The Kākā by Bernard Hickey

The podcast above of the weekly ‘Hoon’ webinar for paying subscribers on Thursday night features Bernard Hickey talking with regular guests Cathrine Dyer and Robert Patman about the global economy, local and international politics and climate change. Peter Bale was off for a week travelling.

This week’s special guests were .Electric Kiwi CEO Huia Burt, Listener Columnist Danyl McLauchlan and Rewiring Aotearoa’s Mike Casey.

We talked about:

* This week’s not-transformative-at-all electricity reforms

* New Zealand not recognising Palestine

* Donald Trump’s plan for Gaza

* Donald Trump’s ramble to his generals

* The economy and the political situation.

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

This is a free preview of a paid episode. To hear more, visit thekaka.substack.com

Briefly for all today in Aotearoa’s political economy around housing, poverty and climate:

* The Lead: The Government’s electricity reforms yesterday focused on a vague, expensive and slow construction of an LNG port facility. But why didn’t it look at a fast and big rollout of grid-scale solar panels and electric battery parks? Especially given the one Meridian has built at Ruakaka in Northland has already suppressed wholesale price inflation.

* The Sidebar: ANZ fired back at BNZ last night to match its market-low one-year special mortgage rate of 4.49%, setting the scene for an end-of-year surge of credit into a stalled housing market. See more detail and a chart below.

* Number of the day: $300 per megawatt hour. That’s the potential cost of LNG-powered electricity, vs the $135/MWhr cost estimated by the Electricity Authority for installing panels, batteries and wind farms.

* The Chart of the day below is from fresh RBNZ bank lending data for August showing a spike in housing lending.

* The Deep-dive of the day is from Marc Daalder for Newsroom: Damp squib energy reforms reject 8 of 10 recommendations

Subscribe in full as a paying subscriber for more detail and analysis below the paywall fold and in the full video and podcast above. Paying subscribers support my work being done in the public interest here and in my appearances on other media such as RNZ & 1News. Paying subscribers also get early and full access to our webinars, our chat room and can comment on articles.

Why not use solar & batteries instead?

This is a free preview of a paid episode. To hear more, visit thekaka.substack.com

Briefly for all today in Aotearoa’s political economy around housing, poverty and climate:

* The Lead: The Government has this morning announced a series of measures to try to get the mostly state-owned gentailers to build more electricity generation and try to restrain double-digit power price inflation.

* The Sidebar: But the moves fall far short of the transformational reforms called for by consumers, and small and large businesses alike. Instead, they largely repeat the performative and ineffective moves made under the 2017-2023 Labour-led Government, which included writing stern letters to industry players, carrying out reviews and setting up taskforces, and tweaking rules that embed the status quo. See more detail below.

* Solution of the day: Last night the CTU proposed buying back the privately-owned 49% stakes in Meridian, Mercury and Genesis with those dividends, in the absence of a massive ramp up in using the super-profit cash to build new renewable electricity generation.

* Number of the day: 18.9%. The vacancy rate for shops in Newmarket in the June quarter, up from 13% a year ago, Colliers reports

* Chart of the day: ANZ’s Business Outlook survey for September showed confidence about the overall business outlook remains much stronger than expectations of firms’ own activity, which is still much stronger than experienced activity. Construction and retail confidence remains very weak, with growing concerns about non-wage inflation from rates, government fees and charges and electricity prices.

* Deep-dive of the day: Kira Carrington has done an excellent job reporting on the housing crisis in Blenheim via RNZ here: ‘Spike in homelessness overwhelms region’s services’

Subscribe in full as a paying subscriber for more detail and analysis below the paywall fold and in the full video and podcast above. Paying subscribers support my work being done in the public interest here and in my appearances on other media such as RNZ & 1News. Paying subscribers also get early and full access to our webinars, our chat room and can comment on articles.

A performative embedding of monopoly rents

On the eve of the Government’s big electricity market reform announcement this morning, I chatted in a ‘pop-up’ ‘Mini-Hoon’ with CTU Economist Craig Renney about a CTU proposal for the Government to use the gentailers’ dividends to buy back the privately-held shares in the 51% state-owned Meridian, Mercury and Genesis, if they chose not to build much more power generation capacity to stop rampant inflation.

Craig argues the gentailers chose to generate cash for dividends rather than invest in new renewable capacity for over a decade, which contributed to a sharp spike in prices and is causing energy poverty for households and de-industrialising what is left of Aotearoa’s industrial sector.

We spoke about the arguments for and against such a partial nationalisation, along with why electricity prices had risen and whether the RMA and the oil and gas drilling ban were factors.

I am opening up this video podcast to both free and paid subscribers immediately and in full. I view this as part of my public interest journalism mandate whereby paying subscribers support me to do the work and then make it much of it public, including on other media. Paying subscribers get early and deeper access to some of my work here and can comment. Subscribe as a paying subscriber to support this work.

Here’s the charts I referred to in the video above showing:

When dividends were paid instead of investing

Electricity output per capita since 2015

Electricity consumption by sector

Electricity prices indexed to 2015

Electricity generation vs GDP since 2015

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

This is a free preview of a paid episode. To hear more, visit thekaka.substack.com

Briefly for all today in Aotearoa’s political economy around housing, poverty and climate:

* The Lead: The Government announced new earthquake strengthening standards that redefined away $8.2 billion worth of strengthening work. It was widely welcomed by business owners, especially in provincial cities hit hard with empty old main street buildings sitting empty for years, unable to sell.

* The Sidebar: Donald Trump has just (re) announced a 100% tariff on movies made outside the United States. (Reuters)

* In the Quote of the Day, RBNZ Chief Economist Paul Conway acknowledged the bank’s mandate (then) to support maximum sustainable employment was a factor making it difficult to start raising interest rates sooner in 2021, which might have reduced inflation sooner.

* The Chart of the day shows fresh jobs data for August, including a 0.2% rise for the month and a 0.7% fall for the year.

* The Number of the day shows total gross earnings grew slower than food prices, rents and electricity prices in August.

* The Deep-dive of the day is by Laura James for 1News about the housing crisis for families with disabilities.

Subscribe in full as a paying subscriber for more detail and analysis below the paywall fold and in the full video and podcast above. Paying subscribers support my work being done in the public interest here and in my appearances on other media such as RNZ & 1News. Paying subscribers also get early and full access to our webinars, our chat room and can comment on articles.

‘Here’s some new standards to save us money’

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

This week’s special guests were primary school teacher Lucas Campbell and BusinessDesk Founding Editor Pattrick Smellie.

This week’s Hoon featured discussions about:

* Speeches by US President Donald Trump at the UN General Assembly in New York and China’s President Xi Jinping at the UN Climate Summit with Robert.

* Cathrine talked about President Xi’s pledge that China would cut climate emissions 7-10% by 2035 (Reuters) and this comment piece via Newsroom from Kevin Trenberth about the latest climate science, and the latest misinformation.

* Lucas talked about cirruculum reforms, teachers’ strikes and a 1% pay offer to teachers.

* Pattrick talked about this week’s Mood of the Boardroom survey on the cabinet’s performance and the appointment of a new Reserve Bank Governor.

* The ‘Skateboarding Dog’ item at the end was about this video via BlueSky showing a sperm whale eating a giant squid.

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

I’m making the video above freely available to all free and paying subscribers as an experiment. If you like what you see, subscribe to the paid version of The Kākā to support this work being done in public.

Paying subscribers can see more analysis and detail below the paywall fold in the text and chart version published earlier today plus my Pick n’ Mix Six of today’s scoops and deep-dives elsewhere.

Paying subscribers can also comment on these articles and participate in The Kākā’s chat room. Subscribe to support my work covering and analysing Aotearoa’s political economy, which I make public through videos here, on YouTube, and through media appearances on 1News, RNZ & elsewhere.

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

This is a free preview of a paid episode. To hear more, visit thekaka.substack.com

Briefly in my Picks n’ Mixes and Daily Chorus of the top news, scoops and deep-dives in Aotearoa’s political economy around housing, poverty and climate on Monday, September 22:

* 1News reports this morning Christchurch Hospital Emergency Department doctors have sent a letter to Health NZ pleading for more staff, funds and space.

* The doctors say they’re massively overloaded, often in code red and some patients wait so long they have to leave the ED, with one dying in the carpark.

* Both Labour and National Governments have pressed down on health funding as a share of GDP for decades in order to keep size of Government and debt under 30% of GDP, which has been the Treasury-led mantra for 30 years.

* Treasury says it’s more important to keep debt low, ‘in case of emergency’ and both Treasury Secretary Iain Rennie and Public Service Commissioner Brian Roche say the New Zealand Government is ‘at its fiscal limits,’ which they say means they have no choice but to refuse pay increases and refuse health, housing, education and transport capital investment requests.

* But New Zealand’s gross debt of around 45% of GDP is barely half the OECD average and the Crown’s full balance sheet picture including NZ Super Fund, ACC and other assets show the Crown has: net debt of 20% of annual GDP; 40% of annual Crown revenues; equity of around 43% of GDP; and the Government’s net interest bill of $2 billion a year represents a cost of 1.2% of annual revenue.

* Just imagine if you went to your banker to borrow money for a medical procedure to save a child’s life and said your current mortgage was worth 40% of your annual income and was currently costing 1.2% of your annual salary to service. Would you expect your banker to say no?

* Most first home buyers take out mortgages worth 500% of their salaries and initially have to pay over 30% of the salaries in interest costs.

* The Government is essentially saying it believes asking financial markets to borrow to properly fund our EDs and stop people dying in carparks is too risky because they fear financial markets saying no to a request to borrow more. That’s even though our interest costs are 1.2% of our income. And unlike a regular borrower, the Crown has the power to force everyone to pay it taxes.

* This belief that the 30/30 rule is both appropriate and so valuable it can’t be breached is not only wrong, it is essentially prioritising slightly lower borrowing costs and the resulting one or two basis points of lower mortgage rates over the lives of people dying in car parks. Surely overloaded EDs is the emergency a strong balance sheet is designed for?

* In my view, the Government choosing lower mortgage rates over healthier people, homeless people and more investment in future economic growth is a political choice. It is not a financial necessity. It’s also a sociopathic choice.

Paying subscribers can get more detail and analysis in the video and podcast above, along with analysis, charts and all my Picks n’ Mixes below the paywall fold. They can also comment and join our chat section.

My Picks n’ Mixes for Monday, September 22

My Top Pick n’ Mix Six

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

This week’s special guests were CTU Economist Craig Renney and Monopoly Watch’s Tex Edwards.

This week’s Hoon featured:

* The fall of US democracy;

* Israel’s invasion (again) of Gaza and whether New Zealand will recognise Palestine as a state;

* Australia’s new climate impacts forecast that 1.5 million will be affected by sea level rise by 2050 and its more ambitious climate target announced yesterday;

* NZ GDP falling an unexpectedly large 0.9% in the June quarter;

* The Government announcing the first reforms to competition law in 20 years.

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 in our political economy today, two new surveys show both voters and business leaders are now blaming the current National-led Government, rather than the previous Labour Government, for an ongoing economic slump that worsened again in August.

There is more detail and analysis below, and in the video and podcast above. I have published a lightly-edited transcript of my video below. I’m able to do this work in public covering Aotearoa’s political economy because of support from paying subscribers. Please subscribe to ensure this work gets done and is available publicly. I have published this one immediately and in full for all to read, watch, listen and share because I see it as part of my public interest mandate. Paying subscribers can comment and get more detail and analysis earlier most days.

Voters & businesses now blame this Govt for stalling GDP

Today, I wanted to look at the economy part of the political economy, although they're very closely aligned, as you'll see in a moment.

To do that, I'm going to look at a couple of surveys that have come out in the last day and an opinion poll that has come out in the last couple of hours. In essence, for the last two years, there's been a debate about why the economy just can't seem to get going. When the government first came in, it blamed the previous government, the Labour government, for, it says, profligate spending, rising debt and rising interest rates, and not being able to control the cost of living or inflation. That was the narrative that dominated for the first year or so.

In that period, the government, particularly from November 2023 onwards, and more aggressively in early 2024, froze spending on investment in water networks, in various roads, railways, school buildings, new hospital plans, a whole bunch of things because the government was trying to restrict government spending growth and restrict government borrowing. The theory is this would allow the government to step back to shift the debt trajectory downwards from, it says, gross debt of over 40% of GDP, towards 30%, and also reducing the size of government from about 34 % of GDP towards that 30% mark again.

This is part of the overall fiscal strategy, which has been adopted by both sides of parliament over the last 20 to 30 years, of trying to get both the size of government and the size of gross debt down to around 30% of GDP. It is the North Star which dominates the government's actions in all sorts of ways. And in this case, the government chose to effectively tighten fiscal policy at the same time that the Reserve Bank had interest rates right at their highest point in nearly 20 years or so. And that is why the economy's in real strife.

But until now, the government's been able to blame the previous government and voters have on the whole blamed the previous government too. But that is changing. In the last few hours we've got a poll from RNZ through Reid Research asking the direct question, who do you think is responsible for the economy being so slow at the moment? And also we have two surveys from Business New Zealand showing that not only is the economy stalled again but that businesses themselves are starting to blame the government as well.

Voters now blame this Government, rather than the last one

So let's have a look at these surveys, starting with the RNZ Reid research survey that came out this morning. It asked the question: who do voters hold most responsible for New Zealand's struggling economy? And this found that 37.6 % found it was the current government that was responsible, while 30.8 % said it was the previous government. It mostly falls along party lines. If you look at who's blaming the current government, the Greens mostly, Labour and then Te Pāti Māori. Although interestingly, 9 % or so of National voters also blame the National-led government.

Who's blaming the previous Labour-led government? ACT and National voters. About 6.8% of Labour voters blame the Labour government. This means we are now seeing one particular measure that's taken in political opinion polls, the right track, wrong track measure, showing a significant worsening in the views about the government and the economy being on the wrong track. It happened through the winter.

A winter of discontent

You could call it a ‘winter of discontent’ as in the June quarter the economy went into contraction again after two quarters of somewhat rebounding growth. And that contraction in the June quarter has really undermined the government's narrative or view that the economy is bouncing back because of the government's actions.

And you can see correspondingly the right direction measure has dropped sharply. We're now at the point where the wrong direction measure is getting up towards the level seen before the 2023 election. And we also see in the actual polls that Labour is now ahead of National in this RNZ Reid research poll. That is in tune with what we've seen with other poll results recently, the Taxpayers Union Curia poll and also the Roy Morgan poll.

So what does this mean in Parliament? It all depends on whether or not Te Pāti Māori get all of their six electorate seats that they currently have. The party vote says they would only get five of their seats, not the six they currently have.

If they only got the five, Parliament would be completely evenly split down the middle, or 60-60. However, if Te Pāti Māori won all of their electorate seats, there'd be an overhang, and the grouping of Labour, Green and Te Pāti Māori would have a one seat majority.

Business survey finds Government policy being blamed

Now, let's look at the next survey that's come out this morning from Business New Zealand, a survey of 130 business leaders asking them what their top five concerns are about the economy generally, and what their top five concerns for their own businesses are. For the first time in this Parliament, business leaders themselves are blaming reversals of government policies after the election, affecting business certainty. So obviously the abrupt repealing of three waters of the RMA reforms and various other measures sort of unwinding government policies. Not necessarily surprisingly, because many of these things were promised at the election, but the way it was done so abruptly, as well as that freeze in government spending at the end of 2023 and early 2024, have really riled up businesses and caused uncertainty.

They've also talked about the international environment, and it's interesting to see the level of customer demand is another factor that people think is a problem for the rest of the business community. And when you look at what people were saying last year, last year they were saying it was the high OCR and a lack of consumer demand that were the problems.

Now they're saying it's the government that's the biggest problem and those reversals of policies. When you ask them about their own businesses, they are still saying it's those reversal of government policies, but secondly, it's level of customer demand. When you look at some of the other areas like resource management constraints or gas costs, some of the things that the government's talking about, they are not an issue for those people in business.

Both PMI & PSI in contractionary territory

The other survey that's come out in the last day or two is the Business New Zealand PSI survey. This is the Purchasing Managers Index survey for the services sector. The services sector makes up more than 60% of the economy. This survey is a companion to the PMI survey, the manufacturer's version of this survey, which asks purchasing managers, what are they seeing in terms of new orders? What are they seeing in terms of what are they doing with employment? What are they seeing with their stocks? And what are they seeing with production?

So this are quite granular, detailed questions, which are less about what you think is going to happen or how you think things are going more generally. It's more a question of what's happened to your orders. It's pretty hard to make that stuff up. And it's also a very good leading indicator of what's happening in the economy.

Let's look first at the PSI survey. And that shows another fall in the last month in the contractionary territory. Anything that's below 50 is seen as contractionary. Anything above 50 is seen as expansionary. And what you can see there, of course, is some ups and downs in 2020 and 2021 to do with COVID. And then a slide down from mid-2022 on, as the Reserve Bank’s rate hikes started to take effect and the housing market slowed down.

Then from mid to late 2023, we've seen it drop well below the line and it stayed there. There was a rebound, but that stalled out. A sort of a dead cat bounce. And we've certainly seen that again in August. Now, in June, a couple of these surveys, the PMI and the PSI survey, were surprisingly weak. And that was one of the factors in the Reserve Bank cited in cutting interest rates again.

But in July, one of the surveys was in expansion again. And this was pointed to by the government as signs that finally the green shoots were appearing. Well, those green shoots have been burnt off in August.

You can see here from what's happened with the monthly numbers for this PCI time series that we've been in contraction for most of the last three years. And when you look at the PSI numbers across the regions and in different areas, all of them are below 50 meaning in contraction. And when you look around the country, it's all in contraction except for Canterbury (and at 50.3, it's barely in expansion).

This is exceptional. In the wrong way

So you may hear some people say, oh, well, this is what's happening all around the world. And there's not much we can do about that. We're a cork floating on the tide.

Well, actually, no. When it comes to our major trading partners - the Eurozone, the UK, China, Japan, USA, and Australia - all are above 50. The Eurozone is just a little bit above 50, the UK, the US, Japan are at around 53/54, and Australia is at nearly 56. We're at 47 and a half.

We're different and the reason we're different is that our monetary policy (the OCR), fiscal policy, and the government's actions to restrain spending growth, have all been much more contractionary, tighter than the rest of the world, even though our debt is lower.

And when you look at the combination of the PMI and the PSI, grouping manufacturing and services together, you can see the yellow line drops down again and is still below the long term average. If you look at the three month average and match that up with GDP growth, it's a pretty close correlation. So this says we are still in recession going into the middle months of the third quarter.

We're going to get numbers from Stats NZ on Thursday for GDP growth in the June quarter and what it's going to show, according to the current consensus of economists, is a GDP contraction of about 0.4%.

The Reserve Bank in its last set of forecasts forecast a 0.3% GDP contraction and the Reserve Bank's Nowcast measure, which is a constantly updated measure, is currently predicting a 0.2% contraction.

That will push back against the narrative put forward by the government that the green shoots are coming and we just need to wait a little bit longer.

Like waiting for Godot

It's interesting that Business New Zealand is starting to say this now and release these surveys. They're saying that the services sector is in a slump, they're using the word slump, and that it persists. That's in the release that came out yesterday. And for the first time, they're pointing to government policy uncertainty as a factor in the economy's slowness. Doug Steel, senior economist at the BNZ, points out there's now a very real risk that any ensuing bounce in the economy, which everyone's been expecting for 18 months, takes longer than expected to arrive. And this is becoming a real issue. The government really expected the economy would be growing quite strongly by election year, and it really is like waiting for Godot, it's just not arriving.

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