spending rose 1.6% to $918 million in the first quarter from a year ago, growth which is less than half the CPI inflation rate.

* The capital investments in the September quarter were at least $267 million less than forecast in the May Budget and were less than half the depreciation recorded in the accounts for the quarter of $2.101 billion.

* The accounts also showed Government spending on wages fell 1.6% to $9.95 billion in the quarter from a year ago. Public sector wages grew 2.4% in the quarter from a year ago and household living costs grew 2.4%, which amplified the effect on wider consumer spending of public sector job cuts.

* The cost of building and servicing the PPP debt on Wellington’s Transmission Gully motorway has blown out to $3.75 billion over the next 25 years, including $1.25 billion to build it and $2.5 billion to service the debt over 25 years, and that’s before an extra $32 million per year from this year to maintain the road. It would mean the motorway cost $139 million per km to build and a non-inflation-adjusted $132 million per year $5 million per km per year or to run. The Post-$

* Troy Bowker, a Wellington businessman who has accused most New Zealand media outlets of left-wing bias and helped lead a nearly-successful takeover of NZME by activists wanting less left wing content in the NZ Herald, has bought the building in Petone containing Stuff’s printing plant for The Post and many other newspapers in the bottom half of the North Island.

* The lease is up for renewal next year with a potential one-year extension to 2027, raising the possibility Bowker either buys and publishes The Post, which is again reportedly up for sale, or shuts it down by refusing to extend the lease, given the high costs of removing and re-housing the printing plant. NZ Herald-$

* Today’s top must read, in my view is Amy Williams’ deep-dive on homelessness in Auckland for RNZ this morning. Homeless becoming more desperate, court worker says

Join us as a paying subscriber to get more analysis and detail in the podcast above, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also allow me to do this journalism. I am opening this one immediately to all, mainly so the young & homeless who can’t afford it can read it. Thanks to subscribers in advance.

A miserly & investment-lite Government

The Government continues to argue it is investing heavily in infrastructure to grow the economy and is not using short-term financial management, but the Crown Accounts for the first three months of the current financial year show a different story.

The bottom line most focused on from yesterday’s figures was the budget deficit being $496 million worse than expected at $3.955 billion, thanks to weaker tax revenues from a stuttering economy, shell-shocked consumer spending and job losses. But the cash bottom line deficit of $1.362 billion was $1.639 billion better-than expected. That meant the Government’s net core Crown Debt of $184.673 billion was up $2.5 billion, but was around $5.2 billion less than expected, after revaluations.

That appears not to compute, until you look more closely at the capital spending line, which was $918 million for the quarter, which was $287 million less than forecast. Total capital committments for future years were $15.53 billion, down from $16.865 billion a year earlier. A wider number for capital committments for the year also fell, as Treasury pointed out:

“The lower than forecast net core Crown capital outflows was owing to lower than forecast net purchase of investments ($1.6 billion). This largely reflects capital funding from the core Crown into Crown entities and SOEs which are mainly used for the purchase of property, plant and equipment.” Treasury commentary on page 3 of the Crown Accounts for the September quarter.

A simpler measure, as detailed below, showed capital spending of $918 million, less than half the depreciation noted in the accounts.

The Government has argued it can’t afford to keep growing spending or ramp up capital spending dramatically because Government debt and interest costs were too high.

However, the accounts show net interest costs of just $628 million after the receipts from interest and dividends, which is barely 1.5% of total revenues. Would you worry about your debt to the extent to restrict spending on life-saving equipment and staffing because your mortgage costs had risen to 1.5% of your disposable income?

Chart of the Day: A generational issue

My short Pick n’ Mix of links elsewhere

A few subscribers asked for me to continue the Picks n’ Mixes, even in limited form.

Politics and the Economy

* Deep-dive by Amy Williams for RNZ: Homeless becoming more desperate, court worker says

* RNZ: Govt pays $6.3m for Michelin restaurant reviewers to tour NZ

* Deep-dive by David Williams for Newsroom: Who Benefits: The rise and rise of the Free Speech Union ‘A free speech advocacy group looks ahead but struggles to shake off the label of a dark money think tank’

* Laura Walters for Newsroom: Officials warn school board changes breach Treaty ‘In a political flip-flop, Education Minister Erica Stanford has decided to remove the Treaty of Waitangi obligations on school boards without consulting Māori’

* Susan Edmunds for RNZ: $50 an hour, 12% superannuation: Australian recruiters target jobseekers

* Gareth Vaughan for Interest: BNZ says lower interest rates enabling customers to pay down loans faster

Housing, Climate & Poverty

* Tova O’Brien for Stuff: Wellington depression recovery centre to close after no funding reprieve. ‘Accidental meeting invite from Health NZ gave false hope but no reprieve for Wellington mental health service’

* Deep-dive by Maddy Croad for The Press-$: ‘Abandoned and betrayed’: Disabled community still hurting a year after funding cuts. ‘Ruth Jones says many Kiwis are still struggling to recover mentally, financially and physically - unable to get funding for basics like carers or incontinence pads.’

* Investigation by Jonathan Milne for Newsroom: Govt answers fishing chief’s billion dollar question on climate disclosures ‘There are a handful of corporates that stand to benefit from Commerce Minister Scott Simpson’s unexpected call to dramatically loosen climate reporting requirements; some are political donors’

* Column by Marc Daalder for Newsroom Pro-$: Govt’s climate strategy: Let it burn ‘Since the election, the Government has pursued policies that boost climate pollution – even if they cost more or jeopardise NZ’s reputation. We lay out the long list of retreats on climate action.’

* Column by Barbara Fountain for Newsroom: Stop telling health professionals to get back in their box ‘By trying to silence health professionals, the Govt risks smothering advocacy, equity and reform’

* Deep-dive by Nikki Mandow for Newsroom: When everyone lived in an affordable home

Cartoons: Cliff diving economics

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 co-hosts Bernard Hickey and Peter Bale talking with regular guests Robert Patman and Cathrine Dyer, and a special guest about the economy, politics, geopolitics, climate change, New York’s new mayor Zohran Mamdani, the gutting of Aotearoa’s Zero Carbon Act this week and revelations the Government is ‘move-on order’ legislation to allow Police to move homeless people out of CBDs for a day.

This week’s special guest was Auckland City Missioner Helen Robinson.

Our topics this week were:

* Bernard, Peter & Robert talked about the election of New York Mayor Zohran Mamdani and what it means politically inside, and potentially outside, the United States.

* Bernard and Peter talked about this week’s climate change policy changes with Cathrine.

* Peter and Robert talked about the latest crisis in Sudan.

* Bernard, Peter and Helen talked about this week’s ‘move-on order’ news around homelessness in our CBDs.

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

Briefly in the news in Aotearoa’s political economy around housing, poverty and climate on Thursday, November 6:

* Charities are scrambling in response to signs the Government is planning a ‘move on’ law to push hundreds of homeless out of city centres, despite only adding two (repeat TWO) new Housing First places out of a planned 300. (RNZ)

* PM Christopher Luxon told Parliament Aucklanders wanted the CBD ‘sorted’ before opening the new International Convention Centre and City Rail Link stations, adding: “Visitors are coming into Auckland. We need to make sure it’s a good presentation.” (RNZ)

* Auckland City Missioner Helen Robinson said an enforcement approach was not effective, saying: “All it simply does is either delay or literally move the person, and therefore all the needs associated with that person down the road - both literally and metaphorically. The answer here is more homes and more support.” (RNZ)

* A former Climate Commissioner and climate change academics described Climate Change Minister Simon Watts’ late-night changes to the Emissions Trading Scheme (ETS) and proposed changes to the Zero Carbon Act showed it wasn’t serious about reducing emissions and was gutting the act and the bipartisan consensus that created it piece by piece. (Science Media Centre)

* The carbon price in ETS markets immediately fell 20% to NZ$41.50/tonne yesterday morning, before recovering somewhat to close down around 10% at NZ$47, which compares with NZ$166/tonne in European markets last night.

* The changes disconnect the ETS from the Paris Agreement and end the need for the Government to receive advice from the Climate Commission.

Join us as a paying subscriber to get more analysis and detail in the podcast above, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also allow me to do this journalism. I am opening this one immediately to all, mainly so the young & homeless who can’t afford it can read it. Thanks to subscribers in advance.

Government may outlaw homeless from CBDs

Charities helping the hundreds of people sleeping out in the open in city centres scrambled yesterday to publicise signs from within Government it is planning to legislate to allow councils to ‘move on’ homeless people from city centres to make them more attractive to tourists, conference-goers and shoppers.

Representatives from Auckland City Mission, Visionwest, Lifewise, Kāhui Tū Kaha, Te Matapihi, Community Housing Aotearoa and Housing First Auckland told RNZ yesterday morning they believed the government was taking an urgent, “move on” approach to homelessness. This followed a meeting with Minister for Auckland Simeon Brown and after National MP Ryan Hamilton put a members’ bill in the ballot titled Policing (Direction to Move On) Amendment Bill. It would give Police the power to ‘move on’ people in a specified area they deemed a ‘public nuisance’ for 24 hours. It is backed by Police Minister Mark Mitchell.

Auckland City Missioner Helen Robinson said any enforcement approach would be “totally and utterly ineffective”.

“People who are rough sleeping are human beings, and any kind of enforcement approach is not only not good, but it’s also ineffective.

“All it simply does is either delay or literally move the person, and therefore all the needs associated with that person down the road - both literally and metaphorically. The answer here is more homes and more support.” Auckland City Missioner Helen Robinson via RNZ

In September the government funded an additional 300 social homes through Housing First, but only two houses have been delivered.

‘We need to clean it up to make it look good for the visitors’

Asked during Parliamentary question time yesterday about the plans by Labour Housing Spokesman Kieran McAnulty, Housing Minister Chris Bishop initially denied legislative change was planned, but said the Government was doing work.

“The Government is considering a range of different things in relation to the CBD. It is 8 percent of the country’s economy; it is of national significance; and, with the City Rail Link opening next year, the International Convention Centre opening, and an increased push for tourism—for example, from cruise ships—the Government, as well as Auckland Council, is of the view that we can make the CBD a more desirable place for everyone to be than it currently is.” Chris Bishop (Question #9 Hansard)

Luxon did acknowledge the work being done on the “move on” proposals.

“Aucklanders want the CBD sorted. Visitors coming into Auckland, you know, we need to make sure it’s a good presentation. And yes, move on orders would be one of the things that you’d want to be considering.

“But obviously, when you consider them, you’ve got to make sure that you’ve got the right support structures in place to support people as well. So I’m sure that’ll be part of the conversation.” Luxon via RNZ

Bishop said he was not aware of the “move on” bill, while Mitchell said a decision on whether the Government pulled the private member’s bill from the ballot to become a Government bill was up to Justice Minister Paul Goldsmith and the Cabinet.

‘Hysteria is not helping’

Green Party Co Leader and Auckland Central MP Chloe Swarbrick said she had written to Mitchell asking him to visit the Auckland CBD to examine the homelessness issue.

“They have intentionally chosen to make more people homeless. We are left with a situation where many of my constituents in the city centre, and particularly a number of city centre businesses, have noticed that fact.

“Where are we moving these people to? My experience, as the local MP in Auckland Central over the last five years, where police have been brought in to move people along is that it doesn’t actually resolve the problem.

“It merely moves the problem along to another place and pops up in another part of the city. I would just ask that everybody who has an interest and a stake in Auckland city centre calms down. Hysteria is not helping.” Swarbrick via RNZ

‘Criminalising whānau for sleeping on the streets’

Housing advocates in Auckland, including Kick Back co-founder Aaron Hendry, criticised the “move on” legisation as criminalising the act of sleeping rough, which had been worsened by Government measures.

“If the Government goes ahead with this ban, what they will be doing is criminalizing whānau for sleeping on the streets as a result of the political decisions they themselves have made to deny people shelter.

“Our whānau experiencing homelessness are not the problem, the problem is that we have human beings who are forced to sleep outside because they have been denied access to their most basic human right to housing.

“Homelessness is a direct consequences of the political choices our political leaders have made over decades, political choices which have seen housing commodified, and the financial interests of investors and landlords elevated over our people’s most basic human need to access a safe and stable home.” Kick Back co-founder Aaron Hendry in a statement.

Chart of the Day: Reinsurance costs quintuple in 15 years

My Pick n’ Mix of links elsewhere

A few subscribers asked for me to continue the Picks n’ Mixes, even in limited form.

Politics and the Economy

* Deep-dive Cushla Norman for 1News: Ditching NZ for Oz: Kiwis at departure gate reveal why they’re leaving. ‘This year was meant to be the one when New Zealand closed the income gap with Australia and stemmed the exodus. Instead, more Kiwis than ever are leaving for a better life.’

* Susan Edmonds for RNZ: People manipulating KiwiSaver hardship withdrawal system - providers

* Phil Pennington for RNZ: FENZ aims to save millions: ‘We can’t keep doing everything for everybody’

* RNZ: Nailing rogue salons: Fears over money laundering, trafficking

* RNZ: Inquiry finds Carl Bates followed rules in declaring property interests

* Liu Chen for RNZ: Minister accused of ‘driving a wedge’ between migrants and locals

Housing, Climate & Poverty

* Phil Pennington for RNZ: Company researching forestry road safety after trucker’s death

* Layla Bayley-McDowall for RNZ: Diluting history curriculum risks ‘leaving our past to chance’ - Academic

* Good news via Ruth Hill for RNZ: Nearly 60 midwives trained to deliver pregnancy vaccination programme

* Pokere Paewai for RNZ: Crown breached Treaty principles with te reo policies - Waitangi Tribunal

* Good news via Samantha Gee for RNZ: New dialysis unit to save patients hours of travel

* Susan Edmunds for RNZ: Should we be paying $3 per km to fly domestic?

Cartoons: Double happy? The bonfire on Guy Fawkes night.

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 the news in Aotearoa’s political economy around housing, poverty and climate on Wednesday, November 4:

* Labour force data due later today is expected to show a slight rise in the unemployment rate to a nine-year-high of 5.3%, with a 0.1% rise in jobs not enough to soak up extra people entering the labour force.

* But the small rise disguises an emerging jobs and health catastrophe for young people who have entered the workforce in the last decade since the start of mass usage of smart phones, the Covid pandemic and heavy job losses since late 2023.

* Stuff’s Bridie Witton reports from official data this morning that almost 90,000 people are now on a jobseeker or supported living benefits because of mental health issues, up by 35,000 over the last decade, including 9,000 during the 2020 and 2021 Covid lockdown periods, and a total of 23,000 since March 2020.

* The damage to a generation’s health and work prospects for life has been compounded by a collapse in employment of young people since early-2023, including the loss of over 80,000 jobs in the 15 to 35 age groups.

* In housing news, Kāinga Ora has sold 171 sections in South Auckland to a developer for a profit, David Fisher reports for The NZ Herald-$, while the Government is waiting for house prices to rise to sell 35 built-but-unoccupied townhouses it had to buy off a Kapiti developer because of an underwrite from 2023, Amy Ridout reports for Stuff.

* Meanwhile, less than a year after the beginning of the Government’s Fast Track Approvals regime, RMA Reform, Infrastructure and Housing Minister Chris Bishop and Resources Minister Shane Jones have gone back to Parliament with rewrites of the law to accelerate the approvals process by another six months.

* The changes give more powers to the two ministers to set national standards and over-rule the Environmental Protection Authority (EPA), along with removing the need to consult more widely and curtailing appeal rights.

* The Environmental Defence Society said the changes, which will themselves be fast-tracked through Parliament, were a further assault on the environment and democracy.

* BusinessDesk-$’s Pattrick Smellie and Dileepa Fonseka reported this morning EPA CEO Allan Freeth resigned abruptly yesterday after 10 years in the job in connection with the fast track accleration, quoting Jones as saying Freeth had “definitely missed the memo” about speeding up approvals, and: “I have no doubt that the EPA will improve now that the CEO is going.”

* In climate news, Climate Change Minister Simon Watts last night announced changes to the Emissions Trading Scheme (ETS) and a raft of fast rewrites of the Climate Change Response Act, with details late last night in this MoE release, including stripping the Climate Commission of the right to advise the Government on Emissions Reduction Plans (ERPs).

* Climate Change and ETS consultant Christina Hood wrote on LinkedIn the changes were ‘short-sighted, terrible and making a mockery of the ERP process.’

Join us as a paying subscriber to get more analysis and detail in the podcast above, and be able to comment below and join The Kākā community in webinars and our chat room. Paying subscribers also allow me to do this journalism. I am opening this one immediately to all, mainly so the young who can’t afford it can read it. Thanks to subscribers in advance.

The even-deeper scarring of a generation

Economists often refer coldly to the ‘scarring’ effect of recessions on those who happen to be unlucky enough to be coming into the workforce at the same time as jobs are being shed and output is contracting. Without jobs and income, this ‘unlucky’ generation will experience lower incomes, worse wellbeing and more social problems over their entire lifetimes, than those who arrived into the jobs market before and after them.

We are seeing this again with the loss of at least 150,000 net jobs overall since mid-2023, including the loss of 80,000 jobs in the 15-35 age groups. Perhaps ironically, those aged over 35 have gained around 110,000 jobs over that same period, including around 30,000 over 65s who got new jobs and started receiving NZ Superannuation at the same time those under 35 started living on a benefit. (See the charts below)

But the generation coming into the labour market since 2015 have had it doubly or even triply tough because they have had to deal with a worsening of mental health in their generation since the advent of widespread and hours-per-day use of smart phones, which initial studies show damaged the mental health of the youngest and heaviest users the most. This generation were also hit hard during Covid.

Bridie Witton has written an excellent deep-dive this morning on Stuff, titled: Why nearly 90,000 Kiwis aren’t working and subtitled: ‘A growing number of Kiwis are on welfare because of mental health issues, marking a major shift for a system once designed for and focused on physical illness and unemployment.’

She makes the point this generation also faces a Government determined to hit its own target of kicking 50,000 off benefits, starting with making 18 and 19 year olds stay at home and be supported by their parents, if those parents earn over $65,000 per year.

Bridie has gotten hold of MSD data via the Official Information Act showing there were almost 23,000 more people on health-related benefits as of June this year who cited psychological or psychiatric conditions than in March 2020.

The change has been years in the making. But what began as a slow climb through the 2010s was accelerated by the Covid-19 pandemic, then supercharged by the cost-of-living crisis.

Lockdowns, isolation and economic uncertainty helped push thousands out of work. Now, as the economic shocks linger and everyday costs grow, a larger number of New Zealanders have dropped out of the workforce than during the pandemic. As many as 86,232 New Zealanders now receive Jobseeker Support and Supported Living Payments because mental health conditions prevent them from working. That’s up from 51,345 in 2015 — a 68% increase in a decade.

The sharpest increase came in the year to June, when another 6500 people were added to the Jobseeker–Health mental health category. The Supported Living Payment, designed for people with long-term or permanent incapacity, has also continued to grow steadily, up by more than 4300 since 2022. Bridie Witton for Stuff

Unemployment amoung teenagers has averaged around 25% over the last 15 years, about ten percentage points higher than in the first decade of the century.

Chart of the Day: A jobspocalypse for the young

My Pick n’ Mix of links elsewhere

A few subscribers asked for me to continue the Picks n’ Mixes, even in limited form.

Politics and the Economy

* Thomas Manch for The Post-$: Finance Minister Nicola Willis has doubled local government lender liquidity facility, in anticipation of rising council debt levels.

* Henry Cooke for The Post-$: Rawiri Waititi says kicking out ‘rogue’ MPs not yet considered

* Tova O’Brien for Stuff: Where to from here in the great Te Pāti Māori cluster fudge?

* Deep-dive by Mary Argue & Paris Ibell for RNZ: Retirement village residents descend on Parliament

* Deep-dive by Emma Gleason for The Spinoff: Unpacking the ‘hostile takeover’ bid for Kelston Boys’ High SchoolCan you really just take over a school?

* Column by Joel Maxwell for Stuff: I was asked if I had a SuperGold card. It was funny - then it wasn’t. Joel Maxwell argues that given Māori people die on average seven to eight years earlier than non-Māori, the SuperGold card should lower the age of eligibility for them.

Housing, Climate & Poverty

* Deep-dive by Alexia Russell for RNZ/Newsroom’s The Detail: Behind the $54 billion bill for nicer highways

* RNZ: Another $32 million to be spent fixing Transmission Gully ‘NZTA’s Mark Owen told Morning Report the builder never applied the final chip seal layer so it was not as waterproof as it should be.’

* Greg Ninness for Interest: Barfoot & Thompson’s sales volumes dipped in October with price signals mixed

* Deep-dive by Joel MacManus for The Spinoff: What new population data reveals about why some cities are growing and others aren’t.

* Susan Edmunds for RNZ: Emergency housing grants fall by $20m in a year

* OneRoof: NZ bank offers ‘crazy’ home loan rates of 3.99% - lowest in four years

Cartoon: Riding for a fall

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

I spoke with Simplicity Co-Founder Sam Stubbs about plans announced this morning to launch InfraKiwi, an NZX-listed vehicle funded from KiwiSaver and borrowing to buy new and existing infrastructure such as water companies, lines companies, airports, ports, hospitals, roads, public transport operators and schools from the Government and councils.

Stubbs sees an oppotunity to use upwards of $295 billion of KiwiSaver funds available over the next 25 years to kick-start a ramping up of investment in building, rebuilding and properly maintaining the infrastructure needed for Aotearoa to grow.

The problem we’re trying to solve is how do we get all this KiwiSaver money into the infrastructure that we use and operate and get good risk-adjusted returns for investors, for KiwiSaver members, and the public generally. And how do you generate also economic growth and jobs and get the infrastructure built that we need? Simplicity Co-Founder Sam Stubbs.

InfraKiwi would be seeded by an investment from Simplicity, but open through the NZX for all New Zealand-based investors and funds to invest in a company buying and running infrastructure assets the Government and councils chose not to own or invest in over the long run. It would be able to borrow on its own behalf to buy existing assets, often shortly after they were built, and then own them over the long-run for stable dividends to investors.

In my view, it creates a pathway for the Government and Councils to solve the problem they currently believe they have, which is:

* they need to borrow and invest to build and properly run infrastructure to cater for still-fast population growth; but,

* they don’t want to take the debt onto the Crown’s or council balance sheets because they fear it will increase interest rates and leave future taxpayers vulnerable if there is a new financial or physical economic shock.

The solution pursued by both National-led and Labour-led Governments over the last 30 years is to try to get the private sector to fund the building and running of the assets, either by selling them individually in whole or partially to local investors or foreign investors (Air New Zealand, BNZ, Telecom, Genesis, Mighty River/Mercury, Meridian, Contact etc), or trying to structure Infrastructure Funding and Financing deals and Public Private Partnerships to get private funders to do the borrowing, investing, building and owning of the assets (Wiri Prison, Transmission Gully).

The trouble is, in my view, these deals are so complicated, slow, expensive and subject to political, market and technical risks that they don’t happen often fast enough or at the necessary scale to solve Aotearoa’s $30 billion-a-year infrastructure deficit.

InfraKiwi doesn’t want to take on the risks of initially funding or building new assets, but sees itself assuring any Government or Council it would buy the asset once built for a certain price, giving Governments, ratepayers and taxpayers some assurance that they wouldn’t be stuck with the long-term debt.

In my view, this process does solve a big current problem that funds building up in KiwiSaver, NZ SuperFund and ACC very fast are running out of things to buy in New Zealand, but New Zealand Governments feel they ‘can’t afford’ to build the infrastructure needed to grow and solve many of our deficits. I think it’s a solution that’s more expensive for taxpayers in the long run, but does reduce the risks of creating new dividend or interest cost streams and drains in our current account deficit from sales to foreign owners or borrowing internationally.

If Governments of both flavours persist, as they are now, in believing they have to constantly drive the size of Government/GDP and Debt/GDP back down below 30%, then this is better than the alternative of pretending or promising to invest to cope with population growth, climate change and ageing, but never actually doing it.

I have published this article and the video interview above for all to read and watch as part of my public interest mandate covering our political economy. Paying subscribers support this work. You can too by subscribing.

A lightly edited transcript of our conversation

This a lightly-edited and cut-down version of our 30 minute conversation above for brevity and clarity. A PDF of the presentation referred to in the conversation above is attached below.

I firstly asked Sam what InfraKiwi would be and what problem it was trying to solve.

“We have this massive infrastructure deficit in New Zealand. The Infrastructure Commission says it’s $210 billion. It’s a massive amount of money and a lot of work. And yet on the other side, we have already $130 billion worth of KiwiSaver money saved,” Sam said.

“And our economist, Shamabeel Eaqub, has calculated that in 25 years, if KiwiSaver managers keep their investments in New Zealand at 30%, we will have another $295 billion to invest in New Zealand. The problem with that is that there’s kind of nothing to invest in. It’s very hard to commit a lot of money in that way. So it tends to go overseas. And when it’s invested overseas, that’s fine. You still get the returns, but you don’t generate the jobs or the economic growth than if you have it invested domestically.”

NZ shareholders only and with a Golden Share

Sam said he and others had spent two years iterating 50 versions of the fund.

“We’ve landed on setting up a company called Infra Kiwi. So, Infra for infrastructure, Kiwi for KiwiSaver and Iwi. We’re trying to create a vehicle that makes it as easy as possible for all New Zealanders, KiwiSaver managers, individuals, to invest in infrastructure via this company,” he said.

“The intention is that it will be New Zealand-only shareholders. So foreign investors not required or offshore capital not required in this case, because there’s so much there. That will then allow Kiwi to buy what we would call sensitive assets that might otherwise be unavailable for sale to offshore owners and own and operate it for the long term.

“I don’t want a New Zealand where we’ve saved hundreds of billions of dollars in KiwiSaver and it’s building roads in Aussie. I want that money building roads and buying power stations and operating the water here in New Zealand and creating jobs here and creating growth here.” Sam Stubbs

Simplicity would start by making the initial seed investments and then once it got to a critical mass it would list on the stock exchange, be restricted to New Zealanders, and have a ‘Golden Share’ preventing it from being sold to single and/or foreign interests.

“That means it’s liquid. It means all KiwiSaver managers can invest in it. It means the nature and purpose of the company couldn’t change now you and I are old enough to know the Fay Richwhite issue, which is to slice and dice these assets for the benefit of few to the cost of many.

“The nature and purpose of the company remains the same over the long term. And then it invests in operating infrastructure. So it’s not interested in building the power station, but it might be interested in buying it once it’s built. And then it focuses on very long-term ownership and operational efficiency. And if it’s existing old infrastructure, additional capital will refurbish or maintain the infrastructure as well. But it’s all about owning.

“I’d like this to be the biggest and most boring company in the country. Which means that it’s really big. It addresses that huge pool of money that New Zealanders will have now to invest in what we need. And it just focuses on owning and operating these assets for the very, very long term.”

‘It won’t take big development risks’

Sam says InfraKiwi wants to own and operate assets, rather than develop them, to make it easier to value on the stock market.

“It’s not taking big development risk But the other thing it could do is go to governments and say if you build it, we’ll buy it, and that means it’ll actually get built, because it’ll be a contract between the government and the community to get this thing built.

I then asked about the potential scale of InfraKiwi and who could invest.

“It’s designed for people to participate in several ways. Once the company lists on the stock exchange, Simplicity will step away and be just another shareholder. So it will operate as its own independent company, own board of directors. But because it’s listed on the stock exchange and hopefully big enough to be in the index, all the other KiwiSaver funds will be able to buy it. And typically, if it’s in the index, they will own it so they’ll own at least a benchmark position,” he said.

“So people could participate via their KiwiSaver funds, in the sense all KiwiSaver managers are investing in it. Or, because it’s listed on the stock exchange, if you are a New Zealander, registered New Zealander, for investment purposes, then you can buy and sell shares directly as well. So you could buy and sell it directly via your broker or Sharesies or any platform that sells individual shares as well. So the idea is to make it very broadly available.”

‘We’re not interested in PPP-style financial engineering’

Sam said he’d been in talks with the NZX and Standard & Poor’s to make sure InfraKiwi could only have New Zealand shareholders, which meant it would be able to buy sensitive assets that no one else could for the long term.

“We’re not interested in doing what a lot of PPPs want to do, which is financially engineer the acquisition so that they can exit within a fairly short period of time and have made a lot of money,” he said.

“What we want to do is make a very fair return over a long period of time, which is fair to the investors and the company, but also means that the vendor of the asset knows that you’re not trying to basically maximize return because these are community assets, they’re sensitive assets. Some of them will never make enough money to ever be investable propositions. So for example, a regional airport that only has two or three flights a day is probably unlikely to ever be an economic asset. That council just has to subsidise that from general rates.

“But there are a whole lot of assets where ultimately New Zealanders have to pay. And whether they pay once when it gets refreshed and built, like water assets, you can either have a massive rates bill to refresh it, or build new, or you can run the asset down over 30 years. Or you can own this and actually maintain it and get a fair inflation adjusted return over a long period of time.

‘It’s sort of like public ownership’

Sam said KiwiSaver funds were naturally attracted to long-run assets with constant cashflows. He also compared such funds to the likes of Singapore’s Temasek.

“If InfraKiwi got listed and it was in the index, as soon as it bought something, about 3.5 million New Zealanders would own it from the day it bought it. That is sort of like public ownership, but without government.

He said ownership by such a fund would depoliticise the issue of asset sales.

“If the asset is owned by millions of New Zealanders, the attitude towards the government in terms of regulation will be sensible. And the attitude we will take towards the ownership and operation of the business will also be very sensible too, because when you own something for the long term, you’ve got to maintain it.

“You’ve got to spend money on it. You’ve got to keep the water flowing and the lights on. It’s a different attitude than if it’s a political decision. That’s a sort of pressure, but in a different way. And it’s not the attitude of a short-term owner. A short-term owner doesn’t care about it. They just want to run down the asset and fool the next buyer into taking it at the highest possible price.”

Sam said he had done over 50 public meetings and 90% of people had said they would be happy if a KiwiSaver funded owned the water pipes or the power lines.

“That’s because KiwiSaver is a very popular brand. It’s actually serving a lot of New Zealanders very well.”

‘We are where Australia was in 1985’

Sam compared New Zealand now to Australia in 1985, just before its savings ramped up under its soon-to-be-launched compulsory pension system.

“We’ve never had this option before. Previously, we’ve always had to go to central or local government to fund our infrastructure or at the margin, these PPPs, typically where the money is provided by offshore players. We now have a new reality, which is that we now are where Australia was in 1985.

“We’re just about to see this huge increase in domestic savings, but we have to create the mechanisms by which it gets invested in the economy. And that’s what InfraKiwi is all about. It is trying to bridge that gap.”

Why not just borrow from the Crown’s balance sheet?

I then asked why the infrastructure could not be simply built with funds borrowed by the Government.

“If there’s a $200 billion infrastructure deficit, the government borrows another $200 billion. That’s about 45% of GDP. And that would take our central government debt up by about 45% of GDP. That is a possibility, no doubt about it,” he said.

“It doesn’t seem to be what any one of our political parties or government wants to, because effectively what you’re doing is increasing your sovereign risk rating and debt levels and cost of funding. But for whatever reason, they haven’t chosen not to do this.

“But even if you have the option of central government doing it, local government is really starting to get stretched. And so another source of funding would be useful. I’m not pretending InfraKiwi will supplant everything that central and local government would do, but it’s another source of funding. And it’s very long duration capital.”

Here’s the presentation referred to in the interview above

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 Robert Patman and Cathrine Dyer, and a special guest about the economy, politics, geopolitics, climate change, The Kākā’s future and how to fund the building of social housing by Community Housing Providers (CHPs) and others.

This week’s special guest was Home Capital Partners CEO James Stewart.

We talked about:

* The Kākā’s future after Bernard published a State of The Kākā Nation report for 2025 showing falling subscription revenues and the loss of the sponsor for the weekly When The Facts Change podcast via The Spinoff.

* The release of the first comprehensive and nationwide flood maps forecasting how climate warming of one degree, two degrees and three degrees would affect households and infrastructure in the event of one-in-one-hundred-year floods.

* Bernard, Peter & Cathrine also talked about the potential for community assemblies to agree solutions to climate adaptation and mitigation.

* Robert Patman talked with Bernard and Peter about this week’s meetings between Donald Trump and Xi Jinping, and Donald Trump and Christopher Luxon.

* James Stewart talked about Home Capital Partners’ launch of its new Home Capital Partners’ $185 million fund to accelerate building of over 250 medium density affordable and social homes.

* Bernard and Peter then talked about Labour’s Capital Gains Tax proposal.

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

Just briefly, I spoke last night with Standard & Poor’s Global Ratings Director of Government Ratings Anthony Walker last night about a research note S&P Global published yesterday titled: ‘New Zealand Water Reforms Don’t Guarantee Rating Relief For Local Councils.’

He told me there was no guarantee the current Government’s ‘Local Water Done Well’ reforms would alleviate the negative outlooks S&P Global had on many councils’ credit ratings, even though the creation of separate water authorities in accounting terms appeared to lessen their apparent exposure to big new debt-funded water infrastructure investments.

“In capital markets, off the books doesn’t always mean off the hook. As New Zealand local councils pursue new water service models, we think shifting assets and liabilities “off-balance sheet” may ease the optics, but not the underlying credit risk.” Standard & Poor’s Global Ratings Director of Government Ratings Anthony Walker

In my view, that’s a problem for councils and the Government, who may have hoped the creation of the new water authorities would reduce the exposure of ratepayers and taxpayers to new borrowings for water and free them up to expand without the need to use the Crown’s or council balance sheets. The hope that ‘off balance sheet vehicles’ can do the heavy lifting underpins the Government’s entire housing growth strategy. It has enabled the Government to remain committed to not borrowing directly through the Crown’s balance sheet.

The first cab off the rank, Watercare, has been able to separate completely from the Auckland City Council and has been promoted as the model, but it is the exception because it has its own specific Act of Parliament, which actually puts the Crown on the hook, Anthony said.

In my view, this S&P analysis that the other water authorities are still tied to Council balance sheets, has put a major spanner in the works of the entire infrastructure funding strategy the Government is relying on.

I have published this article and video for all to read and watch as part of my public interest mandate covering our political economy. Paying subscribers support this work. You can too by subscribing.

A lightly edited transcript of our conversation

Firstly, I asked Anthony to expand on the details of the note.

“It’s designed to highlight the analytical issues that we see when it comes to the local water reforms when it comes to councils. The councils have been provided up to six options by the Crown via a DIA (Department of Internal Affairs) guidance document. And what we’ve done here is gone through how we would view each of those six. Now, only three of them are being pursued by councils,” he said.

“What we’ve found is that there’s 22 councils doing business as usual, another eight doing a single owned entity and another 38 potentially merging into 12 big entities. And their ratings outcomes do depend on which option is chosen. As you highlight, some will be better off, some will be worse off, and some will be somewhere in the middle. And what we’ve done here is we’ve found that, or we’re showing the market and the councils right now that if you are going to go out there with financial guarantees, it’s not going to be off the books for credit ratings.”

‘You can’t really have your cake and eat it too’

I then asked him why in capital markets “off the books doesn’t always mean off the hook,” and what were the gradations used by S&P to decide how much ‘on the hook’ councils were.

“One of the things to say here is that we don’t rate to accounting standards. Accounting standards, they vary from very good to very bad across the world. And we work in all systems globally. And even in New Zealand, we don’t think the accounting standards are as holistic as others. Operating leases and capital leases are a prime example. That’s debt in every other market in the world, advanced market we work in. So we put those on balance sheet, even though the accounting standards in New Zealand say no,” he said.

“You can’t really have your cake and eat it too. You’re going to get cheaper interest rates because you’re guaranteeing it. Well, then the government is going to have to bail it out when something goes bad.” Anthony Walker

“And that’s what we talk about when we say in capital markets, off the book doesn’t always mean off the hook ,because accounting standards might say it’s not there, but when councils are guaranteeing it, it is there.

“We’ve had people say to us, well, we’re only going to guarantee it because we don’t think it needs to be guaranteed. Well, capital markets and investors don’t believe that. That’s why they want the guarantee. So you can’t really have your cake and eat it too. You’re going to get cheaper interest rates because you’re guaranteeing it. Well, then the government is going to have to bail it out when something goes bad.”

‘Labour’s involvement of Iwi helped create greater separation’

Anthony said S&P also looked at the activity of the new entity, and whether it was an essential service.

“Is it a port? Is it a commercial business, or retail business? Or is it doing an essential service like water where people can’t live without? Are there other providers of water in the system in your area? And if the answer is no, and this is the only water provider that gives you water to live on. Obviously, when the council are owning it, obviously it’s going to be very essential,” he said.

“And then the other thing we look at is the role and the linkages between the council. And this is where the Three Waters from the former Labour government tried to separate this Iwi ownership. I know that wasn’t very popular throughout the country, but that was why they went down this path, to try to dilute the linkages with council control.

“Because if the council is controlling it, they’re appointing managers, they’re appointing boards, they’re signing off statements of intent, signing off decisions and now they’re guaranteeing them, then this is a council entity. They can’t just wipe their hands and say, it’s not my fault, not my responsibility, and by the way I have a watertight guarantee (to back that up).” he said.

“These things will come back to bite you. They’ve (bond investors) seen them around the world. In fact we have seen many governments around the world step in to bail out businesses which are not guaranteed, and they’re not water providers so this is why we kind of look at a holistic approach about what may or may not happen.

Why Watercare is different

Anthony then talked about Watercare, which has been cited as a model, and why it was different.

“So Watercare, we have separated from Auckland’s balance sheet and that’s specifically because legislation bans Auckland from providing any financial support at all. So we believe that if something goes wrong with Watercare. It’s going to be the Crown who’s asked to step in to support it,” he said.

“And these are different things because maybe a smaller council, we could pull water off the balance sheet of a small council under that rule, but how would that entity go and borrow? It can’t borrow in the same terms as Watercare. It just can’t do it from the sheer size.”

I then asked about the impressions voters and politicians might have had about how Local Water Done Well had created a way for them to avoid having the debt on Crown and Council balance sheets, and therefore to have cheaper rates with lower interest rates, all other things being equal.

Anthony said the biggest determinant of council interest costs was whether they borrowed through the Local Government Funding Agency (LGFA), which is a Government-backed joint borrowing vehicle, which sets the rules for councils about how much debt they can have relative to their income.

“The biggest determination of council debt caps or the limits of borrowing is not a credit rating. They can keep borrowing. we’ll keep rating them. We might rate them in the triple B category in a decade’s time if they borrow massively. They can still borrow. The biggest pull-back on the leverage of the sector is actually the LGFA debt caps,” he said.

“So if the LGFA was to loosen those, they could still borrow through the LGFA, which is still rated AAA on the local currency scale. So that is one area where credit ratings can have an influence, but the credit rating is an outcome. It’s not an input.”

What is the point of all this asset shuffling to create new vehicles then?

I then asked if Local Water Done Well and the creation of the new accounting vehicles would actually reduce borrowing costs, or was it just a lot of shuffling?

“There is a lot of shuffling. Some of these reforms do have an impact. They do matter. They mean that some councils can borrow more under certain structures than they would otherwise at the same rating. But if you look at the cost of debt, the cost of debt for the Crown is the cheapest. Councils are the second cheapest. Non-councils are the third cheapest, whether that’s a water utility or a bank or something else.

“Given that a water utility, particularly a small one, which most of these councils would be, would likely be standalone credit profile maybe in the Triple B, maybe Double B. It means that the council guarantee which would lift that back up towards the council level, would actually be very vital for it to get cheaper financing,” he said.

“But then again, if it was all in the balance sheet for the council and the council was one notch lower on the rating, it may still be cheaper that wa,y because the LGFA is the ultimate determination here of the credit quality and the credit rating.”

Anthony said the role of the LGFA was crucial.

“So while we did lower 18 Council ratings this year, the LGFA rating wasn’t impacted because they were actually kind of countering that with higher capital requirements and higher assets to kind of shore up their credit quality.

“So they are managing that risk. What happens when the councils borrow through the LGFA and the councils own the LGFA? So they are ultimately the decision makers here. The LGFA will increase the cost that they borrow from the market. They borrow at 3%. They’ll lend it onto councils potentially at 3.25%. If you’re a better rated council, maybe you get at 3.1%. So they actually determine the difference in outcomes here when it comes to council interest rates rather than what the rating may do if councils were borrowing directly in the capital markets.

‘It all depends on the LGFA, which sets the rules with Crown backing’

“The credit rating would have a much bigger impact on cost of debt in New Zealand if these councils were borrowing outside the LGFA.”

“Earlier this year, sorry, we downgraded 18 councils. Going from a AA to AA, AA plus and AA rating had no impact on their interest costs. Going one notch below that from a AA to AA minus increased their interest costs on new borrowings, not the existing debt, but new borrowings by 0.05%. So five basis points.

“If we lowered by one notch again because they doubled their debt levels from 180 % on average to 360%, we potentially may have another 0.05% or a five basis point increase in costs.”

I then asked Anthony about whether all the shuffling to change the ‘optics’ for Councils and the Government would actually improve costs much.

‘Shifting ‘off balance sheet’ doesn’t change our view’

“This is what this note is partly there to tell councils and investors. It’s explaining how we look at the six options provided, whether they would be outside our credit rating or not. But if you’re shifting something to an in-house business unit, where you’ve got staff sitting on the floor next to you and you’re shifting to a single-owned entity, with ratings and revenues quarantined, They think they may have a separate business structure, but ultimately, they’re probably the same people doing the same job for the same people and probably having the same cost base.

“They may actually have a bigger cost base if they’re going to ramp up their spending. So while it might shift it from the parent accounts under New Zealand accounting standards, they’re likely to be captured under the group accounts. So they’re still on the broader balance sheet that most governments don’t focus on.”

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 the news in Aotearoa’s political economy around housing, poverty and climate on Wednesday, October 29:

* Labour’s targeted plan for a Capital Gains Tax (CGT) to pay for three free doctor’s visits was described by political commentators yesterday as a low-target tactic that might neutralise opposition by offsetting the negative of a new tax with the positive of a new health benefit.

* However, tax lawyers, accountants and landlords wanted detail on key areas such as whether interest deductibility would be removed again as an offset to capital gains, whether live-in commercial property owners such as dairy and shop owners would be exempt, whether commercial property owners would be able to claim depreciation again, and whether build-to-rent property would be exempt.

* Also, doctors challenged the viability and cost of Labour’s plan to use AI to reduce demand for doctors elsewhere and offset the extra demand from the new ‘Medicaid’ entitlement in a way to contain costs.

* Economists also challenged Labour’s forecast for new tax revenues rising to $1.35 billion by 2030/31, saying it depended on capital gains continuing at pre-Covid rates, which would be difficult to achieve given the last 40 years of interest rate falls and household debt increases can’t be repeated.

* In news elsewhere, ACC has cut off payments to 8,000 long-term claimants in the last year, up 20% from the previous year, despite many claimants saying they can’t work and are being cast aside to save money. (RNZ)

* Also, more than 600 people applied for a part-time job helping run a mini-putt course in Wellington (NZ Herald). And, the Government has sent letters to Wellington landowners on the route for a new Mt Victoria tunnel before telling Wellington City Council, who must rejig roads, cycleways and footpaths to accommodate the $2.9-$3.8 billion plan, which is not fully-funded yet. (The Post-$)

Subscribe in full as a paying subscriber to get more analysis and detail in the podcast above. Paying subscribers can also access our webinars, our chat room and can comment on articles. Having paying subscribers allows me to open up articles occasionally for the public. I’ll open this one up at midday if we get over 100 likes from paying subscribers. If you’re not paying and are reading or listening to this now, it’s because paying subscribers said I should open it up as it should be available to the public.

*After the extremely valuable feedback from paid and free subscribers yesterday here, I’m not producing this Chorus in video form and won’t include lists of news links elsewhere, in order to reduce the news overload and get these emails out as early as possible.

The Lead: A small and hazy target

MMP politics have usually forced centrist parties in opposition to present ‘low target’ policies that are difficult for a Government to attack with scare campaigns. In modern politics, new big policies that take away things from voters are much easier to attack than small policies that seem to give and take in equal measure.

That’s why National characterised its GST increase in 2010/11 as a ‘distributionally neutral’ tax switch between income and consumption. It’s why the last Labour Government considered a wealth-tax-for-income-tax switch in 2023 that would have actually generated no net new revenue (Treasury paper).

Labour’s policy for Election 2026 announced yesterday of a targeted CGT that excluded the family home, farms, shares and other forms of financial wealth has the political profile of a ferret — low, fast and gone before you can stomp on it.

This is why commentators focused on the ‘horse race’ of who is likely to win, rather than which policy is best, see a ‘low target’ policy as clever. Yesterday, they acknowledged it might help Labour neuter the sorts of attacks that killed any chance of Labour taking power in 2011 and 2014, and that forced Labour to back off a CGT in 2017 just before the election.

Here’s a selection (bolding mine):

The policy is a bit of a reverse Goldilocks, not too progressive, not too Tory. It disappoints everyone a little bit – Labour may find it, “just right”.

There are other clever spots. The policy funds three GP visits a year for all New Zealanders – a clever, if expensive, policy that gives people something to talk about rather than the tax itself. But the true genius was Labour’s decision to tie the policy to a “medicard” ostensibly to load your patient details etc (as in Australia), but mainly so that Labour has an excuse to print off physical cards and hand them out to all and sundry on the campaign trail.

It’s a fiendishly clever idea. Labour, more than most parties, knows New Zealanders love a card – pledge cards, Gold Cards (NZ First’s baby, but created in Government with Labour). It makes ephemeral promises real. These are doctor visits voters can touch. They’re also doctor visits which, though they do not yet exist, the coalition threatens to take away. Thomas Coughlan in NZ Herald-$: Labour’s CGT sets small target but has big loopholes - including family home

In order to try to cauterise the party from claims that it will just raise this money to spend on its pet leftie projects, Labour has said it will tie it to three free doctor’s visits per year, delivered via a new Medicard.The party will be hoping that gets real cut-through.

And the Medicard will be an effective political device. It can be waved around, become a symbol of a genuine household budget saving and a commitment to getting people into the GP. And despite the fact that it will benefit the wealthy, some universalism in health access does have policy merit – as does stopping people going to EDs because they can’t afford the doctor. Luke Malpass in The Post-$: Will a capital gains tax be what the doctor ordered for Labour?

Labour knows the political peril of talking tax. It’s been burned before - in 2011, 2014, and 2017. This time, the party has chosen the smallest possible target: a cautious CGT applying only to property sales, excluding the family home and farms.

In many respects, it’s little more than an expanded bright-line test - closely resembling the minority view of the 2019 Tax Working Group (paper).

The strategy is clear: keep it simple and sellable. Labour believes a modest CGT will be more palatable to the public than the more novel and ambitious wealth tax. Craig McCulloch in RNZ: Labour’s capital gains gamble: From leak to launch

Offsetting the ‘low target’ love, the Press Gallery jumped on the appearance of disunity because a leak to RNZ over the long weekend accelerated the announcement to yesterday morning. In my view, I doubt voters will care by election time in late 2026 and Chris Hipkins said he wouldn’t hunt for the leaker, but would strip them of Labour Party membership if he happened to find the source of a deliberate leak.

The Sidebar: ‘Show us the detail’

The 2011 election debate between John Key and Phil Goff became famous as the ‘Show me the money’ moment where Key flummoxed Goff with a question about how Labour’s fiscal policy, including the CGT, would be paid for. Key did it again in 2014 with a question to then-Labour Leader David Cunliffe about whether the CGT applied to family trusts. Cunliffe couldn’t answer.

Bill English capitalised on an uncertain answer from then Labour Leader Jacinda Ardern in September 2017 about whether a CGT was actually an inheritance tax in disguise, given it applied to the proceeds of estate sales.

There will still be plenty of room for attacks on the devilish detail, but Labour has tried to shut many of them down with a tightly targeted policy that excludes shares, financial assets, lifestyle blocks and farms, and rules out taxing estate sale proceeds and property title transfers to family members or partners.

“The tax will also not be payable when a commercial or residential property (excluding the family home) is transferred to a person’s spouse, civil union partner, or de facto partner. In situations where a property is transferred as a result of a marriage, civil union, de facto relationship ending or death, tax will not be paid when the property is transferred. “Labour policy document attached below.

But there are still plenty of grey areas that were not clarified yesterday in news conferences or policy documents, including:

* whether interest deductibility would be removed again as an offset to capital gains;

* whether live-in commercial property owners such as dairy and shop owners would be exempt;

* whether commercial property owners would be able to claim depreciation again; and,

* whether build-to-rent property would be exempt.

Chart: Inflation higher for beneficiaries & pensioners than top 20%

Stats NZ data published yesterday on Household Living Costs showed inflation for beneficiaries in the year to the September quarter of 3.4%, 3.8% for NZ Superannuitants and 0.8% for the highest spending quintile. The CPI inflation rate (3.0% in Q3) is used to adjust beneficiaries incomes, while wage inflation is used to index superannuitants’ benefits. Inflation was 4.0% for the lowest spending quintile.

Electricity contributed 17% of beneficiaries’ inflation, while rates increases drove 18% of NZ Superannuitants inflation. Mortgage interest costs fell 15.4% in the year, which was the main reason the highest quintile of spenders saw 0.8% inflation for the year.

Cartoons: Leaks & realism

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 the news in Aotearoa’s political economy around housing, poverty and climate on Tuesday, October 28:

* Almost a third of dairy farmers in Otago and Southland are still without power to their milking sheds this morning, five days after extreme gusts of wind flattened power poles, shelter belts and pine forests across the region. (RNZ)

* Farmers, water treatment plant operators and cell-tower maintenance workers are scrambling to bring in and share diesel generators, just as Metservice issued new orange rain, wind and snow warnings across both islands.

* Southland’s Mayor Rob Scott said the region wasn’t prepared for the extreme weather, with 8,000 homes still without power and a state of emergency still in place in the Southland and Clutha regions. As of 4am, 18 cell towers in the region were still offline, albeit down from as many as 130 being offline over the weekend. (RNZ)

* Again, there was no mention in any of the reports of the extreme weather this morning, or from officials surprised at the ongoing extreme weather, that such extreme weather events are expected to be more extreme and frequent because of climate change. That’s because carbon dioxide and methane emissions have already warmed the climate by around 1.5 degrees, with much, much more extreme weather likely over the next next 20-30 years, given some forecasters see warming of 2-3 degrees by 2050.

* There’s also few signs that dairy farmers, cell-tower operators, power lines companies and councils are preparing for this change by investing heavily, or much at all, in resilience measures such as widespread solar panel and battery installations able to operate off the grid, let along reducing their own emissions.

* Elsewhere in the news this morning, RNZ’s Craig McCulloch reported shortly before 7.30 am that Labour had agreed to campaign on a capital gains tax (CGT) covering just property, excluding the family home and farms, to help fund three free doctor visits for everyone. The abrupt announcement came after a leak.

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The Lead: Where’s the climate resilience?

It’s as if no one had ever heard or believed warnings from climate scientists that extreme weather events will become more extreme and frequent because fossil fuel and livestock emissions are warming the climate.

Southland mayor Rob Scott said overnight the orange wind warning in place on Thursday turned red very suddenly, the storm hit more widely than expected, and it exposed the need for more starlink satellites in provincial area.

“There wasn’t enough time to really even let people know it had reached that level and when that storm hit it certainly hit hard as well. You could say kind of took everyone by surprise.

“When it takes out the whole region, like you can be prepared, have back up stocks for generators and those sorts of things when you’d normally just get a particularly part or a particular town that runs into grief, but if you count Clutha as well you’ve got quite a large section of the South Island that’s been hit.

“The power network is going to be as resilient as the powerlines and when you’ve got trees coming down left right and centre onto the lines. You can’t really prepare for that, short of putting all the lines underground which is impossible, so you’ve got that kind of vulnerability there with the lines, same with the cellphone network.” Southland Mayor Rob Scott via RNZ.

Similar things were said after Cyclone Gabrielle took out a single power line over one bridge and plunged the Wairoa-Gisborne region into blackouts that lasted weeks for some remote properties.

The ‘surprises’ again raise questions about:

* what regional and local councils and the central Government are doing to fund and build better extreme weather warning systems, as recommended again last week by the United Nations (Reuters);

* what local and central Government, Fonterra, Spark, One NZ, 2 Degrees, Transpower and lines companies have done to encourage and/or subsidise the installation of solar and battery arrays able to store power to operate off sheds, power plants off the grid for extended periods; and,

* what regional and local councillors, ministers, MPs, farm leaders are doing and saying about preparing for climate change and addressing the causes of climate change, including their own emissions from transport and livestock.

The Sidebar: Labour goes for CGT-lite

Shortly after a leak to RNZ this morning, Labour announced its caucus had decided to campaign at next year’s election for a more limited version of a Capital Gains Tax (CGT) than it had previously campaigned for, and that revenues would pay for a new Medicard system that would mean everyone got three free doctor’s visits per year.

Labour Leader Chris Hipkins described the CGT as ‘targeted’ and only applying to capital gains on profits made after July 1, 2027 on sales of commercial or residential property, excluding the family home. It would be set at a rate of 28% to align with the company tax rate.

The CGT would exempt:

* the family home;

* farms;

* KiwiSaver;

* shares;

* business assets;

* inheritances; and,

* personal items.

Hipkins said nine out of 10 New Zealanders wouldn’t pay tax on the property they own.

“Right now, our tax system rewards property speculation instead of the people creating jobs and growing the economy. We will change that.

“Our simple, targeted tax changes will make sure those profiting from property pay their fair share, leveling the playing field for Kiwi businesses and innovation.

“Every dollar raised will go straight into the health system, including funding three free doctor’s visits a year for everyone with a new Medicard. This will save New Zealanders money every year.” Labour Leader Chris Hipkins in a statement.

Cartoons: Paving Paradise with head-filled sand

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