The Kākā by Bernard Hickey

TL;DR: The Labour Government announced $4 billion of spending cuts over four years late yesterday, just 12 hours before the release of an IMF report calling for a tighter budget, either through spending cuts or taxes on capital gains.

Labour chose the spending cuts, although they amount to less than 0.3% of GDP or the equivalent of $10 per household per week. They’re also unlikely to lead to actual public sector job losses or spending cuts from current levels, given most of the cuts are to budgeted increases and future capital spending.

Just as well, because the ‘optics’ of choosing to cut Government spending to solve an inflation problem caused mostly by higher corporate profits are unattractive, especially when the call for ‘hairshirt’ austerity economics comes from the IMF, which itself identified corporate profits as the main driver of inflation in Europe. Without a lot of self-reflection, the IMF also recommended a corporate tax cut, when Governments in Europe and elsewhere have instituted windfall profit taxes on companies to claw back some of the excess profits captured during and after covid, as well as to ensure the burden of lower Budget deficits falls on those who can afford it most.

Labour has repeatedly refused to bring in a special windfall profit tax or special bank profit tax, even though they are conventional policy tools used overseas.

As it was, Labour got ahead of the ‘optics’ of the IMF report, but it does beg the question about who is paying to squelch inflation, when the IMF’s own analysis and an analysis in Aotearoa published yesterday using similar methods adopted by the OECD, the ECB, the US Economic Policy Institute and the Australia Institute have found companies, rather than workers or the Government are the main inflation culprits.

Yesterday afternoon I spoke to CTU Economist Craig Renney and FIRST Union Economist Ed Miller about their report with ActionStation into Profit-led inflation in Aotearoa. Here’s that full discussion in video form here for all, along with an audio version in the podcast above.

I detailed the specifics from the CTU/FIRST/ActionStation paper in yesterday morning’s email, but I’ve included a compilation here below of the charts from the various studies using the methodology used in the CTU/First/ActionStation paper, along with links to the studies that produced the charts.

Here’s the IMF one:

Here’s the US Economic Policy Institute one:

Here’s the OECD study:

Here’s the Australia Institute One:

And here’s the ECB one:

Deep-dives elsewhere

The death of PTOM and the birth of SPTF

Joel McManus has written a great obituary for PTOM, the Public Transit Operating Model that saw council bus services contracted out to private companies. It was colonised by private equity, wages were driven as low as possible, and then Covid labour shortages exposed the model. Michael Wood just killed it and it has just been repealed through Parliament and replaced by Sustainable Public Transport Frameworks. SPTF does not roll off the tongue. It may well be Wood’s great legacy. The Spinoff article

The parties’ policies on water quality

The Public Health Communications Centre Aotearoa from the University of Otago’s Department of Public Health has produced a useful comparison of the parties’ policy on water quality, wrapped up by Marnie Prickett, and including analysis by Tim Chambers, Nick Wilson, Michael Baker, Adele Broadbent, John Kerr and Simon Hales. Here’s a snippet from the PHCCA article (bolding mine).

What is striking, particularly from the two main parties, is the lack of a cohesive, confident vision for moving to more sustainable, healthy land use. Primary risks to drinking water sources are agricultural pollution and over-extraction of water for irrigation. Furthermore, Cyclone Gabrielle very recently demonstrated how poor land use can impact water services following heavy rainfall events (e.g. silt and forestry slash damaging infrastructure).

National did not mention land use or farming practices at all. While Labour did, it appeared focused on incremental rather than transformational changes. The Greens noted a need for a fair allocation of water use and that they do not support large-scale irrigation schemes (a driver of intensified land use). Te Pāti Māori was the only party to identify the need to support farmers as they redesign their farming systems to have less impact.

No party mentioned climate change, which is projected to amplify existing issues with water quality and resilience of water infrastructure. PHCAA article

Interview of the day

Rodney Jones on China with Jack Tame

Chart of the day

The problem with growing trade restrictions

Cartoon of the day

A Wile E Coyote moment?

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 for paying subscribers in the last week included:

* We launched The Kākā project for Election 2023 in Friday’s email.

* The Government agreed 50:50 funding deals with Auckland Council and Gisborne District Council to buy back land and repair infrastructure damaged by Cyclones Hale and Gabrielle in January and February. I wrote about it Thursday’s email titled: Making up our climate response as we go.

* National said it would shift away from fuel taxes to road user charges and congestion charges to pay to repair and build roads and public transport, but hasn’t worked out what removing the disincentive to burn fossil fuels and removing the incentive to drive electric cars would do to climate emissions or the Government’s finances. I wrote about it in Monday’s email.

* More evidence emerged on the open slather approach taken with migrant work visas in the last year. I wrote about it in Thursday’s email.

* A disturbing shift towards attack politics happened this week. I wrote about it in Friday’s email.

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

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

* 5.00 pm - 5.05 pm - Bernard and Peter Bale opened the show with a discussion about National’s fundraising beating Labour by $7 to $1 early in the campaign.

* 5.05 pm - 5.20 pm - Bernard and Peter and Cathrine Dyer talked about the de-growth discussion on The Kākā this week, along with her five ideas to slash emissions and a look at the Government’s ad-hoc climate repair deals with Councils.

* 5.20 pm - 5.40 pm - Bernard and Peter and Robert Patman talked about the apparent assassination of Yevgeny Prigozhin and what it might mean for Vladimir Putin and the war in Ukraine.

* 5.40 - 6.00 pm - Bernard, Peter, Robert and columnist for The Post, Josie Pagani, talked about polarisation in politics and the expansion this week of the BRICS grouping to include Saudi Arabia and Iran, among others.

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.

Quote of the week

What happens after you poll 29%

“We haven't been as negative or as critical about their approach. Maybe we should be a little more. We're going to be fighting back.” PM Chris Hipkins told reporters in Parliament as he described himself as the underdog now. Newshub

Charts of the week

Tipping points and feedback loops in our climate

Map of the week

Ships delayed on both sides of the drought-affected Panama Canal

Other places I’ve appeared this week

My podcast for The Spinoff this week: Steaming to 100% renewable

This week in my weekly podcast via The Spinoff, When The Facts Change, I poke with SolarZero CEO Matt Ward about why Aotearoa's solar power boom is closer than we think.

Sign up to follow this podcast at Spotify:

And Apple Podcasts:

We also produce this daily podcast and Substack, which you can sign up to via Spotify and Apple and Youtube for free.

Some fun things

Cartoons of the 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: The costs of climate change are already bearing down on councils and Governments, forcing decisions on the run about who pays and how they pay, but leaving the issues of intergenerational fairness and long-run climate liabilities unaddressed.

The NZ Herald reports this morning Auckland Council is set to agree a 50:50 cost sharing deal with the Government to buy out land deemed unliveable by flooding and sea-level rise in the wake of Cyclones Hale and Gabrielle in January and February.

The Council is expected to agree to total spending of well over $1 billion to buy land and carry out other repairs, which will be funded by hundreds of millions in fresh borrowings and future rate hikes.

Paying subscribers can see more detail below and hear more in the podcast above. Join them in supporting our journalism in the public interest on housing, climate and poverty by subscribing in full. To paying subscribers: do you want it opened up? Please like and/or comment below. Over 50 likes is my threshold now.

It’s 50:50

Bernard Orsman reports this morning in the Herald’s front page lead that the Council will choose “hundreds of millions” in fresh borrowing and some future rate hikes to pay the $1 billion-plus for its 50:50 share of the cost, after insurance payouts, of buying back land and repairing infrastructure in the wake of cyclones in early 2023. News NZ Herald (free) link

Here’s the reported details:

Auckland Mayor Wayne Brown and Finance Minister Grant Robertson sealed the deal on Tuesday. Councillors were briefed on the details yesterday and are expected to approve it behind closed doors at today’s governing body meeting.

The Herald understands the buy out deal is the same 50/50 cost-sharing approach reached between Hawke’s Bay councils and the Government earlier this month.

To pay for its share of the buy out scheme and other costs when the council’s finances are in a dire state heading into a new 10-year budget, it is understood the plan is to borrow hundreds of millions of dollars covered by extra rate rises over the next couple of years.

Here’s what some homeowners care about:

When the Herald spoke to red-stickered property owner Luci Harrison in June, after the Government and council announced a buy out scheme was in the works, she remained concerned about how much she would be offered for her house if she was bought out.

Her Parnell property was damaged after land from a council-owned reserve behind it slipped and ate away at the ground her house stood on.

“It’s a logical solution to do what they’re doing. But it all depends on the value of what the buy outs are,” Harrison told the Herald.

“Whether they’re at the rateable value or whether they are a value that has been independently evaluated - that’s going to be interesting to see what they come up with. I will be hoping it’s at least CV, which would be good. At least CV or market value.”

A sign of the climate times story

Aotearoa isn’t ready for climate retreat. West Auckland home owner Nicola Farley talks via 1News last night about being unable to return to her home six months after being flooded out for a second time in a year. Her insurer IAG declined her EQC claim for land repairs and is waiting for a structural assessment. Nicola hasn’t been able to live with her two teenage sons. 1News link

After seven months, Farley was frustrated with the "back and forth" with insurance.

"I'm tired of the waiting, I'm tired of the uncertainty, I want to live in this house, I love the area. I want to floodproof it."

So what? Without any leadership so far from central and local Governments who have kicked the Climate Adaptation Act can out past the election, decisions about damage repair and retreat after Cyclones Hale and Gabrielle are defaulting to insurers and councils on a case-by-case basis. Rightly, it should make everyone buying a home worry they’re vulnerable to extreme climate events and the whims of insurers, who can make their properties unbankable and therefore worthless with a single (non) renewal letter.

The unsettled questions:

* Should taxpayers at large buy land or compensate owners forced to retreat?

* Who should decide who gets to go or stay, and who gets help? How should the costs be split between The Crown, Councils, insurers and landowners in such events? (Currently they are decided on a case-by-case basis)

* Is The Crown’s net debt limit of 30% and the ban on councils running deficits sustainable in the coming century of extreme climate events?

* At what point should moral hazard be an issue to think about for home owners, councils, The Crown, insurers and bankers? When does responsibility for climate denial or ignorance kick in?

* How big is clearly-underestimated drop in the net present value of Aotearoa’s land on who’s balance sheet should that be declared? Ultimately: who is going to take the haircut?

Who are we kidding? Ourselves. Not the planet.

BusinessDesk published an excellent piece of data journalism from Cecile Meier yesterday that showed most of the stuff we congratulate ourselves for recycling is actually just shipped overseas. BusinessDesk news link (paid)

While all glass collected (103,382t) was recycled onshore, half of the 114,887t of paper and 21,171t of plastics collected were sent offshore in 2022.  About 30% of cardboard, tins and steel were sent offshore as well. 

PM working from beside his daughter’s hospital bed

PM Chris Hipkins posted on Facebook late yesterday he was taking the next couple of days off his official engagements to be with his four-year-old daughter at Wellington Hospital. She is receiving treatment for a blood-cotting condition called Von Willebrand syndrome. He said he would work from the Hospital and colleagues would step in for him for those engagements. 1News

Why is this news? He’s the PM so he had to say why he was cancelling engagements His post was a normal, human and authentic way to tell his bosses (us). It’s not, as Heather Duplessis-Allan said on NewstalkZB yesterday, some sort of cynical plea for public sympathy that voided his previous comments about not wanting his children to be public figures.

Surprise. ACT has some anti-vaxxer candidates

ACT candidate, Elaine Naidu Franz, immediately resigned after 1News’ Press Gallery reporters Benedict Evans and Felix Desmarais reported last night she had compared vaccine mandates to Nazi concentration camps online. Another candidate and senior party member had apologised for online comments including suggesting drowning victims had died due to the Covid-19 vaccine. 1News link

Responding to a LinkedIn post by Seymour a year ago, Naidu-Franz said: "If you are wondering how the Nazis were able to come into power and do all the horrific things that they did, well you are looking at the start of the process right here. So Mr Seymour, when can we expect those who are unvaccinated to start wearing armbands? When can we expect to see concentration camps and re-education camps? When can we start expecting to see troops on our streets rounding up people?"

So what? These won’t be the last candidates on ACT’s list to be exposed for past online comments about vaccines and all manner of theories from rabbit holes. It matters because on current polling ACT would increase its number of MPs to 14 from 10 after the election October 14. Many on its list have not been examined publicly in detail and won’t be in the ACT’s internal vetting appeared sub-optimal in these reported cases.

Unanswered questions - What did every ACT list candidate say and do about the Covid restrictions and mandates?

We are cooling our jets after all

Stats NZ reported retail sales volume figures for the June quarter yesterday that were weaker than economists forecast. Volumes fell 1.0% in the June quarte from the March quarter and came after quarterly falls of 1.6% and 1.1%in the March 2023 and December 2022 quarters. The data suggests consumers are ‘cooling their jets’ faster than previously thought, which may allow the RBNZ to keep the cash rate on hold for longer, rather than hike it again in November, as a couple of bank economist teams (Westpac and ANZ) are forecasting. Stats NZ data link

So what? This is one of the first components of June quarter GDP to be reported, so the full picture may change before we get full GDP data on September 21. But it suggests the economy may be about to extend a shallow recession. About a third of the mortgage rate re-fixings applying monetary policy’s brakes are still to happen. It’s actually a bit uglier than it looks at first blush because the 1.0% fall in volumes happened despite significant population growth, wage inflation and an unnatural boost to car sales in the June quarter ahead of a reduction in clean car subsidies.

Open questions: Is this a sign the RBNZ doesn’t need to hike again? Will it bring forward a first rate cut from the current market view of late 2024? My current 10 cents worth is the RBNZ will watch and wait from here until well into next year. A lot will depend on whether China keeps slowing, what happens to US interest rates and who wins the election.

(Not so) Fun fact: Real per-capita retail spending is back to pre-covid levels.

More migrant abuse revelations

Steve Kilgallon reported for Stuff yesterday from anonymous Immigration NZ whistleblowers that managers forced the open slather approach to Accredited Employer Work Visas (AEWV) that has led to massive fraud and abuse against temporary workers from India, Bangladesh, China and Latin America. Stuff news link

There are now (at least) two official inquiries under way, although current Immigration Minister Andrew Little defended the AEWV system through weeks of reports of fraud of abuse before finally announcing a ministerial review last week.

Here’s the eye-popping detail:

An instruction from Alison McDonald, MBIE’s deputy secretary, immigration, told staff to skip checks on almost all applications under the scheme - and Stuff has been told only two employers, from 27,894 applicants, have been declined accreditation under the system.

Visas under the scheme have been approved at an average of 96 per cent.

McDonald’s instruction told immigration staff to do no verification work on low-risk and medium-risk applications. On high-risk applications, staff were told to do ‘quick’ verification - understood to be reading documents and performing a Google search - and only step up to further checks after receiving permission from a ‘technical advisor’.

“There was not any appetite for declining accreditations... we had to approve them, and it became a tick box exercise,” says one staff member.

“There is pressure to make fast decisions and not address the risks. Were told risks would be dealt with later. Nobody was happy about it, nobody felt comfortable about the risks we were creating. Senior management pushed it through.”

Unanswered questions: Who ordered the open slather approach? Was it the minister(s) last year? Michael Wood and Kris Faafoi were the ministers last year. Did they order it on the authority of cabinet? And why? What level of population growth does the Labour Government (and the Opposition) want in the longer term? Have we built the infrastructure to cope with that growth? Are our debt limit and funding systems able to handle the necessary infrastructure and services expansion?

Separately, Jonathan Milne reported for Newsroom that officials are investigating allegations of migrant abuse against some large National Party donors. Newsroom news link (free)

Officials are investigating business leaders for using their former home in east Auckland to house up to 30 migrant workers

Tenants have claimed there were initially no smoke alarms and sometimes no electricity at the big five-bedroom house they were crammed into in the affluent suburb of Shamrock Park.

Auckland Council and MBIE Tenancy Services both kicked off investigations in June, after complaints about the house being used unlawfully as a migrant workers' hostel.

The 553 square metre house, with a rateable value of $2.97 million, is owned by a couple who are among the biggest donors to the National Party.

MK Trustee's owners and directors are Geumsoon Shim (known as Jean) and Lian Seng Buen, who also own and operate companies including Buen Holdings and health exporter Alpha Laboratories. The latter is a contract manufacturer of oral dose supplements, employing 260 people at its Crooks Rd headquarters – which were opened by former prime minister John Key in 2014.

Just briefly

Social housing tenants in Wellington are receiving rent increases of up to $85 a week, in part due to the Government deciding it could not afford to extend its income related rent subsidy to tenants from council flats moved into a trust. The cost is $13.2 million. It will make vulnerable people miserable. Some say it will force them out of their home.

The Labour Government has talked up its record on social housing since 2017. In my view, this is a blight on that record. It is choosing a fraction of a basis point in lower interest rates over the fundamental needs of vulnerable people. It is choosing ‘bread and butter’ for homeowners and landowners over ‘bread and butter’ for poor tenants.

Here’s Ethan Te Ora’s excellent report this morning via. The Post (paid) newslink.

“This whole system is broken. We should be getting access to the income-related rent subsidy (IRRS) – but the Government just doesn’t care.”

The IRRS is a Government subsidy, setting social housing tenants’ rents at 25% of income.

It’s available to tenants with Kāinga Ora, or new tenants with community housing providers (CHPs) – but not tenants in council housing, a situation which critics have referred to as “a two-tier system” .

Ultimately, the establishment of Te Toi Mahana was an attempt to access this subsidy and save the council’s housing operation; the trust is a registered CHP.

But the change doesn’t help its existing tenants, who still aren’t eligible for the subsidy.

Councillor Tamatha Paul called that policy line “cruel and arbitrary”.

“At the end of the day, the very real pain and strife that tenants are feeling with the recent round of rent increases could all very easily be ended if the Government gave councils access to subsidy.”

National has pledged to fund $180m for 13 cancer drugs, but the Cancer Society says National will also have to fund improvements in infrastructure, staffing and training. RNZ news link Surely National thought about the costs beyond the drug costs?

Australia yesterday launched a two-year inquiry into its competition laws on concerns large companies are misusing market power to block competition and inflate their profits. It will focus on mergers and acquisitions and non-compete clauses. Ministerial statement The ACCC is a a good example for our Commerce Commission.

National has changed its mind on fees-free tertiary education and won't abolish it if elected to government. Newshub news link This is how middleclas welfare sticks.

In another sign of the stress the health system is under this winter, Christchurch’s 24-Hour Surgery will close its doors over several nights in the coming weeks because of nurse shortages. Westport has also had to close its A&E overnight in recent weeks. The Press (paid) news link

Psychological organisations are calling on political parties to urgently increase funding to train more psychologists with an estimated 1000 more needed to keep up with current demand. The NZ Psychological Society, NZ College of Clinical Psychologists and NZ Psychologists Board want the funding added to election promises. The Press (paid) news link

Chart of the day

Arctic tipping points: dissolving ice cover & seafloor methane release

Useful longer reads

A Tairāwhiti family has brought a rare private prosecution against a logging contractor over the workplace death of their son in a Hawkes Bay pine forest, Rebecca Macfie reports for Newsroom. Always read Rebecca’s articles is a good rule of thumb, especially on worker safety. Her book on Pike River was a landmark that led to tougher health and safety rules.

Richard Brooking fought long and hard for a coroner’s hearing into his son’s death, which was held in Gisborne in mid-2021. By that time, Niko Brooking-Hodgson was just one of more than 50 workers killed since 2015 across the forestry industry supply chain, including seven in the Tairāwhiti area alone. Among those victims were Niko’s cousin, Piripi Bartlett, who died almost exactly a year later. The cousins lie next to each other in the urupa at Te Araroa’s Paerauta Marae.

Maps of the day

How climate change is affecting global shipping right now

Cartoon of the day

Ka kite ano

Bernard

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

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

* Reports emerging that hundreds of migrants on new Accredited Employer Work Visas paid as much as $30,000 for their visas, only to find no work and ending up stranded in overcrowded rentals. Eventually, after weeks of denial, Immigration Minister Andrew Little launched a ministerial inquiry into Immigration NZ’s operation of the scheme, effectively throwing the ministry under the bus over Labour’s rushed loosening of migration settings last year. See more in Tuesday’s email and Friday’s email

* Labour released its tax policy for the election, including removing GST from fresh and frozen fruit and veges, but not other forms of food. It also tweaked Working For Families settings, albeit insufficiently and too narrowly to provide the necessary help for those most in need. See more Monday’s email.

* Labour released its transport policy in the form its Government Policy Statement (GPS) for the next three years for Waka Kotahi (NZTA), which pivoted to spending more on road repairs, new motorways and bridges, and away from focusing mostly on expanding light rail, improving safety and reducing emissions. We spoke about this more with Cathrine Dyer in the first 10 minutes of Friday night’s Hoon in the podcast above.

* The Labour Government and Climate Change Minister James Shaw announced the opening of consultation and a Select Committee Inquiry for a Climate Change Adaptation Act, which is designed to settle questions around how to manage and fund retreat from land likely to be deemed unlivable due to climate change. We talked with Cathrine Dyer in the Hoon about how the consultation conveniently obscured some of the more radical and necessary suggestions contained in a ministerial options paper and an officials’ technical report.

* The Labour Government announced delays in measuring and pricing on-farm climate emissions until well after the election. We talked more about this on the Hoon with Cathrine.

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

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

* 5.00 pm - 5.05 pm - Bernard and Peter Bale opened the show with a discussion about politicians in the debating chamber and the Koru Lounge.

* 5.05 pm - 5.20 pm - Bernard and Peter and Cathrine Dyer talked about Labour’s policies on transport, climate adaptation and farm emissions.

* 5.20 pm - 5.40 pm - Bernard and Peter and Robert Patman talked about fresh hopes for a peace deal in the Middle East, the latest dramas in the Ukraine War and the troubles inside China’s economy.

* 5.40 - 6.00 pm - Bernard, Peter and columnist for The Post, Josie Pagani, talked about the timidity of policy proposals by both parties, about National’s massive billboard advantage over Labour up and down the country, and how Labour’s low-energy campaign might hurt it.

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.

Quote of the week

An accreditation scheme where documents were not checked

"It's been happening under everybody's nose. Everybody knows about it. I know about it. Agents know about it. Lawyers know about it. The only people who didn't know about it, clearly, are the three ministers.

"The review will find that there has been a general instruction delivered by Immigration New Zealand which says 'stop verifying documentation'. I can tell the minister that in five minutes, he doesn't need a review." National Immigration spokesperson Erica Stanford via RNZ

Chart of the week

What should be on the front pages of all today’s papers

Map of the week

Three years of rain expected in a day or two

Other places I’ve appeared this week

My podcast for The Spinoff this week: Steaming to 100% renewable

This week in my weekly podcast via The Spinoff, When The Facts Change, I spoke with CoGo founder Ben Gleisner about the potential to use bank data on spending to help businesses and consumers monitor and tweak their climate emissions. Gleisner talks about Aotearoa’s rocky and long pathway to open banking and the options for a type of ‘nudge’ economy towards decarbonisation.

Sign up to follow this podcast at Spotify:

And Apple Podcasts:

We also produce this daily podcast, which you can sign up to via Spotify and Apple and Youtube for free.

One fun thing

This Michael Parkinson interview with David Bowie is lovely

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: Our latest wave of accidentally-on-purpose temporary worker migration is causing all sorts of grief, for some in the short run, and everybody in the long run.

Cases of fraud and overcrowding comitted against temporary workers in Auckland by ‘accredited employers’ was reported by Newshub’s Nick Truebridge here and here this week, but follows multiple reports by Lucy Xia at RNZ last month here and here, Steve Kilgallon at Stuff here and here, and Lincoln Tan at the NZ Herald here.

Under intense pressure to fill empty jobs and put a lid on wage inflation, the Labour Government rushed through a temporary work visa scheme last year that saw 27,000 employers self-declare they were nice employers and then bring in over 80,000 workers. After weeks of downplaying the issues, last night Immigration Minister Andrew Little was forced to launch a ministerial inquiry.

In the spirit of looking at alternative solutions, I suggest below what a joined-up and sustainably high-growth immigration and infrastructure investment policy would look like.

Paying subscribers can see more detail below and hear more in the podcast above. Join them in supporting our journalism in the public interest on housing, climate and poverty by subscribing in full. To paying subscribers: do you want it opened up? Please like and/or comment below.

Here’s an open, concious and high-growth strategy

Last night, Immigration and Public Service Minister Andrew Little announced an independent ministerial review of Immigration NZ's operation of the Accredited Employer Work Visa scheme, specifically relating to 'high level' concerns about 'opportunities for misuse and exploitation by third parties'.

So that's the Labour Government throwing Immigration NZ under the bus for forcing it to rush out a barely-policed employer accreditation scheme and Labour pulling hard on the inward migration lever at the same time last year to solve its political issues with inflation.

Massive and pervasive migrant abuse was always a risk when 80,000 visas were handed out to 27,000 employers in just over six months with the main 'checks' on both employer quality and the absence of locals to do the job being a few google searches.

The real issue here is the unspoken, unquestioned and unplanned-for instinct of both Labour and National Governments over the last 20 years to pull the cheap, easy migration lever to buy fast nominal GDP growth (and lower Budget deficits) and also avoid the necessary tax increases and extra investment spending to cope with 2% population growth per year...caused by the fast migration.

We need a proper debate about how to sustainably handle 2% a year population growth, and to consciously and publicly plan for that, after a political debate where the public agree. No more accidentally on purpose.

We should welcome 17 million by 2100, and plan for it

I'd love to see 2% population growth to 17 million by 2100 (and we probably won't have a choice because of climate change and the obvious political incentives), but to do that, you need to increase the share of GDP going into public and private infrastructure investment, business investment and R&D from ~20% of GDP to ~30% or so.

That requires more taxation to both do the investment and pay for the extra debt that is the best way to fund long term capital investments, and to change the incentives around private investment.

That's around 10% of GDP or $30b a year. At least half has to come from government. The best way to do both things -- to increase taxation and to switch the incentives from residential land investment to business investment -- is to bring in a wealth tax.

I'd prefer a broad-based and low-rate annual tax on the value of residential land, rather than a capital gains tax. It is the cleanest and fairest way to both tax wealth and leave in place incentives to increase business capital values (ex residential land) and keep the gains from capital income (ie increased capital values or sales of businesses).

It turns out a 0.5% residential land value tax would raise about $5b a year. That's a start. You could also do congestion charging and value-capture taxes to fund the infrastructure and manage demand.

But who would do it? And what should we target?

So how could this be done, within the context of the current arrangements for funding and delivery? We already have a model for such a change, which was successfully set up and used from the late 1980s to solve a fundamental problem in our economy. National and Labour collectively decided to tame the inflation of the 1970s and 1980s by creating an independent Reserve Bank tasked with achieving a goal set by Parliament and the Finance Minister, and then being allowed to get on with it.

The CPI inflation target was set at around 2% and then-Governor Don Brash pulled on the interest rate lever the crush inflation. In the process, the Reserve Bank helped drive the economy into a bad recession that lifted unemployment to almost 11% in 1991. But it was deemed a cost worth bearing and eventually it worked.

So what are the problems to be solved and what tools and independent roles could be created to do the same again, but for housing, transport and climate? And what would need to be agreed on a bipartisan basis to make it work?

Get housing & transport costs below 40% of income, plus carbon zero

We know our housing is unaffordable for most renters and unhealthy for many. It underpins most of our social, educational, health, crime, workforce and emissions reduction problems. Solving it by building warm, dry, carbon neutral homes on or near public and active transport routes and nodes that cost less than 30% of disposable income to rent or own solves both our housing and climate issues in one move.

Reducing transport costs from around 14% of disposable income to 10% would reduce the combined cost under 40%, especially for those in the poorest 20% of the population. Currently, more than a third of that quintile are paying more than 30% of disposable income in rent. We have the highest share of stressed renters in the world.

Changing the transport network and redeveloping cities to make it easy and cheap for people to live near their work, school and leisure places is the task. The targets should be simple and intuitively obvious. Housing costs over 30% of disposable income are deemed internationally to be unaffordable and create financial stress. Transport costs should be less than 10% of disposable income and moving to all-electric buses, cars, trains, bikes and walking will achieve that, along with reduce emissions dramatically.

So the targets should be:

* Housing (30%) and transport costs (10%) should be lower than 40% of disposable income for the lowest quintile income earners by 2050;

* New housing and transport climate emissions should be lowered to zero annually by 2050; and,

* Population growth from net migration should average 2% per year each decade to 2100.

So who sould have which tools?

National and Labour gave the Reserve Bank the right to independently use interest rates to achieve low inflation over more than three decades, with the main aim of removing this economically powerful tool from the hands of politicians. It worked, and still does.

We already have Kāinga Ora, Waka Kotahi, Te Waihanga (Infrastructure Commission) and He Pou Rangi (Climate Commission). A combined version, the Affordable Housing, Transport and Climate Commission, would have the assets, the tools and the ability to achieve those targets.

Those tools could include:

* a residential land value tax to raise funds and service debt to achieve the targets above;

* the assets upon which to issue long-term Affordable Housing and Climate Bonds that include incentives to achieve the targets above;

* the ability to impose congestion and pollution charges to raise funds and manage demand;

* the ability to plan and issue visas for permanent migrants to build help build and achieve these targets; and,

* the ability to capture value uplift from land value appreciation linked to publicly-funded infrastructure.

An Affordable Housing and Climate Commissioner’s tool box

The Affordable Housing and Climate Commissioner would then be tasked with planning and achieving the path to affordable and zero emissions housing and transport by 2050 by using these tools, having to report regularly to Parliament, and be able to be sacked for non-delivery. They could plan investment and skills needs to achieve these across the cycle, using long term funding and demand management tools to achieve them, along with long-run skills management..

The aim would be to take the tools currently in the hands of politicians, road-building, pothole fixing, light rail building, debt cutting and migration settings out of the hands of politicians.

Doing this would require lots of workers, often from overseas.

It's should be a choice, not an accident on purpose...

Thoughts? Alternatives? Unintended consequences? Pros? Cons? I welcome more comments and suggestions from paying subscribers below. I floated this last night in our chat section here, which also generated 22 replies and counting.

Cheers

PS: I’ll have an AMA from 1pm today and we have The Weekly Hoon on at 5pm.

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’s desperation for cheap, easy and temporary labour has turned us into the Dubai of the South Pacific, constantly churning out renting residents to live in Australia, and replacing them with migrants on barely-policed work visas that allow them to be abused, sucked dry and then spat out.

Welcome to our ‘Churn and Burn’ economy.

This state of the nation was reinforced yesterday by migration figures showing a record-high number of migrant arrivals in the year to the end of June, only partly offset by a decade-high number of mostly-young residents leaving permanently to live mostly in Australia, where they can now become full citizens.

Another report last night of rampant abuse of temporary migrants through a hastily-introduced temporary work visa scheme reinforced just how rotten our approach to economic management has become. Our Government, and by extension most voters, are prepared to tolerate and encourage fraud and migrant abuse on a massive scale to keep the economy growing with the low wage inflation and high land price inflation needed to keep our economic ‘model’ churning and burning.

Paying subscribers can see more detail below and hear more in the podcast above. Join them in supporting our journalism in the public interest on housing, climate and poverty by subscribing in full. UPDATE. Subscribers asked for this to be opened up for public reading, listening and sharing. That is now done.

Welcome to our ‘Churn and Burn’ economy

Welcome to our ‘Churn and Burn’ economy. Or more accurately, come on in to New Zealand and work here for a few years without security or an affordable or liveable home, in order to replace the work of citizens who left because they can’t afford a liveable home.

The hope for those keeping the churn going is that there’ll always be many more hopeful temporary migrants who can be strung along and neglected for long enough that the net effect is a higher population with higher GDP from the same level of infrastructure, higher rents, higher land prices and a lower budget deficit that will allow future tax cuts.

It’s a perfect economic model for land owners who rely on leveraged and tax-free capital gains for their wealth, serviced by the rents, disposable income and cash profits from salaries and businesses starved of investment. and only able to grow by throwing more low-wage and low-productivity labour at them.

It feels like it could keep working until;

* enough of the hope-less migrants stuck here tell their friends and family about how Aotearoa has become the Dubai of the South Pacific;

* enough of the young citizens and residents who don’t own land realise there is little hope of saving enough after rents to ‘get on the ladder’ in the cities they want to live in, such as Auckland, Wellington, Christchurch, Queenstown and Hamilton, and leave for Australia too; and,

* the lack of public infrastructure investment needed to allow the tax cuts and generate the extra capital gains and rents from housing supply shortages eventually starts turning into paralysing levels of congestion, school waiting lists, doctors’ waiting lists and surgery waiting lists.

Every time it seems as if someone has finally exposed this New Zealand economic emperor as having no clothes, as Finance Ministers Bill English and Grant Robertson have done at various points, along with the Productivity Commission, the IMF, the OECD and countless Op-Eds from frustrated economics, the emperor just keeps striding on, brandishing their nakedness as an inevitable fact of life in our political economy.

There’s nothing you can do, they seem to taunt the naysayers every time: ‘we can’t change the incentives holding median voters in a happy hostage situation on their $1 trillion worth of residential land.’

At least not in our political lifetimes…

The implication is: ‘if you want to leave, then leave. We can always replace your labour and fill your rental with someone from India, the Philippines, China, South Africa or the United States. There’s plenty more mugs where they came from, and thankfully, many more mugs wanting to come than mugs who work out they can leave.’

It seems extraordinary that this can last before the tensions and heat in the system seize the engine of New Zealand’s political economy. Sadly not. All that’s necessary is three settings:

* net migration creating annual population growth of 1.5% to 2.0%;

* continued infrastructure under-investment; and

* growth in rents and land prices.

Luckily for the land-owners who benefit, the first condition supports the second one, and leads to the third one. However, like any other poorly-running engine blowing black smoke, more fuel and oil needs to be constantly fed into the engine, if only to stop it from overheating and seizing up.

That was what the Government effectively did last year when it first launched the AEWV scheme to (in theory) provide a way to police behaviour, but then used the scheme’s launch to massively increase the number of lower-skilled and lower-wage temporary migrants to respond to labour shortages and the risk of an inflationary and mortgage-spiking spiral higher in wages. See more detail on that in my July 19 email and podcast.

Where’s the latest example of abuse?

Newshub's Nick Truebridge had the scoop last night that a criminal investigation has started into how 40 migrant workers were crammed into the filthy, overcrowded three-bedroom home in Auckland for months on end, sharing a single shower and cooking over one stove.

Nick reported the 40 men paid thousands of dollars for employment agreements with local recruitment contractors, but since arriving they've received no work or pay. The men called police after their food ran out and they were forced to turn to begging.

This is a major story and should justify a ministerial inquiry into the Accredited Employer Work Visa scheme, which was launched last year to reduce migrant abuse, but instead has been weaponised to worsen it, with little policing after the Labour Government unleashed massive temporary worker migration to boost the economy and dampen wage growth at the same time.

Here’s more detail in Nick’s story:

Union Network of Migrants president Mandeep Bela walked Newshub through the property on Sunday night. Several men were crammed into a porta com out the front, suitcases were piled up into a lounge that doubles as a laundry, tiny back rooms were full of mattresses, while others sleep in the garage.

"In terms of work visa schemes - scam schemes - this is really at another level," Bela said.

Immigration New Zealand has launched a major investigation into alleged visa fraud and migrant exploitation, which are serious criminal offences.

"Once the investigation is complete, if the charges are proven we will prosecute and we will take serious action against any offenders," said Steve Watson, immigration compliance and investigations general manager.

So how widespread are scenes like this? The Ministry concedes it simply doesn't know.

"Um, makes me sad for the integrity of the system being called into question because there are a large number of employers and people who come to this country and have a positive experience. And I don't believe these people have had a positive experience," Watson said.

But Immigration Minister Andrew Little still won't commit to pausing the accredited employer scheme.

"We have about 27,000 accredited employers, we have about 77,000 workers here in New Zealand under visas under that scheme. The vast majority are working fine," he said.

Even though this is the reality for who knows how many.

"You told us that you have a better life in New Zealand, you can settle with the family here, your children have a good education here. Where is it? Like this? Everybody sleeping like this?" Babu said. Newshub's Nick Truebridge

But wait, there’s more…

This isn’t the first instance of such fraud. Lucy Xia at RNZ reported extensively on such cases last month here and here, but also on calls for the AEWV visa scheme to be paused or scrapped, to give open visas to workers affected and to offer amnesty for overstayers.

Immigration advisor Katy Armstrong said while the selling of visas had existed for a long time, this form of exploitation had "intensified" with the introduction of the new AEWV scheme.

The loosening of requirements for employers to get accreditation under the scheme was to blame, she said.

"If you're an employer and you're unscrupulous, you can go and get yourself accredited with no documents or low documents, some of those accreditations come through as we know it in 90 minutes, boom you're accredited," she said.

Armstrong said the government had rolled the visa scheme and accreditation of employers in a rush amidst the post-Covid turbulence and labour shortages last year.

"There's been a mentality of just get them in, get them accredited, and weed them out on renewal, now that's one way of doing it, I can understand it, however there's a cost and this is the cost," she said.

Prior to the scheme, employers needed to provide evidence to pass the labour market test, demonstrating that they advertised locally and could not fill the role, she said. Whereas now, employers were only required to show the advert as part of the "job-check" requirement, but not the results of the advert.

The process for employers to get the licence to hire overseas workers was "automated" and like a "tick-box" exercise, Armstrong said.

The visa category had created a "commodity" of job tokens - a tangible thing which some unscrupulous employers could sell, she said. Lucy Xia at RNZ

Immigration Adviser Ankur Sabharwal wrote about the situation in this Op-Ed via Stuff last week.

INZ’s “ask no questions” approach to the Accredited Employer work visa is leading to migrant exploitation and an influx of unqualified workers for non-genuine positions.

Tick the right boxes, and INZ will approve an employer’s accreditation application without any checks.

If an employer wants to hire six or more migrant workers, they need to apply for “high volume” accreditation.

A company which has no staff at present can easily be approved “high volume” accreditation to hire six or more migrant workers. Again, just tick the right boxes on the application form.

Next, the employer advertises the role for 14 days and then informs INZ that no suitable New Zealand candidates applied. As a result, INZ approves a "job check", which permits the employer to hire the same number of workers they advertised for in New Zealand.

Employers don't have to prove to INZ that they need this many new workers from overseas or that they can afford to pay them.

So INZ approves work visas to migrant workers whose positions are not genuine and sustainable. The workers come to New Zealand and get sacked within 90 days – which is perfectly legal. INZ accepts employment agreements with a “90-day trial period” clause.

Surprise. Record high immigration. Decade-high emigration.

To prove the extraordinary size of the issue in our Churn and Burn economy, Stats NZ reported yesterday there were total migrant arrivals of 195,200 in the year to June 30, eclipsing the previous record-high 184,900 in the March 2020 year.

There were migrant arrivals of 168,900 non-New Zealand citizens, creating a net migration gain of non-New Zealand citizens, of 121,600. Before the 2023 record levels, the previous record was 80,400 in the March 2020 year.

There was a provisional net migration loss of 34,800 New Zealand citizens in the June 2023 year. This is the largest net migration loss of New Zealand citizens since the April 2013 year. The largest annual net migration loss of New Zealand citizens was 44,400 in the February 2012 year.

A storm in a fiscal teacup

There was another 'process' storm in a teacup on the campaign trail yesterday. An initial fact sheet sent to journalists under embargo was corrected before the final one was published, but some journalists didn't get the final one. That meant the Government didn't include about $250m of missing GST revenue in the 2023/24 fiscal year. I didn't use the wrong number.

I think we're all pretty sick of performative fiscal hole accusations by now.

Just briefly

‘Please forget the lockdowns of late 2021’ - The Labour Government has ended Covid restrictions, including mask-wearing requirements in hospitals and doctors' clinics and pharmacies, and the seven-day work standdown for those with positive Covid tests.

Politically, the Government knew it had to do it. Clinically, there's plenty of experts to say it was too early, given it's still the middle of winter and there are plenty of new strains coming and infecting thousands, with nearly a dozen people a week still dying.

‘Please vote for us’ - The Labour Government has also announced this morning its response to last week's awkward Parliamentary showdown with National over paid parental leave.

Labour has promised four weeks of paid parental leave for partners of a newborn’s primary carer. That's on top of the unpaid two weeks leave currently allowed for. It would start in July 2024 with two weeks of paid leave claimable, increasing to three weeks paid leave in July 2025, and four weeks in July 2026. The costs weren't detailed, but are expected be around $250m over four years, and slightly more beneficial to parents than National’s option proposed last week.

Briefly overseas

Keep an eye on one of China's largest finance companies, Zhongzhi Enterprise, which defaulted on a couple of bonds on Friday and there are fears contagion could spread to the rest of China's big shadow banks, also known as Wealth Management Product companies. They take in deposits from savers and pay out high returns, largely by lending to property developers...

We've seen this movie before. Think Hanover Finance and Bridgecorp. We'll see. Zhongzhi has US$134 billion in assets under management. Savers will want to know the Government will step in to help them...

It could be a key moment. Or not. Beijing announced last night a task force would investigate. Shares in the biggest apartment developer, Country Garden, also slumped.

Also, Argentina devalued its currency 18% overnight after a surprise win in a primary election for a Trump-y candidate and put up its cash rate by 21 percentage points to 118%. (Not a typo)

I previewed these items this morning for paying subscribers first on the Chat function on the Substack App, which generated another lively discussion, including here, here, here, here, here and here.

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 for paying subscribers in the last week included:

* The Kaka’s climate correspondent Cathrine Dyer reported on how banks’ and insurers’ models of climate change’s financial impacts underplay massively the likely costs and risks of rises in temperatures of over two degrees, relative to the latest modeling of climate scientists and actual damages from recent weather events. Friday’s hoon above.

* The Labour Government unveiled a plan to build a road tunnel and a rail tunnel under the Waitemata harbour over an indeterminate number of decades for a cost of about $45 billion, including plans to build the road tunnels first in a politically expedient way that prioritises drivers over emissions reduction and risks blowing the real costs out to over $65 billion once the cost of buying emissions credits is taken into account. Monday’s email.

* The Government announced the fast-tracking of consents for solar and wind farms that could, in theory, produce 3.5 times as much as the Clyde Dam can generate, but consents worth twice that amount have been granted and not actually built in the last two decades because the state-controlled gentailers fear building extra capacity will dilute prices and profits. Tuesday’s email.

* PM Chris Hipkins and Energy Minister Megan Woods staged an announcement by BlackRock of a $2 billion fund for renewable investments aimed at lifting Aotearoa’s renewable share of electricity generation from under 90% currently to 100% by 2030, but the ‘partnership’ involved no declared Government investments in the fund or promises to invest in any state-controlled assets, meaning it was a performative cross-promotional exercise designed to lead TV news bulletins, which it did. Woods and Hipkins acknowledged to my questions in a news conference that uncertainty about the future of the Tiwai Point smelter and the still-undecided issue of how to use hydro or other batteries to deal with our ‘dry year’ issue was holding back investment in the generation and transmission lines needed to achieve the 100% target, or convert our transport fleet and industrial coal boilers to electricity in a way that reduces our $20 billion-plus emissions credits liability. Friday’s hoon above and RNZ’s First Up

* The Security Intelligence Service published its first threat assessment statement on Friday, taking the unprecedented step of naming China, Russia and Iran as engaging in espionage and foreign interference against New Zealand.

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

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

* 5.00 pm - 5.25 pm - Bernard and Peter Bale opened the show with The Kākā’s new correspondent Cathrine Dyer with a discussion about Aotearoa’s banks and insurers were underestimating the risks and damage of climate change of over 2 degrees celsius.

* 5.25 pm - 5.35 pm - BCG Principal Richard Hobbs spoke about his recent paper on supercharging New Zealand’s transition to net zero emissions, and debated with Cathrine, Bernard and Peter about the idea of degrowth.

* 5.35 - 5.50 pm - Stuff Pou Tiakia Matua Carmen Parahi talked with Bernard and Peter about a hui this week in Auckland about the media and Te Ao Maori.

* 5.50 - 6.05 pm - Bernard, Peter and Carmen wraped the show with a discussion of the week in politics with columnist for The Post, Josie Pagani, including her latest column on the need for politicians to come up big ideas.

The Hoon’s podcast version above was produced by Simon Josey. Unfortunately, Robert Patman was unable to make it on the show this week, contrary to the invitation to join the hoon. He was talking with diplomats.

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.

Chart of the week

What should be on the front pages of all today’s papers

Map of the week

Other places I’ve appeared this week

My podcast for The Spinoff this week: Steaming to 100% renewable

This week in my weekly podcast via The Spinoff, When The Facts Change, I spoke with GEOBIND co-founder Alice Hosted about how Aotearoa could help solve its housing cost and carbon problems by using hempcrete walls. We discussed the pros and cons of using hemp in building construction, and the current logistical frameworks that restrict its use.

I talked about the BlackRock fund announcement on RNZ’s First Up programme with Nathan Rarere on Wednesday morning.

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: Labour PM Chris Hipkins yesterday revealed cross-harbour transport projects that could cost up to $45 billion in the decades to come, but he wants road tunnels built first, which will increase climate emissions for decades to come.

The projected cost also ignores a climate emissions credits bill that add well over $20 billion to the real cost to taxpayers because Auckland’s higher transport emissions will be a driving factor in Aotearoa failing to meet our Paris climate agreement committments by 2030. Treasury has forecast the Crown could have to pay well over $20 billion to buy emissions credits overseas to compensate for missing those targets.

Paying subscribers can see more detail below and hear more in the podcast above, including my questions about emissions reductions and funding options to Chris Hipkins and Transport Minister David Parker at yesterday’s news conference at the Bayswater Marina (which means way too much seagull and helicopter noise). Join them in supporting our journalism in the public interest on housing, climate and poverty by subscribing in full. A question for paying subscribers: Do you want this opened up to the public for sharing? Just hit like or say so in the comments.

How $45b of tunnels could actually cost $65b+

Usually, infrastructure investors want to invest heavily upfront to lower costs and improve the environment in the long run. Labour PM Chris Hipkins is doing it the other way around.

He announced yesterday a Labour Government would choose to spend up to $45 billion by first building more roads in two tunnels under the Auckland Harbour, which would increase emissions over the next 10 to 20 years, just when Aotearoa needs to be cutting emissions in order to meet our Paris agreement targets.

Hipkins detailed the costs, but did not include the likely emissions credit costs:

* Indicative cost of road tunnels: $12-15 billion

* Indicative cost of SH1 improvements: $1.0-1.5 billion

* Indicative cost of Northern Busway upgrades: $0.5 billion

* Indicative cost of walking and cycling improvements: $0.5 billion

* Indicative cost of light rail tunnel (CBD to North Shore): $8.5-11 billion

* Indicative cost of light rail tunnel (North Shore to Albany): $12.5-16 billion

* Indicative overall cost: $35-45 billion

Treasury forecast in April that the Crown could have to spend up to $24 billion to buy emissions credits on international markets to meet the Paris targets by 2030. Choosing to opt for roads and to delay setting aside lanes on the Harbour Bridge for dedicated busways, cycle lanes and walkways increases the chances the $45 billion estimate for the projects could blow out to over $65 billion because of the resulting need to buy emissions credits.

Hipkins portrayed the projects yesterday as a way to improve congestion and to spread the cost out over decades. He said the first priority was to build the road tunnels first, which would then allow dedicated busways and cycleways on the Harbour Bridge. However, that would delay the mode shift required to reduce emissions by decades, and induce extra demand for extra cars on Auckland’s network.

Here’s the map detailing the two road tunnels and one rail tunnel, although it doesn’t specify that the road tunnel is first in the queue. The cross-section below shows four lanes for cars and trucks, and two lanes for ‘active modes’.

The key is the decades of delay to mode shift

Choosing to opt for road tunnels, which are unlikely to be completed until well into the 2030s, means yet more decades of delay in the seriously difficult but necessary shift in movements out of emissions-heavy cars and into low-to-no emissions public transport, cycling and walking.

The problem with this is it also delays the emissions reductions well past 2030, which means the carbon liability continues to mount, let alone the risk Aotearoa’s exports would be blocked by the EU and others. The EU has written into its FTA with New Zealand that failing to meet our Paris targets could trigger blockages to our exports.

Here’s the Treasury estimates of the costs, which have not been included in the business cases for Auckland’s various travel projects, most of which are not forecast to reduce transport emissions untill well into the 2050s, largely because of the delays to mode shift.

The very early indicative business case for the four-tunnel option suggested eventual emissions reductions of 360,000 tonnes of carbon over 60 years, but most of that is pushed into the back end of the 60 years.

Initial reactions from politicians and experts

National said it supported the road tunnels proposed, but opposed the rail tunnels. Spokesman Simeon Brown said National would deliver the tunnels, while Labour couldn’t. The Greens said it was an irresponsible plan and it preferred investment in the light rail tunnels first.

Urban planning economist and lecturer Stu Donovan described the plan as an abomination.

Alternatives and un-answered questions

I asked questions at the news conference about the likely climate emissions implications of the choices. Hipkins and Waka Kotahi-NZTA could not provide them.

I also asked about the population growth forecasts and assumptions used to build the options, which they did not have answers for. A Waka Kotahi document provided later showed community consultation found 75% preferred light rail was a most important mode to be delivered by the project, with general traffic seen as a most important mode by 66% and walking and cycling by 63%.

One question that could be asked of all the politicians and transport planners is: what could be done and should be done first to achieve Aotearoa’s transport emission reduction targets. This is an addition from me in line with our push into solutions journalism. I welcome other suggestions, along with challenges to my suggestions below.

The immediate steps to reduce transport emissions in Auckland could include:

* immediately converting two of the Harbour Bridge’s six lanes to walking and cycling, and two of the lanes to a dedicated busway, with two lanes left for cars and trucks;

* immediately ramping up the number and frequency of buses (preferably electric) on the dedicated Harbour Bridge and Northern motorway busway;

* dedicating lanes on the Northwestern Motorway to a similar busway, with many more electric buses;

* immediately converting roadside car parks to cycling lanes on both sides of Tamaki Drive, Remuera Rd, Newmarket Rd, Kyber Pass Road, Parnell Rise, Mt Eden Rd, Dominion Rd, New North Road, Great North Rd, Ponsonby Rd and Jervois Rd;

* offering a $2,000 discount voucher for electric bikes to all Auckland residents, and a $4,000 voucher to those with Community Services Cards, Student ID cards and Gold Cards;

* offering a $5,000 discount voucher to all residents buying new and used (newly) imported electric cars;

* immediately doubling the size of Auckland’s bus fleet and converting it to an all-electric fleet as soon as feasibly possible; and,

* introducing congestion charging on Auckland motorways as soon as feasibly possible, calibrated to shift traffic around to reduce congestion in peak hours.

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

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

* The Opposition suggested this week the Labour Government’s books had fallen into a $20 billion ‘fiscal black hole’. I wrote and podcasted about how this claim was wrong and irresponsible in Friday’s email.

* National proposed building $18 billion worth of new motorways if elected on October 14, using funds repurposed from public transport investment and road safety campaigns, along with private investment (possibly from China) and tolls on new roads. ACT said it wanted to toll existing roads too. Thursday’s email, Monday’s email and Tuesday’s email.

* The Labour Government expanded its Progressive Home Ownership scheme for first home buyers from only new homes to existing homes, and lifted the income cap, thus adding to buying demand for the existing stock in a way that boosts prices and pleases median-voting home owners wanting more capital gains and help getting their kids into homes. Monday’s email.

* PM Chris Hipkins unveiled the Government’s new Defence and Security strategies, which highlight the main risks as climate change and strategic competition and suggested more defence spending without promises or details. Friday’s Hoon above.

* The planet warmed in July to an average of 1.5 degrees above pre-industrial era temperatures for the first month ever, and many years before modellers said it was possible as El Nino and warming seas drove temperatures in parts of Latin America to over 35 degrees celcius, even though it is technically winter. Friday’s Hoon above.

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

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

* 5.00 pm - 5.15 pm - Bernard and Peter Bale opened the show with a summary of the news domestically and internationally, including the latest on the string of climate records and research in a chat with The Kākā’s new correspondent Cathrine Dyer.

* 5.15 pm - 5.35 pm - University of Otago ProfessorRobert Patman

about the Government’s new security strategy announced on Friday and comments from former Labour PM Helen Clark questioning the role of officials.

* 5.35 - 6pm - Bernard and Peter wrap the show with a discussion of the week in politics with columnist for The Post, Josie Pagani.

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.

Chart of the week

What should be on the front pages of all today’s papers

Map of the week

And leading TV news bulletins: 38.9 degrees C in Chile in winter

Other places I’ve appeared this week

My podcast for The Spinoff this week: Steaming to 100% renewable

This week in my weekly podcast, When The Facts Change, I drilled a long way down into the future of geothermal electricity production in an interview with Isabelle Chambefort from GNS Science. She’s excited about the potential for deep drilling to uncover ‘supercritical’ heat that supercharges geothermal power output, helping solve the dry year problem bedevilling our hydro-dominated power system.

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: There is no ‘fiscal black hole’ and the politicians and news editors who gave the vague and unsourced suggestion of one unelected politician should be ashamed of themselves for giving it public airtime, let alone asking Parliamenary questions about it. Lizzo’s HR problems are more of a news story.

Paying subscribers can see more detail below and hear more in the podcast above. Join them in supporting our journalism in the public interest on housing, climate and poverty by subscribing in full. An update. I have decided to open this up to all after subscriber requests. Please feel free to share and we’d love you to join us as a full subscriber to support this work.

The people who study fiscal policy and Government borrowing for a living and can get sacked if they do it badly knew it was a joke, and not because they watched National Finance spokesman Nicola Willis accidentally make it a joke in Parliament yesterday.

It was actually a joke because less than half an hour after she repeated Winston Peters’ claim of a ‘fiscal black hole’ in Question Time, those fund managers bid $1.037 billion to buy $500 million worth of Goverment bonds for an average yield of 4.80%. That strong bidding kept the yield flat in secondary financial markets:

* at the same time as a global bond selloff that saw yields on the bonds deemed the safest in the world (US Treasuries) rose 20 basis points to a record-high for 2023 of 4.19% because of actual fears of an actual fiscal deterioration in the United States;

* at a time when annual inflation in New Zealand is still reported to be 6.0%; and,

* at a time when there is a real prospect of a hung Parliament within nine weeks.

These fund managers were so keen to lend their money to an institution allegedly “in financial panic mode” that they gladly handed it over to Treasury’s Debt Management Office, knowing they were receiving a negative return after the corrosive effects of inflation on the buying power of that money. In other words, these professional investors were so confident they would get repaid and that there was no actual fiscal crisis that:

* they were willing to essentially hand over a gift to taxpayers of the difference between the yield of 4.8% and the inflation rate;

* they were willing not to receive any compensation for the risk they took, or the time they don’t have the money; and,

* they were willing to hand that money over knowing the Treasury would come back to them next week, and the week after that, and the week after that, to borrow another $500 million per week.

That bidding yesterday included $220 million worth of bids for $75 million worth of 30 year bonds. Those fund managers were so confident about the Government’s finances they bid nearly three times the amount available, knowing they would probably be retired or dead before the Government had to repay it.

That is the definition of confidence. And we know what a real crisis and a real collapse in confidence looks like. Bond yields spike wildly. Bids dry up in auctions for Government bonds. Volumes in secondary trade dry up. Credit ratings get downgraded. We saw that happen globally for periods in the GFC, and in New Zealand in the mid-1980s and the early 1990s. Those were real crises.

This outbreak of ‘fiscal black hole’ name calling is not indicative of a crisis. Anyone familiar with fiscal policy, Government borrowing and financial markets knows this. But it seems some politicians and news editors don’t.

So what actually happened and why is $20b fake news?

Let’s back up a bit.

Apparently, rumours started circulating in Wellington on Wednesday that Finance Minister Grant Robertson had received a concerning early briefing about the Treasury’s Pre-Election Fiscal Update (PREFU) due to be presented on September 12.

NZ First Leader Winston Peters, who has sat in countless cabinet and budget committee meetings over 30 years and should know what a real fiscal hole looks like, then tweeted that he had heard some stuff we should all believe:

“Is it true that State Services Commissioner Hughes met with heads of ministries yesterday to address a $20 billion hole in government revenue? The alleged purpose of the meeting was for all ministries to find and claw back cuts of 10% of Core Crown Spending to the Consolidated Fund. One guess what the Pre-Election Fiscal Update will look like on September 12?” Winston Peters via X

A simple calculation of 10% of total annual core Crown spending ($128.9 billion) actually gives you $12.8 billion (not $20 billion), but anyone who has looked at the Crown Accounts for more than a second or two knows that cutting spending 10% would mean slashing things like NZ Superannuation payments, which are forecast to be $19.5 billion in the just completed financial year, up nearly $2 billion from a year earlier. Total spending on public servants, including teachers and nurses etc, is $32.2 billion. Cutting 10% of that might generate $3.2 billion, but would mean mass sackings of teachers and nurses etc. Not going to happen.

So what is this ‘blowout’ that is being bandied about?

We don’t have to guess that tax revenues will be lower than expected because Treasury reported less than a month ago that tax collections for the 11 months to the end of May were running $2.2 billion behind the Budget 2023 forecasts for the 2022/23 fiscal year. That’s because of the slowing economy and is mostly due to lower company profits. Here’s the detail in table form.

Core Crown spending is actually running $249m less than expected, which means the ‘gap’ is less than $2 billion. Corporate tax receipts are forecast to be just over $20.5 billion. Now this appears to be where the ‘10%’ number comes from. That leaves a shortfall of around $2 billion, which is what we aready know about.

So let’s say the numbers have worsened a bit in the last couple of weeks. At worst, the $2 billion shortfall could become $3 billion or so. The actual new ‘news’ is $1 billion, which is two weeks worth of borrowing, and the same as what the fund managers offered to the Government this week. Let alone, next week and the week after that.

Moody’s, who are paid to understand fiscal policy, reaffirmed New Zealand’s AAA credit rating yesterday.

Then Nicola Willis heard a few whispers from those who had heard whispers. Here’s the beginning of the fiscal exchange in Parliament yesterday. I’ll reproduce it in full for those who think I’m being harsh (bolding mine).

NICOLA WILLIS (Deputy Leader—National) to the Minister of Finance: What update on the fiscal outlook, if any, have Public Service chief executives been informed of at recent meetings reported to have been held with him, and what updated requests for spending restraint, if any, have been directed to those chief executives?

Hon GRANT ROBERTSON (Minister of Finance): In answer to the first part of the question, I met with Public Service chief executives yesterday, as I have done several times in the last three years, as part of the Government's fiscal sustainability and effectiveness programme, which we announced in Budget 2023 in May. Public Service chief executives are aware of the most recent update of the fiscal outlook, as other New Zealanders are, and the Government accounts for the 11 months to May 2023 that were released in July. The next update will be the pre-election fiscal update, in September. In answer to the second part of the question, public sector chief executives are aware of the need to continue to make efforts to meet the Government's fiscal rules and return the Government accounts to a more sustainable fiscal position following the significant investments required to deal with the effects of the global pandemic.

Nicola Willis: Is it correct that specific Government agencies, including the New Zealand Transport Agency, were directed to find savings of at least 2 percent?

Hon GRANT ROBERTSON: The Government's fiscal sustainability and effectiveness programme is an ongoing programme. Any decisions that would affect departmental budgets will be dealt with in the same way that all Budget requests and decisions are made, and will be announced when it is appropriate to do so.

Nicola Willis: Is it correct that the finance Minister, at the very last minute, has realised that the pre-election fiscal update will be a complete debacle and so is trying to quickly get decisions into Cabinet minutes to try and paper over the crevasse in the Government accounts?

Hon GRANT ROBERTSON: The member clearly wasn't listening to my primary answer. In the Budget in May, we had $4 billion worth of savings that we found, and we announced our fiscal sustainability and effectiveness programme—page 64 of the Budget documents, for the member's reference. It is an ongoing programme of work because we are a responsible Government that seeks to make sure that we manage what is in front of us and seeks to make sure that we get a balance between fiscal sustainability and supporting New Zealanders. The only person who should be worried about a fiscal crevasse, to use the member's words, is the member, who cannot pay for the promises that she is making.

Nicola Willis: Why is it, after six years of spraying New Zealanders' money around with wild abandon, that he has, at the midnight hour, worked out that perhaps the bureaucracy should tighten its belt, and only now started issuing those directives?

Hon GRANT ROBERTSON: Again, I repeat the answers that I have given. In Budget 2023, there were $4 billion worth of savings identified. We have an ongoing sustainability and effectiveness programme. I think what we're seeing here is a member who can see in front of her the fact that she couldn't pay for the promises that have already been made, and if she hasn't been keeping up with where the Government accounts are, that's not our responsibility. She now has to be the one to find some way of repairing the fiscal hole in National's plans.

So Nicola Willis had heard about requests for 2% cuts on NZTA’s $5 billion per year spending. That’s $100 million at best. That is a fifth of one week’s worth of ‘blowout’.

Where’s the ‘black hole’? It went up in a puff of hyperbole.

It went from $20 billion in the twitter stream of Winston Peters to $100 million on the floor of Parliament. This is the full statement from Willis to give readers a sense of how far the words are from the numbers.

The Finance Minister must urgently front-up about New Zealand’s precarious financial position and respond to reports of an enormous hole in the Crown finances, National’s Finance spokesperson Nicola Willis says.

“There are now widespread leaks and reports suggesting the Labour Government is in financial panic mode.

“It’s alleged that New Zealand’s rapidly declining financial situation is now so much worse than forecast in the Budget, that Grant Robertson has instructed Public Service leaders to batten down the hatches and desperately dig up major savings to help cover-up a growing crevasse in the government books.

“The Labour Government has sprayed the public money-hose with such wild abandon that New Zealand’s Crown finances are now teetering on the edge.

“This is Labour’s mess and Grant Robertson’s last-minute clean-up job is far too little, far too late.

“At every opportunity the Labour Government has resisted the need to instil financial discipline and fiscal rectitude.

“Now the cupboard is bare.

“If these reports are true, this is beyond politics now. Mr Robertson must front-up up on the real state of the books or resign. A major deterioration in New Zealand’s fiscal position would have a massive impact on taxpayers, the economy, and the public services Kiwis rely on.

“National is ready to manage the economy in the interests of all New Zealanders. We have a plan to fix the economy, beat inflation, and get New Zealand back on track.”

In just over three months the author of these words could have to front up to actual investors and credit rating agencies to talk about the state of the Crown’s finances. And she has to instil confidence. This is not the way to do it.

Other places I’ve appeared this week

cheers

Bernard

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