Bridges versus Ardern in Parliament

The return of Prime Minister Jacinda Ardern to Question Time in Parliament yesterday seemed to pass largely unnoticed as most attention was on the Brash speech ban at Massey.

Simon Bridges holding Ardern to account wasn’t very newsworthy anyway, but here it goes.

2. Hon SIMON BRIDGES (Leader of the Opposition) to the Prime Minister: Does she stand by all her Government’s policies and actions?

Rt Hon JACINDA ARDERN (Prime Minister): I’m nothing if not consistent: yes.

Hon Simon Bridges: Some things don’t change.

Mr SPEAKER: Order! I think that’s sort of now 2-1 in the out-of-order comments. We’ll just get back to the questions.

Hon Simon Bridges: When she dismissed business confidence yesterday as “perceptions” and said, “I’m interested in the reality of what our economy is doing and how it is performing.”, had she then seen yesterday’s report from Treasury that stated, “… weaker confidence, in conjunction with other data, highlight the risk that growth over the coming fiscal year may be weaker-than-forecast in the Budget …”?

Rt Hon JACINDA ARDERN: I would not characterise that as dismissal at all. I hear what business is saying in the same way I hear what nurses have said, what teachers have said, what anyone who works in the well-being space has said around the need to rebuild confidence in New Zealand’s social well-being outcomes as much as our economic outcomes. What I will say is that I also have to acknowledge the international environment, which is having an effect here in New Zealand, which is why we need to diversify our economy and make sure that we are not vulnerable, which is exactly the place that last Government left us in.

Mr SPEAKER: Before I call the member, I am going to ask David Bennett to go the rest of this question and the series of supplementaries and answers without interjecting.

Hon Simon Bridges: On the international environment, why is it, then, that New Zealand’s the only country to have gone from near the top of the OECD in business confidence to right near the bottom?

Rt Hon JACINDA ARDERN: We’re actually a fraction away from the long-term average, and I have to say, when you look at the OECD comparisons around our growth forecast, actually we stand up pretty well.

Hon Simon Bridges: Does she accept the weaker growth talked of now by Treasury is the reality, as is a decline in GDP per capita in just the last quarter?

Rt Hon JACINDA ARDERN: If we’re going to quote what Treasury have said, let’s share the entire picture. They’ve said that the housing market was cooling faster than expected. And actually, the housing market was overheated under that last Government, and we need to stand up and fully confront that and the harm that it was doing New Zealand’s people. Secondly, we need to acknowledge the international environment, which Treasury has, as well. And, at the same time, they’ve said that labour income—wages—are growing strongly, that employment growth is solid, and that we have issued things like more building consents. If you’re going to talk about the economy, let’s talk about all of the indicators, not just some of them.

Hon Simon Bridges: On her discussion, once again, of the international environment and Treasury’s view on it, does she not accept that they’ve said, “The international environment remains broadly stable.”—nothing’s changed?

Rt Hon JACINDA ARDERN: If the member is reading the voice of business—like, for instance, I would imagine he would look at the KPMG survey, which has highlighted that that is, in fact, having an impact. So if the member thinks the KPMG survey is babble, does he think that what John Key has said was babble as well? Because he’s raised it, too.

David Seymour: Does the Prime Minister stand by education Minister Chris Hipkins’ statement that the Tertiary Education Commission will have new powers under the Act to monitor the tertiary sector and hold providers to account for their use of public funding?

Rt Hon JACINDA ARDERN: If he’s asserting that the Minister of Education is saying that we should strive for high-quality tertiary education, then that is no bad thing.

David Seymour: Would it be a bad thing if a university failed to use its public funding in alignment with section 161 of the Education Act 1989 to uphold academic freedom, such as by refusing to allow speakers to speak on university campuses because of their political views?

Rt Hon JACINDA ARDERN: Ultimately, institutions have their own freedom on a day-to-day basis, but if he’s asking me for a personal opinion, the example I think that he is pointing to I would characterise as an overreaction on the part of the institution.

Hon Chris Hipkins: Does the Prime Minister think it is tenable for the Government to threaten to cut funding for universities when they make decisions that the Government disagrees with?

Rt Hon JACINDA ARDERN: Absolutely not. We continue to hold a personal view, and, as I say, there are a number of examples where politicians and ex-politicians have caused a stir on university campuses. I think the reaction we’ve seen has been an overreaction. Will we retaliate? Of course not.

Hon Dr David Clark: Ha, ha!

Hon Simon Bridges: Does she accept—

Mr SPEAKER: Order! Who made that noise?

Hon Dr David Clark: Mr Speaker, if you’re referring to the laugh—that was me.

Mr SPEAKER: Right, OK. Thank you.

Hon Simon Bridges: Does she accept the weaker growth foreshadowed by Treasury and the decline in GDP per capita in just the last quarter to be a reality?

Rt Hon JACINDA ARDERN: Of course Treasury has put out its forecasts, and I acknowledge that, yes, the housing market has cooled. International tensions have had an effect. But on the flip side, if I’m going to accept that, I’m also going to accept the wage growth, which is benefiting New Zealanders; high employment, which is also benefiting New Zealanders; and the fact that we have seen, for instance, a decrease in the number of young people in unemployment. I accept that we have challenges in front of us. That’s why we’re investing in boosting productivity, it’s why we’re investing in diversifying our trade, and it’s why we’re investing in R & D. I’m not shying away from those challenges.

Rt Hon Winston Peters: Regarding the international influence upon New Zealand’s economy, is the Prime Minister encouraged by all of a sudden the number of highly-placed European Union officials and representations with respect to a free-trade deal with the European Union?

Rt Hon JACINDA ARDERN: Absolutely. We have a visit today which only helps us further our relationships and New Zealand’s interests. I also applaud the work that the Minister for Trade and Export Growth is doing on our Trade for All, alongside negotiating the Pacific Agreement on Closer Economic Relations, the Regional Comprehensive Economic Partnership, and the EU free-trade agreement. We are moving at pace, because growing exports grows jobs.

Hon Simon Bridges: Does she accept a 60 percent decline in job growth since her Government came into office is a reality for the thousands of New Zealanders who didn’t get a job as a result?

Rt Hon JACINDA ARDERN: We have 94,000 more people employed at the end of June 2018 than there were in June 2017. Our unemployment rate has decreased. So the member is picking a figure and interpreting it in the way that he chooses, but I am proud of the fact that we are putting people into jobs.

Hon Simon Bridges: Does she accept a 4,000-person increase in unemployment in just three months to be a reality for those families?

Rt Hon JACINDA ARDERN: It’s down from 4.8 percent, I would first point out. The second point that I would make is that we have seen a rise in participation—more people moving into the job market. I would interpret that to be that they see hope that there are jobs and work available for them. The ANZ Job Ads indicates that that is indeed the case.

Hon Simon Bridges: Does she accept more industrial strikes in the last nine months than in the last nine years to be a reality for those businesses and workers?

Rt Hon JACINDA ARDERN: I just want to highlight today we’ve also concluded the nurses’ pay agreement, which is something that I would like to celebrate—and you’re welcome. We concluded that after inheriting it halfway through. We concluded it because we doubled the offer, we addressed the safety concerns, and, just as we have with teachers, we’ve already scrapped national standards. We’ve brought in more funding for teacher aides and for those with learning needs, and we have increased their operational funding. There is more to do, but we’ve done more in nine months than that Government did in nine years.

Hon Simon Bridges: Does she accept the collapse of multiple construction companies to be a reality for those businesses, their workers, and their customers?

Rt Hon JACINDA ARDERN: Look, absolutely we’ve acknowledged that’s happened. That’s why we sat down with the vertical construction industry yesterday. I acknowledge that it’s a very different case for residential and those working in infrastructure, because they are seeing a huge boost in investment out of this Government in those sectors. When it comes to vertical construction, 18 percent of the work for that industry comes from Government. Even though we represent only 18 percent, we are fronting up and saying that if we can play a leadership role to ensure that we do not have a further collapse in this sector, we will play it. That’s what this Government has done. We hadn’t gone far enough with the reforms of the last Government, and we are, again, happy to pick up the pieces.

Hon Simon Bridges: Does she think there will be real impacts for New Zealanders from us having the lowest business confidence since the global financial crisis, while in Australia it’s at a 30-year high?

Rt Hon JACINDA ARDERN: Australia’s at a 30-year high, and yet we’re outperforming them on things like the employment rate.

Hon Simon Bridges: No, we’re not—not on anything.

Rt Hon JACINDA ARDERN: On things like the employment rate, we absolutely are. We have the third-highest rate of employment in the OECD. We have steady economic growth and, according to the OECD, at 3 percent, the same as Australia going into 2019. Where we don’t sit on the same page as Australia is our low wages, and we’re doing something about that, too.

Hon Simon Bridges: Is the Prime Minister seriously denying that in Australia right now they are growing faster than us for the first time in several years, that their business confidence is at a 30-year high while ours is at a 10-year low, and that there are more New Zealanders leaving for Australia than there have been for some quite considerable time?

Rt Hon JACINDA ARDERN: What I am arguing is that if we’re going to look at the health of our economy, then we should look at a range of indicators. Employee confidence is up. Job ads are up. Consents are up. Unemployment—we have incredibly low unemployment in this country. We have 94,000 more people in work and—and—we have, on average, over $70 going into the back pockets of working New Zealanders and those in need, which, of course, is stimulating our economy. I’m proud of the changes we’re making. We need to modernise our economy and we are working hard on doing just that, as well.

Hon Simon Bridges: Does she accept any responsibility in terms of her Government’s policies such as industrial relations reform, shutting down the oil and gas sectors in terms of new exploration, higher taxes, and banning foreign investment, and the hurt they’re causing business confidence, and therefore the direct impact they’re having for families all around New Zealand?

Rt Hon JACINDA ARDERN: Look, as I’ve said, I absolutely acknowledge that businesses have shared with us via the confidence surveys that there are issues they wish us to work on. I’ve heard that. When you ask business what it is, they say to us it is the skills gap, so we’ve invested in training and educating our workforce, and business can access that just as much as anyone else. They’ve told us that it’s our productivity challenge. They’ve told us that it’s that we’re not investing in R & D. They’ve told us that we’ve underinvested in the regions, which is why we have the Provincial Growth Fund. They’ve told us it’s because we need to modernise our economy and because of the challenges of climate change, which is why we have the Green Investment Fund. I acknowledge that as with any Labour-led Government in the past, this coalition Government needs to challenge the perception that exists. I’m not shying away from that challenge, and that’s why I’m fronting it head-on.

Hon Simon Bridges: Isn’t the Prime Minister in complete denial about our economy’s reality and any number that any of us could pick in her Government policies’ impact, and doesn’t she need to start listening to businesses, small and large, around New Zealand and make some serious changes?

Rt Hon JACINDA ARDERN: As I’ve said, I’ve acknowledged every single economic indicator that tells us we have a lot to be proud of, and I also acknowledge 94,000 more New Zealanders in work—something to be proud of. If that member wants to go around dissing our economy and the potential that exists in this country, that, I have to say, is a damn shame.

Ardern needs to urgently address declining business confidence

Ex acting Prime Minister Winston Peters tried to make a joke out of concerns raised in Parliament about worsening trends in business confidence on Tuesday – see Bridges versus Peters – a surprise conclusion.

But this is something Jacinda Ardern will have to put some priority on addressing when she returns to Parliament next Monday. This was pre-empted in an interview given yesterday.

Stuff:  Jacinda Ardern faces mounting problem in business confidence on her return

When Ardern returns to Parliament on Monday she is set to walk into a building storm over plummeting business confidence that threatens to shake the economy in real terms.

In an interview with Stuff, ahead of her returnArdern gave assurances that her Government’s agenda did not come at the expense of economic growth.

“I absolutely believe that our agenda will grow the economy, will make sure businesses are in a position to grow and prosper, because I need that economic growth to be able to lift the wellbeing of all New Zealanders.

“These are not two separate agendas – they absolutely work hand-in-hand. I think New Zealanders absolutely see my emphasis on the wellbeing of New Zealanders. Now what I’m hoping they’ll also see is the agenda that’s always existed for us around growing the economy”.

That is just vague waffle. She will need to be far more decisive than that. Strong sounding comments ‘absolutely believe(which means little more than ‘I think’ or “I want to convey’) are already overused by Ardern and pretty much meaningless.

Apart from business confidence trending downwards to levels not seen since the Global Financial crisis economic signs are mixed.

Her comments come at the same time figures showed a slight rise in unemployment – the first since December 2016 – though unemployment remained low. Job creation had slowed, two major construction company had collapsed in recent weeks and more industrial action was in the offing.

But while economic growth had slowed, the overall picture remained positive. Migration was strong, the Government accounts were solid and spending was up. Despite farmers registering low levels of confidence, commodity prices were strong and the dollar was down, benefiting exporters.

Despite that, New Zealand had dropped from near the top of one OECD table on business confidence, to second from bottom, and that threatened to slow investment and growth.

Confidence may bounce back, but if it stays relatively low that will, in time, flow through to economic activity with lower employment and less investment in business development likely.

Ardern:

“What I intend to do is, within a month at least, bring together some of the work we’ve been doing in earnest around working together with the business community, to make sure that we are tackling some of the challenges that we’re facing collectively”.

“But what I’m really proud of is that we know and recognise some of the challenges that businesses are saying to us they have. Finding and attracting skilled labour, making sure that we grow our exports, diversifying our economy beyond housing and dairy – those are challenges we’re tackling head on.”

“We have incredibly low levels of unemployment relative to the OECD in particular. We have good solid growth forecast for the future. We have a surplus and, relative to other countries, our debt’s in pretty good shape too”.

“When you tackle challenges that creates a level of uncertainty. Because you’re creating change. We are modernising our economy, but we need to bring everyone with us.

“Within the month, I’m committed to bringing those strands together and doing a significant speech on the economy and we’re very much focused on addressing some of those concerns I’ve heard. But I feel absolutely confident we’re tackling this head on and we can bring business with us.”

Flowery and exaggerated language aside, that doesn’t say very much that is likely to turn confidence around. I think that people who make decisions in business would like to hear something far more substantive.

And beyond New Zealand there is a lot of international uncertainty as Donald Trump ramps up his trade war with China. That could be mostly bluster, but it could also get very messy, and New Zealand would not be immune from the effects.

Both the domestic and international economies pose major challenges for Ardern. A baby photo won’t cut it.

 

Economic boom, or bust? Or both?

Two contrasting views on economic prospects in the US. Given it’s size the economy in the US will impact on the rest of the world, including New Zealand.

Kevin Brady, Republican member of Congress and chairman of the House Ways and Means Committee writes (WSJ): Six Months After Tax Reform, Something Big Is Happening

Six months ago, Republicans in Congress joined with President Trump to redesign America’s tax code and enact sweeping tax cuts. We were determined to let families and local businesses keep more of what they earn. The new tax code was built to help American companies and workers compete and win anywhere in the world.

Now something big is happening to America’s economy. Since January, more than one million jobs have been created.

In only six months, the economy has been reinvigorated—and the best is yet to come. That’s because the new tax code leapfrogs America’s competitors abroad. The U.S. is now at the head of the pack—one of the best places on the planet to find that next job, to build that new manufacturing plant, or to set up company headquarters.

As a result, businesses of all sizes are now investing in American workers and communities. They are bringing back their dollars from overseas and investing at home again. It’s no coincidence that small-business optimism has hit its highest reported level in 35 years.

There is a new hope and a new optimism that wasn’t here before

Given the choice between keeping taxes high and allowing families to keep more of their money, Republicans chose—and continue to choose—the American people. Empowering families to run their own lives is at the heart of the American Dream. It’s the key to our nation’s economic success, and it’s the reason that, six months into tax reform, Americans are more hopeful about their future.

But domestic tax rates aren’t the only thing that affects the US and world economies. Not everyone is this hopeful about the economic future.

Nomi Prins (The Nation): Donald Trump’s Trade Wars Could Lead to the Next Great Depression

Leaders are routinely confronted with philosophical dilemmas. Here’s a classic one for our Trumptopian times: If you make enemies out of your friends and friends out of your enemies, where does that leave you?

Let’s cut through all of this for the moment and ask one crucial question about our present cult-of-personality era in American politics: Other than accumulating more wealth and influence for himself, his children, and the Trump family empire, what’s Donald J. Trump’s end game as president?

If his goal is to keep this country from being, as he likes to complain, “the world’s piggy bank,” then his words, threats, and actions are concerning. However bombastic and disdainful of a history he appears to know little about, he is already making the world a less stable, less affordable, and more fear-driven place.

Trump’s approach may force the world into sorting out some shortcomings of current trade arrangements, but it has major risks.

What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the United States and the rest of the world big-time.

Could.

So far, President Trump has only taken America out of trade deals or threatened to do so if other countries don’t behave in a way that satisfies him. On his third day in the White House, he honored his campaign promise to remove the United States from the Trans-Pacific Partnership, a decision that opened space for our allies and competitors, China in particular, to negotiate deals without us. Since that grand exit, there has, in fact, been a boom in side deals involving China and other Pacific Rim countries that has weakened, not strengthened, Washington’s global bargaining position.

Meanwhile, closer to home, the Trump administration has engaged in a barrage of NAFTA-baiting that is isolating us from our regional partners, Canada and Mexico.

Trump is also annoying Britan and the EU over his trade barrages.

In the past four months, Trump has imposed tariffs, exempting certain countries, only to reimpose them at his whim. If trust were a coveted commodity, when it came to the present White House, it would now be trading at zero.

His supporters undoubtedly see this approach as the fulfillment of his many campaign promises and part of his classic method of keeping both friends and enemies guessing until he’s ready to go in for the kill. At the heart of this approach, however, lies a certain global madness, for he now is sparking a set of trade wars that could, in the end, cost millions of American jobs.

“Could, in the end, cost millions of American jobs” contrasts with Brady’s “more than one million jobs have been created”.  In fact both could be correct. Short term gains could disappear if Trump tirades turn trade into a turkey and the economy goes bad.

As the explosive Group of Seven, or G7, summit in Quebec showed, the Trump administration is increasingly isolating itself from its allies in palpable ways and, in the process, significantly impairing the country’s negotiating power.

If you combine the economies of what might now be thought of as the G6 and add in the rest of the EU, its economic power is collectively larger than that of the United States. Under the circumstances, even a small diversion of trade thanks to Trump-induced tariff wars could have costly consequences.

Good international relations generally means better outcomes. Wars of any kind are likely to make things worse.

A recent report by Andy Stoeckel and Warwick McKibbin for the Brookings Institution analyzed just such a future trade-war scenario and found that, if global tariffs were to rise just 10 percent, the gross national product (GDP) of most countries would fall by between 1 percent and 4.5 percent—the US GDP by 1.3 percent, China’s by 4.3 percent. A 40 percent rise in tariffs would ensure a deep global recession or depression.

In the 1930s, it was the punitive US Smoot-Hawley tariff that helped spark the devastating cocktail of nationalism and economic collapse that culminated in World War II.

The current incipient trade war was actually launched by the Trump administration in March in the name of American “national security.”

Using “national security” as a loose excuse for abuse is bad enough, but it has some disturbing parallels.

From the United States Holocaust Memorial Museum:

As an absolute principle of national security, Nazi ideology called for the elimination of “racially inferior” peoples (such as Jews and Roma) and implacable political enemies (such as communists) from regions in which Germans lived.

Back to Prins:

The global economic system first put in place after World War II was no longer working particularly well even before President Trump’s trade wars began. The problem now is that its flaws are being exacerbated.

Once it becomes too expensive for certain companies to continue operating as their profits go to tariffs or tariffs deflect their customers elsewhere (or nowhere), one thing is certain: It will get worse.

I don’t think that’s a certainty, but it is a real possibility if Trump’s ‘negotiations’ turn trade to custard.

Is the US headed for boom, or bust?

It could easily be both. Busts often follow booms.

 

 

Poll: most important problems facing New Zealand

A Roy Morgan poll on most important general issues facing New Zealand compared to the world shows that economic issues, inequality and housing are of most concern.

Most Important Problems Facing New Zealand and the World - February 2018

And the most important specific New Zealand issues compared to the world.

It’s not surprising to see economic issues so high, including inequality, and in New Zealand housing is also of major concern.

Interesting to see that New Zealand is significantly less concerned about environmental issues.

Perhaps this is why the Greens are so keen on advocating on social issues.

Source: Economic Issues dominate New Zealand concerns early in 2018

 

Banker warns of financial bubble risks

Since recovering from the Global Financial Crisis in 2008 and the impact of the Christchurch earthquakes the economy has been humming along nicely in New Zealand for the last couple of years, allowing for political promises of increased spending. Some caution may be prudent.

However the world economic risks have risen – President Donald Trump claims to have lifted the US stock market and business confidence, but a world banker claims there is a bubble that is at risk of bursting.

NZH – Breaking point: World financial system as stretched as before 2008 crash, says banker

The world financial system is as dangerously stretched today as it was at the peak of the last bubble but this time the authorities are caught in a “policy trap” with few defences left, a veteran central banker has warned.

Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder.

“All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,” said William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements.

Prof White said disturbing evidence of credit degradation is emerging almost daily.

Prof White said there was an intoxicating optimism at the top of every unstable boom when people convince themselves that risk is fading, but that is when the worst mistakes are made. Stress indicators were equally depres-sed in 2007 just before the storm broke.

This time central banks are holding a particularly ferocious tiger by the tail. Global debt ratios have surged by a further 51 percentage points of GDP since the Lehman crisis, reaching a record 327 per cent (IIF data).

“Central banks have been pouring more fuel on the fire,” he told The Daily Telegraph, speaking before the World Economic Forum in Davos.

The US Federal Reserve is already reversing bond purchases – ignoring warnings by former Fed chair Ben Bernanke – and will ratchet up the pace to US$50b a month this year. It will lead to a surge in supply of US Treasury bonds just as the Trump Administration’s tax and spending blitz pushes the US budget deficit toward US$1 trillion, and China and Japan trim Treasury holdings.

It has the makings of a perfect storm. At best, the implication is that yields on 10-year Treasuries – the world’s benchmark price of money – will spike enough to send tremors through credit markets.

The world economy is always at risk of catastrophe. There are always people predicting imminent financial collapse.

The edifice of inflated equity and asset markets is built on the premise that interest rates will remain pinned to the floor. The latest stability report by the US Treasury’s Office of Financial Research warned that a 100 basis point rate rise would slash US$1.2 trillion of value from the Barclays US Aggregate Bond Index, with further losses once junk bonds, fixed-rate mortgages, and derivatives are included.

The global fall-out could be violent.

If that happens it will impact on New Zealand. If interest rates rise or property prices fall it will create difficulties many property owners. If interest rates rise and property prices fall the damage will be greater.

While higher inflation is needed in one sense to right the global ship – since it lifts nominal GDP faster, and whittles down debt – the danger is that the shock of higher rates will hit first.

Central banks are now caught in a “debt trap”. They cannot hold rates near zero as inflation pressures build, but they cannot easily raise rates either because it risks blowing up the system. “It is frankly scary,” said Prof White.

The authorities may not yet have reached the end of the road but this strategy is clearly pregnant with danger. Global finance has become so sensitive to monetary policy that central banks risk triggering a downturn long before they have built up the safety buffer of 400 to 500 basis points in interest rate cuts needed to fight recessions.

“We are running out of ammunition. I am afraid that at some point this is going to be resolved with a lot of debt defaults. And what did we do with the demographic dividend? We wasted it,” he said.

Financial hiccups are inevitable, it’s just a matter of when and how drastic.

The New Zealand Government has committed to ‘fiscal responsibility’ – it may be wise for them to stick to that aim.

‘Recession likely’, or not

Different views on the likelihood of a recession.

Forbes: New Zealand, An Economic Success Story, Loses Its Way

On September 23, the people of New Zealand elected 37-year-old Jacinda Ardern as prime minister, the youngest prime minister in New Zealand’s history. Ardern has brought youthful energy to New Zealand politics, but her scary rhetoric during the campaign (like calling capitalism a “blatant failure”) has some people wondering if she will take the country back to the bad old days of the 70s and early 80s.

One of Ardern’s first acts as prime minister was to ban foreign ownership of residential real estate; New Zealand has, by anyone’s measure, one of the biggest housing bubbles in the world. Banning foreign ownership of property sets the country up for a possible real estate crash.

Ardern also opposes high levels of immigration, along with her coalition partner, Winston Peters. It is set to drop dramatically. Immigration, especially skilled immigration, has been a big contributor to economic growth over the years.

It seems likely that New Zealand will experience a recession during Ardern’s term. Nobody is predicting a return to the bad old days of the 70s, but New Zealand will probably lose its status as one of the most open, free economies in the world. It takes decades to weaken an economy, just like it takes decades to strengthen it. But investors will probably want to avoid New Zealand for the time being.

Jared Dillian is the author of All the Evil of This World, and the editor of the 10th Man newsletter for Mauldin Economics.

Liam Dann (NZH): What Recession? Local economists pick good growth

The verdicts are in and despite what Forbes contributor Jared Dillian says, there are no economists picking a recession for Jacinda Ardern’s Government.

Most of New Zealand and Australia’s major economics teams have now reassessed their economic forecasts to factor in the effect of the new Government.

The loose consensus – bearing in mind no two economists ever agree – seems to be that GDP growth is going to be less flash than previously expected next year.

But it’s not crashing through the floor either. Growth forecasts between 2.4 per cent and 3.2 per cent for 2018 still look pretty good by international standards.

Apart from a few random think pieces though – written by offshore commentators who can’t quite believe New Zealand changed Government with the accounts in such good shape – most of the economic and financial community still seems pretty relaxed about the new regime.

It’s very early days to see what the Government will do, and what the economy will do.

And as far as the economy is concerned, it is most at risk from overseas influences.

“NZ is thrashing Australia in competitiveness rankings”

I’m not sure if anyone believed Winston Peters’ preaching doom and gloom and his claims that the New Zealand was headed in a dire condition. Just after the election from Peters:  Official Cash Rate Shows Complacency:

“Beneath the veneer of stability large risks are lurking in the global economy,” says New Zealand First Leader Rt Hon Winston Peters.

“The prolonged era of ultra-cheap money has created expectations that this unprecedented period will continue forever.

“Fed by cheap money, share and property markets are at record levels and have a long way to fall.  In particular, the US share market has had an amazing run with barely a hiccup. In China, debt levels are staggering.

“Irrational exuberance rules.

“It is impossible to predict when, but something will go wrong and New Zealand should be prepared,” says Mr Peters.

Things can always go wrong with economies, and New Zealand should always be prepared. But at the moment things are looking fairly good.

Stuff: Unemployment falls to eight-year low as job creation surges

On Wednesday Statistics New Zealand figures showed unemployment fell to 4.6 per cent, the lowest in almost nine years. The survey showed that the economy added more than 100,000 in a year.

Covering the three months to the end of September, marking the final weeks of National’s nine years in office.

Participation in the labour force rose to 71.1 per cent, while the employment rate rose to 67.8 per cent, both record highs.

The number of people unemployed stood at 126,000, which is actually slightly higher than the number unemployed back at the end of 2015, but now the workforce is substantially larger with another 221,000 people employed

That’s a good recovery after the combined impact of a local recession followed by the Global Financial Crisis, and on top of that the very costly Christchurch earthquakes.

And from across the ditch: Kiwis ‘thrashing’ Australia in competitiveness

MAJOR economic reforms over more than a decade have dramatically increased New Zealand’s global competitiveness at the same time as Australia plunged down the rankings.

While New Zealand’s new prime minister Jacinda Ardern claims capitalism has been a “blatant failure” for the country’s poor and homeless, “nothing could be further from the truth”, according to the Institute of Public Affairs.

In a parliamentary research note distributed to Federal MPs, the free-market think-tank compares how the two countries fare in the World Economic Forum’s annual Global Competitiveness Report, released at the end of September.

“New Zealand is thrashing Australia in the competitiveness rankings because they substantially liberalised their economy with welfare, industrial relations, and tax reform,” IPA research fellow Daniel Wild said.

In 2004, Australia was the ninth most competitive country, based on 114 indicators including macroeconomic health, quality of infrastructure and labour market efficiency. Today Australia ranks 21st.

Over the same period, New Zealand has improved its ranking from 18th to 13th.

“Kiwis clearly have the upper hand in the economic competitiveness stakes,” Mr Wild said.

“Australians have become complacent about their economic prospects following years of economic growth. However, growth is not automatic, and serious economic reform is required to ensure prosperity and opportunity for future generations.”

So the new Government has a very sound economic base to build on. It gives them some financial flexibility to implement some reforms. Providing they don’t take too many risks or commit to too much increased spending the New Zealand economy should continue to relatively well.

Tracey Martin on referendums

In an interesting interview during the election campaign Tracey Martin gave an indication as to how she thought referenda should be used.

It gives a good insight into Martin’s and presumably NZ First’s preferences on the use of referendums.

Martin has been a member of the New Zealand First Party since 1993. She was on the party Board of Directors from 2008 until becoming an MP and the party’s deputy leader in 2011. She dropped to party #3 when Ron Mark challenged her and took over as deputy. She is expected to become a Cabinet Minister in the incoming government.

NZ First have promote referenda as a way of allowing the public to decide – from their Social Development policy:

Protect our social fabric and traditional family values from temporarily empowered politicians, by requiring so-called ‘conscience issues’ be put to comprehensive public debate and referenda.

The have proposed a number of referenda. Winston Peters promised a referendum on the Maori seats in the recent election campaign, although it looks like that has been lost in negotiations with Labour.

Family recently publicly reminded NZ First Promised Anti-Smacking Law Referendum:

(In 2014, NZ First said “NZ First policy is to repeal the anti-smacking law passed by the last parliament despite overwhelming public opposition. Accordingly, we will not enter any coalition or confidence and supply agreement with a party that wishes to ignore the public’s clearly stated view in a referendum on that issue.”)

That was for a previous election.

In a speech in March in Northland, leader Winston Peters said;

“We are going to repeal the anti-smacking law which doesn’t work and has in fact seen greater violence towards children.”

He then further clarified his position in an interview on Newstalk ZB saying that this matter should go to a referendum with New Zealand people who are “far more reliable and trustworthy on these matters, rather than a bunch of temporarily empowered parliamentarians.”

This position was backed up by senior MP Tracey Martin.

It would be surprising if Labour or Greens supported this. We may find out today if it’s another casualty of negotiations or not.

During the election campaign Martin explained how she saw referenda being used in an interview at the University of Otago, starting at about 20:15

Question: “One thing we’ve noticed is that New Zealand First seems to call for a lot of referendums on different issues, and you think that it should be the people deciding rather than a group of Parliamentarians. Why is that?”

Martin replied :

First of all there’s some things, they’re quite big social shifts, you know there’s some stuff that makes quite a big difference to society.

Lets take euthanasia as one that’s a biggie at the moment, and also legalising recreational marijuana. Split that off from medicinal marijuana, New Zealand First has already said we support medicinal marijuana through a prescription regime.

As an aside it’s not marijuana, it’s cannabis. It’s unusual to here it referred to as marijuana in New Zealand. The bill currently in Parliament is Misuse of Drugs (Medicinal Cannabis and Other Matters) Amendment.

But if you take those two issues, they’re issues that we think New Zealanders have the right to discuss, and my vote shouldn’t be worth any more than your vote…and so you need to have the same information I have, and then the country needs to vote.

“Do you see that I have a vote, and I vote in a Parliament, surely that is my reflection of those people making decisions on my behalf?”

So we have a representative democracy, and I would say that if every single bill that went through that House was a conscience vote then you might be right.

Euthanasia was not a topic that was campaigned on at the last election, so how would you have been able to vote on the political party, if you had strong beliefs on that particular topic, how would you have been able to vote for a particular party on that issue, which is a big issue for a nation.

It’s not the tweaking of a, it’s not Uber. It’s a large piece of legislation that is going to make quite a substantial change to country.

NZ First proposals to radically change our economic system is far more substantial – should any policies changing our economic system go to a referendum?

“If parties were campaigning on it this election and setting out their values on the issue which I think a lot of parties have been, it is coming into the discussion a bit more and I chose to volte on that issue, would it then be a rule for Parliament to make that decision rather than putting it back to the people again who have just voted?”

Well I think again it would be fine if it was a representative democracy.

That’s what we have.

…that’s just what New Zealand First believe, there are particular issues that should be laid in front of the New Zealand people, and the New Zealand people as a whole should be able to have a discussion about them out in the open in a transparent way, and then a vote on it.

“Is this a call for more direct democracy in New Zealand?”

Well basically yes, that’s what, I think that’s principle number 15 of New Zealand First, is about direct democracy.

If we haven’t campaigned on it, if we haven’t had a position on it, on a big item, then it’s something we think we need to go back to the constituency which is the public.

15. The People’s Policies

All policies not contained in the party manifesto, where no national emergency clearly exists, will first be referred to the electorate for a mandate.

This is an oddly NZ First-centric principle. Why should it only apply to things NZ First has no policy or campaign position on? Why shouldn’t things of public importance that are NZ First policies not go to referenda?

My also hope is that it might actually make feel connected too.

Here’s a very interesting and important point.

So if I put a bill in front, and I don’t think a referendum should just be a question. I think that’s a really easy way to manipulate direct democracy is to have a single question that is worded in a way that well how could you say no to it, or how could you say less to it.

I believe that you have the same intelligence that anybody sitting in that House has, and so you should see the piece of legislation, you should get the regulatory impact statement, you should get the full Parliamentary blurb that we get, and then after twelve months you should vote on it.

I think that in principle this is a good idea. I have suggested this sort of process for legalising or decriminalising cannabis – a bill should be passed through the normal parliamentary processes, and then go to the public for ratification or rejection via a referendum.

There are some potential down sides, especially if one referendum is held to put a number of issues to the public. There could be a lot of material to distribute and to digest.

Instead of handing out the full legislation plus regulatory statement and any other blurb perhaps a fair summary should be written and distributed. Those who have the time or inclination could obtain all the material online or request it all to be posted out.

I don’t think giving everyone a big pile of legislation will encourage participation, it is more likely to deter engagement.

But generally I think that this is a promising approach to contentious issues of public importance, write the legislation and if it passes through Parliament put it too the people for ratification or rejection.

This would encourage our Parliamentarians to write and pass legislation that made sense to the public and addressed public concerns.

I think this would work well for both euthanasia and for recreational cannabis use.

I don’t think it would be a good way to decide on the Maori seats. That would enable a large majority to make a decision that really just affects a relatively small minority.

I also don’t think it would suit the smacking issue.

The use of referendums could be a significant issue in itself this term.

Last term the flag referendums were a democratic disaster, with political game playing and deliberate disruption making a mess of the process. Somehow that has to be avoided in the future.

I’m encouraged by what Martin said in this interview, albeit with a concern about their principle of only applying referendums to things NZ First hasn’t written policy on or campaigned on. They aren’t the only party in Parliament or soon to be in Government.

Something Peters campaigned on was ‘a change in the way this country is run both economically and socially’.

That suggests major change to me. Should any major change to the way we run the country economically or socially be ratified by the public via referenda?

Peters has been quite vague about what changes he wants. Once he clarifies and suggests specific changes should we the people get to decide on whether it should happen or not?

Peters and economic reform

Winston Peters has made a number of statements about wanting economic reform and to overturn the ‘neo-liberal experiment’.

In a speech in June: The farcical virtuous circle, immigration is the economy

People are increasingly dissatisfied with what the major establishment parties of both the Left and Right have delivered.

In New Zealand First we assert that the old parties callous economic experimentation has served New Zealand badly – and that younger New Zealanders in particular, are paying a high price for their short-sighted and irresponsible policies. And much of what we used to own in our economy is now foreign owned and in control of outsiders.

Allowing unprecedented levels of immigration – a staggering 72,000 net migrants a year – directly impacts housing and jobs.  You heard that correctly. There is no mistake.

The other parties and this government’s policy has now descended to a circular argument.

Labour admitted that last week. On this matter their policy is identical to National’s.

So here is their FARCICAL VIRTUOUS CIRCLE.

“We need more migrants, to build the houses and the roads for migrants.”

What utter stupendous, imbecilic, idiotic, moronic nonsense.

Our policy will immediately brighten the housing and employment prospects for younger Kiwis.

Because a common sense immigration policy is basic to ensuring every Kiwi gets to have a meaningful stake in their society.

If we don’t deal to this crisis created by the other political parties support or condonation of mass immigration we can’t effectively deal with any other concern.

And because of the magnitude of their shorts-sightedness it is going to take well over a decade to fix up.

But beginning with this issue New Zealand First has the policies to rebuild this country and when our manifesto is out soon I trust you will read it.

In the next 96 days you are going to see or hear numerous speculative comment on what New Zealand First is going to do and you can be certain of one thing. None of those commentators will be reciting anything I said.

So under-resourced are the media these days that news reporting has been devalued and unsupported in favour of mindless speculation, opining, editorialising, and vacuous explanation have become the substitute.

But the great news, confirmed from overseas evidence, is that those in politics who speak straight to the people, do gain their support.

That, ladies and gentlemen, explains our inexorable rise in 2017.

NZ First didn’t rise, they have less votes than in 2014, but they are in a powerful position as far as coalition negotiations go.

In July:  Winston Peters dismisses ‘irresponsible capitalism’ of other parties with new economic policy

Winston Peters is positioning NZ First as the party of difference and says his policy announcements today will steer away from the “irresponsible capitalism” that every other political party is selling.

The neo-liberal policy adopted by New Zealand politicians in the 1980s is a “failed economic experiment”.

“We want to confront what’s going on and set it right,” Peters said.

“I look at Parliament today and the National party, the Labour party and now the Greens are all accepting of that with a little bit of tweaking. That is astonishing, particularly in the case of the Greens – they’ve done it to try and look respectable – it’s totally disrespectable economic policy.”

A speech in August:  “Putting the New Zealand economy first”

Kiwis have a choice.

They accept the Treasury numbers at face value, and all is well with the world, and the government has done an okay job on the economy.

Or, they can choose reality.  The reality is that the rosy picture is a sham as the PREFU confirms the illusion of a “strong and sound economy is wafer thin”.

The much touted surplus will vanish in the twink of an eye when population growth driven by immigration is properly accounted for.

New Zealand is now a land of backlogs and deficits and nothing in the Treasury data will improve that.

Kiwis can choose the smokescreen economy or the real economy because people are seeing their standards of living going steadily down, with stagnant incomes, insecure jobs and a massive housing crisis.

New Zealand First’s economic policy renounces wishful thinking and deals with the economic realities.

Contrary to today’s PREFU the surplus is artificial and results from years of under-expenditure in nearly every area of economic and social debate in this campaign.

So this speech will be a dose of common sense ahead of Labour’s “Neo-cracy” but just before National’s continuing “Chum-ocracy”.

So Red or Blue, you have got nothing new.

Tax Reform for Workers and Businesses

Last week, in Tauranga, NZ First announced our goal to reduce taxes for our businesses to enable employers to increase the minimum wage and increase productivity.

Today, NZ First confirms that we will reduce Company Tax rates to 25% over three-years commencing from 1 April 2019.  That date will also see the following tax changes commence:

• An Export Tax rate of 20%, which will apply to export generated income in order to bolster the export economy.

• For small to medium sized businesses, we will introduce 100% depreciation for business equipment worth up to $20,000 for each item.

• Introduce Research & Development Tax Credits starting at 125% in the second year when a company invests 2% of its revenue on research. This rises to 150% for the third consecutive year and then 200% from year four onwards.

An immediate New Zealand First priority from 1 April 2018 is:

• To change Capital Limitation rules in the Income Tax Act to treat seismic strengthening as “repairs and maintenance”.  Without this, there is serious risk that Wellington and provincial centres will be gutted by National’s one shoe approach to earthquake strengthening.

Inflation Targeted Monetary Policy Is Dead

What then, is New Zealand First’s solution?

It is no secret that we admire Singapore.  From an impoverished war ravaged city-state about Lake Taupo’s size, its per-person Gross Domestic Product is the third highest on earth while we languish far behind it.

Singapore has achieved all of this with low inflation, low levels of debt, price stability and a metronome-like dollar while the Kiwi dollar resembles a cardiogram.   Singapore’s exchange rate based monetary policy is the Basket, Band and Crawl:

• The Singaporean Dollar is managed against a weighted ‘basket’ of currencies made up of who they trade with, as well as who they compete against.

• This is a managed float and its trade-weighted exchange rate goes up and down within a pre-announced ‘band.’

• The ‘crawl’ is a continual reassessment of where the exchange rate is going to prevent it from becoming misaligned as our dollar has.

Now some of you may fall for the fake news that NZ First is anti-trade.  How can we be?  We export or we die but trade must work in our interests and not those we trade with. It’s dumb to negotiate deals with Korea that are worth three-fifths of precious little to the dairy industry, just so Ministers can put out self-congratulatory media releases.

• So we’d seriously question the Trans-Pacific Partnership Agreement because thus far it has been a colossal waste of time, money and resources.  We’re losing markets to Australia, who’s played along with the TPPA, while signing a bilateral deal with Japan in 2014.

• Russia is insulted and ignored by this government. The Russia-New Zealand Free Trade Agreement is an absolute priority for us, it being the world’s number two dairy and beef importer.

• We’d revise some of the current deals being negotiated to make sure they are real and not like the TPPA’s ridiculous 3,719 tons of butter and milkpowder to Japan “within five years”.

• New bilateral free and fair trade deals would be prioritised with Japan, United Kingdom, EU and the United States. Right now is the best time to talk to Washington so long as we respect each other’s self-interests. NZ First is supremely confident that we’d find “The Art of the Deal.”

• Finally, we’d initiate Closer Commonwealth Economic Relations to build off and deepen existing bilateral deals with Commonwealth countries.  Modelled on CER with Australia, CCER would be a gold-standard deal and we envisage launching it with Australia and Singapore but with the UK to follow post-Brexit.

New Zealand First stands ready to keep the excesses at bay.  Be it an economy destroying water tax and ETS on one side, to the people in Blue backing racially divisive Koha for Consents and a ‘Waterlords deal’ for Big Iwi to control water.

I haven’t time today to refer to the growing presence in New Zealand of race based policies.

Suffice to say, I will be speaking about it further in this campaign. But racial preference on assets, such as water, and malevolent misuse of the RMA should be a dire warning for this country of the inevitable economic and social consequences which will a disaster for everyone in this country regardless of race.

National, Labour and the greens have quite a bit to work through in preparing for negotiations.

Those negotiations could take some time if a major reform of our financial systems is being considered.

Greens: ‘not popular, but important’

It may not be popular in green circles but it is important to include the economy when tying social and environmental issues together.

Greens have always promoted both environmental and social reform. This is ingrained in their constitution:

GreenConstitutionObjects

Their policy headlines:

GreenPolicyheadlines

Marama Davidson is the MP in a new caucus leadership team who is ‘leading the charge’ on poverty. She has just sent out this email:

Not popular, but important

I’m most proud of being a Green MP because we’re not afraid to have important conversations, even if they are not popular. If we are serious about looking after our people and taking real action on climate change we cannot be afraid to talk about these issues.

Unless our communities feel capable and confident we can’t protect our environment. For sustainable communities our people need to be strong and have what they need. For our environment to be protected we need our people to be living good lives.

We know we need urgent action on climate change. We know our success requires not just individual actions, but bold commitments backed by real actions and plans from our politicians. Our success requires all our people to work together. By working together we will succeed. When communities on the front line feel well supported they are better able to come up with long term action on climate change. Climate action that protects the the places we love, the people we love.

It seems odd that Davidson states the Green mission as not popular.

People haven’t been ‘afraid’ to talk about social and environmental issues, there has just not been enough action on them for the Greens (and for many others).

Davidson seems to think that if people are somehow given good lives they will devote themselves to action on climate change.

She says “For our environment to be protected we need our people to be living good lives”.

To an extent she is wrong – environmental policies can be promoted and implemented without the need for social equality.

To an extent she may be right right – many of the the poorest people may be too busy just trying to survive to care about the environment.

Many of the richer people consume far more resources than they need to. They have more material possessions that they don’t really need, they use cars more, they travel by air more.

So I can sort of understand how some may think that lifting living standards for the poor and reducing them for the rich may somehow result in a society in equilibrium, and an environment in equilibrium.

But while Davidson integrates social and environmental as if they are co-dependant, she has omitted the third of the Green policy headlines – economic.

People have long advocated for social and economic equality. Some countries have tried to achieve it, like the USSR, China, Cuba, Cambodia, Venezuela. They have all been economic disasters, and have also failed on social equality and environmental purity.

The Greens get the need for better social parity. I’ve seen claims that New Zealand governments deliberately oppress people and keep them poor , but this is ridiculous. Our governments and our major political parties want to improve things for their people, they just have different ideas on how best to achieve that.

But some of the Greens, like Marama Davidson and Metiria Turei, don’t seem to grasp the necessity for an economy that will allow and enable better qualities of life for those at the bottom.

Taking more and more money off those at the top has never really succeeded anywhere. Neither has giving more and more to those at the bottom with no incentive to be productive.

It may not be popular in Green circles to talk about economic realities, but that is important if they are going to succeed in achieving better social and environmental outcomes.

A healthy society and a healthy environment needs a healthy economy.

Greens need to understand that alongside social and environmental priorities a conversation about the economy is important, no matter how unpopular.