The Kākā by Bernard Hickey

TL;DR: My six things of note this morning for Monday, March 25 include:

* Simeon Brown threatening intervention if councils refuse reasonable Three Waters-style mergers of water assets off their balance sheets; 1News Q+A (See more detail and analysis below)

* Chris Bishop detailing four phases of RMA reform in two years to planners in a speech, then telling them politicians make better consent decisions than planners; (See more detail and analysis below)

* John Key suggesting to Christopher Luxon he back away from doing big tax cuts and big spending cuts all in one budget, via Fran O’Sullivan in the NZ Herald-$$$ (See more detail and analysis below)

* Christopher Luxon is now the most unpopular National PM since Jenny Shipley, but persists in using campaign-style TikToks that feel disingenuous, such as this TikTok on Saturday about ‘oiling up’; (See more detail and analysis below)

* Chris Hipkins telling supporters in a speech it was time for Labour to look at all its tax policies, including how to tax capital gains and wealth more fairly; and,

* Banks are increasingly being blamed for not doing enough to protect customers from scammers, including in this Sunday investigative report last night via 1News.

‘Adopt Three Waters-style water reform, or else’

Local Government, Transport and Auckland Minister Simeon Brown threatened councils with intervention in this Q+A interview with Jack Tame (see below) yesterday if they don’t merge water assets to take them off balance sheet, just as the now-repealed Three Waters plan directed.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. In my view, that means there will not be enough private sector lending to pay for the $180 billion-plus of water infrastructure needed over the next 30 years, given the bond investors won’t invest without a guarantee and don’t want to buy small parcels of hard-to-analyse and illiquid debt in smaller water entities.

“If they're unable or unwilling in terms of putting forward that plan, which meets those tests, we will have a regulatory backstop which will allow the government to step in.” Simeon Brown

Brown also said he did not expect rates to rise. In my view, that’s disingenous because the Three Waters-style off-balance-sheet vehicles won’t be created without water charges being implemented, which will be in addition to rates.

Here’s the full exchange between Jack and Simeon (bolding mine):

Jack Tame: Will your government put any new money in to support councils get their water up to scratch?

Simeon Brown: We're focused on making sure they've got the funding and financing tools to be able to do that. Is there going to be any new money? Well, we're not putting capital in. The last government didn't either.

Jack Tame: Number two, will you give councils any new money in order to establish the CCO entities?

Simeon Brown: We're working through some options around some of that, but I can't say.

Jack Tame: But that's a possibility, something you're considering?

Simeon Brown: Well, ultimately there is some money remaining from the last government reforms. We're looking at some options around that, but I can't give any answers right here.

Jack Tame: And will the government underwrite the debt of those CCOs in the future?

Simeon Brown: No, that's not our intent, and we've made that very clear through this process.

JACK     Do you accept that rates will have to significantly increase in order to deliver services that meet the regulatory requirements as they stand?

SIMEON              No, because ultimately what we're focused on here is giving councils the long-term funding and financing tools that they need, and there's a range of options that that could work. For some councils — I mean, I met with Ron Mark, who's the mayor of Carterton, yesterday — and he said, look, we're good till the 2040s, in terms of we've made prudent decisions, we've invested, and we're in a really good position.

JACK     What about Tararua, just up the road?

SIMEON              Well, exactly. Other councils are in a more challenging circumstance. So we're going to require councils— we've got legislation coming to Parliament in the middle of this year which will require councils to put forward a water service delivery plan which will show, over the next 10 years, 30 years, what their plans are, and how they intend to have a financially sustainable approach to it.

Now, some councils might join together in a regional CCO to do that. Others might want to work with the local government funding agency to see how they can have borrowing, which is tied to their water revenues. We're going to make sure that all water revenue is ring-fenced to go back into water. But there'll be a range of ways that councils will approach that financially sustainable model.

Jack Tame: So how do we know that when councils are preparing those plans, especially the councils that are in more dire positions at the moment, won't just say, yeah, well, we can meet all these requirements, but we have to significantly increase rates.

Simeon Brown: We're going to have three tests for it. That's a possibility. So one will be, we want to make sure the money's ring -fenced, make sure it's sufficient and affordable. And the third one is we want make sure they’re funding for growth. And so they will have to start…a number of councils are already talking about how they can have a regional council controlled organisation which gets that scale, means it's an affordable, you spread the cost of that infrastructure over a longer period of time. You have a user pays approach.

Jack Tame: Which means that question is whether or not some councils, depending on the state of their water infrastructure, will have to really massively increase rates and forecast those increase in rates in order to achieve what you are requiring them to achieve under their long -term plans.

Simeon Brown: Ultimately, they'll be working with other councils around that as well. And we'll have a regulatory backstop. So if they're unable or unwilling in terms of putting forward that plan, which meets those tests, we will have a regulatory backstop which will allow the government to step in.

Two years reforming RMA and ministers decide on consents

Infrastructure, Housing and RMA Reform Minister Chris Bishop gave a speech to the NZ Planning Institute in Hamilton on Friday that I attended, although he gave the speech by livestream. He laid out the Government’s remaining RMA reform plans and answered a couple of questions, although not to the liking of planners, who were notably derisive by the end of the session with questions muttered under their breaths and in the chatter afterwards. Bishop also referred to a Cabinet paper on the reforms.

Here’s the key section of the speech, starting with three phases of RMA reform over the next two years, with Phase One of repealing the NBEA and SPA done: (bolding mine):

The first part of phase two is our commitment to introduce a one-stop-shop consenting and permitting regime for regionally and nationally significant projects.

The Fast-Track Approvals Bill is based on the previous government’s RMA fast-track regime, but it goes further in three ways. First, it applies to projects of regional and national significance. Second, Ministers are the final decision-makers on the project that will be dealt with under the act. Third, it doesn’t just affect the RMA, but other relevant statutes like the Conservation Act, Wildlife Act, Public Works Act, etc.

Projects of regional or national significance will become eligible for fast-track through one of two ways – either through a referral by Ministers of Infrastructure, Transport and Regional Development, or by being listed as a project in Schedule 2A of the Bill.

Once a project has been referred into the fast-track process, it will be considered by an expert panel which will apply relevant consent and permit conditions. Panels will have a maximum of six months to do this before the project is referred to joint Ministers to either approve it with conditions, or decline it. Ministers will also be able to refer a project back to a panel if they determine the conditions recommended are too onerous. 

We introduced the Fast-Track Approvals Bill to Parliament earlier this month and it’s now before the Environment Select Committee. I encourage you to make a submission on the Bill so we can help refine it and get it in good shape before it returns to Parliament later in the year.

Phase Two doesn’t end at Fast Track. We will also be making targeted changes to the RMA, to reduce unnecessary regulation and help unlock development and investment in infrastructure, housing and primary industries, while ensuring the environment is protected. This will take the form of two bills to amend the RMA. 

The first bill, which for ease of reference I’m calling RM Bill 1, will be narrowly scoped and introduced in May. It will include changes to the RMA to clarify the application of the hierarchy of obligations in the National Policy Statement (NPS) for Freshwater Management to resource consenting, extend the duration of marine farm consents, and cease the implementation of new Significant Natural Areas for three years to enable a thorough review of their operation. 

We are also considering a couple of other targeted amendments in this Bill, which I will announce in due course.

The second bill will be more substantive and will take some time to develop. I expect to introduce it to Parliament later in 2024. Two big areas it will deal with are on housing and on renewable energy.

We have extensive commitments around housing supply in our Going for Housing Growth agenda. The Bill will make the Medium Density Residential Standards optional rather than near-mandatory for councils, and require councils to ratify their use. It will also require councils to live zone 30 years of growth, and strengthen the National Policy Statement on Urban Development, particularly around mixed-use zoning. There will likely be other changes as we design the legislation.

On renewable energy, we intend to deliver on our ambitious policy called Electrify New Zealand, which aims to double renewable energy in New Zealand. This will involve a variety of changes to the RMA itself and also to national direction.

To help finalise the scope of the second amendment bill, I have written to Ministers, and will shortly write to key stakeholders, seeking suggestions for targeted changes to the RMA that will have the most impact in the short term while we develop a replacement to the RMA.  

The other part of phase two is around national direction. Our national direction programme is aimed at unlocking development and investment in infrastructure, housing capacity, horticulture, aquaculture, forestry, and mining while achieving good environmental outcomes. 

We have proposed to amend, review or develop over a dozen national direction instruments.  It will not be feasible or efficient to progress all these processes separately. Some straightforward priority amendments to national direction will be included in the RMA amendment bills.

I intend that all other work on national direction is combined into a single process for decision-making and engagement. This will include the review of the NPS for Freshwater Management which will take 18 to 24 months to complete. A combined process will support policy integration and allow everyone to see and engage on all the changes in one place. 

Work on this is at an early stage and I’ll have more to say as we firm up our plans. Building on these quick wins, phase three will develop policy and legislation to permanently replace the RMA, based on the enjoyment of property rights.

This is a massive undertaking and a lot of work has been going on behind the scenes over the past two years to develop our thinking.

Finally, the new system needs a purpose statement that is consistent with human welfare. That means equal protection for the right to access to housing and other basic human needs alongside environmental protection. Both are essential and both will be protected.

Land use within environmental limits will be permitted. I believe that with clear rules, the replacement RMA system can deliver economic growth and better environmental outcomes.

In terms of the new legislation, I favour clearly separating urban and spatial planning from environmental protection, possibly through separate legislation for each of these functions. 

Our new regime will have the enjoyment of property rights as its guiding principle and of course it will include a commitment to uphold Treaty of Waitangi settlements and other arrangements.

We will be establishing an Expert Ministerial Advisory Group to flesh out the detail of the new regime. There is a lot of work to do. 

The first step is for Cabinet to decide on and agree on the core design principles for phase three. I’ve outlined some considerations for that today.  The Expert Group will do the heavy lifting alongside MfE and other agencies.

My aim is to get a Bill - or Bills - introduced into Parliament in mid-2025 and passed into law by the end of 2025. I realise that’s ambitious but I don’t want a repeat of the Randerson Review debacle and more wasted time and money. Bishop speech

In my view, this means the makeup and terms of reference of the yet-to-be-announced Expert Ministerial Advisory Group will be crucial and I’m willing to bet chocolate fish none of this is completed by the end of 2025. Meanwhile, the development and consenting sector will remain in a state of suspended animation, due to this regulatory and legal uncertainty, plus a lack of funding for water and transport infrastructure (as detailed above)

Then, MC Carol Hirschfeld relayed a question from the audience about ministerial decision-making embedded in the reforms.

Carol Hirschfeld: Do any other OECD countries leave final decisions on planning commissions in the hands of ministers, rather than those with relevant knowledge and experience?

Chris Bishop: Ministers do have the relevant knowledge and experience. The point of our new Fast Track team is that the technical details around consent conditions will be dealt with by experts in the same way that the current Fast Track team deals with that. The COVID -19 Fast Track team did that and the National Built Environment Fast Track, which we've preserved, where we get this new regime up and running, does that as well.

So I'm not an expert on the precise protection mechanisms that you would go through when it comes to a project. But I reject the proposition that ministers who are the elected representatives of people do not have the expertise around resource development in New Zealand. And frankly, the idea that we should leave things over to planners or other people involved in the system. It's part of the problem and that's what we're trying to solve.

That’s when the muttering and sideways glances really got going.

Key fears Luxon is going too hard, too early

It’s clear some of the grandees of the National Party are starting to get nervous about the ‘crash or crash through’ mentality that seems to have gripped PM Christopher Luxon’s coalition ahead of the Budget on May 30. Last week’s headlines about job losses and emergency funding freezes for disability benefits to pay for billions in tax reductions for rental property investors risks creating a type of ‘Mother of All Budgets’ vibe, but without the genuine fiscal crisis.

The National Party’s fathers of its ‘radical incrementalism’ strategy of 2008-2017, John Key and Bill English, were wary ahead of their first Budget in 2009 of being painted as the ‘nasty’ party or trying to get too far ahead of the electorate. That’s why an initial plan for income tax cuts was suspended in early May 2009 for a Tax Working Group review that eventually led to the ‘Big Switch’ of a GST hike for lower income taxes and Working For Families changes that they presented as both fiscally neutral and distributionally netural. Willis has talked about fiscal neutrality, although the IMF challenged that last week, but she hasn’t talked about distributional neutrality.

Here’s how Key framed the 2009 Budget as it became clear the Budget projections would have meant significant borrowing to pay for the promised tax cuts:

“In the end being a country is no different from being a household or a family: if you want to have the things that you think are important and deliver those things on a long-term basis, then you have to be able to pay for them.  Not just this year, but next year and the year after that, and the year after that.

“So the Government will make some responsible decisions in this Budget.  These will include delaying some steps in our economic plan that we would have rather made sooner.” John Key speech on May 8, 2009

That delay included delaying tax cuts. He was at pains not to scare the horses.

I want to make it very clear today that this will not be a doomsday Budget.

There is no way I will pull the rug out from under New Zealanders when they most need the Government's help.

We will preserve entitlements and health and education spending because we believe it is fair on New Zealanders and because it is the responsible course for the long-term good of this country.     

Maintaining government spending is also the right economic response to the conditions we face, because it helps stimulates demand in the economy, and ensures those who are hit hard by the recession are provided with the safety net they need to recover. John Key speech on May 8, 2009

It’s clear from some of the smoke signals around National that Key is worried Luxon is scaring the horses. This Fran O’Sullivan column in the NZ Herald-$$$ on Saturday appears a plausibly deniable seeding of those concerns.

When Sir John Key and Christopher Luxon recently breakfasted, he would have urged his political protege to take caution preparing the May 30 Budget.

Key strongly believes a new prime minister should think about delivering a political change programme by taking a three-term view, not a three-year view.

They should assume - if successful - a prime minister or their party will have nine years to deliver a considered change programme rather than trying to cram all their spending cuts and policy changes into three years (and going too hard in the first year), risking plunging the country into so much discontent their programme has to be abandoned and they don’t get re-elected. It is vital to secure trust in that first year in office. Fran O’Sullivan column in the NZ Herald-$$$

Not a quote in sight, yet…

Get Key on this topic and he’ll happily cite Tony Abbott, whose disastrous first Budget began his death spiral as Australia’s Prime Minister.

The problem was the cuts in Abbott’s Budget deeply offended the egalitarian streak that still ran deep in the Australian psyche. He also cut election promises - Luxon has not done that (yet) - and was dispatched as Prime Minister through a caucus spill after just two years at the top. Fran O’Sullivan column in the NZ Herald-$$$

Someone has had a chat with someone…

The policy Key and his Finance Minister (now Sir) Bill English pursued was known as “incremental radicalism”. The Key Government’s secret sauce lay in four sequential steps: explain the reason for changes far in advance, bring the public with you, adjust the expectations of the electorate and implement reform with competence.

The problem Luxon and Willis face is they are not getting cut-through. They are being drowned out by the verbal incontinence of Winston Peters and David Seymour.

The rational choice would be to wait for revenues to restore and park the tax cuts until we can afford them. Luxon won’t want to do that. Fran O’Sullivan column in the NZ Herald-$$$

We’ll see. The background to this concern is in the next section.

An ‘oiled up’ Christopher Luxon is slipping down the polls

Christopher Luxon is now the most unpopular National PM since Jenny Shipley in 1998, but persists in using campaign-style TikToks that feel disingenuous, such as this TikTok on Saturday about ‘oiling up,’ a phrase used by young people which he professed not to know the meaning of.

Really?

This looks like the work of Topham Guerin, or social media aides modelling their work on them. TG received $320,000 from the National Party during the election, as Farah Hancock reported on RNZ on Friday.

There’s a good question about why the PM is spending time on this over two years out from the election. He may think it works, but it handicaps his attempts to connect authentically with more New Zealanders, in my view. The polls are showing it’s not working either.

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

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:

* Former Labour Finance Minister Grant Robertson bowed out of politics this week, giving a series of exit interviews and delivering a valedictory speech in Parliament where he again called for a tax on capital and wealth and said the Government could and should sustain more debt to invest in infrastructure for future generations. See Monday’s email

* The Government announced a crackdown on Kāinga Ora tenants who were unruly and/or behind on their rent. Housing Minister Chris Bishop saying a place in a state house was a privilege, not a right. He could not guarantee those evicted or their families would avoid becoming homeless. See Tuesday’s email.

* The Government shocked Aotearoa’s disabled communities by abruptly stopping spending on what it deemed as non-essential items for the last three months of the fiscal year. Ministers are scrambling to cut spending to fill a multi-billion dollar hole in the coalition’s tax-cutting plans before the Budget on May 30. See Wednesday’s email.

* The IMF warned the Government to fully offset promised tax cuts with spending cuts and/or tax increases elsewhere to avoid further stimulating inflation. It also again said Aotearoa-NZ should adopt a comprehensive capital gains tax, a land value tax and cut corporate taxes to improve investment and productivity. See Thursday’s email.

* Auckland Council is opposing a Wave park and data centre development at Dairy Flat because it said the project could not cope with the effects of possible climate warming of 3.8 degrees above pre-industrial levels, which is its new assumption for climate change. See more in Thursday’s email and in the Hoon discussion with Troy Baisden from 41:20 onwards.

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 Rod Oram’s death this week.

* 5.10 pm - 5.20 pm - Peter, Bernard, andCathrine Dyer talked about the tail risks of an extreme rise in global temperatures and the huge amount of energy AI will require.

* 5.20 pm - 5.35 pm - Peter and Bernard spoke with Christchurch tech commentator and Ben Reid about his new book Fast Forward Aotearoa. He is the author of Memia by Ben Reid

* 5.35 - 5.45 - Peter and Bernard talked with Robert Patman talked about the new book he edited called New Zealand's Foreign Policy under the Jacinda Ardern Government: Facing the Challenge of a Disrupted World.

* 5.40 pm - 5.55 pm - Peter and Bernard spoke with Te Pūnaha Matatini Principal Investigator and co-President of the NZ Association of Scientists Troy Baisden about Auckland Council’s new 3.8 degrees of warming assumption when approving, or blocking, big new projects possibly affected by climate change. Troy writes the Environmental Integrity Project Substack.

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

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.

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:

* PM Christopher Luxon said the reversal of interest deductibility for landlords was done to help renters, who would be grateful for the lower rents it would produce. But his comments are at odds with official research and the evidence of the last 20 years of rents and mortgage costs. See Thursday’s email.

* The Climate Commission told the new Government to cut the number of carbon credits it plans to sell in the Emissions Trading Scheme, potentially increasing the size of the funding hole for its $14.9 billion of tax cuts by a further $1.7 billion, adding to the gaps already there from a lack of foreign buyers tax revenue of $2.9 billion and an $800 million higher-than-expected bill for interest deductibility. See Wednesday’s email.

* Wellington City Council overturned and up-zoned many of the recommendations of an Independent Hearing Panel’s shockingly down-zoned District Plan, creating the potential for tens of thousands of extra homes being built in the capital in coming decade. See a preview of the decision in Tuesday’s email and detail on the results and comment in last night’s hoon above.

* The Government is trumpeting the speed, breadth and single-decision-making tools it is creating for itself to get big projects consented quickly, but its funding plans remain on decidedly slower tracks that are dependent on multiple decision-makers and unmade tough political decisions. The political narrative around our $100 billion infrastructure deficit is that consenting is the culprit, when actually funding go-slows, self-imposed debt restrictions and the capacity and desire of private sector balance sheets, boards and fund manager mandates to lend or buy into these projects is the main restraint. See more in Monday’s email.

* Details emerged of concessions made by ACT in the implementation of the reintroduction of deductibility of interest costs for landlords. The coalition deal said landlords could retroactively claim 60% of tax paid in the 2023/24 year. That was dropped. Instead, landlords can claim 80% from April 1 for 2024/25 and 100% for 2025/26. Seymour said he accepted the extra fiscal cost couldn't be afforded. See more in 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 - 5:20 pm - Bernard Hickey and Peter Bale opened the show with a discussion about the future of Wellington.

* 5.20 pm - 5.35 pm - Peter, Bernard, and Robert Patman talked about the latest developments in Ukraine and the Middle East, including this CNN article about Russian shell factories outproducing Europe and the United States by almost three to one.

* 5.40 pm - 5.55 pm - Peter, and Bernard spoke with housing economist and Motu fellow Stuart Donovan about Thursday’s Wellington City Council housing densification votes. Here’s the detail via Stuart’s X feed and the liveblog from Joel MacManus at The Spinoff.

* 5.55 - 6.02 - A soliloquy from Bernard about housing and media, plus a skateboarding dog story from Peter.

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

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.

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: Prime Minister Christopher Luxon said yesterday tenants should be grateful for the reinstatement of interest deductibility because landlords would pass on their lower tax costs in the form of lower rents.

That would be true if landlords were regulated monopolies such as Transpower or Auckland Airport, but they’re not, and the history of interest rates halving from 2009 to 2021 while rents doubled also shows that’s wrong.

‘I think if you're a renter, you're very grateful for the fact that actually costs that have been passed on to landlords are not being passed on to you.’ Christopher Luxon

But don’t take my word for it. Treasury, the Reserve Bank of New Zealand and the Housing and Urban Development Department published a detailed study last year (in PDF form below) showing rents are connected to household incomes, housing supply and population, rather than landlord costs or taxes. Mortgage costs have only a minor effect, they found.

…over the past 20 years, nominal wage inflation and the relative supply and demand of dwellings are the two key drivers of rent inflation…Treasury, RBNZ and HUD paper

(Paying subscribers can see more detail and analysis below the paywall fold and in the podcast above immediately. I’ll open it up for full public reading, listening and sharing if paying subscribers want me to by liking this article more than 100 times.)

Elsewhere in Aotearoa-NZ’s political economy at 9 am:

* Rent inflation rose to a 15-year high of almost 6.0% nationally in February from a year ago, while domestic airfares rose 7.7% from a year ago, keeping upward pressure on domestic services inflation and adding to arguments for the RBNZ to either hike again or hold interest rates high for even longer. Stats NZ

* The Government announced it would provide $10 million to ensure the 2024 ski season can go ahead on the Whakapapa and Turoa ski fields, but has told the recipients this will be the last time. The previous Government said the same when taxpayer support to continue was given last season and ACT said before the election no more ‘corporate welfare’ should be granted.

Overseas, overnight in geo-politics and the global economy:

* Oil prices jumped 2% overnight to almost US$84/barrel after Ukrainian drones hit two more oil refineries inside Russia’s borders, including one less than 200km from Moscow.

* A bill to ban Tik-Tok in the United States passed the US House of Representatives 352-65 overnight, although it has yet to pass the Senate or be ratified by US President Joe Biden, and a potential sale to a US owner by its ultimate Chinese parent, Bytedance, is seen as another more likely option. Bloomberg-newsletter Reuters

* Japan’s Honda, Nippon Steel and ANA Holdings last night granted workers pay rises of more than 4% yesterday, which was up from 3.6% last year and the fastest wage growth in Japan since 1992. The wage growth is seen increasing the chances the Bank of Japan will finally end its decades-long experiment of negative interest rates by increasing its key policy rate by 10 basis points to 0.0%, possibly as soon as next Monday, or next month. Reuters

PM expects landlords to use tax benefits to lower rents & build new homes. But the research and evidence shows that isn’t happening and won’t happen.

Prime Minister Christopher Luxon has often referred to his business and economic experience as a virtue for the new National-ACT-NZ First Government, but his views on how the billions of dollars in tax benefits he’s delivering for landlords flow through to tenants is completely at odds with official research and decades of evidence.

Luxon talked up the likelihood that landlords would pass on the benefits of reversing interest deductibility changes from April 1 in multiple interviews and two news conferences over the last 72 hours. (See videos below) At various points he has said renters should be grateful landlords would pass on the benefits of the tax deductibility changes and that he expected the changes to increase the supply of rental housing, both from new homes and empty homes coming back into the market.

He told a news conference yesterday National had campaigned on reintroducing interest deductibility because it cared about renters.

"What has been utterly unacceptable is that there's been a $170 per week increase in rents under the previous government, and they just kept going up and up and up.

"A big reason for why they go up is because landlords have been hit with costs associated with the removal of interest deductibility, and also the extension of the brightline test. Those costs have just been passed straight through to renters with higher levels of rent.

"We care about renters. I think if you're a renter, you're very grateful for the fact that actually costs that have been passed on to landlords are not being passed on to you.” Christopher Luxon in a news conference (from 11:15) yesterday.

He saw the move increasing the number of rental properties built and offered for private rental. He added he had received advice the policy would create “downward pressure” on rents.

"So actually increasing the supply of rental properties by making sure landlords aren't actually removing their properties from the rental market, that they aren't adding those costs of interest deductibility and brightline implications onto the rents, is actually a very good thing."

Luxon made similar claims in Monday’s post-cabinet news conference, and in an interview on 1News Breakfast on Tuesday.

“We looked at our economic conditions, looked at what we can afford, and what we're delivering is relief to landlords. So they can put downward pressure on rents.” Luxon on Breakfast.

‘This is all about improving life for renters’

He went on at greater length in his post Cabinet news conference on Monday.

“This is all about improving life for renters. One of our major challenges, as you well know, is that average rents have gone up $170 a week under the previous government. A big part of that was the costs that were loaded onto landlords for interest deductibility  and also through some of the effects of the Brightline test.

“We want to make sure that there's a supply of rental property. It's really important. We have a high functioning rental market in New Zealand. We have supply challenges in the ownership market. We have supply challenges in the rental market, supply challenges in the social housing market. All of those things are linked. So they were  important decisions for us to make.

“I’m more interested in the outcome, frankly; I know it may be intriguing to you, but actually what matters most is actually, for renters in New Zealand, they get downward pressure on their rents.

“If you are thinking about the renters of New Zealand, which is where I’d hope you might be thinking, they will be very grateful for the fact we are doing everything we can to increase the supply of rental properties across New Zealand.” Luxon in his post-Cabinet news conference. (Transcript)

He was then specifically challenged on whether rents would go down, and what he would do with rents on his four rental properties. He has previously said he did not have mortgages on them so changes in deductibility of interest would have no impact.

Media: Will rents go down?PM: Well, we hope that puts downward pressure on rents, and certainly we’ll see a stabilising of rents.

Media: Not downward pressure—will rents go down?

PM: Well, we’ll see some stabilising of rents. We won’t see $170 per week being added to average rents in New Zealand.

Media: Will you drop your rents?

PM: That’s a decision for me and my personal finances, to work that through. Luxon in his post-Cabinet news conference. (Transcript)

So what do the deepest studies and evidence show?

Treasury, the Reserve Bank of New Zealand and the Housing and Urban Development Department published a detailed study last year (in PDF form below) showing rents are connected to household incomes, housing supply and population, rather than landlord costs or taxes. Mortgage costs have only a minor effect, they found.

The 24-page study, What Drives Rents in New Zealand? National and Regional Analysis, published this chart showing what actually drove rents.

This is the money quote from the study.

“We find that, over the past 20 years, nominal wage inflation and the relative supply and demand of dwellings are the two key drivers of rent inflation at both the national and regional level, through impacting tenants’ ability and willingness to pay, and the availability of rental properties respectively. When the effect of other factors is excluded, a 1 percent increase in nominal wages leads directly to a 1 percent increase in new tenancy rents. A 1 percent increase in people per dwelling, leads to a 1.5 percent increase in rents at the national level.” Treasury, RBNZ and HUD in the August 2023 paper: What Drives Rents in New Zealand? National and Regional Analysis.

Mortgage rates and costs have much less of an impact, they found.

“We also find that rent inflation at the national level is affected by mortgage rates (increasing mortgage rates increase rents) and the unemployment rate (increasing unemployment decreases rents). However, their contributions are smaller and less significant than wages and the physical supply and demand of dwellings.” Treasury, RBNZ and HUD in the August 2023 paper: What Drives Rents in New Zealand? National and Regional Analysis.

So what happened when mortgage rates fell sharply?

Luxon’s comments about taxation costs being passed on would also apply to landlords passing on mortgage cost reductions as interest rates fell. Here’s what actually happened to mortgage rates and rents.

So rents rose faster than disposable income, leading to tenants paying a higher share of their income in rent.

Rent share of income

It turns out housing supply and population growth are quite important.

Treasury, the RBNZ and HUD are not the only ones saying landlords don’t just pass on higher or lower costs. Here’s independent economist Tony Alexander via OneRoof and CoreLogic Chief Economist Kelvin Davidson via CoreLogic.

“Will they pass on the restoration of their after tax income to what it was a few years ago into lower rents? No they won’t. Why? 

“Because it is hard to find evidence that progressive removal of this deduction ability caused much extra upward pressure on rents. In the five years before investors started to progressively lose their deduction ability, average nationwide new rents in the dataset gathered up and reported by Statistics NZ rose on average 3.3% a year. Since then rent growth has averaged just over 4%. The increase is small. So, if there is any giving back it will also be small.” Tony Alexander via OneRoof

And will landlords use the tax change to decide to build new houses?

If Luxon is right and the change in Government and the well-known change in interest deductibility rules will cause a surge of landlord interest in building new homes, it’s not evident in either building consent or surveys of landlord appetites to build.

Luxon’s view that landlords want to build new homes for renters, which are largely apartments and townhouses, is not borne out by what landlords say they want.

It’s also at odds with the fact that new builds were already exempt from the deductibility rules, although it could be argued more profitable existing homes would make it easier for landlords to expand their portfolios with new builds. The trouble is, they’re actually reducing their appetite for new builds as rentals. Some of the new-build demand for new standalone homes is from landlords building a big new home to live in themselves.

With their higher profits from owning rental properties.

So what do landlords want? They want to buy existing homes and or land to receive the leveraged capital gains on land values tax free. The change in deductibility rules are more likely to translate straight into higher prices of existing homes and land than new homes.

Timeline-cleansing nature pic

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:

* The new National-ACT-NZ First coalition Government completed the 49 tasks it set itself in its 100-day plan on Friday, using urgency in Parliament more than any recent Government to pass repeals of RMA, Smokefree, Three Waters, Auckland Fuel Levy, Clean Car Discount and RBNZ employment mandate legislation, and to introduce its Fast-track Approvals Bill. See Friday’s email.

* In an effort to save $340 million a year, the new Government announced plans to slash the number of motel vouchers given out to homeless families, arguing many could and should stay with friends and family instead. See Thursday’s email.

* The new Government announced various policies this week forcing councils and others to increase their rates and prices, adding to inflationary and mortgage rate pressures it had vowed to reduce. See Wednesday’s email.

* The new Government unveiled its draft transport policy, surprising voters with a $50 increase in car registration fees, 22c/litre of increases in fuel taxes from 2027 and plans for privately-run toll roads, congestion charges and a new system of road-user charges based on weight of vehicles and kilometres travelled. See Tuesday’s email.

* PM Christopher Luxon’s decision to claim $1,000/week in expenses from taxpayers for living in his own apartment in Wellington when he could have lived in Premier House again illustrated how our society has become a housing-market-with-bits tacked-on. 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 - 5:20 pm - Bernard Hickey and Peter Bale opened the show with a discussion about the loss of more than half of the nation’s television news journalists in a fortnight, along with comments by David Seymour, the SOEs minister reviewing TVNZ’s status, that were critical of a TVNZ journalist on a day when half the newsroom was sacked.

* 5.20 pm - 5.35 pm - Peter, Bernard, and Robert Patman talked about the latest developments in Ukraine and the Middle East.

* 5.45 pm -6 pm - Peter, and Bernard spoke with Environmental Defence Society CEO Gary Taylor about the Government’s Fast-track Approvals bill, which he has described as ‘the Government’s war on nature going nuclear.’

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 talked with Kiwibank CEO Steve Jurkovich for When The Facts Change via The Spinoff about the RBNZ’s decision to hold the OCR, the likely introduction of DTI controls offset by a loosening of LVR controls, the challenge for banks and insurers to work together on climate risks, and the battle banks and their customers are having with scammers. Kiwibank sponsor When The Facts Change.

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.

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: A CTU analysis of Government spending and investment has found already gaping holes in promised public services and infrastructure will widen by as much as a further $22.1 billion over the next four years if the population keeps growing at recent rates, and as the new Government screws down a real spending sinking-lid even tighter.

I spoke with CTU Economist Craig Renney about the Investing in a Growing Population report released this morning. The full interview is available for all in video form above.

Here’s excerpts from the report, some key charts and a link below to download the report.

This report examines the possible real terms gap in public investment. This could occur over the next four years, if population continues to grow faster than forecast by Treasury, and government investment does not adjust.

We can calculate this figure by measuring the real per capita level of investment that the Government would need to make to maintain the per capita track set out in HYEFU 2023.

If population grows at the same rate that it did from 2013–20 (1.96% per annum), then the total public investment gap will be $10.1 billion, almost five times larger than the Government’s announced cuts.

If population continues to grow at the current rate of 2.8% per year, then the total public investment gap will be $22.1 billion, more than 10 times larger than the Government’s announced cuts. The CTU’s Investing in a Growing Population report

Te Waihanga-The Infrastructure Commission has already estimated the infrastructure funding gap at $100 billion, with a further $100 billion needed to be spent if population growth is 0.5% as projected by Stats NZ to 2073. That projection rests on an assumed flat level of net migration at 25,000, every year.

This chart from its strategy document in 2022 shows how underestimates of population growth in the last 20 years have happened.

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: In an effort to save $340 million a year, the new Government plans to slash the number of motel vouchers given out to homeless families, arguing many could and should stay with friends and family instead.

Critics said the moves would just push people out onto the streets and living in cars and sheds unless more social homes are built, which the National-ACT-NZ First coalition is considering in the Budget due on May 30.

Housing Minister Chris Bishop and Social Development Louise Upston announced yesterday they wanted to stop spending $1 million a day housing 3,000 families in motels, starting by giving families living in motels for more than three months first priority on the social housing register.

It would also slash the initial granting of motel vouchers to homeless people from a range of seven to 21 days to a range of between one and four days. Officials would then decide whether these people could stay in the motel or be kicked out to couch-surf with friends and family.

“We're not going to stop handing out motel vouchers. We're just going to get a bit more tough about how we hand them out, and who we give them to because...frankly…three thousand families living in motels at a million bucks a day is unsustainable for those families and is also unsustainable for the taxpayer.” Chris Bishop this morning via RNZ

Critics argued kicking people out of motels without increasing the stock of social housing through Kāinga Ora and community housing providers would increase pressure on people to live rough, sleeping in doorways, cars, sheds and tents.

(Paying subscribers can see more detail and analysis below the paywall fold and in the podcast above immediately. I’ll open it up for full public reading, listening and sharing if paying subscribers want me to by liking this article more than 100 times.)

Elsewhere in the news in Aotearoa-NZ’s political economy at 11 am:

* TVNZ sacked 68 staff in its news and current affairs division this morning, which halves the number of news gatherers and cuts the state-owned broadcaster’s headcount by 10%. Newshub’s 200 news gatherers are being sacked on June 30. 1News

* RBNZ Chief Economist Paul Conway told Bloomberg in an interview aired last night that the central bank may be able to start cutting interest rates sooner than it currently expects (next year) if the US Federal Reserve begins easing later this year. Bloomberg-gift

* An ASB survey published this morning found a net 51% of respondents thought house prices would rise, which is back to the level last seen at the peak of the post-Covid boom in October 2021, when house prices were rising at an annualised rate of 30%.

‘Go couch-surfing. It’s better than staying in a motel and cheaper for us’

As promised before the election, the National-led Government has announced plans to dramatically reduce the number of people living in motels at the taxpayers’ expense. The plans are focused on getting people to live with friends and families instead, and to prioritise access for Kāinga Ora homes and community housing provider homes for those living in motels with children for more than three months.

Critics argued that adding motel dwellers to the social housing waiting list would just shunt others down the list and lengthen their overall wait times, rather than expand the supply of social houses. Kicking people out of motels to go couch surfing would simply increase the numbers of people living rough, Opposition MPs and social housing activists said.

Bishop told RNZ in an interview this morning that ultimately the solution was more supply and announcements on that were possible in the Budget due on May 30.

“It's a first step. The wider issue, which I think you rightly highlight, is we need more houses and we need to end emergency housing and there's work underway on the wider settings. And we'll make more announcements about that later.” Bishop via RNZ

He said the current system was a mess, indicating many were in the motels unnecessarily. Eligibility would be tightened, he said.

“So at the same time as making it easier for families with kids to get out, we're also going to tighten the eligibility. And MSD staff are going to be asked to do more investigation of people's needs before they get given the grant. So have you unreasonably contributed to your housing situation? Have you paid your bills on time?

“Have you reasonably investigated alternative options? And do you have reason to believe that people are getting emergency accommodation who aren't entitled to it?

“We're not saying that we're not going to stop handing out motel vouchers, we're just going to get a bit more tough about how we hand them out, and who we give them to because...frankly, 3,000 families living in motels at a million bucks a day is unsustainable for those families and is also unsustainable for the taxpayer.” Bishop

The $340 million represents about 10% of the cost of the $3.5 billion worth of tax cuts promised by National in its manifesto for the 2025/26 fiscal year. Detail on the tax cuts is expected in the Budget on May 30.

Bishop was then challenged to provide evidence of people using motels when they weren’t entitled to.

“This is a little bit anecdotal and I don't want to get too into individual circumstances. You do hear stories of families who could go and live with other people for example, live with other families, live with friends, live with other family members, who have instead ended up in emergency housing.” Bishop

He said the last Labour Government had already tightened the rules after people moved to Rotorua because access to motels was easier.

“The evidence was that people were actually moving from outside the Rotorua region in order to go to Rotorua because they could get into a motel. So these are the kind of perverse incentives you set up when you have a kind of free-for-all system. So some of this tightening work started under the last government. We're just accelerating that work.” Bishop.

Borrowing money to pay private landlords not to kick out tenants

Bishop went on to point to social impact bond programmes as one solution to keep people in private rentals and out of motels. The bonds raise money from private investors to pay for social services or new homes where payments are linked to achievements of certain milestones.

“What we're doing with the social bonds is saying: ‘is there a situation where we could go out of the government and actually contract for better results and pay on performance?’ So we might put out a bond, which a group of people might essentially contract into, and it might be a group of landlords, or it might be a group of community housing providers working with private landlords, for example, and say, you know what, we'll aim to get, say, 500 families who are in emergency housing, we'll get them into a new home or into a social house, and we'll aim to keep them in that social house because sustaining people's tenancies is often a challenge.

“And if we do that, then we'll expect some financial reward for doing that. Now, this is about using new approaches such as social investment to try and tackle some of these problems. We're just having a look at that right now, so that the work is underway on that.” Bishop

Quotes of the day

How it began

Cleaning house?

“There needs to be a pogrom. This new government needs to clean house.” The Platform host Sean Plunket in an interview with ACT Leader David Seymour, who subsequently called for the resignation of Victoria University’s Professor Joanna Kidman, a director of the Centre of Research Excellence for Preventing and Countering Violent Extremism, after she wrote on X the Government might be a ‘death cult’ that hates children.

Heads on platters

“Kidman’s salary is paid by taxpayers via the Prime Minister’s Department, which means Christopher Luxon has just been delivered some potential savings on a silver platter. The board of the centre must move immediately to sack the extremist in their midst.” ACT spokesman Todd Stephenson

Critic and conscience

“Under the Education and Training Act 2020 NZ universities should act as 'a critic and conscience of society'. A senior government minister publicly announcing plans for retribution against an academic because they don't like the opinions expressed by them is deeply troubling.” Historian Vincent O’Malley via X

Chart of the day

Where’s the money coming from?

Climate chart of the day

Cartoons of the day

The next election

Actions and consequences

Timeline cleansing nature pic of the day

Splash of colour

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 new coalition Government’s zeal in its first 100 days for freezing and cutting spending and investment at the central Government level is having an unintended and unpromised effect.

It’s pushing more inflation out and up into the wider economy through new fees, user pays charges, rates hikes, higher rents and a slather of hidden taxes from both councils and Government agencies. This week’s transport funding shifts showed how cost cutting centrally is turning into higher fees, fares, rates and charges locally, which is upending the Government’s stated aim of reducing the cost of living.

The coalition’s deliberate ignoring of any emissions effects is also set to fire up fuel inflation through much, much higher Emissions Trading Scheme costs, meaning tax cuts for those on lower incomes are set to be overwhelmed by higher fees, fines and charges for fuel, rates, parking, speeding and commuting. The risk is of a second-round feedback loop of extra costs from higher mortgage rates if the Reserve Bank sees domestic inflation from such fees and charges being too sticky and high.

(Paying subscribers can see more detail and analysis below the paywall fold and in my podcast above. I’ll open it up for public sharing and listening if this article gets over 100 likes, to indicate approval from paying subscribers.)

Elsewhere in Aotearoa’s political economy at 10 am:

* Finance Minister Nicola Willis yesterday prepared the ground for a budget deficit forecast for 2026/27, rather than the $100 million surplus forecast by Treasury before Christmas. She told reporters slower GDP and tax growth would make a return to surplus harder and signalled more news was likely when the Government released its Budget Policy Statement on March 27. NZ Herald She also answered a National MP’s Parliamentary question (2) about the Crown accounts to the end of January yesterday to talk about fiscal headwinds.

* The Crown accounts actually showed the OBEGAL deficit for the seven months to the end of January was $71 million lower (ie better) than expected at $3.655 billion because tax revenues were $752 million lower than expected in December, but spending was $1.026 million lower than expected. Net debt of 20.7% of GDP was lower than the 21.4% forecast in December.

* Energy Minister Shane Jones effectively ended the previous Government’s ban on oil and gas exploration onshore, yesterday announcing Greymouth Gas Turangi had been granted a permit to drill in a 61.9 sq km area northwest of Stratford in Taranaki for the next 10 years.

* Auckland’s largest real estate agency chain, Barfort & Thompson, yesterday reported sales and listing figures for February, showing a surge in listings to its highest levels in nearly 13 years (up 2,255 to 5,382) as sellers hope investor tax changes and lower interest rates kick sales and prices higher. Sales of 633 homes were up 54.4% from the Gabrielle-affected February a year ago. However, they are only back at 2019 levels. Barfoot MD Peter Thompson said the listings surge with relatively low sales had created a “logjam” and “the largest buyers’ market we have seen since 2011.”

Robbing Peter to pay Paul: a nation of inflation displacement

The Government’s rhetoric in the election campaign and in the first 100 days ending on Friday has been about reducing the cost of living and bearing down on ‘wasteful’ Government spending, with the implication it fueled inflation and removing it will depress inflation. In reality, the Government is in effect slashing its cash deficits by robbing Peter to pay Paul, transferring the blame and costs out to councils and departmental heads.

This week’s Government Policy Statement (GPS) on Transport was a perfect illustration of how an apparent tightening of belts in the Beehive and a ‘return to the basics’ is simply shifting costs and inflations back out to voters through higher council rates, higher fares, new user-pays charges and higher penalty fees.

In summary, the Government announced:

* a $50 increase in annual vehicle registration fees over the next two years to help pay for road maintenance;

* a 22c/litre increase in fuel taxes in the two years from January 2027;

* a $430 million cut per year in public transport operational and infrastructure spending, adding it expected that to be offset by higher council payments and higher ‘fare box’ contributions from commuters, which councils have said will lift fares and rates;

* a $250 million cut per year in local road spending, which councils have said will have to be offset either by higher rates or lower road spending; and,

* at least doubling fines for speeding, drug use, alcohol offences and not wearing seatbelts to make up for inflation since 1999, which was the last time fines were updated.

It also signalled users should pay for new roads and for as much public transport and maintenance as possible, including through tolls and congestion charging.

The NZTA is expected to maximize its own revenue and consider opportunities to supplement that revenue with contributions from beneficiaries/users whenever possible.

However, just maximising revenue does not go far enough, and alternative funding tools are required for investment in land transport. The Government expects the Ministry and NZTA to work together on the future of land transport revenue and report to the Minister within three months on this work.

This work programme should include how each of the following funding tools will be incorporated into the provision of investment in land transport: tolling, time of use charging, equity finance and value capture. Draft GPS

Transport Minister Simeon Brown was even more specific in his statement:

“I expect the NZ Transport Agency to consider different ways of funding and delivering major transport projects. This includes ‘Build, Own, Operate, Transfer’ equity finance schemes, and value capture. Ensuring local government pays their fair share, funding should also be supplemented by increased public transport fare-box recovery and third-party revenue.” Brown statement

Ready for higher petrol taxes too?

The biggest increases in household living costs have been around housing (including rents, mortgage costs, rates and repairs) food and transport costs, as indicated in household living cost indices published yesterday by Stats NZ. They showed average weekly household expenditure on housing, food and transport rose 20% to $950 a week between 2019 and 2023, with domestic air transport costs rising 89.6%, property rates rising 27% and private car costs rising 26%.

Central and local Government fees and charges have risen 17.5% over the last four years, which was actually less than other drivers of inflation, which were 23.3% over that period and dominated by housing and food costs.

Perhaps surprisingly, petrol costs only rose 11.1% to an average of $53.90/week over the four years to the end of June 2023. That was partly due to cuts in fuel levies after Russia invaded Ukraine. Another reason for a lack of price increases for fuel was the relatively low amount from the Emissions Trading Scheme because the carbon price was low for most of that period as forestry companies pledged to plant thousands of hectares of pine forests as carbon sinks.

One other way the Government’s decisions to save money may leak out into inflation elsewhere is through the Emissions Trading Scheme. The GPS was notable for saying Transport policy was not responsible for reducing emissions, with the load taken up by the ETS.

Given the Government’s moves to reduce subsidies for buying electric cars, which saw purchases collapse in January and February, and for public transport, emissions are expected to rise and create a bigger emissions reduction deficit for the Government to make up by squeezing ETS unit prices higher. That would flow through into higher fuel costs, although the Government could encourage even more tree planting to keep unit costs low in the short term.

Parliamentary exchange of the day

Alternatives to higher ETS, rego and congestion fees?

Hon Julie Anne Genter: How can people in New Zealand expect to have frequent, reliable bus and train services to give them an alternative to driving a car when he is cutting funding for public transport and making it harder for local councils to make public transport reliable and on time? 

Hon SIMEON BROWN: Well, that side of the House thinks throwing more money is the solution to every single problem. Well, they had six years and they spent $228 million on "Auckland Light Fail". Aucklanders didn't get anything, but taxpayers spent hundreds of millions of dollars. Hansard Question 6 yesterday.

Quote of the day

The GPS signal

“This is probably the most ideological, unbalanced and petty transport policy the country has seen. It is one that, despite the government's rhetoric, will ultimately result in worse safety outcomes and fewer alternatives for driving, meaning more congestion, emissions and kiwis spending more on transport.” Matt Lowrie via Greater Auckland

Cartoon of the day

Free lunches and entitlements

Timeline cleansing nature pic of the day

Flowers and insects

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: Aotearoa-NZ’s utterly broken, expensive and unhealthy housing market is at the heart of our economic, social and political problems. It distorts our behaviour, dominates our aspirations and complaints, and has again taken centre stage in our political economy in the most personal and stark way.

PM Christopher Luxon’s decision to claim $1,000/week in expenses from taxpayers for living in his own apartment in Wellington when he could have lived in Premier House has again illustrated how our society has become a housing-market-with-bits tacked-on.

Elsewhere in Aotearoa-NZ’s political economy at 8 am:

* Infrastructure Minister Chris Bishop is expected to release details for a National Infrastructure Agency and plans to move families out of emergency motels by Friday, which is the formal end of the new Government’s 100-day plan, Andrea Vance reported for The Post-$$$ this morning, adding Bishop was considering merging the Infrastructure Commission, Crown Infrastructure Partners and Rua Paenga (the Government’s former quake rebuild agency).

* Bishop also rejected Christchurch City Council’s plea to delay the implementation of all of its more intense housing plan put together under the MDRS rules, but he did allow the Council to pause the application of MDRS rules in suburban areas. Higher density rules would still apply to the city centre and and around commercial centres.

(Paying subscribers can see more detail and analysis below the paywall fold and in the podcast above. They can vote to open it up for public reading and sharing by liking it more than 100 times.)

The PM’s housing-market-with-bits-tacked-on moment

PM Christopher Luxon failed to read the room or even the renovated villa on Friday when he initially defended claiming $1,000/week from the taxpayer to rent his own apartment in Wellington, saying it was his entitlement.

Newsroom’s Marc Daalder reported earlier in the day Luxon was claiming the full $1,000/week entitlement to stay in his apartment in the Kate Sheppard complex directly across from Parliament two nights a week, having decided not to stay in the apartment on the upper floor of Premier House slightly further away on Tinakori Rd. He chose not to because he said it needed renovations and has been described in an official report leaked to reporters over the weekend as ‘drafty, noisy, lacking insulation and having small bathrooms.’

“It's an entitlement and I'm well within the rules.” Christopher Luxon early on Friday to reporters in Queenstown. RNZ

He backed down late in the day after hearing the outraged response on NewstalkZB, telling Heather du Plessis-Allan in an interview:

“For me, I’m well within the rights, and well within the rules, but frankly it’s a distraction - I will live on my own costs.”

Having become Parliament’s wealthiest MP by owning seven residential properties and banking their capital gains tax free (which have dwarfed his savings from his work as one of the best paid CEOs in the country), the episode exposed how crucial maximising payments from the state to support residential land values has become to this wealth-creation model.

And Luxon is not alone in our governing, land-owning and voting classes in focusing on growing and maintaining private land values through Government actions and subsidies. These landowners have worked out building real wealth is about owning land, finding a state-subsidised tenant or the state itself as a tenant, and then waiting for the inevitably massive, leveraged and tax-free capital gains when too-few homes are built for a fast-growing population.

The Government currently spends over $5 billion a year in accommodation supplements, rent subsidies, first-home-buyer deposit grants and capital grants to support tenants paying the most expensive rents in the world relative to incomes, which in turns supports land values.

Parliamentary expenses disclosures on Thursday showed Luxon claimed $57,581 in expenses between October 1 and December 31 last year, including $5,987 for the apartment. He has also bought a house in his Auckland electorate of Botany, which he rents back to Parliamentary services for $3,750 a month. Luxon is one of four MPs who did this last year, including two National MPs (Luxon and Melissa Lee) and two Labour MPs (Chris Hipkins and Tracey McLellan).

Luxon was one of 20 MPs (12 National and eight Labour) who claimed the rent for apartments and homes they owned in Wellington in 2023, which they are entitled to do as MPs from outside Wellington.

‘Taxpayers as a bottomless ATM?’

Luxon was challenged about the apparent hypocrisy of claiming for rent when he had previously said people who could afford to pay for prescription charges should pay.

"Well, what I'm saying, I don't know how to explain it any clearer to you, as prime minister of New Zealand ideally you want to be able to live in Premier House when you're in Wellington," he said, when that was put to him.

Labour leader Chris Hipkins said Luxon should not have claimed the allowance.

"Christopher Luxon's treating hard-working Kiwis like a bottomless ATM. He needs to apply his own tough-love standard to himself.

"I think it's absolutely hypocritical for Christopher Luxon to be saying that every other New Zealander needs to stomach cuts, while he's claiming a $52,000 a year - that's $1000 a week - allowance to live in his own house mortgage free.

"The fact that it's within the rules doesn't mean that it's the right thing to do." Hipkins statement.

Quotes of the day

Judging entitlement

“Staggeringly bad judgement from PM here. During Covid recession in 2020, Jacinda Ardern cut her own pay and pay of all MPs (while raising a toddler in Premier House). Regardless of your entitlement, you’ve got to lead from the front.” NZ Herald Deputy Political Editor Thomas Coughlan via X

‘Koru lounge scrounger?’

“Bill English got Double Dipton. Could Luxon be…wait for it… Koru Lounger Scrounger?” Newshub reporter Anna Bracewell-Worrall via X

Off the charts

“The sea ice minimum around Antarctica has basically fallen off the charts at the wrong end.” NIWA oceanographer Craig Stevens. He was New Zealand science lead on the research vessel Laura Bassi and was speaking on its return from Antarctica to Lyttelton yesterday via Newshub Mitchell Redman

Number of the day

14 - The number of pieces of legislation passed under urgency in the first seven weeks of the 54th Parliament. A study from Victoria University of Wellington of 24 years of New Zealand’s Parliaments (from 1987 until 2010), the average number of bills passed through all stages under was 10. That’s 10 per Parliament, which are usually terms of three years. Via RNZ Phil Smith

Climate chart of the day

Starting 2024 off the charts

Cartoons of the day

‘A housing market with bits tacked on’

‘Do what I say, not what I do’

‘I’m sorry. I got caught’

Kicking down

Timeline-cleansing nature pic of the day

Beach sunrise on Saturday

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:

* Newsroom’s Marc Daalder reported on Friday PM Christopher Luxon was claiming $52,000 a year in rental costs from the taxpayer for living in his own apartment in Wellington when he could have lived in Premier House , as previous PMs from outside Wellington have done. After saying he was fully entitled to claim the expense on Friday morning, he reversed his position on Friday afternoon, saying the issue had become a ‘distraction.’

* The Reserve Bank held the OCR at 5.5% and signalled it would remain there for the rest of the year. Governor Adrian Orr told me in an interview on Thursday high net migration had reduced inflation last year, but may not this year. He also said the new Government’s decision to remove its employment mandate had not made any difference to how it ran monetary policy. See Friday’s email.

* Banks holding off on passing through lower wholesale interest rates to lower fixed mortgage rates must now decide whether to retain their profit margin expansion. See Thursday’s email.

* Housing Minister Chris Bishop gave a major speech promising to swamp the housing market with new supplies of buildable land and saying he wanted to halve house prices relative to incomes within 10-20 years. See Wednesday’s email.

* Aotearoa’s infrastructure deficit and the magical thinking of voters and politicians came home to roost on Monday with news of endemic problems with commuter rail in Wellington and the suspension of new building work in schools. See Tuesday’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 shocking announcement of the closure of Newshub.

* 5:10 pm to 5:20 pm - Bernard, Peter and The Kākā’s climate correspondent Cathrine Dyer talked about news of a year of heat records for sea temperatures and the problem of a lack of a full decoupling between GDP growth and emissions growth.

* 5.20 pm - 5.45 pm - Peter, Bernard, and Robert Patman talked about the latest developments in Ukraine and the Middle East.

* 5.45 pm -6 pm - Peter, and Bernard spoke with Newsroom co-founder Mark Jennings about the complete closure of Newshub, what a single television newsroom country was like, and how a cut-down version of Newshub could survive.

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. We have a couple of special offers on at the moment.

Other places I appeared this week

I talked with Reserve Bank Governor Adrian Orr for When The Facts Change via The Spinoff about the bank’s decision to hold the OCR at 5.5% this week, how high net migration affects inflation, and whether losing its employment mandate makes any difference.

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.

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