The Kākā by Bernard Hickey

TL;DR: The Government spent around $1.5 billion on emergency housing in the last five years and is now spending upwards of $7.1 billion a year on accommodation supplements, rent subsidies, first-home-buyer subsidies, motels, caravans and transitional housing. Stuff Federico Magrin

One argument given against fixing Aotearoa-New Zealand’s housing supply and demand crises to lower the most expensive housing costs in the world is that it would cost taxpayers too much and endanger the tax-free gains of the homeowners who decide election results. They argue higher or different taxes and more Government spending to increase housing supply or reduce population growth would cost taxpayers and businesses more overall in taxes, higher mortgage costs, lost leveraged and tax free gains in land values, and therefore cannot be justified.

Actually, not fixing our housing crises is already costing taxpayers $7.1 billion a year. Removing that cost could allow taxes to be cut and could supercharge economic growth.

It would be useful to reframe the housing debate as an opportunity to reduce taxpayer costs in the long run and to improve both productivity and labour supply for businesses as more locals can afford to train and stay here without the massive burden of the highest rent stress in the OECD. Effectively, there is a $7.1 billion fund already there to ‘pay’ to fix the crises. Or put another way, there is a $7.1 billion a year worth of payoffs to entice taxpayers to agree to fixes. (See more below the paywall fold, including The Kaka Project lens on the issue)

Elsewhere in the news this morning:

* Family Planning clinic appointments are booked up months in advance because of staff shortages, especially in Wellington where the highest big-city rents in the country are forcing workers overseas or into higher-paid Te Whatu Ora jobs. Stuff Samantha Mythen

* The number of decile 1 students in first-year tertiary study has halved since the Labour Government started its first-year fees-free policy, with students from wealthier backgrounds making up an increasingly greater share. NZ Herald-$$$ Derek Cheng

* Australia is now rejecting 90% of the applications from Indian students for non-university courses there, cracking down on visa fraud and ‘ghost colleges’ to halve its migrant intake over the next 18 months. That is likely to increase pressure on applications from India for places in colleges here, and pose tough questions to the new National-ACT-NZ First Government, which is also looking at tightening migration settings at the same time as ramping up international education revenues for cash-strapped polytechnics and universities. SMH-$$$ Angus Thompson

* The Danube burst its banks overnight for the first time since 2013 as unusually warm winter weather melted snow and increased rainfall from climate change lifted river levels much higher than normal for this time of year. Reuters

Full paying subscribers can read and hear more detail in my Dawn Chorus podcast above and below the paywall fold. Join our community of paying subscribers to get access to ‘Hoon’ webinars, our private chat system and be able to comment on articles. Paying subscribers also support the public interest journalism we do at The Kākā on housing affordability, climate emissions and poverty.

$7.1b could be used & saved to fix our housing crises

Federico Magrin reports for Stuff this morning from data obtained under the OIA that the Ministry of Social Development spent $1.48 billion on emergency housing grants in the five years from 2018 to 2022.

That spending on motels, caravans, camp sites, camper vans and serviced apartments jumped from $52.42 million in 2018 to a peak of $374.17 million in 2022. In the nine months to the end of September 2023, emergency and transitional housing costs were $254.93 million, meaning annual spending was likely to be around $340 million for calendar 2023, down 9% from the 2022 peak, Magrin reported.

But that’s not the only cost to the Government of failing to fix our housing supply shortages, housing demand surpluses and brutally high housing costs. They are overflowing into every nook and cranny of our society and economy to:

* squash productivity as workers are forced out of the biggest cities where agglomeration benefits accrue;

* stunt skills growth as workers are forced to work to pay rents, rather than study or train;

* push up emigration of residents forced to go overseas to find stable housing to start families; and,

* escalate health, education and justice costs as rent stress, cold and mouldy housing and high private rental turnover rates increase transience in schools and hospital admissions for winter illnesses.

The $340 million a year also isn’t the only housing costs borne by the Government.

Here’s the two areas of spending, through ‘welfare’ and ‘housing and community services’, as reported in the just-published HYEFU and its data tables

Including accommodation supplements ($2.5 billion), income-related rents ($1.4 billion) and the non-departmental costs of housing and community development ($3.2 billion), total spending on housing in 2023/24 is forecast to mount up to $7.1 billion/year.

The Kaka Project Lens

That $7.1 billion could be used to justify investing both political and financial capital to solve the housing supply shortage and housing demand surplus.

For example, that $7.1 billion could be used to pay:

* the interest costs on $160 billion of Government debt needed to pay for water, public transport and other infrastructure for hundreds of thousands of new or refurbished homes in the next 30 years;

* for an income tax or GST cut to offset a $5 billion per year residential land levy of 0.5% on the current $1 trillion value of residential-zoned land; or,

* to reinstate interest deductibility and building depreciation for residential and commercial landlords, along with removing all consenting and development contribution fees for developers in return for including inclusionary housing clauses.

The current Kaka Project proposal is for:

* a broad-based and low-rate 0.5% affordable housing and climate levy on all residential land values (deferred to sale for cash-poor owners) to raise $5 billion a year to service $150 billion of new borrowing in 30 year bonds over the next 30 years for central and local government-funded water, public transport and housing infrastructure;

* A bipartisan Affordable Housing and Climate Act that mandates housing and transport costs for the lowest quintile of earners to fall to less than 40% of disposable income by 2050 (it is currently well over 50%) and achieves zero transport and housing carbon emissions by 2050; and,

* To achieve that bipartisan target in conjunction with an agreed population growth average limit over the next 30 years of 1.5-2.0% per year through skilled migration of workers and their families on work-to-residence visas, rather than temporary visas (population growth through temporary worker migration averaged 1.5-2.0% over the last 20 years).

The political economy of such an Act

Agreeing an Affordable Housing and Climate Act would require some kind of ‘grand coalition’ or deal that satisfied the aims of the major parties and the minor parties likely to form Government over that 30 year period. This has been done before in the form of the agreements to pass and keep the State Sector Act (1988), the Reserve Bank (1989) Act, the Resource Management Act (1991) and the Public Finance Act (1989). They form the foundation of our current Government and economy, limiting housing and infrastructure development on the bipartisan assumptions of less 0.5%/year population growth and limits on the size of Government taxation, spending and net debt of no more than 30% of GDP.

An Affordable Housing and Climate Act would have to create a ‘new deal’ based on a reframing of the current debates, where the various parties get most of what they want and have to give up some other things.

My suggestions for such a ‘new deal’ could include:

* agreeing no more long-term and multi-billion-dollar public transport or motorway projects in exchange for repurposing some existing road lanes and public land for busways, cycleways and pathways that enable massive zero-carbon medium-density joint housing and commercial developments in our seven biggest and fastest growing Auckland, Hamilton, Tauranga, Wellington, Christchurch, Queenstown and Dunedin;

* removing all consenting and development contribution fees for certified zero-carbon developments using Government-insured and guaranteed building plans and materials in exchange for full Government-debt-funded water/transport/housing/health/education infrastructure development to support these plans and ensure councils don’t have to increase their own debt or rates;

* agreeing to reinstate interest deductibility and building depreciation for rental and commercial property investors, while leaving in place the tax-free nature of capital gains to incentivise the building of shareholder value through business values, rather than land values, in exchange for the residential land value levy;

* agreeing not to tax earnings inside KiwiSaver and other funds that can’t be accessed until the age of retirement, which would encourage households in funds investing in real businesses and infrastructure, rather than land;

* agreeing to create an independent Government authority mandated to achieve the Affordable Housing and Climate Act’s limits on housing and transport affordability, zero carbon and population growth, or for their leaders to be dismissed, similar to the Reserve Bank Act;

* giving that authority the power in conjunction with councils and iwi to consent any development that furthers the achievement of those limits by default; and,

* linking the achievement of the Affordable Housing and Climate Act limits to reduction in income, corporate and/or GST rates, and/or introducing wage indexation to income tax thresholds over time.

In summary, this bipartisan ‘new deal’ focused around a Reserve Bank-style Affordable Housing and Climate Act would;

* completely change the incentives households, businesses, councils and the Government currently have to block new housing developments or any infrastructure developments that might increase debt, interest rates or rates, or endangers the current exemption from taxes on capital gains on land values;

* completely change the incentives for households, businesses, councils, the Government and median voters have towards investing in public infrastructure, business technology and business development in ways that supercharge productivity growth and real wage growth in ways that prioritise real nominal GDP per capita growth over nominal total GDP growth and tax-free land value growth; and,

* create an agreed pathway for fast growth and development that underwrote business development and planning and focused councils, the Government and median voters on improving housing affordability, raising real wages and hitting our emissions reduction targets in exchange for agreed cuts in income and/or consumption taxes, removing development and consenting fees and incentivising hundreds of billions of dollars worth of household savings for investment in businesses and infrastructure, rather than dead land values.

There is also another ‘fund’ that could be used to pay for this ‘new deal’. The international emissions credits that both National and Labour plan to buy to meet our Paris Agreement targets could cost up to $24 billion, representing a liability in the Crown’s accounts that has to be paid for over time or reduced through other means. Reducing emissions through housing and public transport investment could be paid for by reducing this liability.

The two chunks of reduced government spending (and therefore future tax reductions) if the housing and climate crises are solved add up to nearly $80 billion in total over the next six years, or over $13 billion per year.

I welcome challenges, unintended consequences and additions/deletions in the comments below.

Quote of the day

“If we look at the bigger picture, we can see that winter precipitation is growing and with the rise of temperatures we will see less snowfall plus it can melt earlier.” Climate researcher Anna Kis, who works for the “1.5 degrees” climate project, on the River Danube breaking its banks. Reuters

Chart & video of the day

The weather was very bad this year

Cartoon of the day

All the feels

Timeline cleansing nature pic of the day

A very camouflaged caterpillar

Ka kite ano

Bernard

PS: I’ll publish these occasionally through until January 15, when I’ll resume publication in full. I’m conscious our subscriber numbers stalled last summer when I took a full three weeks off, and they stalled again towards the end of this year as I took a higher share of articles out from behind the paywall. I’ve found regular and frequent posts and podcasts, most of which are behind paywalls, helps keep our community growing. I welcome appeals to open up the particularly public-interestey ones.

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 massive gap is opening up between the Climate Commission’s advice and the new Government’s actions on reducing emissions. Two large swathes of recommendations appear to gone unheard in the first months of decisions by the National-ACT-NZ First Government on (not) reducing emissions from transport.

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.

Two huge tracts of climate advice falling on deaf ears

The Climate Commission’s advice to the government on paths to achieving the country’s second Emissions Reduction Budget was released earlier this month and runs to 337 pages across 16 chapters, offering a plethora of policy levers to incentivise change, lower barriers and support investment in infrastructure.

But a massive gap has opened between the current Government’s position and the Commission’s advice. The new Government’s position is that carbon pricing, the removal of red tape on renewable energy, and expanded use of gas as a transition fuel can achieve the bulk of targeted emissions reductions.

It’s a common set of stories told to prolong the status quo for the benefit of the few, and at the cost of the many. A renewable energy transition has significant geo-political implications for the distribution of power and wealth, as AUT’s David Hall provides an excellent summary of here).

We witnessed a pushback at COP28 against industrial level gaslighting from vested interests, some 2700 of whom were apparently represented at COP28, in addition to the usual state-level fossil fuel interests.

Here are the four main stories used to misinform the public by obscuring or negating the most effective evidence on the paths needed to achieve emissions reduction targets:

* natural gas is a beneficial bridging fuel that can assist countries to reduce emissions while ensuring energy security;

* carbon capture and storage (CCS) or carbon capture and utilisation (CCU) can support the continued use of fossil fuels while reducing emissions and enabling a fair transition;

* carbon pricing is a broadly sufficient policy tool for achieving net-zero emissions by 2050 in Aotearoa New Zealand; and

* the removal of red tape will double renewable energy provision by 2050 in Aotearoa New Zealand.

The natural bridge narrative

According to a 2022 paper in the journal Nature:

“(Natural gas) is a fossil fuel with a significantly underestimated climate impact that hinders decarbonisation through carbon lock-in and stranded assets.”

While recommending efforts to reduce methane leaks across the entire fossil gas supply chain, the paper recommends changing the ‘bridge’ narrative to something that sets unambiguous decarbonisation criteria.

As reported by the Guardian, a group of countries including Australia, the US, UK and Japan demanded stronger language in the conference’s text document, saying that they would not be co-signatories to “death certificates” for small island states. They were speaking on behalf of the umbrella group of countries.

Several members of the umbrella group including the US, UK, Australia and New Zealand, intend to expand their own production of fossil gas in future decades, employing the ‘bridge’ narrative as justification. New Zealand’s Climate Change Minister Simon Watts has described fossil gas as a transition fuel.

The carbon capture and storage narrative

Decades of research into carbon capture and storage have shown the process to be more expensive and less efficient than hoped. As a result, the International Energy Agency (IEA) has used less of it in successive net-zero emissions (NZE) scenarios. Their 2023 NZE scenario uses 38% less CCS than their 2021 version, as explained in this Climate Analytics report.

“recent analysis has shown that a high-CCS pathway will be substantially more expensive, by about US $1 trillion more per year up to 2050 compared to a sustainable low-CCS pathway”

The IEA’s NZE scenario requires a steep and rapid downscaling of fossil fuel use, with a limited, although still heroic, use of CCS according to Ketan Joshi on LinkedIn:

Extensive use of CCS is both more expensive and less efficient than reducing fossil fuel use, but the technology is being heavily pushed by industry interests. Corporate dominance of CCS advocacy was revealed by this InfluenceMap analysis which identifies the degree to which it is out of alignment with IPCC advice. A similar effort is going into promoting extensive use of green hydrogen, but that is a story for another time.

The carbon price is sufficient narrative

The new National-led government has proposed that emissions pricing will fill the gaps created by cancelling the Government Investment in Decarbonising Industry (GIDI) fund and various other industry and transport policies. As covered by Eloise Gibson at RNZ, the Climate Change Commission’s advice to government makes it clear that the government does not have sufficient policies to cut greenhouse gas emissions and that pricing under the Emissions Trading Scheme (ETS) will not make up the difference.

The commission has long argued that while emissions pricing is necessary, it is not sufficient, with the ETS requiring a raft of complementary policies and tools to assist in meeting targets. The reasons were well explained in this article by David Hall in The Conversation back in 2021.

It is also the evidence-based position taken by Working Group III in the IPCC’s 2022 Mitigation report, which stated that while carbon pricing instruments have incentivised low-cost emissions reductions, they have been less effective at promoting the higher-cost measures that are necessary to achieve further reductions.

The notion that carbon pricing is a sufficient policy approach rests on an ideological position based on economic modelling that oversimplifies the real world and has long since been superseded by evidence from real-world experience.

Removing red tape narrative

The current government’s call to double renewable energy supply by 2050 is fully supported by the Climate Change Commission’s report. The decision to ditch the target of 100% renewable energy by 2030 is also broadly supported by industry leaders (see this KPMG report). However, while there is plenty of support to reduce barriers to consenting wind and solar farms, it is by no means considered a sufficient approach to achieve the stated objective.

More significant unaddressed barriers to market growth exist, including regulatory uncertainty and market failures that are related to the current market structure (MBIE has also reported on these issues).  As Eloise Gibson reports for RNZ this week,

 “Commission chairperson Rod Carr says the government has choices about how to meet the budget, but it needs to make the maths add up.

One of the main pieces will be electrification, he says. Carr says the government's commitment to electrifying transport and industry is real and important "but needs to go beyond fast charging for electric vehicles", given New Zealand needs to add the equivalent of two large wind farms a year. He says private investment won't flow into certain areas without regulatory certainty, for example on offshore wind turbines.”

Narratives that deliberately obscure the best paths to net-zero carbon emissions are a perpetual bug in climate policy discussions. Institutions like the IPCC and Aotearoa’s own Climate Change Commission have been established with the express purpose of providing the evidence basis for sound policy making. Unfortunately, their advice is not always aligned with the interests of the powerful, who fashion narratives to sway public discourse in their own favour.

The problem with credits

One good thing that emerged from COP28 was the failure to finalise negotiations for Article 6, once again. I thought this was near to being a done deal, but I’m happy to be wrong. There would have been substantial pressure on ‘holdout’ countries to cave in to a deal that opened the floodgates on carbon offset trading at COP28. This would have risked harm to many communities in developing countries, particularly indigenous communities, who are frequent targets of land grabs and whose livelihoods are often eroded as a result.

A failure to finalise the deal indicates that some countries are continuing to hold out for an arrangement with higher integrity, as discussed in this article by Carbon Market Watch.

This is potentially bad news for government finances back here in Aotearoa New Zealand, given that we are currently facing rising external obligations under the Paris Agreement as a result of insufficient domestic emissions reductions.

Bi-lateral arrangements under article 6.2 can still proceed, although there is a lack of transparency around proceedings, with countries forced to anticipate rules that might emerge from future negotiations. In addition, questions are already being raised about the true additionality of credits traded under the first of these arrangements between Switzerland and Thailand.

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TL;DR: Auckland’s beaches have 50 times more microplastics pollution than previously thought, a new study shows, partly because of all the synthetic rubber shed by its increasingly heavy cars, SUVs and double-cab utes — even the new electric ones — and sluiced into the sea by stormwater systems.

Microfibres from synthetic materials used in increasingly popular athleisure and ‘fast-fashion’ clothing are an even bigger contributor.

Meanwhile, Transport Minister Simeon Brown quietly ordered transport funders to prioritise more cars and roads, rather than cycling and walking. The National-ACT-NZ First coalition also cancelled a project that would have allowed more freight and passengers off the roads of our national transport spine and onto rail. Both moves fly in the face of the Climate Commission’s advice this week on emissions reduction.

It is no use solving for climate change if it worsens problems with biodiversity

Elsewhere in the news in the last fortnight:

* Electric vehicles (EVs) contribute 20% more tyre emissions than cars run on internal combustion engines (ICEs) and particle pollution from tyres could be up to 2000 times worse than car tailpipe emissions;

* Microplastics, like pesticides, contain endocrine disrupters, and these are causing rising infertility rates in both humans and wildlife; and,

* The Public Health Communication Centre of Aotearoa (PHCC) listed 10 ways in which the policy bonfire of environmental protection threatens public health.

This is Cathrine Dyer’s wrap of climate and environment news for all free and paying subscribers to The Kākā. It is made possible by subscribers signing up to the paid tier to ensure this sort of public interest journalism is available fully in public to read, listen to and share.

Auckland’s massively micro beach pollution

Microplastics pollution at popular Auckland beaches from Herne Bay to St Helier’s Bay has been found at levels that are 50 times higher than previously detected elsewhere in Aotearoa, startling the scientists involved, according to Jamie Morton at NZ Herald this week.

The study, undertaken by a team from the University of Auckland, used sophisticated imaging technology (laser direct infrared imaging or LDIR) that is able to identify smaller sizes of microplastics. Microplastics, which derive from fossil carbon, leach toxic chemicals into rivers and oceans, devastating wildlife and accumulating in the food chain. Smaller microplastics can even pass through membranes and cause sub-cellular level issues.

The study’s findings suggest that microplastic pollution in the marine environment has been significantly underestimated because the technology used in studies hasn’t captured smaller particle sizes. The authors point out that there is further scope to measure even smaller particle sizes in the future (sizes ranging from 5 to 20 μM) than what is captured by LDIR.

The bulk of the plastic contamination they found is not from packaging, but is in the form of fibres from polyester clothing. These were highest at beaches where more people swim. The study also found a high concentration of microplastics related to cars, specifically synthetic rubber from tyres transported by stormwater drainage systems.

Environmental issues have a nasty habit of hooking up and producing offspring. A report from Pew Charitable Trust found as much as 78% of all ocean microplastic pollution is related to tyre dust. This source of pollution from cars is now much higher than that detected from tailpipe emissions (possibly as much as 2000 times worse) but has so far escaped regulation because it is harder to measure and control. According to a report from Yale Environment 360, electric vehicles are amplifying the issue because their tyre emissions are 20% higher than fossil fuelled vehicles. This is because electric vehicles weigh more and have far greater torque, which wears tyres out faster. Their report goes on to note that,

“Tire wear particles, or TWP as they are sometimes known, are emitted continually as vehicles travel. They range in size from visible pieces of rubber or plastic to microparticles, and they comprise one of the products’ most significant environmental impacts, according to the British firm Emissions Analytics, which has spent three years studying tire emissions. The company found that a car’s four tires collectively emit 1 trillion ultrafine particles — of less than 100 nanometers — per kilometer driven. These particles, a growing number of experts say, pose a unique health risk: They are so small they can pass through lung tissue into the bloodstream and cross the blood-brain barrier or be breathed in and travel directly to the brain, causing a range of problems.

According to a recent report issued by researchers at Imperial College London, “There is emerging evidence that tyre wear particles and other particulate matter may contribute to a range of negative health impacts including heart, lung, developmental, reproductive, and cancer outcomes.”

A real life Children of Men situation?

A 2022 update of a meta-review study that led to co-author Shanna Swan’s book Countdown: How Our Modern World Is Altering Male and Female Reproductive Development, Threatening Sperm Counts, and Imperiling the Future of the Human Race, found that reproductive development for men and women is deteriorating at a rate of 1% per year, and that sperm counts have been declining at more than twice that rate since 2000. The decline is attributed to endocrine-disrupting chemicals found in pesticides and plastics. They found declines in sperm count of over 60% between 1973 and 2018. Whereas earlier studies were focused on developed countries, the updated study found that fertility rate declines are, in fact, global and accelerating in the 21st century. The World Health Organisation (WHO) estimates that 17.5% of the adult population (or one in six) currently experience infertility.

Because the male reproductive system, like a Victorian-era bridge, is massively overbuilt, halving sperm counts has had little impact on overall fecundity rates (or offspring per parent) so far. However, there is evidence to suggest this might be changing. The adverse effects of micro and nano plastics on reproductive health is a growing area of study as potentially critical thresholds in human fertility rates are approached.

It’s a reminder that dealing with environmental issues requires a systems-level view, rather than issue-specific responses (with their frequently reductive techno-solutions). It is no use solving for climate change if it worsens problems with biodiversity or ‘novel entities’ (a term for environmental pollutants that includes microplastics in the Planetary Boundaries Framework), to the degree that it contributes to a different existential threat to humanity and other species. It is also a peek into the many ways that fossil fuels underlie what Vaclav Smil refers to as “the four material pillars of modern civilisation”: concrete, steel, plastics, and ammonia. (Taimur Ahmad provides a great explainer of “our chronic oil dependency” here).

Will Elon Musk’s Cybertruck cause mass emasculation?

It’s possible that a transition to EV’s may do more to address climate change as a result of the unanticipated population impact of tyre emissions, than from the beneficial effects of reducing exhaust emissions. This would be deeply ironic given Elon Musk’s pre-occupation with fertility collapse. If a (however unlikely) ‘Children of Men’ style apocalypse isn’t the change you were seeking, there are ways to avoid that without having to colonise Mars.

Mode shifting from cars, SUVs and double-cab utes to walking, cycling, buses and trains make more climate, environment and health sense than replacing every current vehicle with a heavy electric equivalent driving on fossil-fueled tarseal. A new EV is better than a new petrol or diesel one, but any cycling, walking or public transport journey is better.

In other news in over the last fortnight…

Four tyres good: two tyres bad?

Simeon Brown has quietly instructed officials to stop developing policy alternatives to private car transport. In a letter seen by Newsroom, the transport minister instructed officials at Waka Kotahi-NZTA to end work on programs that provide alternatives such as active or public transport. Brown wrote,

“I understand that some local authorities have been developing programmes with NZTA and other stakeholders to reduce vehicle kilometres travelled (VKT) by the light vehicle fleet, using funding from the Climate Emergency Response Fund,”.

“I have given notice to NZTA to end its work on these programmes, and to not commit any further funding to local authorities (beyond existing contractual obligations) to develop these programmes.”

In addition to slamming the brakes on cycling and walking projects, as Newshub puts it, the government this week made a shock decision to decline further investment in KiwiRail’s Cook Strait ferry project that would have safe-guarded rail and road connections between the North and South Islands. It is possible that a cheaper option could prioritise road over rail transport, resulting in infrastructure lock-in that limits future freight and passenger choices. This all came just as the Climate Change Commission finally came around to the idea of recommending development of the rail network in Aotearoa. A recent report from PHCC on the public health effects of the environmental policy bonfire is also worth a read.

Our freedom to choose how to get around is severely constrained by government policy decisions favouring cars and roads. As Orwell might say: ‘four tyres good, two tyres bad.’

A plan to make half of America a carbon sink

Meanwhile, a plan to store captured carbon dioxide under U.S. national forests is causing alarm according to this story in Grist. Critics are concerned that leaks from pipelines and wells could injure or kill people and animals, as well as damaging the forest.

“In 2020, a carbon dioxide pipeline ruptured in Mississippi, sending 49 people to the hospital.”

“Concentrations of the gas, which is odorless and heavier than oxygen, can also prevent combustion engines from operating. Bodan Tejeda, of the Center for Biological Diversity, worries that people even a mile or two from a carbon dioxide leak could start suffocating and have no way to escape.”

They are also concerned about the impact of installing and maintaining the facilities in national forests. It turns out, however, that national forests are just the tip of the iceberg, with more than half of the country’s landmass being eyed up for carbon dioxide storage.

The Lawrence Livermore National Laboratory has just released a new report titled “Roads to Removal: Options for Carbon Dioxide Removal in the United States,” that outlines how the country could achieve Net-Zero emissions by 2050 by storing gigatonnes of CO2.

“The CO2 captured via BiCRS or DACS will need to be durably stored below ground. Roads to Removal suggests that more than half of the land area in the nation has the potential for safe CO2 geological storage.”

Book recommendations

Yale Climate Connections recommends 12 climate change books to give to family and friends over the festive season, including New Zealand author Eleanor Catton’s book Birnam Wood. The book features a guerrilla gardening group versus an American billionaire and his end-times bunker. According to the New York Times review “The whole thing crackles, like hair drawn through a pocket comb.”

A good COP, a bad COP

The words ‘phase out’ were deleted from the final statement at COP28, but UN Climate Change Executive Secretary Simon Stiell still called it the “beginning of the end of the fossil fuel era”, even while admitting “we didn’t turn the page”

Mass coral bleaching?

Experts are predicting a mass coral bleaching event in 2024 according to a new paper in Science. Lead author Ove Hoegh-Guldberg, speaking to The Guardian said

“If it’s going to be ‘summers from hell’ type thing, many of us are fearing that this may be a tipping point that we’ve passed, meaning that we can’t come back. We don’t know the implications of such a spike in temperature.”

Mass bleaching and mortality of coral events in the Indo-Pacific, which will lead to long-term damage to ecosystems and the millions of people in the Earth’s tropical regions who depend on them, could worsen unless greenhouse gas emissions decrease, he said.”

A carbon futures tool

Carbon Brief featured a fascinating new interactive tool that provides access to the thousands of possible climate futures that were explored by the Intergovernmental Panel on Climate Change (IPCC) in 2022. These include pathways that limit warming to 1.5 and 2˚C, both with and without temporarily overshooting those targets.

“These different modelled pathways provide insights into possible future greenhouse gas (GHG) emissions and temperature trajectories, depending on the many choices that global society makes.”

Climate finance from Aotearoa

Māori start-up, Hinemoana Halo Ocean Fund secured US$50 million in funding over at COP28 in a “potentially game-changing initiative for Aotearoa, according to Laura Gemmell for the Spinoff.

“The purchase of Hinemoana Halo credits will go towards the restoration of seagrass meadows, wetlands, mangroves and coastal forests; all critical for preventing erosion, providing habitats for marine life and sequestering carbon dioxide. There’s also a recovery plan for taonga species such as whales, dolphins and manta rays.

“Biodiversity thrives in the hands of indigenous peoples. We have a deep connection with nature and generations of knowledge. It’s in the fabric of our identity,” explains Aperahama Edwards. “We view the natural world as our ancestors. Biodiversity is our sibling. This project will enable indigenous communities to fulfil their responsibilities as kaitiaki, guardians of nature.””

The fund, which has potential to scale globally, is designed to create a fair transition for indigenous communities, while also providing finance for ongoing care and protection of coastal and marine areas.

Catch you all next year

Cathrine

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: Weeks ago, Nicola Willis accused Grant Robertson of ‘fiscal vandalism” in handing over a set of books she said were littered with ‘snakes, snails and fiscal cliffs.’

Yesterday, she repeated the accusation and unveiled a set of books without any real surprises, budget blowouts, or even many details of her own Government’s plans for income tax cuts funded by new taxes elsewhere, benefit cuts and spending cuts.

It was supposed to be a smoking gun. Instead, all we saw was the barest wisps of smoke without a barrel of budgetary detail about the new Government’s own plans.

The bottom line - The experts tasked with judging the riskiness of Government debt viewed the books yesterday as showing a better economic and budgetary outlook, not a worse one. The 10-year Government bond yield actually fell two basis points to 4.58% after the release of the mini-Budget and it has fallen 42 basis points from 5.0% since Willis warned on December 4 the mini-Budget would prove an act of fiscal vandalism. That move would have been the other way around if there had actually been fiscal vandalism.

Elsewhere in the news today:

* The collapse of labour hire firm ELE Group into receivership has dumped 1,000 workers into joblessness a week before Christmas, including over 500 migrants now stranded here with temporary visas unable to be transferred to new employers and no access to welfare; RNZ, FIRST Union

* Consumer NZ again accused New Zealand’s banks of making only “glacial progress” in updating their IT systems to allow “confirmation of payee” for account name checking and removing hyperlinks from bank texts to prevent hundreds of millions of dollars in scams. NZ Herald Lane Nichols. The criticism came after the New Zealand Bankers Association said yesterday it would not have more detail on the systems changes until the end of April; and,

* More shipping companies re-routed vessels overnight from the Suez Canel and all the way around the bottom of Africa, fearing attacks from Iranian-armed Houthi rebels in the Red Sea and unclear on how a US-led coalition of naval forces would respond. Reuters

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But our subscribers have agreed to open it up for the next few days to show free subscribers what they get. We’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursdays at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until the end of today.

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A smoking gun without smoke or a barrel

Finance Minister Nicola Willis and Treasury yesterday released a very minimal mini-Budget and Half Yearly Fiscal and Economic Update (HYEFU), which failed in my view to show evidence of “fiscal vandalism” by the previous Labour Government, much less the “fiscal cliffs, snakes and snails” that Willis warned about in the new Government’s first post-Cabinet news conference on December 4.

The mini-Budget and HYEFU instead showed that since the PREFU in September:

* the Budget Deficit forecast for the current 2023/24 fiscal year fell by $2.1 billion to $9.3 billion;

* the return to surplus was still forecast to be in the 2026/27 year, albeit down to $0.1 billion from $2.1 billion in the PREFU;

* the surplus was then forecast to rise to $3.4 billion in 2027/28, which is not the ‘deficits as far as the eye can see’ that was seen in both 1990 and 2008 when National last took over from Labour in Government; and,

* the Government’s borrowing requirement rose $7 billion over the forecast period, which was a bit more than market expectations for $5 billion, but the new year’s forecast for the borrowing requirement in 2027/28 was $16 billion, which was less than the $20 billion some in the market had expected.

This is hardly the picture of budget blowouts and ‘fiscal snakes’ promoted on December 4.

Here are the key charts showing what was different between the PREFU and HYEFU:

Barely any change in cumulative deficits by 2027/28

A $7b increase in new borrowing, but less than expected by 2028

Barely any difference in cumulative fiscal stimulus by 2027/28

But there was an increase in Treasury’s house price forecast

So what was actually announced in the mini-Budget?

There was smoke missing from the previous Government’s actions, but there was also missing smoke from the new Government’s actions. Many expected detail on the new Government’s plans for tax cuts from next year and how it would be paid for, but that was mostly missing.

Here’s what was confirmed:

* $7.5 billion in new tax increases, benefit spending cuts and public service spending cuts, which represents just half of the nearly $15 billion cost of tax cuts outlined by National before the election;

* the indexation of main benefits (but not superannuation) to the cheaper inflation indexation from wage indexation, which means beneficiary families will be paid $676 million less from April next year;

* the full accelerated restoration of interest deductibility for landlords, albeit with detail due early next year;

* the removal of Labour’s Budget 2023 extension of free early childhood education to two-year-olds from three-year-olds to save $1.2 billion; and,

* confirmation of the early return to a two-year brightline test from Labour’s 10-year brightline test for capital gains on sales of rental properties from July next year.

Here’s what was missing:

There was no detail about the income tax threshold changes or in-work-tax-credit changes promised by National before the election; and,

There was no detail on which Government departments would be slashing spending and jobs before Christmas, other than that Labour’s $0.5 billion ‘baseline reduction’ programme had been increased to $1.5 billion.

Here’s what Willis said in three statements titled ‘Fiscal repair job underway’, ‘First steps for tax and income relief announced’ and ‘Economic repair job begins’, including this on the tax cuts detail to come in next year’s Budget:

“The Government is progressing work to deliver meaningful income tax reduction in next year’s Budget.  This includes considering design and implementation advice for the delivery of our proposed Family Boost childcare tax rebate, and for delivering income relief to workers and their families.

“Work is continuing to uphold the commitment in the ACT-National Coalition Agreement to consider the concepts of ACT’s income tax policy as a pathway to delivering National’s promised tax relief, subject to no earner being worse off than they would have been under National’s plan.” Willis

That indicates no decisions on the balance of the tax cuts between threshold changes and Working For Families changes. Being no worse off sounds a lot less reassuring than actual promises of tax cuts with threshold and tax credit details.

Treasury said it expected the Government’s plans to be broadly fiscally neutral, but made no comment on whether it would be distributionally neutral. That was the test for tax changes set by the previous National government, but which has been conspicuously absent with the current one.

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: Finance Minister Nicola Willis will publish her first ‘mini’ Budget at 1pm today. It should detail her earlier warnings about the ‘fiscal cliffs’ and ‘snakes and snails’ she says Labour left for National and both the scale and nature of the tax cuts agreed in coalition negotiations, along with how they’ll be paid for.

It should also detail the the Budget’s return to surplus, the new Government’s net debt track and its borrowing requirements after scaled back investment and spending plans.

Elsewhere in the news this morning:

* ANZ started passing on recent falls in wholesale interest rates through fixed mortgage rate cuts announced last night;

* Under urgency and without promising it in its 100 day plan, the new Government is repealing Labour’s Tax Principles Bill that forced the IRD to report on the fairness of new tax rules; and,

* The earth’s energy imbalance between solar radiation absorbed and energy reflected into space rose to a record high 2.86 watts/square metre above the 2000-2009 average in October, almost double what it was a year ago, NASA data reported via Leon Simons/X (See chart below)

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But our subscribers have agreed to open it up for the next few days to show free subscribers what they get. We’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursdays at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until December 21 (Thursday).

And here’s a special, special deal for under 30s.

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A day of reckoning for Willis’ ‘fiscal cliffs’ and ‘snails’ claims

Finance Minister Nicola Willis has alleged all sorts of fiscal shenanigans by the previous Labour Government in recent weeks, including that previous Finance Minister Grant Robertson left undisclosed ‘fiscal cliffs’ and ‘fiscal snails’ for the National-ACT-NZ First coalition to discover upon opening the books.

Making those allegations without detail opens up Willis, Robertson or Treasury to accusations of either misleading the public, or hyperbole, Treasury must disclose all such fiscal matters publicly in its Pre Election Fiscal Update (PREFU). We’ll find out more detail after 1pm today when Treasury releases Half Yearly Economic and Fiscal Update (HYEFU) with Willis’ ‘mini-Budget’.

Thomas Coughlan has written a useful preview over at NZ Herald-$$$ detailing Labour’s claims of the 155 ‘fiscal cliffs’ left for it by National in 2017, along with Thomas’ own analysis of 190 lines of spending totalling $3 billion from the PREFU of spending allocations that ‘run out’ over the coming four years.

In essence, the ‘fiscal cliffs’ were disclosed and are relatively small at 1.4% of total Government spending.

News briefly elsewhere this morning of note

The new Government has acknowledged it did not consult with iwi before deciding to axe Te Aka Whai Ora in what appears to be a clear breach of Te Tiriti principles. RNZ

The Gore District Council predicts it will cost $465 million to upgrade its three waters infrastructure in the next 30 years, and may request a meeting with the new government about how to fund the work. Stuff Rachel Kelly

Other ministers besides Christopher Luxon are learning Te Reo at the expense of the Government, including Finance Minister Nicola Willis RNZ Russell Palmer, despite Willis ordering bonuses for Te Reo speakers cancelled and Luxon saying this earlier in December: "In the real world, outside of Wellington and outside the bubble of Parliament ... people actually pay for it themselves. It's quite normal".

Quote of the day

Higher nominal GDP has a good side

“Whether driven by productivity, inflation or migration, strong nominal GDP growth works wonders on indebtedness!” ANZ NZ Chief Economist Sharon Zollner via X

Chart of the day

What happens more energy is trapped in our atmosphere

Map of the day

Keep an eye out more more Middle East conflict in the days ahead

Cartoons of the day

Timeline cleansing nature video of the day (sort of)

Ka kite ano

Bernard

PS: My apologies for yesterday sending the wrong Dawn Chorus podcast with the email. I updated the post online to include the right one. Today’s Dawn Chorus is the correct one…

PPS: Tomorrow’s emails and podcasts on Gravy Day will be the last for 2023. We resume publication on Monday, January 15. Unless a PM resigns again before that without notice ...

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

(Resent to include correct audio. My apologies.)

TL;DR: Councils and infrastructure managers are warning unplanned and unbuilt-for population growth has created deficits worth hundreds of billions of dollars that councils will have to fund with double-digit rates increases for decades, unless they get extra funding tools or capital help from the Government. LGNZ, Āpōpō.

Meanwhile, the Government announced a review of Kāinga Ora’s finances and will forge ahead this week with repealing Three Waters and RMA legislation, both of which were designed to address the funding needs and planning certainty that councils, infrastructure planners and infrastructure builders are desperate for.

Just as population growth hits 2.5% after 20 years of running at 1.5%-2.0% (when planners expected (and still expect) 0.5% at best), the new National-ACT-NZFirst Government has effectively frozen the infrastructure planning pipeline for months with no clear expectation of what will replace the RMA and Three Waters and when, along with a freeze on planning and funding for Aotearoa-NZ’s largest builder of homes.

In the absence of certainty and funding, councils are resorting to blocking decisions on the underlying infrastructure and zoning for big new greenfields and brownfields housing and other developments. They’re also cancelling new public transport spending and refusing to fund new infrastructure for future population growth in the absence of clear plans to fund public transport and water, both of which are needed to enable any new housing developments. Infrastructure builders are pulling back from investing in their systems and staff to bid for and deliver big public infrastructure, adding to the cost of ramping up any future activity. They point out this lack of a dependable bi-partisan planning and funding pipeline has made our major infrastructure projects the most expensive in the world per kilometre.

Councils are also opting for double-digit rates increases, new water and consenting fees and other charges to ramp up their revenues to cope with the extra costs of population growth they’re not funded for, and to give themselves more borrowing headroom, which is currently limited to 280% of revenues. The six key growth councils, Auckland, Hamilton, Tauranga, Wellington, Christchurch and Queenstown, are all rammed up against their debt limits and being forced to cut services, sell assets and increase rates at double-digit pace.

A Government that has said it is dedicated to firing up infrastructure and housing development to underpin economic growth while also reducing the costs of living, is in effect freezing new development and triggering a whole new range of costs for the businesses and households, along with ramping up pressure on the biggest cost of living, housing, by choking off new housing supply while carrying on with loose migration settings.

Elsewhere in the news this morning:

* North Island’s polytechnics are on the verge of financial and staffing collapses as they prepare for the disestablishment of Te Pūkenga, which has prompted the new Tertiary Education Minister to call on them to bring in more international students with temporary work rights to increase revenues — a move going against the PM’s call last week for tighter migration settings; Newshub Lloyd Burr

* A fifth wave of covid infections over Christmas/New Year could cause 1,000 deaths and 12,000 hospitalisations, public health expert Michael Baker warned last night; Newshub, 1News

* Cyclone Jasper has dumped a year’s worth of rain on Cairns in the last five days, cutting off the city and flooding its airport in a way meterologists said they’d hadn’t seen before and couldn’t have predicted before the sharp rise in global sea and air temperatures this year; and, The Guardian

* BP and major tanker shipping group Frontline announced overnight they had suspended sailings through the Red Sea after drone and rocket attacks from Iranian-funded Houthi rebels in Yemen, adding to the withdrawals over the weekend by container shippers Maersk, Hapag-Lloyd and MSC. 30% of trade between Europe and Asia passes through the Suez Canal and past Yemen. US navy officials are building a naval coalition in the Red Sea to “address the Houthi threat” in the coming days. Reuters

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But our subscribers have agreed to open it up for the next few days to show free subscribers what they get. We’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursdays at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until December 21 (Thursday).

And here’s a special, special deal for under 30s.

Also remember that anyone who is a student or teacher with a .school.nz or .ac.nz email address can sign up for the free version of The Kākā and will be upgraded within 24 hours to the full paid version for free.

Amid record population growth, infrastructure planning and funding is deep-frozen

It’s the perfect recipe for the most expensive infrastructure in the world, the most expensive rental housing in the world and a rash of new double-digit increases in rents, rates, fees and charges that is keeping inflation higher for longer.

In its first 100 days, the new National-ACT-NZ First Government has or will:

* freeze planning and funding for the country’s largest house builder (Kāinga Ora);

* repeal and dismantle water asset and planning reforms (Three Waters) designed to fund hundreds of billions of water infrastructure building for decades to come, all of which was designed to underwrite the building of hundreds of thousands of new homes in brownfields and greenfields areas of our six largest cities;

* repeal, dismantle and replace RMA reforms with an out-of-date earlier version, removing any certainty for planners, builders and funders for years to come and restarting the clock on plans already in the system for years;

* freeze and/or cancel public transport, cycling and walking projects in the pipeline for years, all of which were designed to reduce emissions and open up more opportunities for housing densification aimed at improving housing affordability; and,

* vaguely suggest an Infrastructure Planning Agency and ‘City Deals’ designed to substitute central Government and council debt funding for private funding at a scale and of a nature never done before, and likely to cost two to three times more than publicly-funded projects over the long run.

It is a lineup of actions that just three weeks ago City Rail Link CEO Sean Sweeney described as the exact opposite of what was needed to improve infrastructure building costs and delivery times.

He described a sector hamstrung by:

* a lack of bi-partisan infrastructure planning and funding;

* an uncertain pipeline of projects;

* a lowest-cost and short-termist approach to procurement; and,

* a lack of large-scale builders with long-term skill bases and their own infrastructure.

“This is a crisis. Bipartisan political planning is now urgently required and it has to focus on capability and affordability.”

“What does a healthy construction sector look like? There were three key components to his answer. The first is profitable companies, the second is a skilled workforce and the third is willing clients.” CRL CEO Sean Sweeney talking in a speech to a rail conference in November via NZ Herald-$$$

Speaking to the Herald after his speech, Sweeney cited Fletcher Building’s recent decision to stop tendering for transport projects because public procurement policies were too uncertain and designed to offload risk of cost changes to the builder, including for things such as below-ground risks and legislative changes.

“They say they’re too risky. The prevailing approach has been to load risk on to the contractor, even when it’s unrelated to their work.

“They don’t know the local geology. So either they have to take that risk and it could force them out of business, or they charge a higher price.” Sweeney talking to Simon Wilson via NZ Herald-$$$

Sweeney contrasted the approach with the one taken in Australia.

“They share the risks with the contractors, so the relationships evolve and there are joint expectations of what will happen.

“They have a pipeline of projects, so the better builders know they will get more work. And the worse ones, you can hold their feet to the fire.

“You can get your costs down if the work is not one-off. The long-term proof of concept is the programme to replace level crossings in Melbourne. They started with 25, and now they’re up to a hundred. They have alliances with the contractors, so they gain and then retain experience, and everyone saves money.”

‘At the CRL, in contrast, when the tunnelling was finished, the overseas companies left “and they took 300 highly skilled workers with them”. Sweeney talking to Simon Wilson via NZ Herald-$$$

‘What is needed is not what we’ve got, or are getting’

Sweeney called for a reset to longer-term bipartisan planning and partnerships with an emphasis on sharing risks, rather than short term ‘value for money.’

This week’s decisions reflect a reversion to the exact opposite, where the focus is on reducing Government expenditure on capital and operations in the short term to reduce Budget deficits and borrowing — all with the aim of creating room for tax cuts that boost disposable income able to be leveraged up in residential land, and keeping inflation and mortgage rates low to generate more tax-free gains on leveraged land values.

“If New Zealand is to have any chance of addressing the infrastructure deficit. We will need a complete reset.

“The construction industry has suffered a market failure. Market economics in this industry is a fantasy and the CRL is a living example. We walk into unknowns every three months.” Sweeney talking to Simon Wilson via NZ Herald-$$$

Sweeney referred to the results of a New York University Mellon research project published last month called TransitCosts, which found the CRL was the most expensive rail project in the world to build per kilometer. Data in the report and the chart below the CRL cost US$922 million (NZ$1.5 billion) per kilometer to build, while the average cost per kilometer to build a city rail line in the United States was around US$600 million, the average cost in Australia was around US$300 million and the average cost in Finland, Portugal and Spain was around US$100 million.

The extra cost also wasn’t just due to the project being all-tunnel. Greece’s project recent rail projects were also all-tunnel and cost a sixth of New Zealand’s cost.

The scale of the failure is evident in this chart from Infrastructure Partnerships’ Australia New Zealand Infrastructure Pipeline report showing the relative pipelines of work between Australia’s states.

Kāinga Ora review to look at finances

Housing Minister Chris Bishop and PM Christopher Luxon annnounced former National PM and Finance and Housing Minister Bill English would lead the review of Kāinga Ora’s financial situation, procurement and asset management. Its terms of reference would be released later this week and the review would report back to the Government by the end of March.

Bishop said he was concerned about a rise in the agency’s debt to $12.3 billion in June this year from $2.7 billion in 2018, although its assets had risen from $26.7 billion to $45 billion over that period. That means Kāinga Ora’s asset value rose twice as much as its debt over that time.

“A recent report by the Treasury and Ministry for Housing and Urban Development found that Kāinga Ora’s level of debt had grown from $2.7 billion in 2018 to $12.3 billion in June of this year. Advice released last year suggests that if Kāinga Ora continues on its current trajectory, their debt would reach $28.9 billion by 2033.

“I am deeply concerned about the operating deficit which is already at $520 million in 22/23 and which is forecast to continue increasing. This deficit has a direct impact on OBEGAL and continues to put pressure on the return to OBEGAL surplus.

“Since coming to office Ministers have received further worrying advice about the financial situation of Kāinga Ora. We are not releasing that information at this time as it is commercially sensitive, but it confirms that an independent review is the right course of action.” Bishop statement.

The questions for English are likely to be around whether Kāinga Ora’s build programme of 3,000 homes is extended beyond the current year. National has only committed to this year. It will also no doubt look at how social housing is funded and procured, and whether Kāinga Ora’s costs of close to double per square metre of that of the likes of Simplicity Living are justifiable.

Labour’s approach was to do almost all of it through Kainga Ora, whereas National’s approach under English was to focus capital grants and subsidies on the community housing trust sector.

An infrastructure tragedy ‘coming into view’

Yesterday, Āpōpō and LGNZ called for new funding tools for councils to provide more certainty. An Āpōpō survey of its members found most didn’t think the sector planned well enough.

Āpōpō, the former Institute of Public Works Engineering Australasia New Zealand division, said it supported a call from Local Government NZ for more clarity around funding.

“We need a step change to the way we fund, develop, manage, and maintain our country’s infrastructure; a dramatic increase in potholes is a great representation of what happens when we haven’t invested well enough in our assets.

“Our survey also shows that we need to find new ways to steer ourselves away from an infrastructure tragedy.”Āpōpō President Gary Porteous in a statement

LGNZ President Sam Broughton said councils could not continue to rely on household and business rates to fund infrastructure development. He also called for a shift to a four-year term.

“Councils' share of overall tax revenue has remained at 2% of GDP for the last 50 years, despite our ever-increasing responsibilities.

“Options for new funding mechanisms include revenue sharing between central and local government, which could form part of new city and regional deals.

“Our members have also strongly supported that the Government pay rates on all Crown land, as well as introducing new tools like congestion charging, bed taxes and tourist levies.

“A 4-year term of local government would also make a dramatic improvement in productivity across councils and provide certainty. This would in turn create a longer-term pipeline of work for the private sector to partner with councils and deliver for Aotearoa New Zealand.” LGNZ President Sam Broughton in a statement.

The Kākā Project view

The logjam here is always around property-owning ratepayers and median voters not wanting to pay the higher taxes, rates and congestion and water charges needed to maintain existing infrastructure, manage demand and add to infrastructure to account for higher water quality and emissions reduction standards, along with population growth.

The reforms to taxes and local Government in the late 1980s saw both sides of Parliament agree to limit the size of central and local Government at or below 30% of GDP, assuming that New Zealand’s population was stable.

They then both pursued fast population growth for short-term economic and political ends, without a coherent strategy, public debate or public approval for such strong population growth.

Ultimately, sustaining 1.5% to 2% population growth will need a tax share of GDP greater than 30%, along with water and congestion charges. That will require an open public debate about population growth that obtains a social license for that growth. It will also require an acknowledgement that private debt or equity funding for infrastructure is vastly more expensive than state-funded infrastructure.

The Kākā Project’s suggestion is for:

* an agreed long-run population growth forecast for 1.5% to 2.0% per annum to acknowledge the real political and climate refuge pressures on New Zealand over the next 70 years;

* a broad-based and low-rate annual tax on residential-zone land values to be used to pay for enough infrastructure, housing and public transport to achieve affordable carbon-zero housing and transport by 2050; and,

* a bipartisan agreement of the above that creates an Affordable Housing and Transport Agency to plan, approve, design, procure and run these projects in conjunction with councils and iwi.

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: Transport Minister Simeon Brown has written to regional councils and told Waka Kotahi-NZTA to immediately stop cycling and walking projects paid for from the Climate Emergency Response Fund (CERF), which the National-ACT-NZ coalition is using to pay for early tax cuts for landlords. RNZ Robin Martin, Newsroom Marc Daalder

The projects costing $22.5 million were designed to help achieve the previous Government’s Emissions Reductions Plan plan to reduce Vehicle Kilometres Travelled (VKTs) by light vehicles by 20% by 2035 vs a no-change baseline, which would mean a significant number of urban trips would have to shift to cycling, walking and buses from cars. The VKT targets were designed to reduce carbon emissions by 13.4 million tonnes by 2035, helping Aotearoa-NZ towards meeting its Paris target agreements and avoiding up to $23 billion of overseas emissions credits spending by taxpayers.

To save $22.5 million now and to pay for $2 billion worth of early tax cuts for landlords over the next 18 months, the new Government is risking creating a $24 billion liability for future taxpayers and Governments, or a default on our international trading agreements that would lock farmers’ exports out of Europe.

The cycling and walking project cancellations came as the Government followed through on its election promise to stop Let’s Get Welllington Moving, a collection of projects designed to encourage use of buses, light rail, cycling and walking in Wellington. Instead, the Government plans to spend $2.2 billion building a second tunnel for cars through Mt Victoria.

Elsewhere in the news this morning:

* Wellington Regional Council has warned councils they face water limits and extra charges because they’ve failed to bring in water meters to help fund billions of catch-up investment needed in the absence of Three Waters; The Post-$$$ Nicholas Boyack

* Trade Minister Todd McClay is travelling to India this week with the hope of restarting trade agreement talks, but faces a tough task as India doesn’t want to let in our dairy exports. Today, New Zealand’s largest sheepmeat exporter, Alliance Meats, was reported to have called on McClay to exclude dairy from the deal to allow meat exporters into India; and, The Post-$$$ Tina Morrison

* Global shipping giants Maersk, CMA CGM, MSC and Hapag-Lloyd announced over the weekend they had stopped travelling through the Red Sea and therefore using the Suez Canal because of drone and missile attacks by Houthi rebels funded by Iran. About 30% of the world’s shippin goes through the Suez Canal and would have to travel more expensively around the Cape of Good Hope. Meanwhile 5% of global trade passes through the Panama Canal, but passages are limited at the moment because of drought worsened by climate change. Reuters

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But we’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursdays at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until December 21 (Wednesday).

And here’s a special, special deal for under 30s.

Also remember that anyone who is a student or teacher with a .school.nz or .ac.nz email address can sign up for the free version of The Kākā and will be upgraded to the full paid version for free.

Tax cuts paid for by increasing deaths and emissions

There’s a clear line now between the Government’s plans to pay for early tax cuts for landlords with various measures that are likely to increase the number of deaths from speeding cars, unhealthier commuters and extra smoking, along with more climate emissions from the extra kilometres traveled in cars and trucks on higher-speed roads that would otherwise have been travelled on low-emissions buses, bikes and footpaths.

The National-ACT-NZ First Government is repealing SmokeFree changes to ensure an extra $900 million in tobacco excises are available to help pay for over $2 billion of tax cuts to be accelerated for landlords over the next 18 months. That will lead to thousands of deaths, hundreds of millions in extra health costs and lost productivity gains from having fewer smokers.

It has also cancelled billions of dollars in capital spending on public transport projects to free up room for tax cuts and reduce borrowing, in order to reduce interest rates so that median-voting residential land owners get the benefit of more leveraged and untaxed capital gains.

The irony is that the various measures to save money and deliver ‘cost of living relief’ to taxpayers through tax cuts in the short term, will cost many billions more in health costs, lost income tax revenues and overseas emissions spending in the long run. None of these decisions are being made with long-run analysis of the true costs and benefits, or being made with the discipline of taking into account up to $24 billion of emissions credits needed to meet our Paris agreements, but not included as a contingent liability in the Crown Accounts.

RNZ’s Robin Martin and Newsroom’s Marc Daalder reported over the weekend on a letter sent by Transport Minister Simeon Brown to regional councils and Waka Kotahi-NZTA last week that effectively cancelled new cycling and walking investment from CERF funds.

“I understand that some local authorities have been developing programmes with NZTA and other stakeholders to reduce vehicle kilometres travelled (VKT) by the light vehicle fleet, using funding from the Climate Emergency Response Fund,” Brown wrote, in a copy of the letter seen by Newsroom.

“I have given notice to NZTA to end its work on these programmes, and to not commit any further funding to local authorities (beyond existing contractual obligations) to develop these programmes.”

Brown went on to describe the programmes as a ‘waste of time.’

“The VKT programmes I have asked NZTA to end work on were previous government policy and simply amounted to millions of dollars being spent writing endless reports with no funding allocated to any delivery. This was typical of the last government’s approach to transport,” he told Newsroom.

“My focus will be on building and maintaining the roading network which is critical to having a safe, efficient and productive transport network.”

The problem, as outlined by Marc Daalder, is that the programmes are needed for New Zealand to meet its emissions reductions targets.

As part of the previous government’s Emissions Reduction Plan, a national target was set to reduce total kilometres travelled by the light fleet in 2035 to 20 percent below baseline projections. This meant roughly flatlining the total distance travelled by passenger cars over the next 12 years, even while the population was expected to grow significantly.

This would be done through setting specific targets for a reduction of vehicle kilometres travelled in major urban and provincial centres, which would be enabled through increasing the accessibility of walking, cycling and public transport as opposed to travelling by car.

In its initial advice in 2021, the Climate Change Commission specifically encouraged the Government to work with local government in “setting targets and implementing plans to substantially increase walking, cycling, public transport and shared transport use to displace vehicle use”.

In March, then-Prime Minister Chris Hipkins scrapped plans to set kilometre reduction targets for medium-sized urban areas like Napier and Dunedin. However, officials in July were on track to finalise delivery plans and funding agreements for the programme in five major cities: Auckland, Wellington, Christchurch, Tauranga and Hamilton

Brown didn’t answer when asked whether the Government was scrapping the kilometre reduction targets for the five big cities or the national 20 percent target.

In January, officials estimated the collective impact on carbon pollution of achieving the targets would be 13.4 million tonnes of greenhouse gases. That’s 42 percent of the emissions reductions the entire transport sector needs to achieve by 2035 in order to meet New Zealand’s climate targets.

Here’s an excellent chart via Marc showing the effects.

Auckland Councillor Maurice Williamson challenged Marc’s reporting via X, which Marc responded to:

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 record-high net migration of the last year was “unsustainable” and he had asked Immigration Minister Erica Stanford to look at tightening settings, having argued during the election campaign for looser settings to boost the economy. Wednesday’s email

* The new Government cancelled plans for two new ferries and terminals for the Interislander, rejecting a $1.5 billion funding request from Kiwirail and sending it back to the drawing board for a project that had doubled in cost to $3 billion. Thursday’s email.

* GDP fell 0.3% in the September quarter, which was much weaker than economists and the Reserve Bank had expected, causing wholesale interest rates to fall sharply. Today’s Dawn Chorus.

* Countries at COP28 agreed to try to reduce fossil fuel use, but failed to get fossil-fuel producing countries that dominated the conference to agree to phase out or phase down fossil fuel use, which needs to happen very quickly to avoid temperatures rising to dangerous levels of 1.5 degrees above pre-industrial levels. Yesterday’s Hoon.

* The new Government pushed ahead with urgent legislation to repeal changes made by Labour Government to the Reserve Bank Act, to reform the RMA and to create Three Waters, but without fresh economic analysis of the wider impacts. It also refused to immediately release official analysis showing how repealing the ‘Ute tax’ would increase emissions and fuel import costs dramatically. Today’s Dawn Chorus.

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 no longer using X.

* 5.10 pm - 5.20 pm - Bernard, Peter and Cathrine Dyer talked about the end result at COP 28 and the Climate Commission’s recommendations to the new Government; and,

* 5.20 pm - 6:00 pm - Peter, Bernard, Robert Patman and Josie Pagani talked about the new Government’s first couple of weeks, the events in Gaza and their key events of 2023.

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.

Items mentioned on The Hoon

During the Hoon we discussed various articles on The Kākā above and Peter recommended an article by Masha Gessen in The New Yorker-$$$.

Other places I appeared this week

I talked to Kiwibank Economist Mary-Jo Vergara for When The Facts Change via The Spinoff about the economic effects of 2023’s record-high net migration, including on rents, inflation, interest rates and house prices.

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.

Chart of the week

Mortgage profit margins are up about 100 bps ($2-3b/yr) in 6 weeks

Cartoon of the week

Oil lobbyists and climate finance execs swamped COP 28 this week

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 economy contracted unexpectedly in the September quarter, unleashing further falls in wholesale mortgage rates that mean banks could (should?) start cutting fixed mortgage rates before Christmas. (See more in updated charts of the day below)

Elsewhere in the news this morning:

* The new Government’s decision to scrap the Clean Car Discount discount scheme it calls the ‘ute tax’ is likely to cost the nation up to $900 million in extra fuel import costs and the Government up to $680 million in extra carbon credit costs because the decision is expected to reduce electric car numbers by up to 350,000 and increase emissions by up to 3 million tonnes; Drive Electric

* MSD is finally prosecuting larger numbers of Covid wage subsidy fraud after years of complaints it has pursued beneficiaries much more aggressively than businesses that fraudulently and needlessly claimed and retained hundreds of millions of dollars; 1News Katie Bradford

* Claims of treaty breaches are being lodged with the Waitangi Tribunal over the new Government’s moves to dismantle Te Aka Whai Ora and repeal smoke-free rules; 1News, 1News

* First Union, 350 Aotearoa and the Council of Trade Unions published research yesterday showing for every dollar the four gentailers invest in new renewable capacity, $2.41 is paid out to shareholders in dividends.

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But we’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursdays at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until December 21.

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Chart of the day

The banks are sitting on 100 bps of extra profit margin. For now.

The Fed pivoted yesterday to signalling lower rates next year. Real interest rates are now rising quite quickly.

COP28 cartoons of the day

Ya gotta laugh

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 National-ACT-NZ First Government announced yesterday it had cancelled a $3 billion plan to build two new ferries and terminals that would have supported growth in the numbers of passengers, cars and freight crossing the Cook Strait for decades to come.

In effect, the decision will limit the ability of Aotearoa-New Zealand Inc to keep growing its population by 1.5%-2.0% and GDP by 3% per annum for the next 20 to 30 years because the Interislander is literally the connection point of two major parts of our economy.

The Cabinet decision announced yesterday shocked business leaders on both sides of the strait because it is essentially telling them they can’t plan for growth. It was framed as a short-term cost-saving decision that would be replaced by a more economical version of the same project. In reality, the growth part of the project was just cancelled.

That may be the right thing to do in a world that needs to reduce emissions dramatically and for a planet that cannot afford compounded economic growth of 3% per annum for decades to come. But that is not how the decision is being framed and it’s encumbent on the Government to now explain to its supporters and those shocked business leaders how it will deliver the growth it no doubt wants, but without the new ferries or connections.

Meanwhile, it’s worth considering whether this is what degrowth actually looks like in our modern political economy, where high inflation and interest rates caused by excess demand for limited supply forces a reduction in growth capacity in the long term. Perhaps this is the planet’s way of slowing us down.

Usually at this point in the edition, there’s a paywall that only paying subscribers can see below and hear more detail and analysis in the podcast above. But we’d love you to join the community of paying subscribers, who can read and comment on everything inside the paywall all the time and get access to our weekly ‘Hoon’ webinar on the news of the week on Thursday’s at 5pm here via YouTubeLive for an hour. The 50%-off offer is open to new subscribers until December 21. I also invite paying subscribers to again vote in our poll below on whether we should open up all our articles immediately to everyone until Gravy Day.

cheers

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