The Kākā by Bernard Hickey

The six key news items from Aotearoa’s political economy around housing, climate and poverty in the week to Saturday, May 17 were:

* Labour committed to the same Government debt and surplus targets as National.

* The Greens proposed an alternative budget with $88 billion of new wealth and income taxes to improve publicly-funded incomes, health and housing.

* The last major independent electricity retailer was shut and taken over by the most dominant of the big four gentailers that control an uncompetitive market.

* Stats NZ reported record-high emigration of young families at a rate of a plane-load a day, including 15 babies and toddlers who will grow up overseas.

* Nicola Willis stopped contributing to the NZ Super Fund and said the fund would start helping to pay the $20 billion-and-rising cost of NZ Super by 2028.

* Retail spending figures showed the economy remained mired in a consumption recession in April, with real per-capita spending now back down at 2013 levels.

There’s more detail and more of my analysis below the paywall fold and in the Saturday Soliloquy podcast above. I’d love you to subscribe to help make my work here sustainable. Paying subscribers can also join a thriving community in the comments section and in the chat channel.

The six big things in the week to Saturday, May 17

Labour commits to same debt & surplus targets as National

Finance Spokesperson Barbara Edmonds committed Labour to the same Government net debt cap of 50% of GDP and the same aspiration of returning the budget to surplus by 2028/29 as National. In my view, this will severe limit the ability of any future Labour-led government to fix the unmeasured infrastructure, housing, health, transport and emissions deficits that a generation of young families are emigrating to avoid. Tom Pullar-Strecker had the scoop in this morning’s Post-$.

Here’s the key details in Tom’s report (bolding mine):

Labour finance spokesperson Barbara Edmonds has confirmed in the run-up to Thursday’s Budget the party supports the existing cap on government debt recommended by the Treasury.

She also affirmed that achieving an operating (Obegal) surplus by the end of the Treasury’s forecast period, which currently terminates in the year ending June 2029, remained the appropriate goal.

That fiscal measure includes the deficit at ACC, which stood at $7.2 billion at the end of June, and which Finance Minister Nicola Willis has excluded from the coalition government’s new ‘headline’ deficit measure, which the Government has dubbed “ObegalX”.

“Clearly, the Government has put in ObegalX, because it returns to surplus a year earlier. But we still use Obegal now, so that would be the measure that I would continue to use for us as we put together our fiscal plan,” Edmonds said.

But Edmonds’ statements mean Labour is supporting staying within the same fiscal envelope that the coalition government has as its bottom line, and with a potentially tougher target for bringing the government’s books back into balance, given its approach to accounting for ACC’s deficit.

She labelled its approach “balanced fiscal responsibility”.

Treasury’s advice is that core Crown debt should not exceed more than 50% of GDP in normal economic times, in order to ensure governments could still borrow money and not risk default in the wake of a major crisis, such as a large natural disaster. Treasury Secretary Iain Rennie noted last month that debt was “not too far off” that cap.

Edmonds said Labour had agreed with the 50% cap when last in power and said it would continue to do so “unless Treasury gives us advice otherwise when we come into government”.

“It's based on a number of pieces of advice. We clearly need to make sure we have fiscal headroom for ‘shocks’,” Edmonds said. By Tom Pullar-Strecker in The Post-$

Green version of Budget would redistribute $88b of wealth

Green Co-Leader Chloe Swarbrick proposed an alternative Budget that would impose new wealth taxes and higher corporate and personal income tax rates to raise an extra $88 billion over the next four years to pay for a range of income guarantees, publicly funded dental care and prescriptions, family payment top-ups, state house building and solar panel grants. See more detail in Thursday’s Chorus.

Biggest independent exits uncompetitive electricity market

Z Energy, which is now owned by Australian oil importer, refiner and distributor Ampol, shut Aotearoa’s last major independent electricity retailer, Flick Electric, and sold its 41,000 customers to the biggest gentailer, the 51%-state owned and NZX-listed Meridian Energy, in the latest sign the electricity market is not competitive. Hear more about this in the discussion Peter and I had with Octopus Energy NZ COO Margaret Cooney in The Hoon sent yesterday.

Young working families emigrating at a rate of 191 per day

Stats NZ reported emigration of New Zealand citizens almost doubled to a record-high 70,016 in the last five years to the end of March, including 5,673 babies and toddlers leaving at a rate that would fill an A320 each and every day of the year. See more in Friday’s Chorus.

Willis ends contributions to NZ Super Fund

Finance Minister Nicola Willis announced the Government was diverting its Treasury-modeled contribution to the New Zealand Superannuation Fund (NZSF) for 2025/26 of $61 million to the NZSF’s Elevate venture capital fund and that the NZSF fund would start sending money back to the Government to help pay for NZ Superannuation, now costing over $20 billion a year, three years earlier than previously expected in 2027/28. The new forecasts imply the contributions have ended. There is more analysis in the soliloquy podcast above.

Retail recession sucks retail spending back to 2013 levels

Retail spending with cards fell 0.9% in April from a year ago, meaning retail spending adjusted for inflation and population fell again and is back at the same levels as those reported in 2013. See more in chart of the week below.

The best of the rest this week

My ‘Pick ‘n’ Mix Six’

* Politics & health scoop by Phil Pennington for RNZ: Warnings about surgery outsourcing blanked out by minister's office

* Health deep-dive by Anusha Bradley for RNZ: Health NZ to outsource thousands of cases to private hospitals

* Political donations investigation by Farah Hancock for RNZ: Ministers make decisions on fast-track projects despite donations

* Infrastructure & housing deep-dive by Luka Forman for RNZ: Demand increasing for land unaffected by water infrastructure constraints

* Infrastructure funding & councils deep-dive by Jonathan Milne for Newsroom: Mayors adamant ratepayers won’t pick up tab for big fast-track projects

* Climate & electricity scoop by Marc Daalder for Newsroom: Govt mulled, then scratched, home solar incentive

This is my selection of links to the best scoops, deep-dives, explainers and features published this week elsewhere.

Quote of the week: A four letter word with three dots

“Turns out you can have it all. So long as you’re prepared to be a c... to the women who birth your kids, school your offspring and wipe the arse of your elderly parents while you stand on their shoulders to earn your six-figure, taxpayer-funded pay packet.” Sunday Star Times-$ columnist Andrea Vance, who last night won the Voyager Political Journalist of the year award. The girl-math budget that will cut deep, especially for women.

Number of the week: Butter costs $14.84/kg

Stats NZ reported butter prices increased 65.3% in the year to April, with the average price of a 500 gram pack of butter being $7.42 in April. ANZ has forecast farmers will receive a record-high milk payout of $10/kg milk solids this season and next season.

Chart of the week: A retail recession that just won’t end

Video of the week: The problem with everything

Podcast of the week: I interviewed Chris Hipkins

Cartoon of the week: Going down

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 features co-hosts Bernard Hickey & Peter Bale talking about the week’s news with regular and special guests, including:

* Cathrine Dyer on news about climate change.

* Robert Patman about the latest news from Trump and others on Gaza, Kashmir, Ukraine and much more. This declaration in Dunedin was discussed.

* Plus: Bernard & Peter talked with Octopus Energy NZ COO Margaret Cooney in the final quarter of the show to talk about the electricity market.

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 Aotearoa’s political economy in the week to Sunday, May 11:

* PM Christopher Luxon this week allowed ACT’s policies on pay equity and the Treaty of Waitangi to make National less electable in 2026.

* He also doubled down on a budget-tightening strategy built on the false premise that the Government faced spiralling interest costs.

* An overseas slowdown and that unnecessary tightening has stalled the housing market again and is driving real spending and investment towards another winter recession.

(This is a weekly summary email and podcast I do for paid subscribers. There is more detail and analysis below the paywall fold and in the soliloquy above, which was taken from the last 10 minutes of Thursday’s Hoon)

‘Blown minds’ kept a $17b pay shock secret for 18 months

The Government shocked the body politic and at least half the population this week by ramming legislation through Parliament under urgency that retrospectively stripped pay equity rights from over 300,000 women without submissions or a regulatory impact statement. It had been planning it for 18 months, even keeping it secret from its own MPs until Monday. Treasury also hid it in Budget documents.

ACT Deputy Leader Brooke van Velden said she had proposed the repeal of the Pay Equity Act passed by the whole Parliament in 2020, including National, in a letter to PM Christopher Luxon as soon as she became Workplace Relations and Safety Minister in late 2023.

Finance Minister Nicola Willis said she learned in late 2023 from Treasury of the potential cost for the Government of meeting the 33 pay equity claims already being processed, saying: “That number blew my mind... it seemed disproportionate to what I thought Parliament had envisaged when it passed the Pay Equity Act in 2020.”

Here’s what Willis said in Parliament in June 2020 about that Act, which she voted for then, but has been planning to change since at least June last year (bolding mine):

“National supports the Equal Pay Amendment Bill. We support it for the very good reason that we think that gender should not be the basis for determining the pay that someone gets and that men and women deserve not only equal pay for doing the same work but equity in the payment for the work that they do based on the value of that work rather than the gender of the people doing it. This is what this bill sets out to achieve and it establishes mechanisms which allow people to make claims where pay equity and equal pay principles are not upheld.

“So when my two daughters grow up, how will we know whether this bill has actually been successful? Well, we know that this bill’s been successful when we actually see that these sorts of claims are no longer necessary, because we’ve established a framework in which people don’t want to have to be doing compensation and that they pay people fairly to begin with. But we will also see that that gap between the pay of men and women, which currently sits at about 9.3%, is reducing in real time.” Nicola Willis speaking in Parliament for the second reading of the Pay Equity Bill on June 24, 2020 via Hansard

But after seeing the financial cost, which was buried in the ‘unallocated operating contingencies’ line (page 125, note 6 reproduced below) of Budget 2024 and totalling nearly $17 billion over the next four years, she wrote this Cabinet paper dated June 2024 and titled: Pay Equity Reset.

A Cabinet sub-committee was set up in December, which culminated in a Cabinet decision in March and plans for a legislative ram-raid last week. Willis did not tell her MPs until Sunday, many of whom had spoken with her in favour of the original 2020 Act. Then National Health Minister Jonathan Coleman signed the Care and Support Workers' pay equity settlement agreement in 2017 with care worker and campaigner Kristine Bartlett. (See more in quote of the week below.)

Willis told a news conference on Thursday a regulatory impact statement was not produced because she said it may have influenced the ongoing bargaining.

“Once we had made the decision that we would amend the Act, we were aware that there were significant risks that if that information entered the public domain, then that could affect bargaining behaviour and legal behaviour. So we wanted to make sure that we progressed it rapidly.” Willis via RNZ.

The Cabinet paper’s sections on the costs of these wage increases for over 300,000 workers were redacted. This bit wasn’t though:

“This paper has no cost of living implications.” Willis in the June Cabinet paper.

Luxon said during the announcement on Tuesday the decision would save the Government “billions,” but that was not the reason for the change.

"It's got nothing to do with the Budget, this is about making sure we have a piece of legislation that is incredibly workable, and not as complex as it has been."

That was not how Act Party leader and associate finance minister David Seymour viewed it, applauding van Velden for finding such huge savings at a crucial time.

"I actually think that Brooke van Velden has saved the taxpayer billions, she's saved the Budget for the government and she has made pay equity workable for New Zealand women, men and everyone who wants a fair go in this country," he said.

Luxon said rushing the changes through urgency was about making sure there was one system with "maximum levels of clarity". Via Jo Moir for RNZ

‘Spiralling’ interest costs made us do it, say Luxon & Willis

Luxon may have denied on Tuesday the lightning gutting of pay equity legislation National had previously supported was to save money, but by Thursday he put the Government’s decisions into a bigger picture, focused on returning to surplus, cutting net debt to 40% of GDP from over 43% now, and reducing the size of Government over time towards 30% of GDP from over 33%.

Here’s Luxon in a speech on Thursday (bolding mine):

“The previous Government’s spending decisions during and after Covid have left New Zealand with a sea of debt and red-ink in the government finances. Government debt leapt up by almost $120 billion between 2019 and 2024, soaring from under $58 billion to $175 billion.

“Those are big numbers, almost too big to comprehend, so let me explain it this way: That amounts to $22,000 more in debt for every New Zealander. You may well ask: what do we have to show for all that debt?

“To give you some further historical context, New Zealand’s net core Crown debt, which once hovered between five and 25 per cent of GDP, rose to around 42 per cent last year. That’s the highest level of government debt New Zealand has shouldered since the mid-1990s. Servicing that debt is expensive.

“The interest bill on government debt has soared from $3.6 billion in 2014 to $8.9 billion last year. That sum is more than annual core Crown expenses for the Police, Corrections, the Ministry of Justice, Customs and the Defence Force combined.

“Our Government’s goal is to put net core Crown debt on a downward trajectory towards 40 per cent of GDP and in the longer term keep it below that percentage.

“Why? Because allowing debt to keep spiralling would threaten the livelihood of every New Zealander.

“We must ensure our country is financially strong and resilient enough to effectively respond to whatever the future may throw: be it earthquakes, extreme climatic events, biosecurity incursions or whatever. We need the world to keep seeing us as a good country to invest in and lend to. Manageable debt levels are an essential foundation for a strong economy and for your financial future.” Luxon speech

Words and phrases such as ‘soaring’, ‘spiralling,’ ‘sea of red ink,’ and ‘highest since the mid-1990s’ sounds like the Government’s debt situation is in crisis, requiring crisis actions such as hiding $17 billion of pay equity settlements and retrospectively killing claims for that $17 billion.

But is it?

Are debt levels and interest costs really unmanageable?

The ‘worst since the mid-1990s’ sounds bad. Back in the early 1990s, New Zealand was trying to work off the ‘Think Big’ foreign debt taken on by Robert Muldoon in the 1980s and having to be serviced at interest rates well into their teens. This level of foreign-denominated debt with floating interest rates through a just-floated currency was threatening our credit ratings. Ruth Richardson had to cut benefits to avoid a double-digit credit rating downgrade.

So is it that bad?

No. The interest costs from total gross public debt are barely 2% of GDP, well below the 8% level hit in the early 1990s, as this IMF chart shows.

This measure also doesn’t take into account that since the creation of the NZ Superannuation Fund in 2001, New Zealand’s net interest costs are even lower than that. Net interest costs for the Crown are forecast at $2.128 billion for the current year to June 30, which equates to 1.6% of total Government revenues and 0.5% of GDP.

The Government and Nicola Willis in particular have made a point of comparing the Government’s debt, interest costs and finances with those of a household. Willis has also used the ‘spiralling’ word. Here’s what she said about debt and interest costs last week when announcing another $1.3 billion per year cut in spending in this year’s Budget:

“Our Government’s goal is to put net core Crown debt on a downward trajectory towards 40 per cent of GDP and in the longer term keep it below that percentage.

“Why? Because allowing debt to keep spiralling would threaten the livelihood of every New Zealander.

“Every Thursday afternoon, New Zealand Debt Management issues around $500 million of Government bonds. Some of this is to that roll over existing bonds that have expired, but large chunks of it are for new borrowing.

“That level of borrowing obviously can’t go on forever, or else our kids and grandkids will be left with unsustainable debt and considerable economic uncertainty.

“Most of you can probably relate to this if you think about your own household budget: sure, sensible borrowing has its place, but no overdraft can be extended forever, and while you can keep giving the credit card a hammering, left unpaid, it does, eventually, get declined.

“It’s worth bearing this in mind next time somebody tries to suggest to you that the New Zealand Government needs to spend more on something.” Willis speech last week.

The suggestion is that the Government’s debts are not only like a household, but are in just as much stress as many households. We’re all in this together, is the suggestion, and the best possible thing the Government can do is cut spending to lower interest rates for struggling home owners.

Some households do have big mortgages and have been paying more, but actually the biggest stress is on renters. In aggregate, households have actually been getting more money in their accounts in recent years because many have term deposits and they’ve benefited from higher interest rates.

Households are paying 16% of income in interest. Govt is paying 1.6%.

Households with mortgages have interest costs of around 16% of disposable income. Households with mortgages say their housing costs are around 31% of disposable income, including rates, insurance and maintenance. Over 40% of the poorest 60% of renters are paying more than 40% of their income in rent.

So what?

The Government’s actual interest costs are 1.6% of revenues and 0.5% of GDP, less than a 16th of their level in the early 1990s. They compare with the interest costs of households of 16%.

If your bank had said to you that you needed to stop investing in making your house healthier and stop donating the Women’s refuge because your interest costs were ‘spiralling’ towards 2% of your disposable income, how would you feel? Especially when you were able to force all the people in the neighbourhood to pay you a portion of their income in income tax and a portion of their spending in GST.

Would you be so worried that you reneged on a contract with your neighbours and kept your plans secret until the last minute so they wouldn’t be able to do anything about it?

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 features co-hosts Bernard Hickey & Peter Bale talking about the week’s news with regular and special guests, including:

* Cathrine Dyer on news about climate change’s role in spreading birdflu in the United States and elsewhere, research showing marine heatwaves gathering around Aotearoa-NZ and news NIWA has a new climate role-playing game called Future Coasts Aotearoa. We also talked about Troy Baisden’s statement on the appointment of the new PM’s Chief Science Advisor John Roche.

* Robert Patman about the latest news from Trump and others on Gaza, Kashmir, Ukraine and much more.

* Bernard & Peter talked with CTU Secretary Melissa Ansell-Bridges about this week’s pay equity news.

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 Aotearoa-NZ’s political economy around housing, poverty and climate on Thursday, May 7:

* Retrospective legislation rammed through Parliament last night will cost women up to $17 billion of unpaid wages over the next four years, more than paying for $14 billion of tax cuts over the same time.

* The Government is looking at selling at least $1.7 billion worth of land under Kāinga Ora homes in Auckland.

* Jobs figures show three million fewer hours were worked over the last year, although ASB is hiring 80 new mortgage processors.

* KiwiRail says the ferries cancellation could cost over $800 million.

* Chris Liddell’s business class flights from New York to Auckland to speak at the investment summit in March were paid for by the Government.

* The Reserve Bank says it is open to loosening capital requirements for banks, which would allow an acceleration of credit into the housing market.

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers.)

That’s one way to do it

The Government’s passed retrospective legislation under urgency last night that wrecks 33 pay equity deals. It means up to $17.034 billion in wages and back-pay will now not go to over 150,000 workers over the next years.

That effectively means the planned $14 billion of tax cuts going mostly to New Zealand’s landlords and highest earners are being paid for by wage cuts for the poorest New Zealanders, almost all of whom are women.

Speaking engagement costs

The Government paid more than $20,000 for return flights from New York to Auckland for millionaire Chris Liddell, an adviser to Donald Trump, to speak at its investment summit in March, The NZ Herald reported this morning.

Development ‘goldmines’

841 Kāinga Ora homes on land in Auckland worth $1.7 billion are described as ‘goldmines’ by developers in this NZ Herald-$ analysis as the Government starts selling 900 of the homes each year to ‘recycle’ the money into developments elsewhere.

Soft jobs market

Flat unemployment figures for the March quarter disguised soft jobs numbers, including a fall of three million hours worked in the last year and much-weaker-than-expected jobs growth.

Before a ferry is delivered

KiwiRail has revealed to RNZ the cancellation of the iRex ferries has already cost the taxpayer $507.3 million, before a break fee yet to be paid for Hyundai that could cost another $300 million.

My Top ‘Pick ‘n’ Mix’ Six for Wednesday, May 7

* Politics & transport scoop by Simon Wilson for NZ Herald-$: John Key reveals moves to 'sideline' two ministers to get CRL built

* Housing & New Plymouth news by Robin Martin for RNZ: Car park suggested as temporary space for town's homeless

* Housing news by Denise Piper for The Northern Advocate: New Whangārei cafe offers support and services for rough sleepers

* Good climate & transport news by Eloise Gibson for RNZ: The good news about NZ's 10 million fossil-fuelled machines

* Politics & insurance news by Jenée Tibshraeny for NZ Herald-$: Govt warned it'll be lumped with bigger bill than insurers if disaster strikes

* EV tech deep-dive by BBC: China has been trialling battery swaps for electric cars for years. Are they a viable solution to range anxiety?

Quote of the day:

“It's really gut wrenching. I just feel so sorry for these women workers and employees. They don't know what situation they're going to end up with now. It's terrible, it's sad.

“What's going to happen? They're going to move over to Australia. All these good nurses, teachers, carers. What's going to happen to our retirement villages? I mean it's bad enough now.

“I know what's going to happen within the unions. I tell you what, there's going to be a big rebellion I'm sure.” Pay equity pioneer Kristine Bartlett via 1News/RNZ.

Number of the day:

70,700 - The number of 15–24-year-olds who were unemployed in the March quarter, with a total of 96,600 who were not in employment, education or training (NEET).

Cartoons: Simeon’s rear view(ed)

Laser Kiwi

Timeline-cleansing nature pic

Ka kite ano.

Bernard

PS: My apologies for no email yesterday. I was MC-ing the NZ Green Building Council conference in Auckland and just got swamped.

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

Briefly, in Aotearoa-NZ’s political economy around housing, poverty and climate on Tuesday, May 6:

* Growth in our housing-market-with-bits-tacked-on of an economy is stalling and sliding back into a deep freeze as the winter months approach, despite 200 basis points of rate cuts and pledges from PM Christopher Luxon to ‘go for growth.’ (See more in feature article below)

* The Government’s ever-tighter spending policies and its investment freeze since early 2024 are combining with fears about the global economy to depress construction sector activity, housing market activity, retail sales and business investment. (See more in feature article below)

* NZ Steel’s CEO Mark Malpass says he’s surprised the Government has not stepped up with extra infrastructure investment to soften the effects of last year’s recession. (See more in feature article below)

* Real estate agents report this month that the housing market upturn seen since the Reserve Bank started cutting rates has stalled in recent weeks, with growing Fear Of Over Paying (FOOP) holding buyers back from clearing ample unsold houses on the market. (See more in feature article below)

* The Motor Industry Association reports new and used car sales in the first four months of 2025 of just 70,227, down 37.4% from 112,129 in 2022, down 15% from 82,599 in 2023 and down 13.2% from 80,970 in when interest rates were 200 basis points higher 2024.

* Oranga Tamariki has detailed a 60% increase in reports of concern about children it monitored in the quarter to 27,170, vs the same quarter a year ago, citing “social and economic factors such as an increase in cost of living, an increase in the number of children living in material hardship, and an increase in the unemployment rate.” (See more in Journal of Record below.)

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers.)

Economic growth sliding into wintry deep freeze

PM Christopher Luxon and Finance Minister Nicola Willis began the year with a much-announced refocus on ‘Going for Growth,’ saying ‘nothing was off the table’ in their quest to invigorate GDP growth. They said the Government’s strategy was to prioritise ‘making the boat go faster’ with lower interest rates and using fast-track approvals and RMA and Three Waters reforms to unleash growth.

As recently as last week, Willis previewed her Budget 2025 on May 22 as a ‘Growth Budget’. The trouble is her speech detailed another tightening of spending policies in response to the global tariff shock, and a clear aim to crunch the size of Government down by four percentage points of GDP ($16 billion a year) in order to win yet more interest rate cuts. Her $1.1 billion a year cut in the Government’s operating allowance for each of the next four years (at least) will actually reduce GDP by around $550 million, even after the 5-10 basis points of lower interest rates the cuts are designed to buy.

The problem for the Government is that its strategy of cutting the size of Government and Government debt to ‘free up’ space for the private sector to step forward and take advantage of lower interest rates to invest isn’t working. Businesses are not investing because of uncertainty about the global economy and surprise at the Government cancelling anchor public infrastructure investments that are often the catalyst for private sector activity. When the Government doesn’t invest, neither does the private sector.

‘We were hoping we would see some investment’

NZ Steel CEO Mark Malpass was clearly frustrated in an interview with Roeland van den Bergh published yesterday on The Post-$’s website, but strangely absent from the newspaper itself. Here’s Malpass’ comments (bolding mine):

“We were hoping, with the National Coalition coming in, that 18 months ago, we would have started seeing some investment”, Mark Malpass told The Post.

“Typically governments, when you're in recessionary environment, invest in infrastructure and social housing. And we've just seen the opposite, really ... they've killed off things like Dunedin Hospital, the ferries and light rail.”

Those were the projects that would have create momentum in the economy and kept people and jobs, he said: “It's been surprising to see them killed off.”

The Government’s fast track approvals regime for a range of infrastructure, housing and development had also failed to deliver projects thus far. The industry is really waiting for that to happen,” he said.

Uncertainty had been created domestically by the cancelled projects, but also spending cuts, and internationally by things like the war in Ukraine, tension in the South China Sea, conflict in Israel and the election of Donald Trump.

“Those things all coupled together do mean that growth is quite sluggish in the construction and manufacturing sectors in New Zealand at the moment,” Malpass said. “But you can see a day where things will start to improve.” Malpass via Roeland van den Bergh for The Post-$: Steel & Tube boss frustrated over number of cancelled infrastructure projects

Car sales keep falling, despite the rate cuts

The Motor Industry Association reported yesterday that new and used car sales were down again in April, extending the falls seen since a boom in 2022, linked partly to subsidies for new and used electric and hybrid vehicles.

New and used car sales in the first four months of 2025 of just 70,227, down 37.4% from 112,129 in 2022, down 15% from 82,599 in 2023 and down 13.2% from 80,970 in when interest rates were 200 basis points higher 2024.

“This is likely due to continuing tight economic conditions impacting on spending behaviour.” MIA CEO Aimee Wiley said.

The housing market that our economy is tacked on to is stalling too

Tony Alexander reported yesterday from his monthly survey of 256 real estate agents for NZ Home Loans in early May that: “The Housing Market Upturn Stalls.” Here’s his key comments and the charts from his report (bolding mine):

“Amidst new uncertainties about the world economy and plentiful evidence of high numbers of properties for sale, buyers have stepped back from the market, feeling strongly that time and negotiating power are both on their side.

“FOMO has returned to levels before monetary policy began easing and on average agents feel house prices are falling around the country.

“There are now more agents seeing declining numbers attending Open Homes and auctions than report they are seeing more people.” Tony Alexander’s report.

“A net 23% of agents report this month that they feel prices are declining in their areas. Many agents noted that buyers increasingly offer only heavily discounted prices, have little interest in properties requiring work, and walk away quickly if vendors prove recalcitrant. A month ago, a net 3% of agents felt prices were falling and this latest reading suggests that the various monthly gauges of price movements will soon report at least an absence of prices rising and maybe some declines underway.” Tony Alexander in his NZHL report.

So why aren’t lower interest rates unleashing a stronger recovery?

In my view, the Government’s strategy of relying on a surge of private investment by households and businesses as interest rates fall, which worked from 1994-2000, 2002-07, 2010-16 and 2020-21, but it can’t do that so easily this time because household debt is high, the Reserve Bank is restricting bank loan growth with higher capital requirements and LVR and DTI restrictions, and the private sector doesn’t borrow to invest anymore. That’s because banks now focus wholly on growing mortgages, rather than business loans (not linked to land) and farming loans.

The Government’s main hope of unleashing very strong mortgage lending growth to break the stalemate in the housing market and restart economic growth more broadly is to hope or encourage the Reserve Bank to loosen capital rules, DTIs and LVRs.

That may happen, now a new Reserve Bank Governor is in place, but it won’t happen quick enough to fire up growth again during another winter of economic discontent.

My Top ‘Pick ‘n’ Mix’ Six for Tuesday, May 6

* Politics & budget news by Thomas Coughlan for NZ Herald-$: Govt saves $1b after hitting housing target early; Treasury changes forecasts

* Education, population & infrastructure news by Bella Craig for RNZ: School roll rises force students into library, as other schools struggle to lift numbers

* Politics scoop by Maiki Sherman for 1News: Erica Stanford sent pre-Budget documents to her personal email. There are multiple examples of Stanford using her personal email for ministerial business.

* Politics, welfare & justice deep-dive by Laura Walters for Newsroom: Lake Alice survivor takes Govt to court over redress scheme

* Welfare & disability scoop by Lyric Waiwiri-Smith for The Spinoff: Work and Income pledges review after deaf woman denied service.

* Trade collapse explainer by Ben Cohen for WSJ (gift): The CEO Who Says an Asteroid Is Coming to Destroy America’s Businesses

Politics, geopolitics, economy & business

* Political donation news by Jamie Ensor for NZ Herald: Who donated what? National tops list of political donations: Shane Jones' partner lends NZ First $119k

* Politics news by Russell Palmer for RNZ: Luxon 'relaxed' over Erica Stanford's use of personal email for work

* Politics & media news by Shayne Currie for NZ Herald-$: Steven Joyce in line to be NZME chair, replacing Barbara Chapman

* Politics & migration news by Liu Chen for RNZ: ‘Golden visa’ shutting out Chinese investors, legal experts say

* Politics & health news by Stuff: Draft report showed 1485 staff shortfall—then it vanished.

* Politics & media deep-dive by Stewart Sowman-Lund for The Sunday Star Times-$: The battle for the political narrative. Political parties are running their own mini-newsrooms in an effort to boost their messaging

Housing, transport & infrastructure news

* Infrastructure, councils & debt news analysis by Brent Edwards for NBR-$: Government’s water reforms will not improve council debt. S&P says councils are told to do more infrastructure spending but get less support.

* Good housing & Rotorua news by LDR for RNZ/1News: How this city is bucking the national trend for new home builds

* Housing market deep-dive by Ben Leahy for NZ Herald-$: How property traders made millions flipping homes: Inside 71 Auckland real estate deals

* Infrastructure & Wellington news by Tom Hunt for The Post-$: Wastewater flowing into Wellington Harbour for days

Poverty, health, education, welfare, & living costs

* Welfare & politics news by Susan Edmunds for RNZ: MSD doesn't know if benefit sanctions leading people into work

* Health deep-dive by Marty Sharpe for Stuff: Gisborne health ‘crisis’: The regional hospital where doctors say vacancies have hit at 44%.

* Health & welfare news via RNZ: 'Fresh eyes' investigation finds systemic failings in stillbirth

* Disability research by Auckland Uni’s Joanna Ting Wai Chu via SciMex Financial support needed for caregivers of children with fetal alcohol spectrum disorder

* Living costs research by Belinda Castles for Consumer: Are groceries more expensive in the regions?

* Education & migration news by John Gerritsen for RNZ: Record number of top school-leavers head overseas

Climate, water, land, air & biodiversity news

* Good climate adaptation news by Sinead Gill for The Press-$: 'Brilliant job': New council infrastructure spares flood-prone community grief.

* Climate & biodiversity Op-Ed by Vic Uni’s Paul Callister & Massey Uni’s Robert McLachlanfor Newsroom: Gas-guzzling tourists are loving our whales to death

* Pest-free news by Kate Green for RNZ: New goals for Predator Free strategy among proposed DOC changes

* Climate, forestry & farming news by Gianina Schwanecke for RNZ: New rules to limit farm to forestry conversions - but does loophole remain?

Today’s stack of stacks

* Public debt analysis by Susan St John: Same old story—let’s frighten the horses with the bogey of net debt

* Geopolitics comment by Jason Hickel: Why capitalism is fundamentally undemocratic

* Bob Jones and performative rebellion by Jesse Mulligan: Rebel Yell

* Matt Pearce: Journalism’s super-spenders and the new subscription economy

The Kākā’s Journal of Record for Tuesday, May 6

Oranga Tamariki published its December quarter performance report, showing a 60% increase in reports of concern about children it monitored in the quarter to 27,170 vs the same quarter a year ago. The key bit (bolding mine:

“Our early findings suggest much of the increase occurred relatively evenly across demographic groups, locations, and notifier types, and cannot be explained by a single event or change. Two underlying themes are likely to have had an impact: public awareness and reporting, and social and economic factors such as an increase in cost of living, increase in the number of children living in material hardship, increase in the unemployment rate.” Oranga Tamariki December quarter performance report.

Quote of the day: A ‘tsunami of need’

“We're just not funded at the scale needed to respond to the tsunami of need we are facing.” Tia Ashby, who heads Te Hau Ora o Ngāpuhi, a Kaikohe-based iwi organisation that provides housing, health services and programmes like Paiheretia, which helps men caught up in the Corrections system via Peter de Graaf for RNZ: Northland's meth crisis: 'There's no magic wand' plus 'We see it in our town every day' - inside the ongoing battle against meth use in Northland

Number of the day: $430,000 per investigator

$430,000 - The amount recovered per investigator each year by specialised auditors and fraud investigators at Health NZ-Te Whatu Ora, of whom 23 or 28% of are being made redundant. Further reading via RNZ: Calls for probe into cuts to anti-fraud roles

Cartoon: Great new kit. No people

Ka kite ano. Bernard

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

Briefly, in Aotearoa-NZ’s political economy around housing, poverty and climate on Monday, May 5:

* When will our PM and Foreign Minister stand up to publicly express support for our long-time and close allies Australia and Canada in opposing Donald Trump’s talk of annexing Canada and his tariffs on allies without justification or sense? See more in today’s feature article below.

* Christopher Luxon has pledged to more-than-double defence spending to 2% of GDP, setting the scene for more than $20 billion of real cuts in health, education, housing, transport and welfare spending to shrink the size of Government overall as a share of GDP from 34% to 30%. See more in today’s Journal of Record.

* The spending cuts will add to those made in the last year that, for example, closed The North Shore Women’s centre, helped cost 12,606 construction workers their jobs, caused Police to pull back from attending mental health crisis incidents and is starving vaccination programmes of funds. See more in Today’s Pick’n’Mix Six.

* Character area development constraints in Auckland are stopping the development of a $4 million piece of land under Kāinga Ora’s most valuable home, just as Auckland Mayor Wayne Brown says he has Chris Bishop’s permission to scrap the MDRS standards that unleashed a much-needed boom of town-house supply. See Housing Pick ‘n’ Mix & Quote of the day below.

* The Government’s freeze in Kāinga Ora’s building programme, its early-2024 suspension of classroom building and its go-slow on hospital building has contributed to a 40% rise in company liquidations in the March quarter, including a 21% rise in construction company liquidations. See more in Chart of the Day below

* The collapse in trade between the United States and China is deepening day-by-day, accelerating late on Friday when Temu announced it had stopped all shipping of products to the US because of the expiry of the ‘de minimis’ rule which exempted goods worth under US$800 from tariffs of 145%.

Canada & Australia stood up to Trump. When will NZ?

Australia’s centre-left Labor Government has joined Canada’s centre-left Liberal Government in staging a surprisingly-large come-from-behind victories over a conservative Trump-like candidate. So when might New Zealand’s governing coalition finally stand up to support its two closest Five Eyes and Commonwealth allies against Trump’s tariff bullying, and his new talk overnight about his desire to annex Canada?

The surprisingly strong re-elections of centre-left Governments in Canada and Australia in recent days have one thing in common: their Prime Ministers Mark Carney and Anthony Albanese have stood up publicly to oppose and criticise Donald Trump’s bullying on trade and his talk of making Canada the ‘51st state’ of the United States.

Our Prime Minister, Christopher Luxon, has said he trusts Donald Trump and has conspicuously refused to either criticise Trump, or publicly express support for Canada and Australia, both of whom are long-time Five Eyes and defence allies. The threat to annex Canada, repeated overnight in more direct terms, is particularly shocking and worthy of expressing solidarity.

Carney’s surprising victory in federal elections last week was judged at least partly due to his robust criticism of Trump, in contrast with Conservative Opposition Leader Pierre Poilievre, who had been favoured to win earlier this year, but lost his seat in the election.

Carney’s victory speech last week was particularly stark (bolding mine):

“As I’ve been warned, America wants our land, our resources, our water, our country. But these are not idle threats. President Trump is trying to break us so that America can own us. That will never, that will never ever happen.

“Throughout our history, there have been turning points. Throughout our history there have been turning points when the world’s fortunes were in the balance.

“That was the case at the start of the Second World War, just as it was at the end of the Cold War. And each time, Canada chose to step up. To assert ourselves as a free, sovereign, and ambitious nation, to lead the path of democracy and freedom. And because we are Canadian, to do so with compassion and generosity.

“We are once again, we are once again at one of those hinge moments of history.

“Our old relationship with the United States, a relationship based on steadily increasing integration, is over. The system of open global trade anchored by the United States, a system that Canada has relied on since the Second World War, a system that well not perfect has helped deliver prosperity for a country for decades, is over. But it’s also our new reality.

“We are over the shock of the American betrayal, but we should never forget the lessons.” Mark Carney’s victory speech transcript

Australian PM Anthony Albanese was equally blunt towards Trump in his comments immediately after Trump announced arbitrary and punishing tariffs of 10% on allies such as Australia, the UK and New Zealand. Here’s the key bits (bolding mine):

“This is not the act of a friend.

“These tariffs are not unexpected, but let me be clear, they are totally unwarranted.

“The Australian people have every right to view this action by the Trump administration as undermining our free and fair trading relationship and counter to the shared values that have always been at the heart of our two nations long standing friendship.

"This will have consequences for how Australians see this relationship.

"These are uncertain times, but Australians can be absolutely certain of this: our government will always stand up for Australian jobs, Australian industry, Australian consumers and Australian values.” Anthony Albanese in a news conference on April 2. Via NDTV

Even the usually cautious & transactional Singapore has grown a pair

Singapore’s PM Lawrence Wong also won re-election convincingly over the weekend after pushing back strongly at Trump’s tariffs in this statement on April 8 (bolding mine):

“The recent “Liberation Day” tariff announcements by the US confirms this stark reality: the era of rules-based globalisation and free trade is over.

“This marks a profound turning point. We are entering a new phase in global affairs – one that is more arbitrary, protectionist and dangerous.

“In Singapore’s case, we have an FTA with America. We impose zero tariffs on US imports, and we actually run a trade deficit with the US – meaning we buy more from them than they do from us. If the tariffs were truly reciprocal, and if they were meant to target only those with trade surpluses, then the tariff for Singapore should be zero.

“But still we are being subjected to the 10% tariff. We are very disappointed by the US move, especially considering the deep and longstanding friendship between our two countries. These are not actions one does to a friend.” Singapore PM Lawrence Wong in an April 8 statement after Trump’s tariff announcement.

Luxon and Peters missing in (in) action

Yet New Zealand PM Christopher Luxon and Foreign Minister Winston Peters have been nearly silent or oblique in their public comments about Trump’s tariffs.

Luxon’s April 10 speech on Foreign Affairs and Trade was notable for not mentioning or criticising Trump’s policies, or even those of the United States. This section was as close as he got (bolding mine):

“The events of recent days are the most significant challenge to the rules-based trading system since the General Agreement on Tariffs and Trade (GATT) was formed in 1947. Action, reaction, and response have shocked financial markets.

“As the Minister of Finance highlighted earlier this week, the direct impact on the New Zealand economy from the US tariffs announced last week is likely to be around $900 million or roughly 0.2% of GDP.

“But the second order consequences of a region and a world retreating from trade and increasingly uncertain about its economic future will be more significant, despite the welcome news of de-escalation this morning.” Luxon speech on Foreign Affairs and Trade on April 10 in Wellington.

Luxon even said on March 4 he trusted Trump, despite Trump’s decision the previous day to throw Ukraine under Russia’s bus.

Peters went so far as to sack his former fellow minister Phil Goff as New Zealand’s High Commissioner to the UK when Goff questioned Trump’s knowledge of history. He also warned Luxon and others against using emotive language when talking about Trump’s tariffs, quoted by RNZ on April 13 (bolding mine):

"In recent weeks, the tendency to hype up a debate about how international trade works into a black-and-white, polarising issue has been unfortunate and misguided. The use of military language - of a 'trade war', of the need to 'fight', of the imperative to form alliances in order to oppose the actions of one country - has at times come across as hysterical and short-sighted."

He said it was in New Zealand's interests, as a small country, to be "cautious, to be modest, to be pragmatic, and to be practical. To wait for the dust to settle before making choices we may later regret." Winston Peters via RNZ on April 13

‘Appeasement doesn’t work with this guy. Stop mucking around.’

Former Australian PM Malcolm Turnbull last week criticised Peters as weak and too subservient in his comments about ‘misguided talk of a trade war’ and waiting for the dust to settle from Trump’s tariffs..

“Did he say that seriously? I mean, you're getting into parallel universe stuff because the whole world is talking about a trade war. Trump's talking about a trade war. Trump tweeted not so long ago, 'Trade wars are good and easy to win.'

Drawing on his own experience dealing with Trump during his time as Australian prime minister, Turnbull warned New Zealand against adopting a posture of appeasement.

"I think showing weakness and subservience to Trump is a major, major mistake. I say this from my own experience, but there are so many examples you can point to.” Malcolm Turnbull in an interview with RNZ’s Guyon Espiner.

Former PM Helen Clark and AUT Law Lecturer Marco de Jong also warned in an NZ Herald-$ Op-Ed on Saturday that being subservient put New Zealand’s sovereignty at risk.

“The coalition Government insists New Zealand “can only protect our interests by working with traditional partners with whom we have a shared strategic assessment” – effectively returning us to the “Western alliance diplomacy” of the Cold War.

“But as the United States threatens Canada and Greenland and withdraws from European security, such associations are rapidly becoming unstable and even irrelevant.

“Australia’s all-out effort to demonstrate its worth was met by the US President asking “what does [Aukus] mean”, rejecting any tariff exemptions, and demanding that Australia further increase its defence spending. Former PM Helen Clark and AUT Law Lecturer Marco de Jong via an Op-Ed in The NZ Herald-$

At what point should Luxon and Peters stand up in support of our allies Australia, Canada and Singapore in opposing and criticising Trump? If their values are not pushing them to do it now, then perhaps the political realities spotlighted in three general election results in four days might do it.

The best of the rest here & overseas today

My Top Pick ‘n’ Mix Six for Monday, April 5

* Housing news by Amy Williams for RNZ: New Zealand's most valuable state house cannot be subdivided

* Housing & politics & Auckland news by David Long for Stuff: ‘Decay of areas’: Mayor and minister in deal to stem three-terrace new builds in Auckland.

* Poverty & budget news by Ava Whitworth for Stuff: North Shore Women’s Centre battling to stay open after funding cuts.

* Health & poverty news by Brittany Keogh for The Sunday Star Times-$: Thousands of kids eligible for free meningococal B vaccine could miss out.

* Health & crime deep-dive by Katie Ham for The Post-$: ‘Crisis’ on the horizon as police pull back from mental health callouts.

* Climate & housing deep-dive on plan to turn Takapuna Golf Course into flood mitigation wetland by Jonathan Killick for The Sunday Star Times-$: When climate resilience meets resident resistance

Housing, transport & infrastructure news

* Water & infrastructure news about Lake Tarawera by Laura Smith for LDR via Stuff: Lake Tarawera locals push for lower sewerage costs

* Transport deep-dive by Stewart Sowman-Lund for The Sunday Star Times-$: What the Mill Rd development could mean for those on its doorstep.

* Housing news deep-dive by Marty Sharpe for Stuff: The sisters-in-law who ran a boarding house deemed ‘unfit for humans’.

* Politics & transport deep-dive by Sam Smith for Stuff: Rats, a ramming and a stranding: The troubled times of the Interislander’s Aratere.

Poverty, health, education, welfare, & living costs news

* Health & Palmerston North news by Jimmy Ellingham for RNZ: Vote set for sugary drinks ban at Palmerston North council venues

* Health & politics news via RNZ: 'They’re worried': Dunedin locals fear hidden cuts to new hospital services, Labour says

* Politics & education & health news by Ellen O’Dwyer for RNZ: Glass, melted plastic: School lunch programme food safety complaints soar

* Health news via 1News: Vaping doubles risk of serious lung disease — study

* Politics & Te Tiriti & justice deep-dive by Joel Maxwell for Stuff: A rocky $2.7b atonement: Warning on Treaty settlement commitments

* Justice & Crime Op-Ed by AUT’s Alexander Plum & Kabir Dasgupta: This NZ law aims to give people with criminal convictions a ‘clean slate’. It’s not working

Climate, water, land, air & biodiversity news

* Climate & housing deep-dive on plan to turn Takapuna Golf Course into flood mitigation wetland by Jonathan Killick for The Sunday Star Times-$: When climate resilience meets resident resistance

* Climate & electricity deep-dive by Phil Pennington for RNZ: Artificial intelligence a wildcard in electricity demand

* Column by Rod Carr for The Sunday Star Times-$: Middle class becoming the hunting ground for those who would polarise us.

* Good news via 1News: New recycling scheme turns car bumpers into fence posts.

* AP: Scientific societies to step up after Trump puts key climate report in doubt

* AP: As Trump pares back ocean protections, California weighs expanding them

Today’s Journal of Record

Judith Collins and Christopher Luxon yesterday announced $3 billion of new defence spending and pledged to more than double defence spending to 2% of GDP by 2032/33. But Luxon’s Government is still committed to reducing core Crown expenses from the current 33.6% of GDP “towards 30% of GDP over time,” which means a doubling of defence spending would require extra real cuts in other spending on Health, Education, Transport & Welfare (but not NZ Superannuation or Police) of upwards of five percentage points of GDP or over $20 billion in today’s dollars.

Quote of the day: ‘Enough shitty townhouses’

“You go down a street and they’re all lovely old buildings and bungalows, then there are three shitty blocks just banged up together, and that’s the start of the decay of that area. So we’re getting to stop that.” Auckland Mayor Wayne Brown via David Long for Stuff:

Number of the day: 157 construction businesses

157 - The number of construction businesses liquidated in the March quarter, up from 130 in the March quarter of 2024. Via BWA Quarterly Market Report

Chart of the day: So much need, but not enough being built

Cartoon: ‘Let me be clear…’

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, here’s the six big things to note in Aotearoa-NZ’s political economy around housing, poverty and climate in the week to Sunday, May 4:

* In response to slower global growth and wider deficit forecasts, Nicola Willis signalled another $4.4 billion in spending cuts over the next four years, all to get an uncertain extra 5-10 basis points of cuts in interest rates. See more below

* Over 5,500 hospital doctors struck on Thursday against a Health NZ pay offer of 1.5% per year, which would cut their pay in real terms and do little to fill the staffing holes that cost $380 million a year to fill with temps. See more below in number of the week.

* Hit hard by the Government’s initial investment freeze in early 2024, Infrastructure NZ called on Willis to re-start investment by launching new projects in the Budget on May 22. It also called for a population strategy.

* This weekend’s must-read is Steve Kilgallon’s deep-dive for Stuff into migrant abuse rife in the cleaning industry, which exposes how our temporary worker industrial complex prop up our housing-market-with-bits-tacked-on economy.

* Surprisingly large come-from-behind election victories for Trump-opposing centre-left Governments in Canada and Australia sent a timely warning to politicians here that Trump and his policies are now deeply unpopular. The leaders of both the Trump-supporting opposition conservative parties lost their electorate seats this week.

* The US economy contracted in the March quarter for the first time in three years because of a pre-tariff surge in imports. US imports from China are now collapsing. The Port of Los Angeles expects a 35% fall in imports this week.

The week to Sunday, May 4, 2025

Willis chooses more cuts as recessionary headwinds gather

Finance Minister Nicola Willis announced a further tightening of Government spending in a pre-Budget speech on Tuesday detailing her response to new Treasury forecasts that Donald Trump’s tariff shock would slow global growth, which in turn would slow taxation revenues and make it harder to achieve surplus by 2028/29.

Titled Budget 2025: The Growth Budget, her speech noted returning to surplus within three years repaying more debt faster was more important than spending more on Government services or infrastructure.

“I am confirming today that the Government has reduced the size of our Budget 2025 operating allowance to $1.3 billion.

“This means we will be spending billions less over the forecast period than would have otherwise been the case. This will reduce the amount of extra borrowing our country needs to do over the next few years and it will keep us on track towards balanced books and debt reduction.

“The fiscal forecasts will not be finalised until later this week, but according to the latest numbers I have seen, this smaller operating allowance means we will continue to forecast a surplus in 2029.

“The reality of global economic events is that if we’d pushed on with a larger operating allowance then we would be staring down the barrel of even bigger deficits and debt.” Nicola Willis speech

She described Government interest costs as spiralling out of control.

“The interest bill on government debt has soared from $3.6 billion in 2014 to $8.9 billion last year. That sum is more than annual core Crown expenses for the Police, Corrections, the Ministry of Justice, Customs and the Defence Force combined.

“Our Government’s goal is to put net core Crown debt on a downward trajectory towards 40 per cent of GDP and in the longer term keep it below that percentage.

“Why? Because allowing debt to keep spiralling would threaten the livelihood of every New Zealander.” Nicola Willis speech

Actually, there is no spiralling of interest costs

It’s worth challenging Willis’ characterisation of the Government’s debt levels as threatening because that is the spectre behind all of the Government’s drive to cut costs and reduce debt. It’s the ultimate reason given for choosing not to spend more on doctors, hospitals, schools, housing, buses, roads and welfare. The ‘spiralling debt’ line is the burning platform being described as the problem to be dealt with, so voters would think it seems natural that things have to be thrown overboard in a crisis.

Willis regularly suggests the Government is just like a household and therefore it’s natural it ‘tighten its belt’ when it has a debt problem. Here’s the bit in the speech using that framing (bolding mine):

“Every Thursday afternoon, New Zealand Debt Management issues around $500 million of Government bonds. Some of this is to that roll over existing bonds that have expired, but large chunks of it are for new borrowing.

“That level of borrowing obviously can’t go on forever, or else our kids and grandkids will be left with unsustainable debt and considerable economic uncertainty.

“Most of you can probably relate to this if you think about your own household budget: sure, sensible borrowing has its place, but no overdraft can be extended forever, and while you can keep giving the credit card a hammering, left unpaid, it does, eventually, get declined.

“It’s worth bearing this in mind next time somebody tries to suggest to you that the New Zealand Government needs to spend more on something.” Nicola Willis speech

But this is not a crisis. Nowhere near it

The cuts in the face of recessionary headwinds and against the grain of the Reserve Bank’s attempt to stimulate the economy out of recession are unnecessary and counter-productive, in my view.

The Government’s net interest costs, after the NZ Super Fund receives interest on its overseas assets, is actually forecast to be around $2.1 billion or 1.6% of total Government revenues or 0.5% of GDP in the current 2024/25 year. To put that into context, households overall are spending an average of 22% of their disposable income on rent or their mortgage interest costs. Home owners with mortgages spent an average of 21% of their disposable income on interest costs in the year to June 30, 2024. Renters spent 23% on average.

If a neighbour said to you that your household’s interest bill was 1.6% of your income, which meant it was ‘spiralling out of control,’ what would you say to them?

‘B******t.’

This is all about reducing mortgage rates

Willis’ argument and actions do make sense if you listen to the bits about trying to further reduce interest rates. A Government can tighten its policy to force the Reserve Bank to ease even more to stop an economy going into a recession bad enough to lower inflation below its 1-3% target band. Here’s those bits on why cutting spending is good for interest rates (bolding mine):

“I always take pause to celebrate that since our Government came to office inflation has returned to normal levels, resulting in a 200 basis point reduction in interest rates.

“In this year’s Budget we’ve also had to carefully consider whether, in light of major global economic events, our fiscal strategy still remains achievable.

“The strategy is focused on two key goals: putting net debt on a downward trajectory and returning the books to an OBEGALx surplus by 2028.

“This strategy matters, it matters for getting the books back in order and that’s about more than a set of numbers. It’s about keeping interest rates lower and providing a solid platform for future growth.” Nicola Willis speech

In theory, the Government could slash and burn even more aggressively to make the Reserve Bank cut the Official Cash Rate even deeper towards 0%, but that would make clear that the Government’s real strategy is to create a recession that lowers mortgage rates to further benefit home owners, both by lowering their costs and increasing house values, which has happened as interest rates have fallen in the past.

So how much might the cuts of $1.1 billion per year for the next four years actually ‘buy’ the Government in the form of lower mortgage rates? Is it worth the political and real grief involved in denying doctors and nurses and teachers and beneficiaries and disabled people the wages and facilities they need to keep working and living sustainable?

It buys the Government 5-10 bps of rate cuts and lowers GDP by $550m

Luckily for us, a few people have some calculators on both the initial impact on GDP of Government spending cuts and the end result after the Reserve Bank is forced into even deeper cuts in the OCR.

Here’s ANZ NZ Chief Economist Sharon Zollner in her weekly note on Friday (bolding mine):

“While the reduction in the operating allowance only reflects around 0.25% of nominal GDP, that’s still less pressure on short-term interest rates (all else equal).

“A rough rule of thumb implies the reduction could be worth around 5-10bp off the OCR – not enough to move the dial if the RBNZ is cutting in 25bp increments, but certainly enough to tip the balance to cut if other economic factors are also moving in that direction.” ANZ NZ Chief Economist Sharon Zollner in her weekly note on Friday

The next Reserve Bank rates decision is on May 28, six days after the Budget. Currently, financial markets and economists expect another cut of 25 basis points in the OCR to 3.25%. Willis will be hoping her nudge this week might bump it up to 50 basis points, but the $1.1 billion per year cut in spending will only be enough for less than half of the 25 basis points she’s trying to ‘buy’.

And what might be the net result for the economy of the offsetting spending cuts and rate cuts? The Reserve Bank estimated in August last year that the net ‘multiplier effect’ of a change in Government consumption was around 0.5, even after the Reserve Bank response. IE. That means the Government’s spending cut will result in a cut in GDP by about half the amount of the cuts, or around $550 million or 0.13% of GDP.

So, the end, the Government is not ‘Going for Growth.’ It’s going for lower mortgage rates and higher land prices. GDP actually falls.

Just like the rest of the nation’s home-owning households in our housing-market-with-bits-tacked-on political economy, the Government is prioritising leveraged capital gains on land values over actual investment in growing real productivity, output and wellbeing.

The best of the rest here & overseas this week

My Pick ‘n’ Mix Six for the week to Sunday, May 6

* Health & politics analysis by Marine Lourens for The Press-$: Growing privatisation of health sector will only benefit ‘wealthy and powerful’, doctors warn.

* Transport & Auckland explainer by Gabi Lardies for The Spinoff: The changes to plans for the streets around the Karanga-a-Hape CRL station: Disgraceful switcheroo' or response to feedback?

* Geopolitics investigation by Paula Penfold & Justin Wong for Stuff: 'Full of lies': Chinese Embassy hits back over Stuff role in global investigation.

* Geopolitics & economy explainer by Ian King and Debby Wu for Bloomberg (gift): Why World Powers Are Battling Over Computer Chips

* Geopolitics & global economy explainer by Alastair MacDonald, Chelsea Delaney & Hannah Miao for WSJ (gift): The Rush to Beat Tariffs Is Distorting the Economy. There’s More to Come.

* Former Australian PM Malcolm Turnbull told Guyon Espiner in an interview for RNZ that Winston Peters has been weak and too subservient in his comments about Donald Trump. Former Aussie PM: 'Showing weakness to Trump is a major, major mistake'

Quote of the week: Let them eat two dolls

“They made a trillion dollars with Biden selling us stuff. Much of it we don't need. You know, somebody said, ‘Oh, the shelves are going to be open.’ Well, maybe the children will have two dolls instead of 30 dolls. So maybe the two dolls will cost a couple bucks more than they would normally.” Donald Trump via AP: Trump says US kids may get ‘2 dolls instead of 30,’ but China will suffer more in a trade war

Number of the week: Tail-chasing

$380 million - The amount per year spent by Health NZ on locum and temporary doctors to fill gaps in hospitals because of unfilled permanent positions, as estimated by the Association of Salaried Medical Specialists (ASMS), which is the union for the 5,500 doctors in hospitals who went on strike on Thursday for a better deal than the 1.5% offer from Health NZ. Via RNZ: Doctors won't rule out another strike as 4300 patients face delays

Cartoon of the week: What were we thinking?

Ka kite ano

Bernard

PS: May the fourth be with you.

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 features co-hosts Bernard Hickey & Peter Bale talking about the week’s news with regular and special guests, including:

* Cathrine Dyer on news Tony Blair suggested giving up on net zero targets, on the debate about whether a full transition to renewable energy is possible, and why planting pine forests is not a reliable or long-term solution to reduce net emissions, as detailed by Glen Peters on BlueSky

* Bernard & Peter talked about Nicola Willis doubling down on austerity in a speech this week and this skateboarding dog story in The Atlantic about Donald Trump believing he can run the United States and the World.

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

The Hoon won the silver award for best current affairs podcast in 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 spoke last night with Simplicity Chief Economist and Head of Policy Shamubeel Eaqub about the Government's latest budget policy tightening, the risks for infrastructure investment and a potential dampening of GDP growth.

He points out that the Government has cut capital expenditure so far in the current financial year, rather than operating expenditure, and he worries further restrictions in infrastructure spending by the Government will restrain growth and future attempts to deal with infrastructure deficits and the need to boost productivity.

He sent me these charts showing how the latest Crown accounts show a reducing net cash outflow, although that’s due to still-rising operating expenditure being more than offset by lower capital expenditure.

Here’s another view of that for the first eight months of the financial year.

Here’s a lightly-edited transcript of our conversation in the video above:

Bernard Hickey: Finance Minister Nicola Willis says she's going to cut her operating allowance for 2025-26 from $2.4 billion to $1.3 billion. What did you think of that apparent tightening of policy?

Shamubeel Eaqub: Essentially it's just enough for us to cover inflation and population and because there's so much pressures at the moment with a weak economy, the welfare payment increases, the increases in things like New Zealand Super, there's just not a lot of room with that kind of very small allowance in there.

Bernard Hickey: How would you characterise it in terms of tightness?

Shamubeel Eaqub: This government was elected on an austerity platform, so I think they are doing exactly what they said they would do. They wanted to cut taxes and cut spending and increase investment. From the beginning that was a really difficult trick to pull off and they haven't been able to do that. So what we have seen is they have cut taxes, but they haven't been able to cut back on the actual operating expenditure, which is where the great hope was… ‘we'll find all this cost savings and everything will be better.’ But that stuff is really tough.

Bernard Hickey: The impression you get from listening to ministers is that they're working hard to cut spending in various places, be it welfare, housing, and they're trying to contain cost growth in health and education. But what did you actually find on where the spending reduction was actually happening in those first eight months or so?

Shamubeel Eaqub: For the first eight months of this financial year, spending on pretty much all the OPEX (Operating Expenditure) items are up, with the exception of net interest, and all the kind of big reductions were on the investment side of things. It doesn't mean that they haven't made cost savings. Those things might have increased a lot more without those pressures. But because they've had those big tax cuts that came in when they were first elected, there's just less money around to be able to balance the books.

Bernard Hickey: The government is saying that it's going for growth and this is part of its going for growth strategy. But if you're tightening fiscal policy, you're reducing the amount of spending the government's doing into the economy, could that actually slow down growth?

Shamubeel Eaqub: Especially in a recession, fiscal policy is really important to provide a buffer and or at least as a catalyst to revive economic growth. The best bang for buck is to increase infrastructure investment. Unfortunately, the politics always gets in the way of that when there's a change of government. You know, ‘we turn off the previous teams projects for the new teams projects,’ and the hiatus is what we're experiencing at the moment.

There is an intent to increase infrastructure investment, but the unfortunate reality is that they're actually spending less on this physical infrastructure stuff at the moment. So that's probably the biggest concern for me. I don't have a problem with the wider view of getting a financial position on a more sustainable footing. I think that's a good thing to do. I think if you want to have lower taxes, that's fine, as long as you can find a reasonable way of reducing spend and still get good outcomes that New Zealanders want out of their health, education, transport and other things. But it's very hard to do in a short period of time that they're trying to do it in.

Bernard Hickey: Because there's two sides to a budget. You can get it back into balance by reducing your spending or you could increase your revenues. One of the things that's happened over the last couple of years is that the government has reduced some of its revenues by delivering some tax cuts and has also spent a tiny bit more, a lot less than they expected perhaps on the childcare rebates.

So if the government strategy is to get back into surplus by 2027/28, are they using all the tools they really could?

Shamubeel Eaqub: It's always the trade-off, isn't it? If you're going to have a surplus, then either you have to increase revenue or have to reduce spending. They have made it really hard for themselves by reducing spending first and then trying to cut spending, which is always very difficult to do because so many things that we do in government are just really locked in. You think about health, education, justice. These things are expensive and they're kind of volume driven. Population growth and inflation drives that stuff.

They're going to find it very challenging to get back into surplus in a way that doesn't damage the public's confidence in things, those things that people care about, like health, like education, because those are really personal things to people and people value those things highly.

It's a really big political risk as well as the of the risk to the actual sectors and the people who are involved in it.

Bernard Hickey: So the economy is starting to recover, but it's certainly not a really strong rebound, and perhaps not as strong as some expected, or maybe the government hoped. Is there a risk here that the government's dialing back on spending could actually slow the economy so much that it really loses momentum and frustrates the Reserve Bank's attempts to get things going again with rate cuts?

Shamubeel Eaqub: The private sector has got some positives in terms of lower interest rates. The two or three big headwinds are slowing net migration, fiscal austerity, and just the uncertainty in global markets with tariffs. We've got three kind of headwinds against a very strong, powerful positive from lower interest rates. So we're not coordinated. And that's always been the problem in New Zealand. The politics and the needs of the economy are not necessarily coordinated.

The challenge is how can we have coordinated policy when it comes to managing the economic cycle in a very short political cycle, when you know we're seeing that the public doesn't have a lot of patience. We elect a new government, but we're not giving them much of a chance and we're seeing this around the world. Political terms are getting shorter in terms of frequent changes of government, and when governments are in charge, they're going ‘I'm going to do everything that I can because I might not get re-elected.’

And I think we're seeing a little bit of that here in New Zealand too. But to answer your question, is this going to be the reason why the New Zealand economy doesn't recover very fast? Probably not, but at the margin it's that additional headwind that doesn't need to be there, mainly because of the infrastructure spend.

Because in my view, a recession is when you should be spending tons on infrastructure because there is so much spare capacity. You can get it done on time, under budget, and by the time the recovery comes, you've got all this great kit that everybody wants anyway.

Bernard Hickey: And the normal way to pay for this sort of great kit is to borrow with government bonds, which pension funds around the world and banks love because they're liquid, they have a good credit rating, and they're pretty confident that a government will repay its debt. However, the Finance Minister argued in her speech today that we couldn't really afford to increase our debt anymore because we were at risky levels of debt and that there was a risk the bond markets, the so-called bond vigilantes, could shut us out. And it was enough of a risk that we needed to really be very tight right now. What do you think of that argument that we just can't borrow anymore?

Shamubeel Eaqub: New Zealand's debt is not particularly higher compared to our peers. But there is an element of why are you borrowing money? So if you're borrowing money to fund shortfalls in operating expenditure for a sustained period, that's a bad thing because that shows poor management. But if you're borrowing money for capital investment, that's going to make New Zealand a better place, then that's absolutely the right thing to do. And right now, we've seen a sustained period where we've been running deficit on the operating side. And that's the bad bit of the borrowing.

The good bit of the borrowing is the money that we borrow for investment. So I don't accept that all debt is good or bad. I think there is an element of what are you using the debt for if it's for good infrastructure projects for a country with a massive infrastructure deficit. I think that would be a positive. And if you look at the actual pricing of our bonds at the moment, compared to the US, we're not being priced as some kind of banana republic. mean, if anything, New Zealand's risk premium is historically at a very low level.

So there is a lot of confidence that New Zealand has relatively good fiscal prudence. I think that's what the finance minister is trying to lean into, New Zealand's reputation of being prudent managers over finances. But I think we need to make the distinction between what are you borrowing the money for? If you're borrowing the money for everyday expenses and over-running your fiscal envelope because you've cut taxes, versus you're borrowing money to invest in infrastructure, those are entirely different propositions for our investors.

Bernard Hickey: There's a paradox here, isn't it? If you have an infrastructure deficit, you know you need to invest plenty in your infrastructure, these long term assets, which are probably going to increase your productivity and the overall size of the economy and improve people's health and their ability to work and be more productive. That can make your economy more likely to repay the debt.

And there is an enormous pool of money out there in New Zealand, apart from anything else, the KiwiSaver funds and a bunch of other pension funds, not to mention all around the world, right across the Tasman, the world's third largest pension savings pool.

Isn't there a danger here that if governments are too nervous about borrowing and pension funds are keen to invest in infrastructure, that there's a chicken on the egg problem here?

Shamubeel Eaqub: It's going back to the issue of what are you borrowing the money for? If it's for good projects that are infrastructure, that's going to make New Zealand better, of course you should do it because that makes economic sense. But if you're borrowing money for the wrong reasons, then that's not a good thing. But also, you don't want to borrow so much that the interest burden becomes unbearable, like it did in the 1980s, which really was the thing that was the gun against our head during that fiscal crisis. But that's not the case now, right? Our net interest payments are less than a billion dollars in the kind of first eight months of year. It's not like that's where we are getting a huge amount of pressure.

Where we're getting the pressure from is actually ‘have we got the headroom for debt if a crisis should come?’. And I do have some sympathy for that view that we should be repaying debt during good economic times to be able to get more headroom. But again not at the expense of not investing in our infrastructure, because that's what we have done for too many decades.

At some point in time we have to turn around and say ‘we're going to do things differently’. Debt is not the only thing that we can use. We can also use, like you say, those pools of capital. There are other ways of also funding the stuff. And when we had the infrastructure summit a couple of months ago, there was huge amounts of interest because people want to come to New Zealand. They want to support our economy. They believe in the rule of law and the broad stability and all those good things about New Zealand. So I think there's a lot of goodwill and a lot of confidence in New Zealand and we should be leaning into it.

Yes, we have headroom for debt, but we shouldn't rely only on debt for everything. I think we can be creative to go, ‘we want this bit of infrastructure because it's good for New Zealand. Let's do everything that we can, but debt is the one that we can use really quickly and easily and start doing it tomorrow if we wanted to.’

Interview ends.

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