The Kākā by Bernard Hickey

TL;DR: The six news items of note for me in Aotearoa-NZ’s political economy as of 9:06 am on Monday, April 8 are:

* The Government is setting up its own experts group to review the goalposts for farmers to reduce methane emissions by as much as 47% by 2050, effectively side-stepping the Government’s official advisors at the Climate Commission.

* The experts are expected to adopt a new measure called GWP* , which would give farmers a free pass to reduce emissions only slightly, and may even allow them to claim their current methane emissions are cooling the planet. (See more below)

* The Government is tightening temporary worker settings to make it harder for lower-skilled workers to get a visa and to stay for more than three years, partly by introducing an English language requirement. (See reaction and detail below)

* Bus drivers, truck drivers, welders and fitters and turners are being taken off the list for quick ‘work-to-residence’ visas, and franchisees will no longer being able to get in with a temporary work visa. (See more detail and analysis below)

* The Government has allowed funding to be pulled for two major longitudinal studies of poor children in Aotearoa-NZ, which may cripple its own social investment drive. (See more in quotes of the day below)

* Both decisions were announced only quietly at departmental level and call into question whether compliance with the Child Poverty Reduction Act can even be measured.

(Paying subscribers can see more detail and analysis below the paywall and in the podcast above. We’ll open it up for public reading, listening and sharing if they give permission by getting over 100 likes.)

Govt side-steps Commission to find asterix for farmers

Agriculture Minister Todd McClay and Climate Change Minister Simon Watts announced on Saturday they were setting up independent panel of experts to review agricultural biogenic methane science and targets in the Carbon Zero Act “for consistency with no additional warming.” The Act specifies biogenic methane emissions must be lowered from 2017 levels by 10% by 2030 and by 24 to 47% by 2050.

Farming lobby groups are expected to argue the target use the GWP* (Gross Warming Potential *) measure for methane emissions, rather than the current GWP100 measure, which measures the warming potential for methane over 100 years. The GWP* measures changes in emissions over decade-long timescales rather than absolute levels.

Opponents of shifting the goalposts argue that by taking current levels of methane emissions as their baseline, high-polluting countries and companies can use GWP* to present even minor reductions in methane as negative emissions or cooling, as detailed here via Down To Earth in its summary of a report on GWP* vs GWP100 last year called Seeing Stars (bolding mine):

The researchers looked at different levels of emissions reductions for Tyson, one of the world’s largest processors of chicken, beef and pork and Fonterra, the largest dairy exporting company. Using both GWP100 and GWP* metrics, they found that companies could claim climate neutrality with tiny levels of annual emissions reductions, 1.4 per cent and 1.7 per cent, respectively, by using the second method.

With a 30 per cent emissions reductions by 2030, Tyson would be responsible for roughly 58.5 million tonnes of CO2-equivalent using GWP100. Half of these emissions would be from methane. The emissions amount is similar to the annual emissions of Peru. 

However, using GWP* could enable the company to claim to be reducing around 82.6 million tonnes of CO2 equivalent from the atmosphere. 

For Fonterra, a 30 per cent reduction between 2020 and 2030 calculated with GWP* would enable the company to claim negative emissions (efforts in which CO2 is being removed from the atmosphere) of minus 19 million tonnes of CO2 equivalent. But GWP100 calculations showed it would still be responsible for roughly 21.6 million tonnes of CO2-equivalent — similar to annual emissions of Sri Lanka. Down To Earth summarising last year’s Seeing Stars report

Shifting goalposts?

Lower-skilled non-English speakers & franchisees uninvited

Immigration Minister Erica Stanford yesterday announced a swathe of changes to Accredited Employer Work Visa (AEWV) and other visa settings to reduce what she described as “unsustainable levels” of immigration. There was record inward migration of 173,000 non-New Zealand citizens. in 2023.

The changes detailed at Immigration NZ included:

* introducing English language requirements for lower-skilled level 4 and 5 applicants;

* cutting the length of continuous work visas for level 4 and 5 visas to three years from five years;

* removing franchisees from the AEWV scheme; and,

* removing welders, fitters and turners, bus drivers and truck drivers from the ‘Green List’ work-to-residence pathway.

Civil Contractors CEO Alan Pollard told 1News and BusinessDesk-$$$ contractors would be angry, coming on top of suspensions of projects.

Stanford told RNZ this morning she would turn the tap the other way if shortages emerged again.

"That's the nature of the immigration system. I tell you what, next year, I might be saying 'loosen them again'. That's what happens. You know, you recalibrate your immigration settings to the current economic settings, and that's exactly what we're doing. It's what any responsible good minister would do." Erica Stanford talking to Corin Dann at RNZ.

Flying blind with social investment

In astonishingly stupid decisions that will cripple the Government’s ability to target social investment, it has effectively shut down both the largest and the longest-running large scale longitudinal surveys of Aotearoa-NZ’s poorest children. RNZ’s John Gerritsen reported on Friday the Ministry for Social Development had not renewed the contract for the Growing up in New Zealand project at the end of February.

Newsroom’s Laura Walters reported last week that Stats NZ had also quietly stopped funding its Living in Aotearoa longitudinal survey set up measure child poverty in line with the Child Poverty Reduction Act of 2018. Both were done to save money as part of the Government’s 6.5% and 7.5% baseline funding cuts directed to help fund tax reductions. (See more below in Quotes of the day)

Quotes of the day

Growing up in NZ silenced

“Now with another quiet Friday afternoon cancellation of govt funding for longitudinal data--the Growing Up in New Zealand--we effectively have discontinued funding the collection of longitudinal data on tamariki Māori and Pacific children in Aotearoa NZ. StatsNZ are making big changes to our data landscape with little consultation. I wrote about the quiet cancellation of the Living in Aotearoa survey last week. This means we won't have a good measure of persistent child poverty--something the govt is mandated to report on. Director of the Roy McKenzie Centre for the Study of Families and Children at Victoria University of Wellington Kate Prickett via X

Living in Aotearoa silenced

“In short, fewer or noisy data will lead to less effective and efficient policies, exacerbate inequities, and cost more in the long run. In this way, it’s important to think of the data we collect as infrastructure. It needs continued investment and, if we don’t, we’ll end up paying more for it in the long run.” Prickett last week after Stats NZ scrapped funding for another large longitudinal survey, Living in Aotearoa, as reported by Newsroom’s Laura Walters on Thursday.

Child poverty data unsustainable

“The unsustainable nature of the survey led to my decision to discontinue the Living in Aotearoa survey,” Stats NZ CEO and Government Statistician Mark Sowden told Walters, after he was directed by Finance and Social Investment Minister Nicola Willis to cut 7.5% from Stats NZ’s baseline spending. Via Newsroom

La la la

“The coalition Government is committed to doing everything it can to turn around the worsening child poverty rates that we inherited from the previous government, and having good quality data is a key part of that work.” Child Poverty Reduction Minister Louise Upston said. Via Newsroom

Chart of the day

Relative performance

Climate chart of the day

Should lead 6 pm news every day

Cartoons of the day

Don’t look up

Bye! And hi again!

Timeline-cleansing nature pic of the day

Bundles of joy

Smile 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

TL;DR: The six news items of note for me in Aotearoa-NZ’s political economy on Friday, April 5 included:

* Just as the Government freezes infrastructure spending and grants to councils and slashes public R&D and science spending, ASB economists cite forecasts that Aotearoa-NZ faces an infrastructure bill of $1 trillion and call for cross-party consensus on user pays, along with more Government borrowing to pay for it. (See more detail and analysis below and in the podcast above)

* Cabinet minister Matt Doocey was blindsided by his own Ministry’s proposal to close the Suicide Prevention Office to cut costs 7% so the Government can cut taxes. (See more detail and analysis below and in the podcast above)

* Treasury’s Crown Accounts for the eight months to the end of February showed yesterday the Government’s deficit was just $115 million, which was $3.5 billion better than forecast in December and at odds with the Government’s rhetoric that it inherited a ‘fiscal train wreck.’

* The Auckland Light Rail project office yesterday pre-emptively released its Briefing to the Incoming Minister (BIM), Simeon Brown, showing the project shut down by the Government in its first 100 days had a Benefit to Cost Ratio $2.40 to $1 of investment. That’s more than twice as productive as the 0.5 to 1.1 estimated BCR for the Mill Road project at Drury approved by the new Government, and the 1.3 estimated for the tolled Penlink motorway of Auckland. (Also, see chart of the day below)

* ACT and NZ First’s dedication to culture war-ish policies continues to push away natural allies for National, with the Iwi Leaders Forum pulling out of a working group on racism after the Government said it wanted to talk less about institutional and colonial racism against Māori. (See more detail and analysis below and in the podcast above)

* Simeon Brown announced the Government would legislate to force councils to hold binding referendums on Māori wards, which Local Government New Zealand described as “complete over-reach.”

(Paying subscribers can see more detail and analysis below the paywall and in the podcast above. We’ll open it up for public reading, listening and sharing if they give permission by getting over 100 likes.)

ASB wants tough political calls for $1 trillion task

ASB economists Mark Smith and Jordan Campbell cited forecasts in a research note published yesterday that Aotearoa-NZ faces an infrastructure bill of $1 trillion over the next 30 years. They called for more user pays and a “broad consensus over public funding options, including longer-term public debt limits/thresholds.”

They made the case for much more public investment to unleash growth in the private sector.

There is a good potential payoff. The US Policy Institute finds that each $100 spent on infrastructure boosts private sector output by 17% over the long run. ASB economists in a research note published yesterday.

New Zealand was at the bottom of the OECD on most measures, they argued, citing this World Competitiveness Centre estimate.

This low investment fed through into low productivity growth.

“It is not surprising that NZ’s poor productivity performance and lower living standards relative to most OECD peers has coincided with a period of lower infrastructure investment and R&D than the OECD average.” ASB economists in a research note published yesterday.

They make the point that voters and politicians will have to make tough decisions, and that much more than the current Government’s $7 billion per year is needed.

Sustaining higher infrastructure investment would require us to increase taxes, council rates, or user charges, while lower investment would require us to accept less or lower-quality infrastructure. ASB research note

Political consensus will be crucial, they say.

Frequent changes in government policy can add to political risk and significantly deter the willingness and ability of external parties to invest in projects. Broad political consensus is needed to advance infrastructure projects. ASB research note

And the Government should look at borrowing more itself, ASB says (bolding ASB’s).

NZ has a strong Crown balance sheet (about $190bn net worth) and comparatively low public debt (net core Crown debt of around 45% of GDP). The new fiscal rules provide for some flexibility over the short-term (move net core Crown debt towards 40% of GDP by 2028). However, longer-term objectives are for net core Crown debt to be held in a (lower) 20%–40% of GDP range, cognisant of longer-term pressures. While a lower debt range reduces the risks of an escalation in public debt to future shocks, it may mean that some productive investment opportunities could be forgone.

In my view, this is ASB’s economists saying the Government’s low-investment and low Government debt approach without political consensus won’t work.

Yes Minister, but No Minister

Indicative of the chaos unleashed by mandated 7% spending cuts for Budget 2024, the Suicide Prevention Office at the Ministry of Health could close if a proposal to axe more than 100 jobs goes ahead, a move that Minister for Mental Health in Cabinet Matt Doocey said he was not told about and did not want to see happen, Newshub’s Amelia Wade, Stuff’s Glenn McConnell and 1News’ Felix Desmarais reported last night.

Not making friends, but influencing many

The Iwi Chairs Forum, a usually conservative grouping that often works with Governments of both flavours, took the unusual step yesterday of announcing it had pulled out the working group for a National Action Plan Against Racism, noting that the current government is “clearly committed to colonial racism and in particular, targeted racism against Māori”. Te Ao Māori News , RNZ , Newshub

“Our committee have met and collectively decided that we will not be moving forward with the government’s proposed plan amendments. We are not interested in providing this government with a tool that it will use to cloak its own racism, particularly the very targeted racism it is exhibiting towards Māori.

“The signalled shifts demonstrate not only the commitment of this government to maintaining colonial racism against Māori, but how important anti-Māori racism is to this government”. Tina Ngata, Tangata Whenua caucus member in Iwi Chairs Forum statement.

Chart of the day

A political choice

Cartoon of the day

A Wellington story

Timeline-cleansing nature pic of the day

Happy days

Today we farewell Rod Oram. He was a colleague and friend for Lynn and I. Please take some time today to read more of his work here at Newsroom. There is a livestream link to his memorial service starting today at 11 am.

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

TL;DR: The five things that mattered in Aotearoa’s political economy that we wrote and spoke about via The Kākā and elsewhere for paying subscribers in the last week included:

* Confidence in the Government, as measured by Roy Morgan’s ‘Right Track/Wrong Track’ survey, collapsed in March by more than it fell for Labour in any one month of the late-2021 lockdowns in Auckland. See Thursday’s email.

* Confidence about the Government and support for the three governing coalition parties fell the most among women, with young women the least supportive of National/ACT/NZ First and both young and old men most supportive.See Thursday’s email.

* A review of council borrowing found central Government-driven debt limits are strangling big councils’ ability to borrow to build enough infrastructure for growth, although some councils are further tightening the reins with even lower self-imposed limits and by over-playing fears of credit rating downgrades. See Tuesday’s email.

* Community housing providers and Kāinga Ora are putting social house building plans on hold because of a Government-wide freeze on capital and funding decisions for housing, transport and water infrastructure. See Wednesday’s email.

* Prime Minister Christopher Luxon saying his Government has started “chunking down” its next 100-day plan into a series of items to arrange in “decision gates” — a business consulting phrase coined by McKinsey to refer to the prioritising of business cases. See Wednesday’s email.

What we talked about on ‘The Hoon’ on Thursday night

In this week’s podcast above of the weekly ‘Hoon’ webinar for paying subscribers at 5pm on Thursday night:

* 5:00 pm - 5:10 pm - Bernard Hickey and Peter Bale opened the show with a discussion about a gender gap opening up in political views in Aotearoa-NZ.

* 5.10 pm - 5.20 pm - Peter, Bernard, andCathrine Dyer talked about reports questioning the expected fall in oil and gas emissions and predicting permanently higher food inflation because of climate change.

* 5.20 - 5.35 - Peter and Bernard talked with Robert Patman talked about US and Israeli exceptionalism on Gaza and how that makes AUKUS II much less attractive for our Government to join.

* 5.35 pm - 5.55 pm - Peter and Bernard spoke with University of Victoria Associate Professor in Politics Lara Greaves on the gender gaps opening up in politics here and overseas.

The Hoon’s podcast version above was produced by Simon Josey.

(This is a sampler for all free subscribers. Thanks to the support of paying subscribers here, I’m able to spread the work from my public interest journalism here about housing affordability, climate change and poverty reduction around in other public venues. I’d love you to join the community supporting and contributing to this work with your ideas, feedback and comments.)

I produced an episode of When The Facts Change via The Spinoff, including this interview with Auckland Airport CEO Carrie Hurihanganui.

We also produce this 5 in 5 with ANZ daily podcast and Substack for ANZ Institutional in Australia, which you can sign up to via Spotify and Apple and Youtube for free.

Today we farewell Rod Oram. He was a colleague and friend for Lynn and I. Please take some time today to read more of his work here at Newsroom. There is a livestream link to his memorial service starting today at 11 am.

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

TL;DR: Here’s the top six news items of note in climate news for Aotearoa-NZ this week, and a discussion above that was recorded this afternoon between Bernard Hickey and The Kākā’s climate correspondent Cathrine Dyer:

* A recent surge in oil and gas development activity is threatening to overwhelm climate goals, with plans already approved that would quadruple new developments by the end of the decade, according to a new report by Global Energy Monitor.

* If fossil fuel demand peaks in the next couple of years, as currently predicted by the IEA, the stranded assets related to this investment surge could create a financial crisis. Failure to peak, on the other hand, will provoke a climate transition crisis.

* The US, already leading the surge in new oil and gas developments over the last two years, is likely to see a regression in green policies, should Donald Trump win the election later this year, putting further pressure on global goals, according to a former UN climate chief.

* Meanwhile, a new study has linked climate change to food price inflation, finding that ‘heatflation’ could cause food prices to rise as much as 3 percentage points per year in just over a decade. The effects are likely to be most inflationary in regions and seasons that are already hotter, meaning that much of the Global South, where food costs make up a much higher proportion of overall living costs, will suffer the most.

* As measurement improves, fossil methane leaks are proving to be considerably higher than previously understood, according to Clean Technica. Methane leaks from US landfills are also proving to be at least 40% higher than reporting to the Environmental Protection Agency (EPA) would suggest.

* Salt, air and bricks may be about to replace lithium, cadmium and nickel, as industrial energy storage options emerge that use simpler technologies and ingredients compared to conventional batteries.

Bernard and Cathrine will be talking about these topics in a shorter way on today’s Hoon from 5.10 pm to 5.20 pm.

(See more detail and analysis below, and in the podcast above. Cathrine Dyer’s journalism on climate and the environment is available free to all paying and non-paying subscribers to The Kākā and the public. It is made possible by subscribers signing up to the paid tier to ensure this sort of public interest journalism is fully available in public to read, listen to and share. Cathrine wrote the wrap. Bernard edited it. Lynn copy-edited and illustrated it.)

A predicted surge in fossil fuel production

As lengthy debates about the language of fossil fuel emissions reductions took place at COP28 last year, approvals for new oil and gas field developments were returning to pre-Covid levels.

In a new report this week from Global Energy Monitor, it seems the industry now plans to almost quadruple the number of new developments (and the amount of oil and gas extracted) compared with 2023, by the end of the decade.

The International Energy Agency (IEA) warned in 2021 that an end to new oil and gas field development was required to achieve their 1.5˚C Net Zero roadmap. More than 20 billion barrels of oil equivalent (boe) have been announced since then.

Scott Zimmerman, Project Manager for the Global Oil and Gas Extraction Tracker at Global Energy Monitor said,

“Oil and gas producers have given all kinds of reasons for continuing to discover and develop new fields, but none of these hold water. The science is clear: No new oil and gas fields, or the planet gets pushed past what it can handle.”

According to the Stockholm Environment institute (SEI), fossil fuel producers are planning to push production of oil and gas 29% and 82% higher, respectively, than what is consistent with a 1.5˚C target.

The language of ‘net’ and ‘unabated’ emissions, key sources of debate at COP28, seem designed to obscure the unrelenting trajectory of oil and gas extraction. While it is true that clean energy as a proportion of electricity generation has doubled since 2007, new oil and gas extraction has more than kept up. And while coal production looked for a while to have peaked in 2014, it has since rebounded to an all-time high of 8,741 Mt in 2023, 1.8% over 2022.

The US is now the world’s largest oil and gas producer, leading the surge in projects over the past two years. However, that situation could worsen in the event of  a victory for Donald Trump in the US election later this year. A likely regression in green policies would have global impacts, according to former UN climate chief, Patricia Espinosa, putting further pressure on current climate goals.

So was Saudi Aramco CEO Amin Nasser just being brutally honest two weeks ago, when he said the current energy transition strategy was “visibly failing on all fronts”?

For a transition to actually take place, it requires not just more clean energy, but less fossil fuel production, and the latter has yet to occur. Nasser went on to suggest, to general applause at the conference he was attending, that policymakers should “abandon the fantasy” of phasing out oil and gas . I don’t think he intended that they should replace the fantasy phaseout with one based in reality.

The IEA’s latest claim, that 2024 or near-abouts, will prove to be the peak year in global demand for fossil fuels,  presages one of two crises – either fossil fuel demand will continue to grow, proving the IEA wrong and the energy transition itself in crisis, or it will actually peak, proving the industry out-of-step with reality and provoking a financial crisis in relation to stranded assets. The latter may be the best-case scenario, but still represents a vast misallocation of resources and a painful adjustment period (where ‘pain’ likely corresponds with ‘conflict’). OPEC, of course, claims that it would unleash “energy chaos” and “dire consequences for economies and billions of people across the world”.

The IEA predicts fossil fuel declines will follow hard on the heels of the current rebound:

Source: IEA (2023) World Energy Outlook 2023: Overview and Key Findings.

It is clear that 1.5˚C will be surpassed, but the big question that remains is, when will the  energy transition really begin and what global temperature increase will already be baked in by the time it starts?

Meanwhile, a new study has linked climate change to food price inflation, finding that ‘heatflation’ could result in food prices rising as much as 3 percentage points per year in just over a decade! According to lead author Max Kotz, a climate scientist at the Potsdam Institute for Climate Impact Research:

“The physical impacts of climate change are going to have a persistent effect on inflation. This is really from my perspective another example of one of the ways in which climate change can undermine human welfare, economic welfare.”

The study looked at more than 20,000 data points to identify the causal link between extreme weather, particularly heat, and rising prices, before projecting future impacts from climate change.

They found that the effects are likely to be exacerbated in places and seasons that are already hotter, meaning much of the Global South would suffer worse food price inflation than the rest of the world, against a context in which food makes up a much larger proportion of peoples’ daily budget.

Methane leaks and blowouts

It turns out that natural gas isn’t burning as cleanly as previously thought, according to an article in Clean Technica. New information from scientific studies, measurement campaigns and satellite data is revealing big gaps in self-reported information, with the highest sources of leaks often not where companies expected. The IEA’s Global Methane Tracker 2024 reports methane emissions from the energy sector remain near record highs and large methane emission events, detected by satellites, rose by more than 50% in 2023 compared with 2022. That includes one major blowout in Kazahkstan that continued for more than 200 days.

In one example reported in Scientific American, it was found that US landfills have been leaking methane at levels that are at least 40% higher than what was being reported to the Environmental Protection Agency (EPA). Most operators report on the basis of an estimate, following EPA guidelines, that is calculated from the amount of rubbish taken in. However, recent information from Carbon Mapping, that is based on infrared images taken from airplanes, as well as new data from drones and satellites, reveal super-emitting hotspots that can persist for years are responsible for as much as 90% of measured emissions.

Simpler energy storage?

In brighter news, Roger Harrabin reports in the Guardian on the future of energy storage, in the form of salt, air and bricks. While the focus of industrial storage to date has been on giant conventional chemical batteries, using ingredients like lithium, cadmium and nickel, there is growing interest in using heat to store energy using simpler systems and more readily available ingredients like air, salt and bricks.

One example is tanks of molten salt, charged by electricity during periods of energy abundance, which can then hold heat at temperatures up to 500˚C. In addition, salt tanks can be recharged thousands of times for up to 40 years, at least three times longer than current industrial storage options.

Likewise, bricks can be heated to 1,500˚C and lose less than 1% of the heat per day. Other start-ups are investigating heat storage in steel and concrete. Compressed and super-cooled liquid air are also being developed as potential energy storage devices.

However, some of these approaches will need backing if they are to avoid being left at the side of the road in the rush to reduce emissions. It’s possible that support will accumulate more easily for established technologies, even if they are not the most fit for purpose.

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

TL;DR: The six news items of note in Aotearoa-NZ’s political economy on Thursday, April 4 included:

* A Roy Morgan poll taken last month and published last night shows confidence in whether the country is on the right track or wrong track collapsed by 17 percentage points in March from February, which is more than it fell during any of the covid lockdown months in Auckland in late 2021.

* But the poll’s measure of support for the respective parties showed little movement yet, with combined support for the National/ACT/NZ First coalition parties up one percentage point from February to 56%, while support for Labour/Green was down half a percentage point at 40.5%.

* The poll also showed the biggest slump in confidence about the right track/wrong track was among young women in particular, who are now less than half as confident as young men about Aotearoa-NZ’s future. (See more detail and analysis below the paywall fold and in the podcast above)

* Shane Jones and Chris Bishop yesterday announced the opening of applications for major projects to get on the list for Jones and Bishop to personally fast-track consents for them. Applications close on May 3 and the list won’t be public before submissions to Parliament on the Fast Track Approvals bill close in a fortnight.

* Counter to the Government’s comments about inheriting a fiscal ‘mess/cliff/wreck’ from Labour, Treasury’s Debt Management Office (DMO) announced yesterday it had borrowed $4.5 billion through a new syndicated bond issue at a yield of just 4.77% because there were $17 billion of bids. (See more detail and analysis below the paywall fold and in the podcast above)

* Pay to NZX-listed company CEOs rose 3.6% to an average of $2.23 million or 32 times average worker pay in 2023 from 2022, BusinessDesk-$$$ reported this morning, while IRD payroll data for February showed gross reported pay rising at an annual rate of just over 8%. US CEOs were paid US$25.2 million or 344 times the average worker pay there in 2022, up from 21 times in 1965.

(Paying subscribers can see more detail and analysis below the paywall and in the podcast above. We’ll open it up for public reading, listening and sharing if they give permission by getting over 100 likes.)

Confidence in Govt collapses, especially among women

The Roy Morgan monthly survey of voters about which political parties they would vote for and whether they think the nation and the Government are on the ‘right track’ or ‘wrong track’ shows a 17 percentage point collapse in the March survey’s Government Confidence Rating, which is derived the from its ‘right track/wrong track’ question. It was a bigger one-month fall than in any one of the months of late 2021 during the Auckland covid lockdowns.

Here are the full results in table form, including during the last two years of the previous Government.

The shift is even more stark when broken down by age and gender. The poll shows women see the country on the wrong track more dramatically than other cohorts, especially older men, who still the country on the right track.

It shows a net 41.5% of women aged 18-45 see the country going in the wrong direction, while a net 8.5% of men over 50 see the country going in the right direction. The slump in March was starkest for older women, as Roy Morgan CEO Michele Levine commented here (bolding mine):

“Now a majority of 54% of New Zealanders say ‘the country is going in the wrong direction’ compared to only 35% that say ‘the country is going in the right direction.’ This is the lowest result since the month of last year’s New Zealand Election.

“The Government Confidence Rating amongst women plunged in March – driving the overall decline. Government Confidence for older women aged 50+ was down by a massive 24.5pts to 63.5 and for women aged 18-49 was down 18.5pts to only 58.5.

“In contrast, Government Confidence amongst men remained significantly higher during March. For men aged 50+ Government Confidence eased by 4pts to 112.5 – and now the only gender and age group with a positive view on the direction of the country. For men aged 18-49 Government Confidence dropped by 19pts to 95.5.” Roy Morgan CEO Michele Levine commented here

Poll results from other pollsters, including Talbot Mills (which polls for the Labour Party and corporate clients) and Curia (which polls for the Taxpayers Union), showed the beginning of a sharp fall in approval for the Government in February. Their March polls aren’t out yet.

Support for parties has yet to follow the sharp fall in Government confidence in February and March, although there was also a lag in the respective moves in late 2021 and early 2022 when Labour slumped from a clear lead over National to being behind.

Professional investors don’t buy fiscal ‘train wreck’ talk

Counter to the Government’s comments about inheriting a fiscal ‘mess/cliff/wreck’ from Labour, Treasury’s Debt Management Office (DMO) announced it had borrowed $4.5 billion through a new 11-year bond issue with a fixed interest cost of 4.5% per year and a yield to maturity of 4.77%, which was just six basis points over the equivalent-length bond trading in secondary markets. The syndicated issue was originally aimed at $3 billion, but the demand was so strong that Treasury decided to issue $4.5 billion, which was just below the $5 billion cap for the auction.

“After initially moving higher in yield, reflecting the moves in offshore markets, NZ government bonds rallied strongly following the pricing of the new 15 May-2035 nominal maturity that was issued via syndication.

“There was strong investor demand for the new maturity. The syndication book size, at final price guidance, exceeded NZ$17.0 billion. NZDM issued NZ$4.5 billion, only slightly below the volume cap of NZ$5 billion. The new maturity was issued at a spread of 6bps over 2034s which was the midpoint of the initial price guidance (+4 to +8 bps). BNZ Interest Rate Strategist Stuart Ritson in a note this morning.

Scoop of the day

Poverty measure scrapped

In order to cut costs, Stats NZ has dropped the annual Living in Aotearoa longitudinal study of income and living conditions after just two years. The survey was set up to measure persistent poverty, which is one of the ten measures specified in the 2018 Child Poverty Reduction Act, Newsroom’s Laura Walters reported this morning.

Numbers of the day

Poverty rising

17,000 - The number of people who each received more than 21 special needs grants in the 2022/23 year, up from 340 in 2015/16. The total number of grants has increased from 856,000 in 2016 to 2.3 million in 2023. Sourced from an MSD briefing to Social Development Minister Louise Upston. Via Newsroom Emma Hatton

Total income rising

$14.8 billion - Actual gross earnings on an accruals basis from pay declared to IRD in the month of February, up 8.0% or $1.1 billion from $13.7 billion reported in February 2023, as measured by IRD’s Employer Monthly Schedule (EMS) and payday filing data sets, released by Stats NZ yesterday. Earnings per filled job in February 2024 were 6.2% higher than a year ago, Infometrics analysis of the figures showed.

Quote of the day

‘You’re driving us overseas’

“We call on the minister to ensure that people are retained in the system, and to save this sector of our science capability from being lost to New Zealand for a generation.” 86 scientists calling on Space, Science, Innovation and Technology Minister Minister Judith Collins in an open letter (below) to reconsider a restructure proposed at Callaghan Innovation that will cost dozens of jobs.

Charts of the day

Workforce growing faster than jobs

Worker payrolls growing faster than CEO pay

Climate pic of the day

Yes In My Back Yard

For the record

Announcements, gazette notices, appointments, court rulings, official reports, academic papers, milestones and statistics

Shane Jones and Chris Bishop yesterday announced the opening of applications for projects to get on the list for Jones and Bishop to personally fast-track consents for major projects. Applications can be made here until May 3, and then a list will be selected for attachment to be tacked on to the Fast Track Approvals Bill. Submissions on the bill can be made here before April 19, without knowing what’s on the list.

Australian PM Anthony Albanese announced the appointment of business lawyer and former AFL Commissioner Samantha Mostyn as Australia’s 28th Governor General. She is the second woman to be Australia’s Governor General after Quentin Bryce, who held the role from 2003 to 2008.

Cartoon of the day

Inspirational quotes

Timeline-cleansing nature pic

Walking the neighbour’s dog

Ka kite ano

Bernard

PS: Looking forward to the Hoon at 5pm tonight.

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

TL;DR: My top six news items of note on the morning of Tuesday, April 2 include:

* A review of council borrowing has found central Government-driven debt limits are strangling big councils’ ability to borrow to build enough infrastructure for growth, although some councils are further tightening the reins with even lower self-imposed limits and by over-playing fears of credit rating downgrades (see more detail and analysis below and in the podcast above, which includes my interview with Te Waihanga-Infrastructure Commission Director of Economics Peter Nunns);

* Christopher Luxon has announced a new 97-day action plan to succeed his 100-day plan, saying his Government will keep using Parliamentary urgency to enact it;

* MSD and Work & Income have resumed social housing tenancy reviews that were suspended in 2018 and during Covid, starting by looking at pushing 400 longer-term tenants into private rentals; Beehive Work & Income

* The Warehouse’s CEO has said he wants the Government to step in to control wholesale grocery prices because it says the voluntary regime isn’t taming the duopoly; The Post-$$$

* The Government has announced it had halted plans for a Kermadec Ocean Sanctuary that were first announced by John Key in a 2015 speech about sustainability to the UN General Assembly; and,

* ANZ has changed its ‘rental shading’ rules for residential property investors in a way that allows them to borrow more to buy an existing property, and increase their competitive power to outbid first-home buyers. OneRoof

Just briefly elsewhere in Aotearoa-NZ’s political economy at 8 am:

* Tory Whanau asks for law change to quickly remove heritage status The Post-$$$

* Christchurch Council in secret talks to bail out A&P show The Press-$$$

* A third of hospital buildings are beyond their design life, Reti told NZ Herald-$$$

(Paying subscribers can see more detail and analysis below the paywall and in the podcast above. We’ll open it up for public reading, listening and sharing if they give permission by getting over 100 likes.)

Debt rules strangling big councils’ infrastructure hopes*

A review of council borrowing by Te Waihanga-NZ Infrastructure Commission has found Local Government Funding Agency (LGFA) rules on debt limits and the way councils interpret them is restricting high growth councils such as Auckland, Wellington, Tauranga, Christchurch and Queenstown from borrowing enough to fill existing infrastructure deficits, let alone cope with future population growth.

The review suggested councils were unnecessarily afraid of borrowing extra because the cost of credit rating downgrades was much lower than many thought, and that the debt limits often described as immovable-restrictions-from-on-high could be surmounted. It concluded that councils were more worried about perceptions of fiscal irresponsibility than they should be, and that LGFA should look at raising its debt limits for high-growth councils.

The review suggested councils could:

* leave LGFA to borrow outside these debt-to-revenue limits and take a manageable hit to their credit ratings and borrowing costs;

* for some, increase the self-imposed debt limits that are currently set below the official ones;

* shift revenue-producing assets such as water infrastructure out of political control into Council Controlled Organisations that can borrow more in their own right;

* generate higher revenues to increase debt-servicing capacity through the likes of value-capture rates, congestion charges; and,

* creating special targeted rates to support the creation of Special Purpose Vehicles (SPVs) to borrow separately from Councils.

It also said LGFA could allow higher debt-to-revenue limits for larger and higher-growth councils, removing the current one-size-fits-all policy of 280% for councils with credit ratings and 170% for those without credit ratings.

In my view, the most interesting elements of the review that make up the asterix in the headline were:

* a finding that councils supported much higher debt burdens before the 1950s and they kept their debt levels very low between local government reforms in 1989 and the beginning of higher infrastructure spending in 2008 (see chart below);

* that only five of the 72 councils have debt over 150% of revenues and that some had set lower limits internally than the LGFA ones (see chart below);

* that Auckland Council estimates a one-notch downgrade in its current AA credit rating would increase borrowing costs by just five to 10 basis points, which would increase the council’s interest bill by less than $2 million per year, which represents a hit of less than 0.03% of its operating budget;

* Council net interest costs as a share of revenues, which LGFA limits at 20%, averaged 3% across rated councils in 2022, with the high debt councils averaging in the 6% range;

* The median council with a credit rating had a debt-to-revenue ratio of 120% at the end of 2023, and the median council without a rating had a ratio of 41%, vs the LGFA limits of 280% and 170%; and,

* that Crown Infrastructure Partners (CIP) estimates (pages 31, 32) that available financing through SPVs would only represent just one-fifth ($1.5 billion) of the current LGFA borrowing of around $7 billion per year and just 1.5% of the infrastructure investment seen needed over the next 30 yerars. CIP BIM

So what?

Aotearoa-NZ can’t solve its housing affordability, climate change and poverty crises without new and renovated housing, public transport and water infrastructure.

Nothing happens unless councils agree to invest in pipes, buses, trains, tracks and roads, given they’re responsible for between 50-100% the capital and maintenance spending respectively for these items alone. The Government has to agree to fund around 50% of public transport and roads, plus 100% of health and education.

So the appetite and ability to build and then properly maintain this infrastructure depends on the borrowing capacity and attitudes to debt of the central Government and councils, given financing long-term assets with debt is the fairest and cheapest way to fund them. There is now a $100 billion infrastructure and varying estimates put the spending needs over the next 30 years at $100 billion to $200 billion.

So why don’t the central Government and councils borrow to make up for past under-investment and to ‘pay it forward’ for future generations to use and pay for? What outside forces or past decisions are stopping the Government and councils from getting on with it? It is not because there is already too much debt or global and local private investors won’t lend to New Zealand governments. The Crown’s debt is less than a third of problematic levels and council debt is less than a fourth what it was when councils were paying to build water and power networks in the first 50 years of the 20th century

Is it because rules put in place by the Treasury-run LGFA are unnecessarily strict? This review suggests that’s part of the problem, but in the end concludes the problem is mostly political and driven by the perceptions of ministers, officials, mayors and councillors that they’ll be punished for being ‘fiscally reckless.’ This review argues there are ways within the existing rules to borrow more, or the rules could be changed, and that the ‘fiscally reckless’ fear is unjustified.

Here’s the review summarised in its own words (bolding mine):

Councils are likely to have debt capacity in excess of LGFA limits because the fundamentals of council debt are strong. All councils currently have low debtservicing costs. Even if it were downgraded, council debt would still be considered of high quality to domestic and international markets, especially relative to other private infrastructure providers.

Councils are not legislatively prevented from leaving LGFA and taking on higher debt ratios. However, leaving would require them to refinance their entire stock of existing LGFA debt, which could be administratively costly. There is also the fear of a credit downgrade and higher borrowing costs. However, the financial cost of a modest credit downgrade is unlikely to prevent councils from servicing their debt.

Rather, the main cost appears to be reputational. Leaving the LGFA may be judged as fiscally reckless.

Further, while council debt burdens have been growing of late, history also tells us that they’ve been significantly more indebted in the past, as measured by their debt-to-revenue ratios. In the 40 years prior to the Second World War, local government sustained debt burdens that were four to five times greater than they are today. Te Waihanga-NZ Infrastructure Commission review of council borrowing published on Thursday.

We’re strangling NZ’s future to inflate tax-free capital gains today

In my view, the review has reinforced that our infrastructure deficits were and are political choices made by Governments of both flavours for the last 40 years aimed at reducing taxes, limiting rates increases and reducing mortgage rates to enrich existing homeowners at the expense of renters and future generations.

The limits are not financial ones set by the bond market gods. They are set by politicians elected by median general election voters and most council voters who, conciously or subconciously, understand maintaining the status quo is in their interests, even if it is not in the interests of their children and grandchildren.

How does this work? Lower rates increases and income tax cuts maximise disposable income which can then be leveraged to buy more residential land. Lower Government and council investment limits the supply of residential land competing with voters’ own land, which ensures leveraged and tax-free land value increases are maximised. Lower investment also limits Government and council debt, which, all other things being equal, ensures mortgage rates are lower than they otherwise would be.

The perfect recipe to maximise leveraged tax-free capital gains on residential land is:

* low income taxes and no capital gains tax or wealth tax;

* low public and council debt to ensure low mortgage rates and the lowest possible rates increases;

* high population growth without matching investment in infrastructure; and,

* imposing limits on future voters and generations from changing this status quo by legislating government debt and deficit limits or embedding practices in Government institutions.

The not-so-secret guard rails on Government spending and borrowing

The LGFA debt rules are, in effect, part of a suite of these limits and practices designed to keep public investment and debt low and to starve future generations of infrastructure and services, which has the effect of transferring wealth to home-owners now from renters now and future citizens. These practices include the position held across both major political parties for at least 30 years of limiting the size of Government and Government debt to less than 30% of GDP. This was confirmed again last week by the new Government.

The Labour Government committed to this 30/30 rule with the Green Party in its 2017 election campaign and stuck with a version of that until it lost the election last year. This is based on the 1989 Public Finance Act and the 1994 Fiscal Responsibility Act, which specifies Governments must keep debt at ‘prudent’ levels, which Treasury has specified is around 30% of GDP, with the agreement of both Labour and National Finance Ministers for 30 years, albeit Labour and National disagreed on the definition of Gross vs Net debt in the last election campaign.

Another tool in the suite is the rule in subpart 3 of the 2002 Local Government Act Section 100 (1) which states “a local authority must ensure that each year’s projected operating revenues are set at a level sufficient to meet that year’s projected operating expenses.” This effectively stops councils from running deficits, incentivising them to under-spend on maintenance. Councils have forecast they’ll spend only around 70% of their depreciation allocation on actual maintenance of assets for the last decade, the Auditor General reported in 2022. Various councils (page 24) have also hard-wired limits on rates increases in local statutes and policies, cementing in place the inter-generational transfer of wealth.

So how should or could we change it?

Currently, Governments from both sides have adopted the magical thinking that they could solve the infrastructure deficits by getting private investors to step in, and by using demand management (tolls, water charges and congestion) charges to reduce the size of the infrastructure bill. But, as the review makes clear, private funding through SPVs would produce less than 1% of the necessary funds, and those funds would cost upwards of 100 basis points more than simple Government or council borrowing.

In my view, the basic incentives for household (and therefore voter) investment would have to change to encourage investment in real assets and infrastructure by businesses and Governemnts, rather than investment in existing plots of residential land.

That requires the existing tax-free status on capital gains from land to change, and for Aotearoa-NZ to have the same incentives for retirement savings as other countries. There are currently none.

In my view, the following changes would allow Governments and councils to prioritise housing affordability, emissions reduction and poverty reduction, and create stronger private investment in assets and people that raise real wages and returns on capital:

* taxing residential land through a residential land value tax that encourages and funds the investment in water and public transport infrastructure on already-zoned land to maximise the number of occupied, affordable and zero-emissions homes on that land;

* incentivising investment in KiwiSaver funds with either a lower income tax rate for contributions or a lower income tax rate on earnings within the funds’ lifetimes; and,

* repealing or amending the Public Finance Act, the Fiscal Responsibility Act and the Local Government Act to specify budget balance, debt, and public infrastructure levels that produce affordable and zero-emissions housing and transport for the next generations of voters, rather than minimising debt and public infrastrucuture for current voters.

Ka kite ano

Bernard

PS: By the way, the tax changes above are effectively a tax switch to start taxing wealth again and reducing tax private investment. It would also leave capital gains on real business investment untaxed. It would make owners of real business wealth (not land) richer, while also making housing more affordable and reducing the nation’s international climate change liabilities and event risks.

PPS: Appendix A: A brief history of debt and infrastructure (pages 47-54 in the review) is the absolute bomb. Graham Campbell, the Commission’s principle economist behind much of the review, deserves a medal.

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

TL;DR: Here’s the top six news items of note in climate news for Aotearoa-NZ this week, and a discussion above that was recorded yesterday afternoon above between Bernard Hickey and The Kākā’s climate correspondent Cathrine Dyer : 

* An independent review panel into the emergency response to Cyclone Gabrielle in Hawkes Bay concluded  “that the current national emergency management system is not fit for purpose.”

* That was the same conclusion reached in three previous reports relating to this and other civil defence and emergency management (CDEM) events across the motu.

* The review found systemic rather than individual faults, reflecting a national failure to adapt to the new reality of climate-driven extreme weather events, to assess climate risk and to properly work, fund and include Te Ao Maori.

* A fresh IEA report reviewing CO2 emissions in 2023 found negative climate feedback loops from past emissions are now kicking in to constrain reductions in future emissions.

* The IEA found evidence of a structural slowdown (as opposed to an actual reduction) in emissions, resulting from growth in clean energy deployment.

* Debate is growing about a decision by geologists to reject naming the current era ‘the Anthropocene’

(See more detail and analysis below, and in the podcast above. Cathrine Dyer’s journalism on climate and the environment is available free to all paying and non-paying subscribers to The Kākā and the public. It is made possible by subscribers signing up to the paid tier to ensure this sort of public interest journalism is fully available in public to read, listen to and share. Cathrine wrote the wrap. Bernard edited it. Lynn copy-edited and illustrated it.)

Set up to fail as the world warms

The independent review panel into the Hawkes Bay civil defence and emergency response to cyclone Gabrielle, led by former Commissioner of NZ Police, Mike Bush released its findings this week.

Once again, we are being told that “that the current national emergency management system is not fit for purpose”. Instead, according to Bush “it simply sets good people up to fail, time and time again.” Many of the same points have been made before in the Auckland Cyclone Gabrielle review, in the 2020 Review of the Napier flood response and in a 2017 Ministerial review.

In an era of climate change amplified severe weather events, the predictable result of these repeated failures to adapt has been additional deaths, more displacement of people from their homes, increased private property and public infrastructure damage and devastated communities.

The report rightly highlights the role played by people on the ground including communities, volunteers, the contractor sector, and business and utility providers, many of whom were extraordinarily brave, resourceful, highly stressed, and chronically under-supported.

While most media outlets have been focused on specific response failures in the early hours of the storm, two particular systemic lessons from the report resonated with us.

The first has to do with approaches to, and treatment of risk, while the second has to do with the treatment of indigenous networks and knowledge systems. First, despite the Hawkes Bay Civil Defence and Emergency Management (CDEM) plans being “as sound as any we have seen”, the report also notes:

“CDEM staff were overconfident about their readiness on the basis of prior emergency events such as COVID-19. They lacked a scenario planning mindset, had low multi – agency operational exercise experience and suffered from optimism bias. We have formed the view that they tended to take a best case scenario rather than a precautionary approach to planning, communication and warnings.”

This is less the fault of individuals, and more of institutional systems that have failed to internalise new realities.

 “The world in which New Zealand’s current emergency management  arrangements were designed has changed. Weather driven events are increasingly frequent and severe. This is happening in a time when specialist responders, such as the Defence Force and Police, are also facing both cost pressures and increased demand driven by worsening geopolitical and law and order trends.

All of this suggests that changed system settings, culture and policies are urgently required.”

Globally, approaches to climate change risk are rapidly evolving. This is where some of the most meaningful research is being done and where critical on-the-ground learning is occurring. This is also where transformational change in the form of social tipping points are most likely to emerge in response to better apprehended climate risk, driven home by disasters. Changes in system settings, culture and policies are pivot points. This is a potentially powerful space, not just to watch, but to agitate in.

Ignoring indigenous networks and knowledge

A second issue highlighted by the report was the failure to make good use of indigenous networks and knowledge systems.

“Engagement of iwi Māori and Māori communities was more a matter of ad hoc relationships than the product of systematic and formalised effort.

At the operational level, Māori agencies and marae felt that their proven abilities to deliver welfare services at scale were either ignored or hampered by bureaucratic decision making from the centre.”

The report highlights the role of mārae as “vital providers of community intelligence and services” and recommends more formal involvement of iwi/Māori in civil defence and emergency management systems and structures.

Dr Shaun Awatere, Kaihatū Māori Research Impact Leader at Manaaki Whenua – Landcare Research commented that “it  is heartening to see leadership taken by the Independent Review Panel” on this issue, suggesting that,

“A business as usual approach is often easier to put into practice, with its rigid and clearly delineated components. The holistic and relational aspects of a te ao Māori approach to disaster risk reduction make it much messier and more complex to operationalise. Yet, there are numerous projects, particularly in sustainability areas, where te ao Māori approaches have been operationalised with great success; the arguments against are nothing compared to the difficulties we will face in coming years if risk and vulnerability to extreme weather and climate change hazards are not reduced and community resilience built up.”

Properly supporting and formally engaging with tangata whenua at national as well as regional and local levels could fundamentally alter the resilience of all communities in Aotearoa. There is no other established group or system that has even a skerrick of the potential in terms of knowledge, networks and resources already in place. That the country would fail to properly acknowledge, support and learn from it is  - well, let’s be honest, completely aligned with our history. But let’s hope, not our future.

Given the literal power failures that accompanied Cyclone Gabrielle, this seems like a good place to redraw attention to a pre-election proposal from both Te Pāti Māori and the Greens, to support the establishment of community renewable energy projects on mārae. The advantages of community energy projects extend well beyond the provision of electricity itself and would benefit the resilience and autonomy of local communities across the motu. Currently such development is actively constrained by institutional arrangements, policy processes and regime narratives (as described in the linked article by my PhD co-supervisor Associate Professor Julie MacArthur and her co-authors).

Report reinforces need for energy demand reductions

In other news, the IEA recently released a report on CO2 emissions in 2023, highlighting the continued growth of global energy-related CO2 emissions, up 1.1%, with more than 65% of that increase from burning coal.

In a worrying trend, the effects of climate change on temperature and precipitation have become a key determinant of emissions reduction failures in the electricity sector. The report notes that, absent the effect of droughts creating a shortfall in hydropower generation, emissions from the electricity sector might have actually fallen in 2023.

In other words, negative climate feedbacks that result from past emissions, are now kicking in to constrain reductions in future emissions.

The main reason for optimism was the identification of a ‘structural slowdown’ resulting from the growth in clean energy deployment, represented in the following graph.

According to the IEA, the percentage growth of emissions was substantially slower than global GDP growth, which was around 3% in 2023 (in line with the annual average over the last 50 years). Without clean energy, which has more than doubled from 16 to 34% of electricity generation since 2007, the emissions growth would have been three times higher.

The rate of emissions growth seen over the last decade is slower than that seen during the 1970s and 1980s, which saw major disruptions with the two energy shocks of 1973-4 and 1979-80, and a macroeconomic shock of global significance with the fall of the Soviet Union in 1989-90. When the last ten years are put in a broader historical context, a comparably slow rate of CO2 emissions growth only occurred in the extremely disruptive decades of World War I and the Great Depression. Global CO2 emissions are therefore undergoing a structural slowdown even as global prosperity grows.

An actual reduction in emissions would be even better, and is in fact required to meet global climate goals under the Paris Agreement. Increasingly, demand-side policies, that focus on reducing demand for energy, are seen as key to this goal. Although strangely unremarked on in the IEA report, they formed a key section of the IPCC’s Working Group III report on mitigation in 2022.

It is even more important to emphasis the need for demand reductions in energy requirements when we are entering an era in which climate amplified weather events conspire to make the achievement of emissions goals ever more challenging.

Renewable costs, and you’re not in the Anthropocene now, Dr Ropata

Briefly elsewhere:

* On the The Climate Brink substack this week, climate scientist Zeke Hausfather tackles the question of whether renewable energy really is cheaper than fossil energy. The answer is a resounding YES, IT IS..... up to a point. In doing so, he shows why a measure that is often thrown around, known as LCOE or the levelised cost of energy, has some limitations when it comes to overall grid costs. While most of the world still has a long way to go to reach the point at which more renewable energy becomes very expensive, it is definitely relevant to the debate in Aotearoa over where the best investment for our decarbonising buck lies.

* Geologists have decided to reject naming the current era ‘the Anthropocene’ after an epic academic row that has been as slow-moving as you might expect from a bunch of geologists. The Anthropocene Working Group (AWG) took 15 years just to write the proposal, In their announcement,the International Union of Geological Sciences (IUGS) effectively accepted the reality that the rest of the world has moved on without them and will continue to insist on calling it the Anthropocene anyway.

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

TL;DR: The five things that mattered in Aotearoa’s political economy that we wrote and spoke about via The Kākā and elsewhere for paying subscribers in the last week included:

* Finance Minister Nicola Willis unveiled a Budget Policy Statement that showed the new Government will have to borrow up to $15 billion to replace the same amount of tax revenue reduction from a slowing economy, unless it chooses not to go ahead with $14.9 billion of tax cuts. Willis pledged to go ahead with the debt-funded tax cuts, despite growing opposition from her own supporters worried about appearing fiscally irresponsible, including John Key, Oliver Hartwich and Richard Prebble. See Thursday’s email.

* Chris Bishop laid out his vision for infrastructure planning and financing, including using tolls, water charges, congestion charges, private debt and value-capture rates to pay to build and maintain infrastructure. But he didn’t specify how a bipartisan approach on planning, funding, population growth and climate emissions would create a credible platform that councils, investors, developers and builders could rely on for longer than a year or two. See Wednesday’s email.

* Judith Collins announced New Zealand had identified a Chinese state-sponsored group known as APT40 as the source of a hack into the IT systems of the Parliamentary Counsel Officeand the Parliamentary Service in 2021. This was the first time our Government has formally accused China of attacking Aotearoa’s democratic systems, although it was done in concert with accusations earlier yesterday against Beijing of worse attacks on systems in the UK and US. See Wednesday’s email and hear the discussion with Anne-Marie Brady and Robert Patman from 35 mins in the podcast above.

* Workers have been treading water in output per hour worked for 12 years, an analysis of GDP data for 2023 showed1, emphasising Aotearoa Inc’s lack of productivity progress since the Global Financial Crisis (See chart of the week below). Our low-to-no productivity growth is thanks to low investment in public infrastructure, skills and businesses so any spare household and business cash can be put into leveraged land for tax-free gains or repatriated in dividend form to overseas owners. See Monday’s email.

* Simeon Brown threatened councils with intervention yesterday if they don’t merge water assets to take them off balance sheet, just as the now-repealed Three Waters plan directed. He also repeated comments made previously about the Government not putting up any more of its capital and not providing a guarantee to these off-balance-sheet vehicles. See Monday’s email

What we talked about on ‘The Hoon’ on Thursday night

In this week’s podcast above of the weekly ‘Hoon’ webinar for paying subscribers at 5pm on Thursday night:

* 5:00 pm - 5:10 pm - Bernard Hickey and Peter Bale opened the show with a discussion about the politics of urban densification and the future of Newshub on TV3.

* 5.10 pm - 5.20 pm - Peter, Bernard, andCathrine Dyer talked about this week’s report on the readiness of emergency management for Cyclone Gabrielle and the failings that need to be fixed in a warming climate with more extreme events that are more extreme.

* 5.20 - 5.35 - Peter and Bernard talked with Robert Patman talked about the latest from the terror attack in Russia, Israel’s occupation of Gaza and the war in Ukraine.

* 5.35 pm - 5.55 pm - Peter, Bernard and Robert spoke with University of Canterbury Professor Anne-Marie Brady about the historic identification this week of China as responsible for a cyber-attack on our Parliamentary IT systems. She wrote the seminal Magic Weapons paper in 2017 on China’s political influence campaigns in Aotearoa-NZ.

The Hoon’s podcast version above was produced by Simon Josey.

(This is a sampler for all free subscribers. Thanks to the support of paying subscribers here, I’m able to spread the work from my public interest journalism here about housing affordability, climate change and poverty reduction around in other public venues. I’d love you to join the community supporting and contributing to this work with your ideas, feedback and comments.)

Other places I appeared this week

I appeared on an episode of 1News’ Breakfast to talk about migration’s role in our economy.

I produced an episode of When The Facts Change via The Spinoff.

This week’s interview with Rewiring Aotearoa CEO Mike Casey refers to the Electric Homes report the group published earlier this month. Here’s the interview in Youtube form too.

We also produce this 5 in 5 with ANZ daily podcast and Substack for ANZ Institutional in Australia, which you can sign up to via Spotify and Apple and Youtube for free.

It was a busy week.

We produced 10 podcasts totalling three and a half hours of coverage of our political economy and the global economy, plus 15 posts delivered via email to nearly 20,000 subscribers via The Kākā by Bernard Hickey 5 in 5 with ANZ and The Spinoff across Substack, Youtube, Spotify, Apple Podcasts and Google Podcasts, plus appearing on 1News. There were over 150,000 page views recorded on Substack and over 3,000 downloads of podcasts via Substack this week. And it was only a four-day week. Thank you in particular to Lynn Grieveson Peter Bale Simon Josey, Cathrine Dyer Te Aihe Butler and Jane Yee.

Time for a rest. Hope you have a great long 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

TL;DR: My top six news of note on the morning of Thursday, March 28 include:

* The Government will have to borrow between $10 billion to $15 billion more than previously expected in order to make up for a slowing economy and to pay for $14.9 billion of tax cuts, according to economists for Westpac and ANZ.

* Despite growing calls from the Government’s usual supporters for delays to the tax cuts, Finance Minister Nicola Willis said Budget 2024 on May 30 would include ‘responsible and affordable’ income tax reductions.

* Former ACT Party leader Richard Prebble has called on the new Government to delay tax cuts, saying “unfunded tax cuts causing inflation and increased borrowing, will be both a political and economic disaster.” NZ Herald-$$$

* Willis broke the convention of committing in the Budget Policy Statement to a spending allowance, saying only it would be less than Labour’s $3.5 billion, and that the slower economy meant a Budget surplus in 2026/27 was no longer assured.

* The Government rejected Auckland Mayor Wayne Brown’s demand it rebate over $415 million of GST charged on top of rates paid to Auckland Council and start paying $36 million a year of rates on Crown land in Auckland. RNZ

* Auckland Council said the Government’s public transport funding cuts and its refusal to rebate GST or pay rates would force cuts to schedules and increase fares, which would worsen congestion, increase emissions and further inflate the cost of living. Some suburbs would have no public transport at all. RNZ

(Paying subscribers can see more detail and analysis below the paywall and in the podcast above. We’ll open it up for public reading, listening and sharing if they give permission by getting over 100 likes.)

Elsewhere in Aotearoa’s political economy and geo-politics at 9:06

* GCSB likely hosted US spy system used in global capture-kill operations. Newsroom Nicky Hager

* The Ministry for Pacific Peoples is looking to slash its workforce by 40% or 63 roles in a proposal labelled as “brutal” The Post-$$$ Anna Whyte

* Christchurch City Council has been given another year to consider housing density The Press-$$$ Tina Law

* MBIE boarding house probe finds defective smoke detectors, unmonitored alarms 1News

* Property owner says council's low-ball valuation skewing buyout process RNZ Jimmy Ellingham

* High levels of nitrate found in Canterbury drinking water RNZ

* Cleanup underway after mushrooms grow on walls of Sommerville school in Panmure 1News

* Government agencies referring needy Kiwis to unfunded foodbank Newshub

* Hutt City rates set to rise 16.9%, developers face big fee increase, paid parking for Petone and Petone wharf to be demolished The Post-$$$ Nicholas Boyack

* Daniel Kahneman, the best-selling psychologist of Thinking, Fast and Slow, dies at 90 NPR

Borrowing even more to pay for tax cuts

The new Government’s Budget Policy Statement yesterday showed Treasury expects an economic slowdown will reduce forecast income taxes by $13.9 billion over the next four years. That means the Government’s borrowing programme over the next three years will have to be $10 billion to $15 billion bigger than forecast last December, according to notes from economists for Westpac and ANZ.

That’s if the Government goes ahead with its promised $14.9 billion worth of tax cuts over the same period, which Finance Minister Nicola Willis again committed to broadly, describing it as “responsible tax relief.”

Fiscal conservatives who normally support the new Government didn’t see it the same way. Former ACT Leader Richard Prebble yesterday joined NZ Initiative Executive Director Oliver Hartwich in calling for the tax cuts to be delayed, via his NZ Herald-$$$ column

“This Budget, if it contains unfunded tax cuts causing inflation and increased borrowing, will be both a political and economic disaster. Luxon must tell his Finance Minister and his coalition partners that the country voted for sound economic management. If that means the tax cuts and other policies must be delayed, so be it.” Former ACT Leader Richard Prebble via his NZ Herald-$$$ column

Here’s the Treasury forecasts for a lower nominal GDP than forecast at December’s Half Yearly Fiscal Update (HYEFU) and the resulting fall in tax revenue.

Bank economists see extra borrowing of same size as tax cuts

The slower economic growth forecast means Treasury sees less tax revenue, which in turns means higher Government borrowing over the next four years, as long as the Government carries through with its tax cuts. The amounts are almost exactly equal over the next four years:

* Tax cuts proposed in National election policy costed $14.9 billion;

* Tax revenue reductions due to slower real GDP growth and lower inflation total $13.9 billion; and,

* Higher borrowing of $10 billion to $15 billion if the Government carries through with its tax cuts, say Westpac (up to $15 billion) and ANZ ($10 billion to $12 billion.

Here’s Westpac Senior Economist Darren Gibbs in his note yesterday (bolding mine):

In summary, today’s news confirms that the government borrowing programme will likely be raised significantly when Budget 2024 is released on 30 May. Given the extent of the downgrade in the tax forecasts, the size of that increase could be as much as $15bn across four years rather than the $7-10bn we surmised in our BPS Preview. However, much will depend upon decisions taken between now and the Budget, especially regarding the size and timing of tax cuts. 

The operating spending allowance will be less than $3.5bn in Budget 2024 (the Half-Year Economic and Fiscal Update (HYEFU) set the allowance at $3.5bn). Unusually, the Government declined to set out operating spending allowances for subsequent years, which will instead be revealed in Budget 2024. We suspect that these spending allowances will depend on how the fiscal bottom line is shaping up late in the forecast process.

In Budget 2024 the Government will add up to $7bn to the Multi-Year Capital Allowance (MYCA) to fund new capital investment spending over the four-year Budget horizon. Not all this top-up will necessarily be funded within the four-year forecast horizon in Budget 2024. However, the top-up alone could lift the four-year government borrowing requirement by about $5bn compared with the HYEFU projection.

The Treasury is now also forecasting a lower trajectory for inflation. With CPI inflation expected to be close to the RBNZ’s 2% midpoint by the middle of next year, the forecast for nominal GDP is significantly lower across the forecast horizon – indeed by a cumulative $42.8bn – implying a markedly smaller tax base.

The weaker outlook for nominal GDP means that core Crown tax revenue in the current 2023/24 fiscal year is forecast to fall $1.2bn short of the HYEFU forecast – broadly in line with our own forecasts. The shortfall grows to $3.2bn by 2026/27 and to $4.2bn by 2027/28. The cumulative shortfall over the five years to 2027/28 is $13.9bn. Westpac Senior Economist Darren Gibbs in his note

‘Not much of a fiscal tightening’

ANZ Senior Economist Miles Workman also forecast a big increase in borrowing from the December forecast, if the tax cuts go ahead. Here’s his comments via this note (bolding mine):

Overall, while the fiscal policy mix has certainly changed (ie tax and spending cuts), we’d say the signal today is that discretionary fiscal policy settings (capex + opex) will be about par or perhaps mildly less expansionary than that baked into the Half-Year Update outlook over the next four years. But this all comes down to how much the operating allowance is reduced from Budget 2024 onwards (we estimate this could be cut by as much as $5-7bn over 4 years). But the economic drivers of fiscal outcomes are likely to more than offset that.

The Budget Policy Statement also included an interim update to the Treasury’s economic outlook. This points to a much smaller nominal economy over the next four years and a lot less tax revenue as a result (around $14bn less).

Our attempts to net out the weak economic signal with today’s signal on discretionary policy suggests bond issuance could be upgraded by around $10-12bn over the next four years come Budget. But we will refine that estimate closer to the time to reflect the latest monthly financial statements and any other pre-Budget announcements.

Putting it all together, the weaker tax outlook and higher capital spending look like they will add around $18bn to NZDM’s funding requirement over the next four years. However, this will be partially offset by the “less than $3.5bn” operating allowance in Budget 2024, and possibly a downgrade to the operating allowance from Budget 2025 onwards. It’s very loose, but we’d say we’re steering down the barrel of a $10-12bn upgrade to (bond) issuance guidance come Budget (at this stage). ANZ Senior Economist Miles Workman via this note

ASB Chief Economist Nick Tuffley also wrote in this note he saw a higher borrowing requirement, but did not specify a forecast. Here’s his comments (bolding mine):

The Budget Policy Statement indicates the Government is still intent on delivering tax cuts later this year and still aiming to get the operating balance back into surplus within an acceptable timeframe. Doing so will involve trade-offs between how much spending can be curbed and preparedness to borrow greater amounts, against the size of the tax cuts the government has previously committed to delivering. The challenge is the cupboard is looking pretty bare at the moment. ASB Chief Economist Nick Tuffley in this note

BNZ Senior Interest Rate strategist Stuart Ritson also saw higher borrowing, albeit without a specific forecast.

The borrowing programme will be updated alongside the Budget in May, with risks skewed towards an upward revision, given the Treasury’s revised growth and tax outlook. BNZ Senior Interest Rate strategist Stuart Ritson in this markets note.

Doing the Willis shuffle away from the coalition’s own feedback loop

Willis went out of her way yesterday to say the tax cuts would not be paid for with borrowing. In my view, that would be true if the economic situation had not deteriorated since December, reducing the revenues elsewhere. The effect of that means a discretionary decision by the Government will mean it has to borrow almost exactly the same amount as the tax reductions.

Here’s how she described the mix of spending, taxation and borrowing in this statement:

“Tax reductions will be funded within the operating allowance through a mixture of savings, reprioritisation and additional revenue sources.

“Funding tax relief in this way means we won’t have to borrow extra to provide tax relief and we won’t be adding to inflationary pressures.” Nicola Willis statement

That is a disingenuous view at best. At worst it is misleading.

The pressure is now mounting from National’s own side of politics. Her comments around the scale of the tax cuts left some wriggle room to be less than the $14.9 billion promised next year, but not that much, given the changes to childcare rebates, interest deductibility and the bright-line test have already been legislated.

The irony of course is that the economy slowdown is due at least partially to the Government’s own actions. Its freezing of funding decisions by Waka Kotahi-NZTA and Kāinga Ora, along with refusal to help councils with funds for water projects, has plunged the development and infrastructure sectors into a state of suspended animation. Spending cuts across most Government departments of 6.5% and 7.5% has chilled consumer and business spending in many places, especially Wellington.

Charts of the day

Time for a Kit Kat?

Maybe not

Cartoons of the day

Blink off

Timeline-cleansing nature pic

Spot the bokeh

Ka kite ano

Bernard

PS: There will be a Hoon tonight. And have a safe and relaxing Easter.

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TL;DR: My six things to note in Aotearoa’s political economy as at 6:26am on Tuesday, March 26 include:

* Workers have been treading water in output per hour worked for 12 years, an analysis of GDP data for 2023 showed yesterday, emphasising Aotearoa Inc’s lack of productivity progress since the Global Financial Crisis (See chart of the day below);

* Our low-to-no productivity growth is thanks to low investment in public infrastructure, skills and businesses so any spare household and business cash can be put into leveraged land for tax-free gains or repatriated in dividend form to overseas owners;

* That failure to invest in real assets is amplified by successive Governments of both flavours failing to reform our taxation system and invest more in public assets in a way that would transform the economic and political incentives in our housing-market-with-bits-tacked-on;

* The Government’s announcement yesterday of cash-back for childcare costs of up to $75/week per family is an another example of a tweak to the taxation and transfers system to maximise disposable income to service higher household debt of owners and property investors in the form of rents and interest payments;

* It serves the dual purpose of allowing more people in the household to work more hours for more pay, rather than working the same hours for more pay, which would be the benefit of productivity growth; and,

* This bits-tacked-on model worked spectacularly well for residential home and land owners over this period, with the value of these assets owned by households rising by $1 trillion to $1.6 trillion in the same period that real output per hour worked was unchanged.

In summary, the size of our nominal GDP has grown because we added more people, got a larger share of those people to work, and on average each worked longer per week to achieve higher incomes. The ‘fruit’ of that growth went into residential home land values because not enough land with homes was made available for all those extra people and total wages.

(I’ve put most of today’s post above the paywall fold, given the public interest involved. Thanks again to paying subscribers for their support in this work covering Aotearoa-NZ’s political economy around housing, climate and poverty. Join us as a paying subscriber for access to deeper reporting, analysis and our podcasts. Full subscribers can also comment on posts, and in the Substack app, which now has a vibrant community.)

Elsewhere this morning in our political economy and in geo-politics:

* Child Poverty Action Group and Public Housing Futures published an alternative review of Kāinga Ora this morning, calling on the Government to commit public funds to build and retrofit public housing at a scale and pace to deal with our housing crisis.

* Overnight, the UN Security Council passed its first resolution demanding a ceasefire in Gaza. Reuters

* Boeing’s CEO, Chairman and head of commercial airplanes resigned amid a series of production quality and safety crises around its 737-Max plane. Reuters

Just briefly:

* Council loses landmark legal challenge to mega-irrigation scheme The Post-$$$ Andrea Vance

* Revealed: CTU finds another $500m shortfall in Government's tax plan Newshub

* Safety fears as Police prepare to pull back from distress calls NZ Herald

* 'Call to action': Northlanders urged to save their emergency services from funding cuts by regional council Newshub

* Council agrees to buyout slip-damaged Tauranga homes 1News

Charts of the day

Treading water

GDP per capita down more than during GFC

Cartoons of the day

Lollipop lad

North vs South

A Budget Policy Statement

Timeline-cleansing nature pic

Where’s Wally?

Ka kite ano

Bernard

PS: I’d highly recommend getting the app. There are some great conversations going on there between people on the paid subscriber tier for The Kaka.

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