The Kākā by Bernard Hickey

Long stories short, the top six things in our political economy around housing, climate and poverty on Wednesday, February 5 are;

* Housing Minister Chris Bishop yesterday announced Kāinga Ora would be stripped of its ‘non-core’ activities of developing new land, managing First Home loans and KiwiSaver withdrawals and consenting its own projects;

* Bishop detailed plans to add a net 145 new homes this year before capping the state housing stock at 78,000 for the next 30 years, with renewal and renovations of an already-tired housing stock paid for by land and home sales in leafier suburbs;

* He said around 800 state homes on land in suburbs such as Remuera would be sold to deveopers in the current year, with ongoing sales in the years to come of around 900, with the potential to also sell bare land bought previously for redevelopment;

* The combined proceeds from land sales would amount to billions per year and would allow Kāinga Ora to generate ‘sustained cash surpluses’ from the 2027/28 fiscal year, which would allow borrowing to stop and dividend payments to resume;

* Cabinet decided to cut around 1,000 jobs from Kāinga Ora to save $1.4 billion over four years, including by demolishing surplus homes rather than transporting them to iwi, cutting maintenance spending by $50 million a year and reducing the size and quality of new homes away from the Homestar Six rating; and,

* Stats NZ reported yesterday building consents fell 9.8% to 33,600 in calendar 2024 after the Government suspended Kāinga Ora’s new building work and high interest rates quashed private sector demand, leading to collapses of building firms and the loss of 13,000 jobs in construction last year.

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Government plans billions of dollars of housing land sales

Chris Bishop yesterday unveiled plans to cut Kāinga Ora back to being a landlord of a maximum of 78,000 state houses, including building just 145 net new homes this year, with renewing an already-tired stockpile to be paid for by ‘asset recycling’ of homes in leafier suburbs and the potential sale of bare land bought under Labour for redevelopment.

Kāinga Ora plans to be in a cashflow generating position within two years, which would give it the capacity to stop new borrowing and start paying dividends again. It would also resume annual reviews of tenants with the aim of encouraging tenants able to afford private rentals again to go out and rent privately.

Here’s the detailed plan for Kāinga Ora’s building stock:

The scaling back of Kāinga Ora came as Stats NZ reported a fall in building consents in calendar 2024 to a level of 6.3 consents per thousand head of population, down from 9.7 two years ago, with the biggest fall in Auckland.

Today’s pick ’n’ mix of scoops, news & deeper-dives

A first person deep-dive: My ancestors were colonisers. A stunning essay from Max Rashbrooke examining his ancestors' role in the shaping of Aotearoa, and what that means for his own role in its future. The Spinoff

An Op-Ed from Craig Renney on corporate tax via his substack:

A chunky & useful climate & decarbonisation chart pack:

An Op-Ed from Zeke Hausfather via his substack on January’s hotness:

Charts of the day

A big myth busted big time…

MusicalChairs produced a tour-de-force set of charts last night via BlueSky (starting here) showing how the ‘crazy’ fiscal stimulus between 2020 and 2023 wasn’t that crazy after all.

Not very stimulative at all after the current account drain

Cartoon of the day

Timeline-cleansing nature pic of the day

Ka kite anō

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

Long stories short, the top six things in our political economy around housing, climate and poverty on Tuesday, February 4 are:

* Social Development Minister Louise Upston yesterday announced a toughening of sanctions on jobseekers to force them into work, but job ads, beneficiary numbers and new employment data show those being sanctioned are trying to find work when there are fewer job ads and employment is flat to falling;

* The tougher sanctions requiring more job-seeking and training come on the eve of December quarter labour force figures tomorrow, which are expected to show a rise in unemployment rate to 5.1% from 4.8% and a second consecutive fall in quarterly jobs numbers;

* The tighter sanctions are modelled on ones used in Britain since 1995, which did push people off the benefit, but didn’t increase the number of workers, and which evidence has repeatedly shown don’t work, as our own Welfare Experts Advisory Group (WEAG) reported in 2019;

* The sanctions and the Government’s tightening of fiscal policy have coincided with the (lagged) peak of tight monetary policy and robust growth in jobs in Australia in recent months, thanks to the Reserve Bank of Australia not running monetary policy as tight as the RBNZ and both Federal and state Governments there running looser fiscal policy;

* The combined result of these toughenings and tightenings here when Australia and other competing labour markets have loosened policies is that 127,800 New Zealand citizens, residents and workers emigrated permanently year to the end of November, and were more than replaced by 158,400 workers, mostly on temporary work visas; and,

* Household living cost indices published yesterday showed living costs for the lowest-spending quintile rose 3.9% in the year to the end of December, which was above Consumer Price Index inflation of 2.2% and inflation for the highest-spending quintile of 2.7%, largely because rent inflation is still high, while mortgage interest costs are now starting to fall.

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

‘Try harder to get a job, even though there’s fewer jobs’

Timing is everything in the political economy, as in life, and the Government has again chosen to tighten its fiscal belts and toughen sanctions on unemployed people at a time when their real incomes are falling and the Government’s own fiscal policy tightening means there are fewer jobs available here, and more in other countries.

The timing of the new crackdown also comes at a time when Australia’s jobs market in particular is heating up again, thanks in part to Governments there loosening their fiscal policies and Australia’s Reserve Bank having kept interest rates lower for longer than the RBNZ.

The end result has been an acceleration of the ‘churn and burn’ in our overall workforce, with an average of 350 citizens, residents and temporary work visa holders emigrating permanently each day in the last year, while an average of 433 new workers arrived each day, mostly from India, the Philippines and China with temporary work visas. More than half of the emigrants are going to Australia.

Social Development Minister Louise Upston said the tougher sanctions were designed to increase economic growth here by getting more people into work. They are similar to ones tried in Britain in 1995 (without success) to increase the numbers of people in work, although they did force more people into unemployment without a benefit.

The irony is the Government’s actions over the last year have both increased the number of beneficiaries sanctioned (156,000, up 126% from a year ago) and increased the numbers of beneficiaries going into work (33,000, up 22%), but have also increased the overall number of beneficiaries, including those on sickness, sole parent and supported living benefits, by 30,854 or 8.2% to a record-high 409,665.

‘Hunt harder for work & work longer for wages that buy less’

The Government’s exhortation to hunt harder for fewer jobs and for more people to work more, and for longer hours, comes as fresh evidence was published to show real incomes after living costs and inflation are still falling, especially for those on the lowest wages and benefits.

Rent inflation running faster than wage inflation

Leading to poorest seeing highest living cost inflation

And helping drive more workers to flee the country

Away from a contracting jobs market in NZ…

…but job ads are bouncing in Australia & back above pre-covid levels

Table of the day

Cartoon of the day

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

Long stories short, the top six things in our political economy around housing, climate and poverty on Monday, February 3 are:

* Donald Trump unveiled 25% across-the-board tariffs on imports from Mexico and Canada on Sunday, plus a new 10% across-the-board tariffs on imports from China;

* Canada and Mexico hit back with their own tariffs and China warned it was considering similar measures, with Trump warning again he plans to slap tariffs on Europe and elsewhere;

* The tariffs are much deeper and wider than in Trump’s first term, which economists say means the shock to supply chains globally is expected to slow economic growth and increase inflation for most large economies;

* That higher global inflation and higher global interest rates adds a major headwind to the Government’s hopes for an economic and housing market recovery in 2025;

* The impact will be messy, however, with some winners both here and overseas, including New Zealand’s beef and wine exporters to the United States, who may see their sales increase because Canada and Mexico are major exporters of beef to the United States, while tariffs on European wine imports could help New Zealand, which is now the third largest source of wine imports to the United States; and,

* The blanket tariffs are the biggest restriction to globalisation since the Second World War, which should force New Zealand’s political, diplomatic and business leaders to question baked-in and decades-long assumptions about ever-freer trade and whether we need to choose between a US-led trade and security bloc and a China-led one, or avoid picking one altogether.

(There is more detail, analysis and links to documents below the paywall fold and in the podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Inside the biggest hit to globalisation in 70 years

The inevitable march of ever-freer trade powering ever-faster global economic growth and ever-lower inflation has been foundational in the thinking of our political, diplomatic and business leaders for 40 years, starting with our pre-emptive dropping of almost all tariffs and controls on imports from 1984-onwards.

The first big assumption was this would make most people richer and better-off, both globally and here in Aotearoa-NZ, and that this shift was inexorable, unavoidable and unquestionably good. The second big assumption was that the truth of the first assumption would push autocracies into democracies, in order to be part of the globalised rules-based trading system that gave consumers ever-cheaper goods and services and companies ever-richer consumers.

Those are still the base assumptions of our leadership class, even though the rest of the world’s voters, many of its leaders and plenty of economists concluded over the last decade that globalisation hasn’t worked for the middle classes of the world’s developed countries and has gutted their economies of the industrial bases needed to build weapons in any war.

Donald Trump’s imposition yesterday of 25% across-the-board tariffs on imports from Mexico and Canada was by far the most important reversal of those broad globalisation trends and assumptions since the second world war. He also imposed a new 10% across-the-board tariff on imports from China and said he would also impose tariffs on Europe, in part to reduce America’s trade deficits with these trading partners. Canada immediately responded with tariffs on US$100 billion worth of US imports, while Mexico announced tariffs of its own, although with less detail. China threatened to respond with legal action in the World Trade Organisation.

These are a much bigger deal than the piecemeal and targeted tariffs applied by Trump in 2018, and the scale of US trade with Canada, Mexico and China has also escalated since then. These three sources alone account for 42% of US imports and nearly 5% of GDP. If the 25% tariffs were passed on fully to US consumers, it would generate a one percentage point increase in US inflation in one quarter.

Trump’s first set of tariffs didn’t work to lower the US trade deficit

The other big concern is over half of US imports from Canada, Mexico and China are intermediate goods, which are added to other goods, often re-processed and re-exported to Canada, Mexico and China, before being re-processed there and exported again to America, with the tariff applied again.

Economists warned the disruption could represent a covid-like supply shock to global trade, which could again fire up inflation and slow economic growth.

John Llewelyn, partner at Independent Economics, a consultancy, and a former economist at the OECD, said that the main consequence of the tariffs would be inflation, with all countries likely to get hurt, including the US.

“The 80-year era of stability in the rules and conduct of economic and financial relations between countries ended today,” he said, via FT-$$$

Financial markets have already reacted badly, pushing the NZ dollar down almost 1% this morning to near a post-covid low of 55.8 USc. That weakness will on its own generate inflation for New Zealand consumers.

Global stagflation adds new headwind to NZ’s recession-hit economy

Over the last two years, New Zealand’s economy has been the exception in a world of solid-to-strong economic growth, powered by looser fiscal policies and lower interest rates in other countries. That helped soften the blow of very tight fiscal and monetary policy here over the last two years, with our terms of trade improving and exports to the United States in particular doing well.

The United States is now our second largest trading partner after China and ahead of Australia, powered by growth in meat and wine exports, along with US tourism recovering to pre-covid levels while Chinese and Australian tourism haven’t.

New Zealand is now the third largest provider of wine imports to the United States and the fifth largest exporter of beef to the United States, after Canada, Australia, Brazil and Mexico.

NZ exports more wine to the US than Australia

NZ beef export values strong, even if volumes are capped by tariffs

The effects on our exports to the United States of the 25% tariffs on imports of beef from Mexico and Canada are unclear, given Australia has a free trade agreement with the United States and our beef exports already face a 26.4% tariff on exports above 213,402 tonnes per year, which we’re now regularly hitting. Australia stands to gain the most, given it already has a free trade agreement and we don’t.

US inflation and interest rates crucial to mortgage rates here

A major swing factor in how the new tariffs change our political economy will be how US longer term bond yields move, given they form part of the base for our fixed mortgage rates. Higher US inflation is likely to drive up US interest rates and starve borrowers here of the big rate cuts they, and the Government, may have expected.

Chart of the day

Cartoon of the day

Timeline-cleansing nature pic of the day

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

Long stories short, the top six things in our political economy around housing, climate and poverty this week were:

* PM Christopher Luxon and Transport Minister Chris Bishop announced the immediate reversal of the previous Labour Government’s 100 km/hr to 80 km/hr speed limit reductions on 38 sections of state highway, saying it would save around 3 minutes per trip on average;

* Luxon trumpeted the news as another sign the Government was speeding up the economy, saying “we're really pleased that we are literally literally accelerating New Zealand's economic growth with this announcement today.”;

* However, an analysis via Stuff showed the main 11km-long road section in question between Carterton and Masterton would save a motorist 90 seconds if they were able to drive 100 km/hr vs 80 km/hr, and transport economics experts such as Simon Kingham and the PHCC have challenged the assumed economic benefits of faster trips, saying most workers use the time saved at home, rather than at work;

* The Government’s talk of economic benefits also ignored the extra health, fuel and carbon emissions costs of faster driving, more accidents and more lethal accidents, with a 2023 analysis by EY of speed limit reductions for the Napier-Taupo highway, for example, showing a net benefit of $92.6 million a year, after reduced accident costs and lower fuel costs of $94 million overwhelmed the $1.3 million of benefits from time saved;

* Meanwhile, the Reserve Bank’s Chief Economist Paul Conway delivered a quietly devastating speech on Wednesday that showed New Zealand’s low-investment, low-wage, migration-led and housing-market-driven political economy had delivered poorer productivity growth than the rest of the OECD and meant total economic growth in the last decade in particular had come from more people working longer hours, rather than investing and training to get more from each hour of work.

* New Health Minister Simeon Brown announced on Friday a new hospital would be built in Dunedin with fewer beds than the current one, which nurses, doctors and other locals in the South Island meant the Government was repeating the mistakes of predecessors of encouraging population growth without building the infrastructure before people arrive.

(There is more detail, analysis and links to documents below the paywall fold and in the Saturday soliloquy podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Luxon ‘going for growth’ by encouraging faster driving

PM Christopher Luxon and Transport Minister Chris Bishop launched the start of reversing speed limit reductions brought in last year by the Labour Government, arguing it would improve economic growth. But they gave no evidence to show that. Cost benefit analyses done on the lower speed limits show repeatedly that the extra benefits of saved time are overwhelmed by the extra costs of more accidents and more lethal accidents.

‘More people driving faster & working longer hasn’t worked’

Reserve Bank Chief Economist Paul Conway gave an important speech on Wednesday that effectively called b******t on Aotearoa’s economic modus operandi for the last 30 years of buying a larger economy through population growth from migration and a higher portion of the population working more, and for longer hours.

He detailed how our economy had appeared to outperform our peers because the simple GDP growth rate had been higher than others, but that disguised an increasingly poor productivity growth record which meant output-per-hour worked has lagged. I’ve included the video of the speech below and reproduced the key charts, along with the key quotes from the speech.

In summary, Conway argued:

Unlocking higher investment and productivity growth is key to raising potential output growth and improving per capita incomes. This would also reduce the likelihood of negative recessionary economic growth during future periods of restrictive monetary policy. RBNZ Chief Economist Paul Conway in a speech

This takes us back to the same old problem. New Zealand households put their savings into leveraged residential land because the after-tax, after-leverage and risk-adjusted returns are vastly higher than any other investment in real businesses, infrastructure and skills development. That’s because, unlike other countries, we don’t tax capital gains, don’t have an inheritance tax and don’t incentivise savings in pension funds.

It means that our political economy is frozen in the headlights of an endlessly unresolved debate about taxing capital gains. The current Government has rejected reform to taxes on capital gains and current Labour Leader Chris Hipkins appears increasingly reluctant to talk about the issue, having already once baulked at campaigning on it as leader.

Conway did not address capital taxation in the speech, but the detail on the failure of the economy to grow productivity faster because of the lack of investment was quietly devastating to the current approach.

The current model wasn’t working, he made clear (bolding mine):

Over recent decades, up until COVID-19, annual GDP growth in New Zealand has often been above the OECD average, indicating relatively rapid potential output growth.

A closer look reveals that compared to other countries, potential output growth in New Zealand has been driven more by increases in labour input, rather than by productivity improvements. Growth in the capital stock has also contributed to potential output growth, although the amount of capital available per worker in New Zealand is low in comparison to other developed economies.

Strong growth in labour input over recent decades reflects generally strong inward migration flows, in addition to increased participation in the labour market by New Zealanders. So, while growth in GDP and potential output has been above the OECD average, increased output has been spread across a fast-growing population working relatively longer hours per capita.

This ‘labour-intensive’ approach to growth can be seen in cross-country comparisons of GDP per capita. In short, there are two ways to increase GDP per capita: by working more hours per person (working harder) or by increasing output per hour worked (working smarter).

Since the early 2000s, GDP per capita in New Zealand has fallen from around 95% to just under 90% of the OECD average (Figure 4). This relative decline reflects declining labour productivity relative to the OECD average. Hours worked per capita has increased, but not by enough to offset declining productivity vis-à-vis the OECD average. New Zealanders now work almost 20% more hours per person but produce around 25% less output per hour compared to the OECD average. Paul Conway speech

New Zealand’s performance since Covid was particularly poor, Conway noted.

He also pointed out New Zealand household disposable income underperformance relative to our peers would have been even worse, had it not been for an historic improvement in our terms of trade (ie our export prices rose faster than import prices) and low depreciation because of our capital shallow economy. He said this had lowered the expected growth rate in the years to come.

Here’s the core of the speech (bolding mine):

Over the next three years, we currently expect potential output growth to range between 1.5% and 2% per year. This is a lower economic ‘speed limit’ than in the recent past. This subdued outlook stems from expected ongoing weakness in productivity growth and lower net immigration.

Notably, New Zealand’s productivity is now well below the OECD average and that of more advanced economies. This ‘productivity gap’ implies significant opportunity for New Zealand businesses to adopt existing technology and to ‘catch up’ to the productivity levels of businesses in leading economies.

Of course, that is more easily said than done. Reforms aimed at improving New Zealand’s productivity performance would have to mitigate some deeply entrenched structural issues that have held back productivity growth.

First, for a small economy, New Zealand is poorly connected internationally. For example, our export intensity is among the lowest across small economies and has weakened further in recent years. Foreign direct investment into the economy is also typically below the OECD average as a share of GDP. Paul Conway in a speech

Conway emphasised how the economy was ‘capital shallow’:

This ‘international disconnect’ limits the diffusion of new technologies into the country. Combined with small and insular domestic markets, it also limits scale, competition, innovation, and the efficient allocation of resources, all of which are fundamental to improving productivity.

Second, the flip side of our economy being labour-intensive is that it is capital shallow. While non-residential business investment as a share of GDP has only been slightly below the OECD average, it has been thinly spread across a rapidly growing workforce.

Financial flows into owner-occupied housing have been prioritised over investing in productive businesses. There has also been an emphasis on paying dividends, rather than on fostering growth, with high dividend flows offshore given extensive foreign ownership in core sectors.

The New Zealand equity market is also very small relative to the size of the economy and many significant New Zealand businesses are structured as co-ops or partially government owned, all of which makes third-party investment challenging.

Third, investment in ‘knowledge-based capital’ also appears to be relatively weak across New Zealand businesses. Improving productivity requires investment in R&D, education and skills, organisational know-how, and managerial capability. These are all areas where New Zealand tends to lag. Paul Conway in a speech.

The final section of his speech talked about how the ‘natural’ or neutral interest rate for the economy had risen since Covid, but his discussion explaining the fall in neutral rates from 2000 to 2020 showed just how important population growth was and how little effect Government debt had.

Have a great weekend.

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

Long stories short, the top six things in our political economy around housing, climate and poverty on Friday, January 30:

* Climate Change & Energy Minister Simon Watts announced the Government’s new Paris Agreement target for emissions reductions last night, extending the targeted reduction to 51-55% by 2035 from 50% by 2030, which experts described as “shockingly unambitious” and out of step with our trading partners’ more aggressive plans;

* The Climate Commission had recommended the Coalition commit to a Nationally Determined Contribution (NDC) of cutting emissions between 53-69%, while free trade deal partners such as the UK plan to cut as much as 81%;

* European politicians have started asking questions in their parliaments (EU & UK) in recent weeks about New Zealand’s commitment to the Paris Agreement, given our trade deals with the UK and EU included Paris target clauses;

* ANZ’s monthly Business Outlook survey published yesterday found business confidence fell in January from December as managers and owners returned from summer holidays to find the economy still stuck in a three-years-and-counting recession in GDP-per-capita terms, thanks to still-high fixed mortgage payments and the beginning of the biggest fiscal tightening since Ruth Richardson’s ‘Mother of All Budgets’ in 1991;

* Newstalk ZB host Mike Hosking directly challenged the performance of Prime Minister Christopher Luxon in an interview this week, saying Luxon was “running out of runtime if you don’t start kicking some arse and getting this country moving”;

* Teachers and students reported ‘prison-like’ meals often arrived too late on the first day yesterday of the new, cheaper and centralised system of school lunches set up by David Seymour, forcing some teachers to go out and buy fruit and pizzas for their students with their own money.

(There is more detail, analysis and links to documents below the paywall fold and in the Dawn Chorus podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Govt does the least possible with new Paris target

Climate Change Minister Simon Watts, who has also just been given the Energy, Local Government and Revenue portfolios, announced New Zealand’s long-awaited new NDC to the Paris Agreement last night.

New Zealand’s new target of a gross emissions reduction of 51-55% from 2005 levels by the 2035 year was barely above the 50% target for 2030, leaving experts under-whelmed and raising questions about whether a moving of the goalposts to a single year target from a decade-long-budget could actually allow higher emissions between 2030 and 2035.

It’s also much lower than the 66% reduction expected by other Paris Agreement countries, including the UK, which is targeting an 81% reduction and is starting to ask questions about New Zealand’s compliance with the Paris Agreement to avoid breaching the Paris clauses in our Free Trade Deal.

Here’s more detail and analysis this morning from Newsroom’s Marc Daalder:

The target is far weaker than those offered by other comparable countries and even developing nations in recent weeks. It comes ahead of a February 10 deadline for all countries to submit new targets for 2035 that go beyond their 2030 commitments.

Watts’ office told Newsroom the new target is designed to be achievable solely through domestic action.

While the Government’s current climate policies – which rely mostly on unproven technologies for carbon capture and cutting livestock emissions – aren’t projected to achieve the target, more policies are expected in the third emissions reduction plan in five years’ time. If that plan puts New Zealand on a pathway to meeting its domestic carbon budgets, it will also meet the less ambitious range of the new NDC.

The independent Climate Change Commission advised the Government in October that, under its demonstration pathway, New Zealand could achieve reductions of 53 to 58 percent through domestic greenhouse pollution cuts alone. In a tailwinds scenario, that could rise as high as 69 percent. Newsroom’s Marc Daalder

Climate policy expert Christina Hood wrote on LinkedIn last night the new NDC was “shockingly unambitious and clearly not New Zealand’s ‘highest possible ambition’ as required by the Paris Agreement”.

Marc also pointed to criticism of the change from a multi-year budget target to a single year target as another watering down of New Zealand’s commitment.

Late on Thursday, the criticism was quick to come in. Global director of policy and campaigns for 350.org Andreas Sieber was first out the gate, writing that “given the 2030 NDC was 50 percent, starting the range target at 51 percent allows [New Zealand] to do nothing”.

New Zealand's 2035 Paris Agreement target: 51% to 55% reduction on 2005 gross levels (as a single year target).

So a 1% reduction compared to the current 50% 2030 target. And it might even result in higher emissions because of the switch from being a budget to a single-year target... will need to think more about that. Newsroom’s Marc Daalder

Elsewhere: Sharp rise needed in emissions target to help avoid 'crises', advocates say RNZ’s Eloise Gibson

Quote of the day: Hosking to Luxon

“You’re too much yak* and not enough do. My frustration with you is that I think you’re well-intentioned, but you’re running out of time.

“You’re going to run out of runtime if you don’t start kicking some arse and getting this country moving.” Mike Hosking when interviewing PM Christopher Luxon on Newstalk ZB on Tuesday (6:50 onwards)

Just briefly elsewhere:

Top Six in the Pick ‘n’ Mix

* Climate news: Govt targets new emissions cuts of as little as 1% Newsroom’s Marc Daalder

* Scoop: Documents reveal tension over proposal to close Dargaville hospital RNZ’s Peter de Graaf

* News: Minister overrides OT decision to pull funding from youth helpline RNZ’s Lilian Hanley

* Health news: General practices about 'to cross a tipping point', new Health Minister warned RNZ

* Poverty news: Some schools fork out to feed students as new lunches arrive late 1News reporters

* Health scoop: Pharmac refusing to release culture review, boss understood to be on extended leave Stuff’s Jenna Lynch

On politics in Aotearoa, geopolitics, economics & markets

News: Simeon Brown lines up ED wait times, primary healthcare for fix list RNZ’s Jo Moir

News: 'Easy to focus on the outliers': Seymour defends school lunch programme RNZ’s Checkpoint

Speech: Beyond the cycle: Growth and interest rates in the long run RBNZ Chief Economist Paul Conway

Op-Ed: Reti’s velvet glove wore too thin for PM’s iron fist Ian Powell in Newsroom

Op-Ed: New minister’s track record doesn’t bode well for our health Kirsty Wild and Alistair Woodward in Newsroom

Op-Ed: If the government wants science to have an economic impact it has to put its money where its mouth is. By Nicola Gaston, University of Auckland, Waipapa Taumata Rau The Conversation

News: Peters backs down over comments as Mexican ambassador raises concerns 1News’ Maiki Sherman

News: European Central Bank cuts again, Lagarde says tariffs will have 'global negative impact' Reuters

News: Big central banks start 2025 heading in different directions. Europe and Canada cut. Fed holds. Reuters

News: US economy slows in the fourth quarter; spending robust Reuters

News: Speculation Desley Simpson will stand for Auckland mayoralty RNZ’s Jessica Hopkins

On housing, infrastructure & transport

Analysis: Investment heaven: public assets and private investors BusinessDesk-$$$’s Rebecca Stevenson

News: 'Saving seconds over safety': Community frustrated over speed reversal RNZ (LDR)’s Jonathan Leask

Analysis: Speed limit changes: How much difference will they actually make on the roads?Speed limits on 38 sections of the state highway network around the country will return to the previously higher limit. Stuff’s Karanama Ruru

News: Queenstown Mayor discusses congestion charge RNZ’s Phil Pennington

Explainer: What the new residential tenancies law means for renters 1News (Re:News)’s Stephanie Ockhuysen

On poverty, health, jobs, incomes, living costs & health

Scoop: Jobs lost in major retail group collapse Newsroom Pro-$$$’s Andrew Bevin

Feature: Future 'grim' for interventions after Oranga Tamariki cuts RNZ’s Lilian Hanley

Poverty: ‘A thousand times harder’: Parents turn to charities as school costs rise Northern Advocate’s Yolisa Tswanya

News: Health minister to outline future for Dunedin Hospital Stuff’s Hamish McNeilly

Op-Ed: Worrying about Dunedin Hospital Kathryn van Beek in Newsroom

News: New school lunches 'bland', look like 'prison food' - student RNZ’s Felix Walton

News: 'Disappointed': Rangiora after-hours clinic promises fall flat 1News (LDR)’s David Hill

News: Dargaville Hospital had overnight doctor only five out of 55 nights RNZ (LDR)’s Peter de Graaf

Interview: Too scared to move: Woman says she’s been denied pain medication, leaving her feeling ‘nailed to bed’. Stuff’s Mildred Armah

On climate, land, air, sea & water

Deep-dive: Govt to work out principles for ‘cost-sharing’ for residential managed retreat“Minimisation of cost” to taxpayer a key principle in developing climate adaptation plan The Post-$$$’s Rob Stock

Feature: Bats, wētā and seabirds: The native species most at risk from climate change RNZ’s Eloise Gibson

News: Farm consultants behind company that left cows in ‘appalling’ conditions. Stuff’s Nadine Roberts

Good news

Climate: Te Aroha solar farm hailed as ‘big boost for the town. ’Solar farm greenlight gets warm welcome from Te Aroha Stuff’s Benn Bathgate

Te Tiriti: Te Kāhui Tupua: Taranaki Maunga granted legal personhood 1News’ reporters

Feature: 'Massive revitalisation': The new builds changing the face of Tauranga. 1News (LDR)’s Alisha Evans

Chart of the day: ‘The pace of contraction is more gradual’

“It was a slightly less encouraging start to the New Year for businesses with perhaps reality biting as it becomes clear that falling interest rates over the second half of last year will take time to work their magic. That’s not surprising, and the level of confidence and activity expectations remains very healthy, despite the pullback to start the year.

Economy-wide reported past activity (the best indicator of GDP) lifted marginally in January, following December’s large bounce. Smoothing through the month-to-month volatility continues to suggest the economy has lifted off the floor, though it certainly isn’t flooring it just yet. About as many firms are still reporting lower activity as are saying it’s higher, compared to year-ago levels.

Positively, reported past employment rose further in January, though it is still in contractionary territory. While the correction in employment levels may still have a little further to run, given the typical lagged response to past weakness in activity, responses suggest that the pace of contraction is becoming more gradual.” ANZ Economist Henry Russell in a note.

Cartoon of the day: ‘Feeling lucky punk?’

Timeline cleansing nature pic

Ka kite anō

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:

Robert Patman on the week in geopolitics, including the latest from Donald Trump over Gaza and Ukraine.

Health expert and author David Galler on health funding cuts, Health NZ’s restructures and the dangers of privatisation.

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 video above was added after the email was sent to all subscribers.

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.)

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

Long stories short, the top six things in our political economy around housing, climate and poverty on Wednesday, January 29 are:

* PM Christopher Luxon has either allowed himself or has been forced into a politically unpopular debate ahead of next year’s election about privatising state houses, parts of the health sector, power companies and polytechs;

* Luxon and Finance Minister Nicola Willis have begun framing the issue as ‘there is no alternative’ (TINA) to asset sales to raise funds for public hospitals, schools and roads, by (unnecessarily) cordoning off taxes on capital income or the issuing of debt to fund capital spending;

* Luxon tried to distance himself from the more extreme suggestions by ACT Leader David Seymour, but was again snookered into appearing to have a new secret agenda to sell assets to reduce debt;

* Given Winston Peters remains implacably opposed to big asset sales, any election victory for National in 2026 would depend on National and ACT collectively getting a much higher vote than they currently have, or had at the last election;

* New polls show privatisation remains unpopular, especially in the wake of the great inflation spike of 2022-24, some of which was caused by former state-owned companies using their market power to increase prices;

* One danger of further privatisations is it creates more opportunities for competitors and/or overseas buyers of state-run monopolies to strengthen their market power and increase the scale of the current account deficit through higher dividend outflows.

(There is more detail, analysis and links to documents below the paywall fold and in the Dawn Chorus podcast above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing.)

Luxon stumbles into toxic privatisation debate

PM Christopher Luxon began 2025’s first day of Parliament yesterday by carrying on where left off in 2024, letting National’s junior coalition partner set the political agenda and dragging him and National into another politically draining debate. This time it’s about privatisation and has again allowed Labour and the Greens to portray National as going back to the 1990-1999 future of extreme budget-cutting and asset sales. It also adds to the Opposition’s framing that National has been captured by ACT and is either enabling a divisive and extreme agenda, or is enacting its own secret agenda.

Luxon was working overseas from 1993 to 2011 and missed out on seeing the intense political debates, backlashes, state-funded bailouts, price inflation, service deterioration and monopoly creations that came out of the sales of BNZ, Kiwirail, Postbank, Air New Zealand, Government Print, Telecom, NZ Steel, Shipping Corp, DFC, Rural Bank and stakes in Auckland and Wellington Airports. It’s clear he has also underestimated the electoral bitterness that resulted from the 2013 part-privatisation of Mighty River Power (now Mercury), Meridian Energy and Genesis Energy in defiance of a referendum that said most voters opposed it.

A legacy of bailouts, under-investment, inflation & monopoly power

All of the privatisations led to private ownership of monopolies or cartels that skimped on investment and inflated prices for consumers to generate profits, cash returns and dividends, often for overseas shareholders. Some were quickly run badly and into the ground through asset stripping, gearing up their balance sheets with debt and using run-to-failure as a management practice to ‘sweat’ assets and avoid capital expenditure.

Over time, these privatised assets ended up costing taxpayers and consumers much more than was gained from the sales, with these results including:

* BNZ having to be bailed out by the Government and then sold to National Australia Bank, both reducing competition in banking and creating a pipeline of dividends to Australia that has pumped up our current account deficit to over 5% of GDP on average;

* Postbank being sold to ANZ, reducing competition and increasing dividend outflows, and eventually forcing the creation of Kiwibank to re-apply competitive pressures;

* The sale of State Insurance, which has eventually been pulled into the IAG insurance group, which controls more than 60% of some insurance markets and was mostly responsible over the last 15 years for insurance prices rising 94.4%, when the CPI rose 43.9%;

* The sales of Rural Bank and DFC adding to the market power of the remaining big four Australian banks;

* Air New Zealand having to be bought back once and bailed out twice by taxpayers after failed expansion strategies and more expensive capital costs, with consumers now paying again as Air New Zealand exercises market power, especially on regional routes and Trans-Tasman routes;

* The then-Labour Government being forced to intervene in various ways to break up Telecom and help competitors to stop the taxpayer-built network using its monopoly power to under-invest in and overcharge for mobile and landline services;

* The then-Labour Government having to buy back NZ Rail from a series of asset-stripping and under-investing owners, which both Labour and National Governments have had to make billions in catch-up investments for at least two decades;

* The part-privatisation of airports leading to greater-than-inflation price rises in areas such as parking and retailing where they have used their monopoly positions and a lack of regulation; and,

* The part-privatisation of electricity generator-retailers leading to two decades of under-investment in renewable generation, the squeezing out of independent competitors and now greater-than-inflation price increases that gutted manufacturing last winter and promises to be a major source of cost-of-living inflation for households and businesses alike in the coming decade.

Being framed and then trying to frame privatisation as TINA

Having chosen to be captured and pushed into a corner over the Treaty Principles Bill, Luxon and National were again trailing along after Seymour over privatisation in Parliament yesterday. Luxon tried to reset the national debate last week with a series of speeches detailing his ‘going for growth’ pivot, but the first day of Parliament was dominated by the privatisation debate.

Luxon was forced to deny he wanted to do large scale sales of state housing, but admitted more state asset sales would be part of next year’s election debate. He and Willis argued there was no alternative to ‘asset recycling’. Labour and the Greens said the comments showed a return to 1990s-style National policies and the emergence of a secret privatisation agenda. Here’s the detail and quotes:

Politics news: Asset sales are on the agenda. So, what could be sold?ACT is pushing to sell state assets, but Winston Peters says he’s spent his career fighting privatisation. The PM says he’s “open to the debate”. Stuff’s Glenn McConnell

Seymour said there was an ongoing negotiation within the coalition about how many state houses should be sold. He said the Government could sell all of them.

“What about 60,000 homes? The Government doesn’t need to own a home to house someone,” he said.

Luxon said there would be no “wholesale sales” of state houses, but he expected there would be “right sizing”.

“We’re agnostic about whether it’s community housing providers or [Kāinga Ora], whoever is the best deliverer we want to buy the outcome,” Luxon said.

A poll from Talbot Mills, released to Stuff, showed just 12% of people supported a privatised ferry service. A majority, 65%, said the Government should retain ownership.

Seymour claims the Government could make $570 billion through asset sales. It owns about dozen state owned enterprises, including KiwiRail, Transpower, NZ Post, TVNZ, Landcord and Kordia. It then has shares in more than two dozen other companies. Stuff’s Glenn McConnell

Politics news: Luxon hints National will campaign on asset sales next election RNZ’s Jo Moir

Asked if he planned to campaign on it next year, Luxon said "we'd take it to the election and it would be part of our programme that we'd want to talk about and be upfront with New Zealanders about".

Luxon said he was very open to the idea of asset recycling and "the best use of capital and that's something we should always be attune to, but as I've committed to, we're not going to have any asset sales this term".

Labour leader Chris Hipkins has accused the coalition of grabbing a "typical right-wing government playbook" when it comes to privatisation.

“They run down public services by denying them funding, then they say they're broken, and then they try and hock them off," he told reporters.

"They're clearly doing that in the health system, I think the prime minister should rule out right now privatising hospitals and other forms of publicly provided healthcare.

"If he's not willing to do that then he should be upfront with New Zealanders that privatisation and user-pays for health is back on the agenda, as it was when we had a national government as right-wing as this one in the 1990s."

The Green Party said it was now clear the government was pursuing a privatisation agenda, and co-leader Chloe Swarbrick warned asset sales usually meant higher costs for ordinary people.

“Slowly the mask is slipping off. I mean, we're starting to see where the real agenda of this government is.

"Back in October of last year when I asked the prime minister directly about intentions to privatise, you had laughs from the government benches ... making fun of me and pointing out that I was a conspiracy theorist or something, yet here it goes, this is the agenda of this government: to privatise." Swarbrick via RNZ’s Jo Moir

Scoops, news, deep-dives & reports in brief elsewhere

On housing

Scoop: Kāinga Ora taking new hard line, tenants ousted in rent arrears cases worth over $72,000. Tenants among growing number being taken to the Tenancy Tribunal after the public housing landlord implemented a harder line last year. Stuff’s Marty Sharpe

Survey: Locked out: Young Kiwis harder hit by housing crisis than nearly anywhere in world NZ Herald-$$$’s Derek Cheng

Survey: One in two think New Zealand’s housing is on the wrong track, with renters significantly less happy with their housing situation than homeowners. Ipsos NZ release and full report.

On poverty & health

Deep-dive: Operation Trolley: ‘Direct attack’ on homeless or making Rotorua’s CBD safe? Rotorua Post’s Kelly Makiha

Research: NZ’s starving students: Hungry kids trailing peers by up to four years in maths, science NZ Herald-$$$’s Jamie Morton

Scoop: 'This is going to kill someone': Midwife's fear after maternity service 'downgrading' Bay of Plenty Times’ Megan Wilson

Research: Half of Canterbury GPs not accepting new patients. Industry leaders say it is no surprise that GPs are unable to keep up with demand, with one warning of a “complete collapse” of the health system without urgent funding. The Post-$$$’s Mariné Lourens

Scoop: Health NZ’s 17-step sign-off process that ends with the CEO. Chief executive Margie Apa is signing off every paper to health ministers, adding days to what’s now a 17-step process for some departments. The Post-$$$’s Rachel Thomas

On politics

Analysis: Trump threat could put $493m hole in NZ accounts. The US has pulled out of an accord for multinationals to pay a minimum 15% taxes and it’s threatening to punish countries that bring in “discriminatory” taxes targeting US interests. The Post-$$$’s Tom Pullar-Strecker

Scoop: Interislander ferry plan cost $1m before Peters took hold. The Government spent $1 million on a new plan to replace the Interislander ferries before handing the issue to Rail Minister Winston Peters. The Post-$$$’s Thomas Manch

Op-ed: David Seymour says Kiwis are too squeamish about privatisation – history shows why they lost the appetite. By Richard Shaw, Te Kunenga ki Pūrehuroa – Massey University The Conversation

Scoop: Govt smashes record for laws passed without select committee scrutiny Newsroom’s Marc Daalder

Reviews: What the critics are saying about the Ardern film that just premiered at Sundance. The first reviews of the documentary Prime Minister are in. The Spinoff’s staff writers

Column: Luxon’s culture of saying no to housing. The prime minister says New Zealand has a culture of saying no to growth. When it comes to housing, he's part of the problem. The Spinoff’s Joel MacManus

Deep-dive Can we do capitalism better? This new research hub is up for the challenge. It's one of the most urgent and exciting questions of our time. The Spinoff’s Toby Manhire

Chart of the day

Cartoon of the day

Timeline-cleansing nature pic

Ka kite anō

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

Here’s the six things I think mattered in Aotearoa’s political economy in the week to January 27 around housing, climate and poverty:

* PM Christopher Luxon bought himself another six months of National caucus peace and tried to reassure an increasingly restive business community by massively reshuffling his key personnel in the big-spending ministries after just a year in charge;

* Luxon then refocused on ‘going for growth’ this year without a viable new strategy, launching a drive to bring in foreign direct investment in public infrastructure that can’t fill a $64 billion hole being dug in the economy by his Government’s own historically extreme spending cuts;

* Fresh evidence emerged that the per-capita recession in our housing-market-with-bits-tacked-on economy is dragging on into a third year into 2025, thanks to still-high mortgage costs, the Government’s budget cuts, and an alarming disconnect between business leaders’ confidence about the economy and actual business investment, hiring and new orders;

* Luxon and Finance (and now Economic Growth) Minister Nicola Willis said their short-term plan to revive economic growth was to encourage more cheap tourism and expand cheap international tourism, but without building extra homes and public infrastructure to cope with the extra people;

* Emigration statistics confirmed that 200 young New Zealand residents a day don’t buy the ‘churn and burn’ approach of running the economy for tax-free and leveraged capital gains on rental property, fuelled by low-wage, migrant-exploiting population growth and environmentally-destructive resource extraction; and,

* The Government’s reliance on falling inflation and mortgage rates to fuel a housing market rebound and disposable income growth for home owners is about to be deeply frustrated by Donald Trump’s tariffs, which are already elevating global inflation and the bond yields that hold up our fixed mortgage rates, and by the Reserve Bank’s debt-to-income multiple rules limiting an expansion of household debt to offset the Government’s push to lower public debt.

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

PM reshuffles most politically-painful ministries

PM Christopher Luxon returned from his summer break to unveil a surprisingly massive cabinet reshuffle last Sunday, removing Shane Reti from Health and replacing him with Simeon Brown. Luxon loaded up Chris Bishop with Brown’s Transport Ministry and gave full control of MBIE to Nicola Willis, adding the renamed ‘Economic Growth’ portfolio to her Finance role. Brown’s Local Government and Energy portfolios were added to Climate Change Minister Simon Watts’ workload. Here’s the new and full ministerial list.

The changes came after National fell behind Labour for the first time since before the election in an opinion poll taken in early January by National’s pollster, Curia, and after both the Curia this month and the Roy Morgan poll for December showed the public’s confidence that the economy was on the ‘right track’ slumped back to pre-election levels indicative of an extended and deep recession.

Luxon’s State of the Economy speech without a new plan

Luxon then delivered his ‘State of the Nation’ speech to an Auckland Chamber of Commerce luncheon event on Thursday, pledging to ‘go for growth’ and announcing the creation of a new Invest New Zealand agency within NZTE that is designed to chaperone ‘tens of billions’ of Foreign Direct Investment (FDI) into infrastructure & Research & Development here. It will be modeled on similar agencies in Ireland and Singapore.

There are a range of reasons why this is not the golden ticket or silver bullet to restart the stalled economy, including:

* The Government is planning to cut its size from 34% of GDP to under 30% of GDP within the next three to four years, which represents a $64 billion hole in spending growth that has to be filled with investment and/or spending by households, locally-owned businesses and international investors, which is unlikely either collectively or individually because they can’t borrow enough or find enough investments;

* Foreign sovereign wealth funds and other foreign direct investors prefer to buy Government bonds, rather than do risky, illiquid and expensively bespoke deals to invest in infrastructure and R&D in another country, but the basis of Luxon’s approach is to avoid issuing these bonds wherever possible;

* The necessarily higher cost of PPPs vs bonds of around 400-500 basis points vastly reduces the scale of the projects viable for PPPs, meaning there won’t be enough projects to fill the hole fast enough;

* Ireland and Singapore were successful at bringing in FDI because they offered themselves as English-language-friendly tax havens that could be bridgeheads with easy access to much bigger trade unions or economic zones, including the European Union and ASEAN respectively;

* The last major attempt to bring in FDI from sovereign wealth funds (the NZ Super/CDPQ deal to fund Auckland Light Rail) was gazumped at the last minute when NZ First blocked the deal because it involved foreign investors and, in Winston Peters’ view, was the wrong type of railway with the wrong type of investors; and,

* Singapore in particular is attractive for foreign investment because of its stable and well-educated workforce that is able to live in affordable and stable housing provided by the Government.

An economy shocked into a state of suspended animation

A range of economic data published over the last week showed the economy remains in shock and in a state of suspended animation that is extending a per-capita recession well into a third year, and in contrast with our peer economies which are growing solidly. The new Government’s decisions in early 2024 to upend, repeal and block various long-term infrastructure, water, rail, ferry, housing, hospital and school building projects that were either well along multi-year planning and design processes or were about to be built was profoundly shocking for many in construction, civil contracting, social housing, local government, project development, hospitals and schooling.

Examples abound of social housing projects, new hospitals, school buildings, roads, cycleways, railways and bus networks being cancelled abruptly, project funds frozen and decisions left in limbo. These shocks from December 2023 through May of 2024 came as new ministers scrambled to shut down as much new spending as they could to comply with the Government’s overall fiscal strategy of reducing spending to under 30% of GDP from 34%, getting the Budget back into surplus and reducing new borrowing. The rapid suspensions and repeal of Three Waters and RMA reforms were a major factor putting much of the long-term development on hold, given the limiting factor in the development of large new housing, commercial and suburban developments are often the provision of drinking, waste and storm water.

Some sectors and cities were particularly affected between December of 2023 and December of 2024, including:

* the core public services in Wellington who spent the year restructuring, jostling, litigating and sacking away over 8,000 staff or empty roles;

* councils in Wellington, Christchurch, Hamilton and Auckland forced to restructure their financial and development plans when Three Waters was repealed and various chunks of transport funding was repurposed or frozen;

* the health sector across hospitals and GP practices as Lester Levy was installed at Health NZ and started freezing and cutting plans-in-train to consolidate health IT systems;

* social services Non Government Organisations (NGOs) seeing contracts cancelled and funding decisions put on hold by MSD, Oranga Tamariki, HUD and Kāinga Ora; and,

* logistics infrastructure planners and investors waiting for decisions on the key and now-cancelled Cook Strait ferries and port infrastructure.

Those funding and planning shocks reverberated out of the government and development sectors into retail spending, hospitality and manufacturing as jobs were lost and many consumers tightened their own belts, having listened to their new leaders saying they had inherited all manner of fiscal calamities and crises. The obvious examples were in Wellington and Auckland where cafes, restaurants, bars and retailers who had held on through the covid lockdowns and protests, and were hopeful a new Government would revive activity, capitulated as the economy finished the year mired in a third year of per-capita recession.

Unfortunately for the economy, this collective fiscal shock treatment through 2024 and its chilling consequences happened at the peak of the lagged effects of the 525 basis points of interest rate hikes administered by the Reserve Bank between 2021 and 2023. It also happened as the Reserve Bank applied a new type of restriction to mortgage lending — debt to income (DTI) multiples — which have suppressed lending growth to investors in particular from July 1. That meant the Government’s main channel for economic growth of landlords borrowing more against their existing equity to gear up into more existing properties was choked off. In retrospect, I’m surprised the Government allowed the RBNZ to go ahead with the DTIs. The last National Government blocked the RBNZ’s previous attempt to do so in 2017.

House sales volumes repressed and output contracts

The end result of all of these forces coming together in our housing-market-with-bits-tacked-on-of-an-economy was sales volumes of existing houses remained depressed, new building consents and commitments to fund new houses were either flat or fell more during a year when many had expected the change of Government would unleash a new burst of housing-credit-fueled activity. Home owners who had listed expecting a surge of activity to allow them to sell at or around their 2021 CVs were disappointed with the offers lower than CV so took their homes off the market. Banks don’t need to force many sales so those hoping to move on into retirement villages, new homes or apartments, or to crystallise equity to downsize or restructure their finances remained stuck in a state of suspended animation.

We saw the end results of this state of economic shock in figures for December in manufacturing, services, retailing and housing that have been released over the last 10 days, including the BusinessNZ PMI & PSI surveys, Seek job ads, Electronic Card Transactions (Retail spending) and REINZ and QV house sale and value data. The charts below tell the stories:

The end result? 200 NZers are emigrating each day

Stats NZ figures last week for November showed how young New Zealanders in particular viewed the combination of the Reserve Bank and Government deliberately causing and deepening a recession at the same time as the Australian Government was stimulating its economy and the Reserve Bank of Australia was holding its cash rate a full 125 basis points below the RBNZ’s Official Cash Rate.

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

Long stories short, the six things of interest in the political economy in Aotearoa around housing, climate and poverty on Friday January 24 are:

* PM Christopher Luxon’s State of the Nation speech in Auckland yesterday, in which he pledged a renewed economic growth focus;

* Luxon’s focused on a push to bring in foreign sovereign wealth funds to pay for new motorways through Public Private Partnerships and promoted farming, mining and fast-track-consenting as sources for growth in the longer run;

* His announcement with outgoing Science Minister Judith Collins of reforms to shut down Callaghan Innovation and create four Public Research Organisations (PROs) out of the current seven Crown Research Institutes (CRIs);

* The mathematical impossibility for the Government of restarting real per-capita GDP growth while it is also pursuing the most aggressive budget spending cuts since the early 1990s (over $60 billion in spending over the next three years) to crunch the size of Government down from 34% of GDP to under 30% of GDP;

* Luxon’s comments about going for short term growth by ramping up tourist numbers and rapidly expanding international student numbers, both of which rely on low-wage population growth, migrant exploitation and nominal GDP growth to drive activity without much investment;

* The internal contradictions in the coalition Government crippling a drive to encourage sovereign wealth funds to invest in PPPs, given the last major sovereign-wealth-fund-funded infrastructure project (the Auckland to Airport light rail link project backed by the NZ Super Fund and Quebec’s CDPQ sovereign wealth fund) was blocked at the last minute by NZ First.

(There is more detail, analysis and links to documents below the paywall fold and in the Dawn Chorus podcast and video above for paying subscribers. If we get over 100 likes from paying subscribers we’ll open it up for public reading, listening and sharing. I’m opening this one up early)

‘It’s so great to be here and I’m ready and pumped for 2025’

PM Christopher Luxon focused his State of the Nation speech yesterday at an Auckland Chamber of Commerce luncheon event at the Cordis Hotel on the need to pull the economy out of a two-years-and-counting recession.

He doubled down on the view his Government had tamed inflation by cutting Government spending, which had allowed the Reserve Bank to cut interest rates, which would in turn stimulate the economy.

He emphasised the need to remove obstacles to investing in infrastructure and ushering in foreign investment by sovereign wealth funds to pay for that new infrastructure.

Here’s a sample:

It’s so great to be here and I’m ready and pumped for 2025. I’m here today to talk about the economy – and almost nothing else.

More than ever, I believe that New Zealand is the best country on Planet Earth, and I want to work tirelessly so that we achieve our potential.

I want New Zealand to be a country of aspiration, ambition, and opportunity.

But to meet that moment and to make that vision a reality, we have to go for growth.

It’s just not up for negotiation anymore. Luxon’s State of the Nation speech.

‘We’ll chaperone in tens of billions of sovereign wealth’

The main ‘news’ for the economy in the speech was the creation of a new agency within NZTE to chaperone investment by foreign sovereign wealth funds in PPPs for infrastructure projects.

Substantial changes to the Overseas Investment Act will also be critical, to encourage more investment to flow into our economy.

But solving the legal barriers isn’t enough. That’s why, modelled off the success of Ireland and Singapore, I can announce today we have agreed to establish Invest New Zealand as the Government’s one-stop-shop for attracting foreign direct investment.

Invest New Zealand will roll out the welcome mat – streamlining the investment process and providing tailored support to foreign investors.

The objective is to increase capital investment across a range of critical sectors – like banking and fintech, key infrastructure like transport and energy, manufacturing, and innovation. Luxon’s State of the Nation speech

Callaghan Innovation canned and 7 CRIs cut into 4 PROs

Luxon suggested some of the foreign investment would go into science and R&D. He said New Zealand should copy the success of Ireland, Singapore & Denmark in ramping up foreign investment in technology and startups creating high-wage exports.

Here’s his thinking:

The prize – if we can get it right – could be game-changing for New Zealand.

In Denmark – a country like New Zealand of around five million people – recent pharmaceutical breakthroughs have delivered a modern economic miracle – creating a tidal wave of growth, employment, and opportunity. Luxon’s State of the Nation speech

In my view, there are problems using Ireland, Singapore & Denmark as models. Both Ireland and Denmark have promoted themselves as launchpads for US and Asian companies into the European Union, which New Zealand is not a part of.

Ireland has also used huge tax breaks to bring in Foreign Direct Investment (FDI), which New Zealand can’t and won’t do without a major restructure of its revenue base to tax wealth, income and spending more. Denmark has Novo Nordisk, which makes global weight loss blockbuster drugs Ozempic and Wegovy. We don’t.

Singapore has thrived by welcoming in foreign investors and funds with similar tax breaks and a focus on being a safe and secret place for wealth from China and Southeast Asia to be parked. It also bases its appeal on having a large and well educated workforce that can afford to live in state-provided housing.

The maths of relying on FDI & private debt doesn’t work

In my view, the maths behind relying on Foreign Direct Investment (FDI) and household and business investment to fill the gap left by the Government sucking four percentage points a year out of the economy just don’t work.

Luxon again made the point in comments in his ‘fireside’ chat with Chamber of Commerce CEO Simon Bridges that he was following the playbook of National’s Government from 1990 to 1996, which simply slashed spending to take inflationary pressure out of the economy and relied on lower interest rates to fill the gap.

But back in the early 1990s, household debt was much lower and banks still lent to businesses to invest in growing businesses. Also, unemployment was much higher, so it was easier to grow through the 1990s by simply mobilising spare labour and using under-used infrastructure.

Now households either can’t afford to borrow more to pump into the economy through the housing market, or the Reserve Bank has put limits on how much they can borrow because the banks are now much more leveraged to a much-more-highly valued housing market.

In short: the Reserve Bank’s Debt To Income multiple limits applied from July 1 will shut down any attempt to replace the Government debt with household debt.

The scale of the gap at over $60 billion means there is nowhere near enough FDI investment to fill the gap, even if the sovereign wealth funds can get over the experiences of CDPQ and South Korea’s Hyundai Mipo Dockyard was stiffed by this Government’s decision to reneg on the iRex ferry deal.

‘We’ll use students & tourists to pump GDP in the short run’

In the fireside chat and in the post-speech news conference, Luxon repeatedly referred to tourism and international education as ways to juice GDP in the short run. That tallies with Nicola Willis’ comments on Wednesday about growing low-value tourism, which Queenstown’s mayor rightly questioned, given infrastructure shortages and a lack of Government investment.

The most interesting moment of the day was as Luxon was walking away from the news conference after talking about international students and tourism. TVNZ’s Maiki Sherman asked where the students would live and the tourists would stay.

She could easily have asked where they would go to the toilet as well.

Chart & table of the day

Cartoon of the day

Timeline cleansing nature pic of the day

Ka kite ano

Bernard

Join me for my next live video in the app

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 Donald Trump’s first executive orders to reverse Joe Biden’s emissions reductions policies and pull the United States out of the Paris Agreement (again). She also highlighted the UK Institute and Faculty of Actuaries landmark report published last week: ‘Planetary Solvency – finding our balance with nature.’ It estimated the global economy could face a 50% loss in GDP between 2070 and 2090, unless immediate policy action on risks posed by the climate crisis is taken;

* Washington DC-based correspondent Elaine Monaghan on Trump’s inauguration, his early actions, the rise of the broligarchs and the role of media and journalism in responding to (and creating) Trump. I referred to Judd Legum’s launch this week on Substack of Musk Watch as an example of how journalists were responding independently to the crisis in ‘big’ media; and,

* New Zealand Association of Scientists Co-President Dr Lucy Stewart commenting on the Government’s announcement yesterday of major reforms of the Government-funded science sector. Comments from scientists and others on the reforms are summarised here at the Science Media Centre and she referred to Peter Gluckman’s official Science System Advisory Group report: ‘An architecture for the future’ in our discussion. The reforms were based on this report.

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 video above was added after the email was sent to all subscribers.

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.)

Ngā mihi nui.

Bernard

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