Reserve Bank Governor ’embattled’

Michael Reddell isn’t a fan of the performance of Reserve Bank Governor Adrian Orr.

Croaking Cassandra: An embattled Orr

And then there was the press conference.   I’ve seen some pretty poor performances from Governors over the years –  early ones by Alan Bollard were often awkward, and as Graeme Wheeler became more embattled the defensive introvert, never comfortable with the media, took over.     But this one was the worst I’ve seen, and from someone who has many talents in communications.  But just not, so it is confirmed again, in coping with challenge, disagreement, or finding himself on the back foot.  I doubt a senior politician would have got away with it, and it isn’t obvious why an unelected bureaucrat, uncomfortable at facing serious scrutiny, should do so.

The Governor and Deputy Governor faced several questions about the possible impact of the Bank’s capital proposals on farm lending –  various commentators have suggested such borrowers will be among the hardest hit.  The Bank attempted to push back claiming that any sectoral impacts were nothing to do with them, and all about banks’ own choices.  But they seemed blind to the fact that banks will have more ability to pass on the additional costs of the higher capital requirements to some sectors, some borrowers, than others.  And that is because of a point the Bank never addresses: their capital requirements don’t apply to all lenders.

The Governor came across as embattled from start to finish –  embattled at best, at times prickly, rude, and behaving in a manner quite inappropriate for a senior unelected public official exercising a great deal of discretionary power, with few formal checks and balances.   BusinessDesk’s Jenny Ruth – who often asks particularly pointed questions about the exercise of the Bank’s regulatory powers, and the lack of transparency around its use of those powers – was the particular target of his ire, and at one point he tried to refuse to take further questions from her.

The press conference deterioriated further as it got towards the end.  Without specific further prompting, the Governor noted a certain frostiness in the room, and then launched off again in his own defence.

A couple of articles in the Herald in recent days tells us some more of the story.   The first was from Liam Dann, who has in the past provided a trusty outlet for the views of successive Governors, and the second was a column from Pattrick Smellie, under the heading “Bunker mentality returns to the RBNZ?”, evoking unwelcome memories of the Wheeler governorship.

Orr very much needs to be pulled into line, for his own sake and that of the country (as single decisionmaker he still wields huge untrammelled power).

At present, he is displaying none of the qualities that we should expect to find in powerful unelected official –  nothing calm, nothing judicious, nothing open and engaging, just embattled, defensive, aggressive, playing the man rather than the ball, all around troubles of his own making (poor process around radical proposals made without any robust shared analysis, all while he is prosecutor, judge, and jury in his own case).

He also notes something odd – “when we have no idea who will even be Secretary to the Treasury –  lead economic adviser to the government –  three weeks from now”. That’s if Treasury Secretary Gabriel Makhlouf stays in the job that long.

Is there really no replacement for him yet?

GCSB tried to stop Treasury hack claim

NZ Herald: GCSB tried to stop Treasury boss Gabriel Makhlouf from saying website, Budget had been ‘hacked’

Political reporter Derek Cheng has uncovered new details of the hours leading up to Treasury boss Gabriel Makhlouf’s claims that his department’s website had been hacked for Budget details.

The Government’s spy agency made urgent calls to the Beehive before Makhlouf’s public statement – we reveal today what they told at least one senior Government Minister.

The new details come as Makhlouf faces a State Services Commission investigation over the way he handled claims the website had been hacked. It later transpired that Budget details could be uncovered using the Treasury’s search engine.

Matthew Hooton:

Could it have been little more than Makhlouf’s understanding (or misunderstanding) of what ‘hack’ meant?

Hack: “gain unauthorized access to data in a system or computer.”

Was whoever searched like crazy through the weekend authorised to do that? Was Simon Bridges and National authorised to release budget details two days early?

Authorise: “give official permission for or approval to (an undertaking or agent)”

Hgas: “who gives a stuff?”

Bridges claims ‘deceit and dirty politics’ – but who did the dirty?

Simon Bridges and National continue to go hard out on the leak of budget information two days before Budget day.

But who is playing dirty here?

RNZ Week in politics: National set the trap and Robertson walked into it

National used the information it found on Treasury’s website to set a trap – and it worked far more effectively than Simon Bridges could have imagined after Gabriel Makhlouf made his “we have been hacked” announcement.

Finance Minister Grant Robertson walked into a trap set by National when he linked the Budget “leak” to illegal hacking.

It was no such thing, and National had known it all along. A simple website search had given the Opposition details of some of the spending in yesterday’s Budget.

At the same time, Mr Bridges was giving a hand-on-heart assurance that National had acted “entirely appropriately” while refusing to say how it had obtained the information.

At that point, National had probably expected the usual response to a leak – condemnation of such behaviour and the announcement of an inquiry.

What it could not have expected was Treasury Secretary Gabriel Makhlouf dramatically announcing that his department’s website had been systematically hacked, and that he had called in the police on the advice of the GCSB.

That was a game-changer, and Mr Robertson seized it. “We have contacted the National Party tonight to request that they do not release any further material, given that the Treasury said they have sufficient evidence that indicates the material is a result of a systematic hack and is now subject to a police investigation,” he said.

The implication was obvious – National had either hacked the website or received the information from someone who had. Whoever did it, their actions were illegal.

It turns out what National did wasn’t illegal – but I still think it was highly questionable. They were trying to do a dirty on the Government to grandstand prior to the budget going public.

Mr Bridges raged about unjust smears on his party and accused Mr Makhlouf and Mr Robertson of lying. The Treasury secretary’s position was untenable and Mr Robertson should resign.

He claimed Treasury had quickly discovered the huge chink in its security and had “sat on a lie” while his party was being accused of criminal behaviour.

This leaves some very big questions which have not yet been answered. If Treasury’s IT people knew what had happened, why did Mr Makhlouf go public with his hacking announcement?

Was he misled by his own department, by someone who didn’t want it known that a blunder had been made with the uploading? That’s hard to believe, because it must have been realised that National was going to blow the whistle on the website search.

Did Mr Makhlouf make the decision to call in the police on his own? Mr Robertson says he didn’t know until after the fact, but Mr Bridges rejects that. It’s unthinkable, he says, that a department head would make a call like that without first informing his minister.

The way Mr Bridges sees it, the hacking was a cooked up story to smear National and take the heat off the government and the Treasury.

But the whole thing was cooked up by National in the first place.

Bridges acted offended when accused of hacking, but he hasn’t hesitated accusing Robertson, without any evidence. And he is also accusing Treasury.

RNZ:  Treasury knew there had been no hack on Budget information – National Party leader

The National Party is confident the investigation into Treasury’s claim Budget information had been hacked will prove that Treasury “sat on a lie”.

National Party deputy leader Paula Bennett, who asked the SSC to investigate, said her party would let the inquiry play out but stands by its assertion that Mr Makhlouf mislead New Zealanders.

It has previously said Mr Makhlouf should resign.

Mr Makhlouf says he acted in good faith.

National Party leader Simon Bridges told Morning Report today there were two possible scenarios, and the situation was likely a bit of both.

“You’ve either got bungling incompetence, and I think we can all believe that could well be the situation, or you have some broad form of deceit and … dirty politics.

“And we need to see what’s going on here.”

He said the GCSB told Treasury and the Minister of Finance that there had been no systematic hack, but Treasury came out after this and said there had been.

“The reality of this situation is it’s pretty black and white isn’t it.

So as a result of a deliberate and concerted effort by National to exploit a data vulnerability at Treasury in an attempt to embarrass the Government we now have two inquiries, and National have called on the Minister of Finance and the head of Treasury to resign. It has also jeopardised Makhlouf’s new job in Ireland.

MSN:  Gabriel Makhlouf’s next job at Ireland’s top bank under threat

Irish politicians say they’re concerned New Zealand Treasury Secretary Gabriel Makhlouf will become the country’s next Central Bank governor amid the Budget “hack” scandal.

Pearse Doherty, finance spokesperson for left-wing Irish republican party Sinn Féin, told The Irish Times Maklouf should not start his role with the Central Bank until the investigation has concluded.

Doherty said it “wasn’t a small issue”.

“We need to make sure that someone in the highest position in the Central Bank has proper judgement,” he told The Irish Times.

Ireland’s Fianna Fáil party member Michael McGrath has also reportedly sent a letter to the Irish Finance Minister.

“The governor of the Central Bank is one of the most sensitive and important roles in our States,” the letter says.

“It is vital we have full confidence in the holder of the office.”

So National may succeed in ruining Makhlouf’s career. Robertson is unlikely to resign – and I think it would be a disturbing result if he is forced to.

Sure Makhlouf and the Government may not have handled the budget leak well. But this was a dirty politics style hit job by National, serving no positive purpose, and highly questionable as ‘holding the Government to account’.

They would have hoped to cause some embarrassment, and got lucky when it precipitated a shemozzle, leading to two inquiries and careers in jeopardy – not because of the initial problem, but because of how it was mishandled. This is classic negative politics.

For what? Some budget information was publicised two days before it was going to be made public anyway. National well know that budgets are kept secret until announced in Parliament, and there’s good reasons for this.

This sort of thing really puts me off politics – especially off politicians who try to engineer scandals that really has nothing to do with holding to account.

If there wasn’t other things keeping me going here I think I could happily pack up and go and do something else as far from politics as I can get.

This political debacle sets a very poor example. It is a form of bullying – political bullying, where dirty means are employed to cause problems that needn’t happen. Shouldn’t happen.

Another thing that may keep me involved is looking at ways of getting our politicians to set positive examples, and save the hard ball holding to account to when it really matters.

Is there any chance of that? I’m probably wasting my time here.

Second inquiry by State Services over budget leak

The State Services Commission has announced they investigate statements made and actions taken by the Secretary to the Treasury Gabriel Makhlouf following the leak of budget data two days before budget day last week.

This is in addition to an inquiry into the leak itself, announced last week.

Makhlouf seems to have handled things poorly, and the Government was messy with their handling as well.

But two inquiries as a result of the National Opposition ferreting for something so they could grandstand and embarrass the Government.

What has been achieved overall? More self inflicted discrediting of Parliament and politics in general. I don’t see anything positive from all of this.

There is no benefit to the public.

Last week:  Inquiry into unauthorised access to Budget material

The State Services Commission will undertake an inquiry into how Budget material was accessed at the Treasury.

The Secretary to the Treasury, Gabriel Makhlouf, asked the Commissioner to inquire into the adequacy of Treasury policies, systems and processes for managing Budget security.

“Unauthorised access to confidential budget material is a very serious matter,” said State Services Commissioner Peter Hughes.

“Mr Makhlouf has asked me to investigate and I am considering my options. This is a matter of considerable public interest and I will have more to say as soon as I am in a position do so.”

While there is no evidence of a system-wide issue, Mr Hughes has asked Andrew Hampton, the Government Chief Information Security Officer, to work with the Government Chief Digital Officer, Paul James, to provide assurance that information security across the Public Service is sound.

“This is an important issue because it goes to trust and confidence in the Public Service and in the security of government information,” said Mr Hughes.

“The inquiry will seek to understand exactly what has happened so that it doesn’t happen again.”

Today:  Investigation into statements made and actions taken by the Secretary to the Treasury

State Services Commissioner Peter Hughes has today announced an investigation into recent questions raised concerning the Chief Executive and Secretary to the Treasury, Gabriel Makhlouf, and his actions and public statements about the causes of the unauthorised access to Budget material. 

The investigation will establish the facts in relation to Mr Makhlouf’s public statements about the causes of the unauthorised access; the advice he provided to his Minister at the time; his basis for making those statements and providing that advice; and the decision to refer the matter to the Police.

Mr Hughes said the questions that have been raised are a matter of considerable public interest and should be addressed.

“It’s my job to get to the bottom of this and that’s what I’m going to do,” said Mr Hughes.

Mr Hughes has asked Deputy State Services Commissioner, Mr John Ombler QSO, to lead the investigation. It will be done as quickly as practicable and the findings, and the Commissioner’s view of them, will be made public.

“Mr Makhlouf believes that at all times he acted in good faith,” said Mr Hughes. “Nonetheless, he and I agree that it is in everyone’s interests that the facts are established before he leaves his role on 27 June if possible. Mr Makhlouf is happy to cooperate fully to achieve that. I ask people to step back and let this process be completed.”

Neither Mr Hughes or Mr Makhlouf will be making any public comment until the investigation is finished. Mr Makhlouf will be working as usual during this period.

The investigation announced today is separate to the inquiry announced last week into the unauthorised access of Budget information. The Terms of Reference and who will lead this inquiry, which is expected to take some months, will be announced shortly.

What about an inquiry into why politicians waste so much time (and public service time) doing negative crap that has no real benefit to the country?

Q & A today

Today on NZ Q & A (TV1, 9 am):

Hawkes Bay water bottling

Whena Owen returns to Hawke’s Bay where she finds growing tension over the region’s burgeoning water bottling business.

Water bottling, especially for export, and especially with foreign owned companies involved, its a very contentious issue.

It’s also quite complex. Currently water is free for everyone in New Zealand, unless you choose to buy a supply that has cost money to provide it to you.

If water was charged for who would receive the income? The property owner where the water was sourced? The property owner of the source of the water? The Government? Iwi?

Should we all pay for all of the water we use?

Is rain free? Or could it be taxed?

Immigration and economic growth

Political Editor Corin Dann sits down with Treasury Secretary Gabriel Makhlouf – his take on the immigration debate plus the risks facing our economic growth.

Waikato War defined New Zealand History

We have the first look at a new book that claims the Waikato War was the defining battle in New Zealand history – not Gallipoli. Historian Dr Vincent O’Malley talks about The Great War for New Zealand with Dita de Boni.

http://www.nzhistory.net.nz/war/war-in-waikato

I don’t think the Waikato wars can be defined as ‘the defining battle in New Zealand history, but it is a very significant period in our history that deserves more attention and commemoration.

 

 

 

Hickey’s housing slant

The official description of ‘Bernard Hickey’s Opinion’ column says that  ‘Bernard is an economics columnist for the NZ Herald’.

In his column today, Use that power, renters, Hickey has strong words about Auckland’s housing problems

Finally, Auckland’s Generation Rent has found someone who is talking about the elephant in the room – rampant speculative demand for housing by landlords.

Everyone worried about Auckland’s astonishing house prices should read Reserve Bank deputy governor Grant Spencer’s speech.

He spelt out in the plainest language yet that property investors are taking advantage of tax incentives to use cheap debt to buy as many houses as they can.

The Reserve Bank has exhausted its toolkit, having put up interest rates and set limits on high loan-to-value ratio (LVR) lending. It is looking to increase capital requirements for landlords’ mortgages, but it knows it’s not enough.

Exasperated, the Reserve Bank has asked for help to control the risks to New Zealand’s banking system, which relies on house values to back 60 per cent of its loans.

Spencer called for the Government to revisit the tax incentives for landlords.

Fair enough listening to and quoting the Reserve Bank Governor.

The Government’s top economic adviser has said landlords’ tax incentives should be reduced and central Auckland apartments should be built in defiance of the Nimbys controlling Auckland politics.

Council and Government politicians are refusing to take that advice.

What I find interesting about this is the apparent one-sidedness of Hickey’s column. It seems that he has used the Reserve Bank Governor to support a hobby horse.

Now this column may have been written before yesterday morning.

But at 9 am yesterday Hickey participated on a Twitter discussion for The Nation about their interview with Treasury Secretary Gabriel Makhlouf who has different views on housing than the Reserve Bank Governor.

Join our Twitter panel and at now!

Those alternatives weren’t mentioned at all in Hickey’s column – and he should have been well aware of them before listening to the Makhlouf interview.

On the panel Hickey displayed what looked like a pre-decided slant. He has a clear preference to Reserve Bank advice to Treasury Advice.

Here’s another view on China for ‘s Gabs Makhlouf to read after

He tries to educate Makhlouf on his angle.

Big gap there between @nztreasury & @ReserveBankofNZ. Gabs Makhlouf sceptical about CGT just 3 days after bank called for debate.

But Hickey doesn’t seem \want debate, he wants to promote his views which happen to side with the Reserve Bank advice.

Got a feeling the @ReserveBankofNZ would have liked a bit more support from @nztreasury on housing taxation than that.

Ok, he has ‘a feeling’ he and the reserve Bank are right.

In Muldoon era it was the @nztreasury offering the freest and frankest and most critical advice. Now it’s the @ReserveBankofNZ

Is that because it’s the freest and frankest? Or because it’s ‘most critical advice’ that happens to fit his opinion?

For #nationTV3 viewers wanting an alternative housing view, here’s the speech from @ReserveBankofNZ’s Grant Spencer http://www.rbnz.govt.nz/research_and_publications/speeches/2015/action-needed-to-reduce-housing-imbalances.html … …

Diverting viewers to something he prefers to the Nation interview.

Another example here of how NZ’s leaders today are pushing the costs of current consumption onto their kids/grandkids http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11433784

He’s not discussing the Makhlouf interview at all, he dismissed it and is linking to alternatives he agrees with.

Counter-factual for a CGT is what happened to Auckland house prices post-election after buyers realised no CGT. Up 20%

Has Hickey got any evidence supporting that ‘counter-factual ‘? House prices almost certainly didn’t go up 20% solely because the election result meant no wider Capital Gains Tax. Did it have any effect at all?

Unless Hickey can produce facts I will remain very dubious about that claim.

And I’m very disappointed he simply dismissed Makhlouf  and made no attempt to lead any discussion. In his The Nation panel tweets and in his Herald column he looks more like an economic activist than a balanced economic columnist.

Treasury Secretary – ” the right place with immigration levels”

In an interview on The Nation the Treasury Secretary Gabriel Makhlouf said that “I think we’re probably in more or less the right place with immigration levels”.

Immigration levels are often talked about in relation to housing issues. The simple fact is that if as a country we want growth in New Zealand then we need immigration. And a growing population needs more housing.

But the thing is people see immigration at high levels, they see house prices going up, they see the need for more schools — those are the things that they see.
Sure, and we need immigration because we need the sort of— our businesses need particular types of skills that we haven’t got right now, so I think that plays a big part. We need immigration for just the generation of ideas. Don’t forget that currently some of the net immigration numbers are as much about New Zealanders not leaving the country and some of them returning from Australia.

So do we need to keep growing, then, do you think?
I think we absolutely need to keep growing as a country.

But more immigration?
Well, I think we need to— We’ve got currently— The OECD, when it last looked at our immigration settings said they were broadly right. We have to keep looking to make sure they’re actually meeting our needs, and I think it’s something you keep under constant review, because we also want to develop— we want our education system to be developing the skills that we feel we need for our people, so I think immigration meets a gap, but I mean we can, sort of, fill that gap ourselves by making sure the education system delivers.

So do you think we’re in a sweet spot with immigration levels, or can we and should we be bringing more people in?
No, no, I think we’re probably in more or less the right place with immigration levels. As I said, I mean, the current numbers are as much about people not leaving New Zealand or returning from Australia, and we need to take account of the impact of those numbers, so we do need to build new schools; we do need to critically build new houses.

A lot of those migrants come to Auckland, and you have said that you believe that Auckland should be the focus of growth, and you’re happy to see it get bigger, then?
Am I happy to see Auckland grow?

Yeah, see Auckland grow even more.
In general, I’m happy to see Auckland grow. I think what we’ve learnt from history, and certainly what we’re learning at the moment from around the world, is agglomeration — the bringing together of activities in a large urban area, like Auckland — makes a massive difference to the overall— ultimately the overall living standards of a country as a whole. It needs to be managed growth. It absolutely needs to be managed growth, but the trend — you know, over the last hundred years; New Zealand’s rural population has basically stayed stable. It’s the urban areas that have been growing, and that trend is going to continue.

Immigration is used as a political football, often with particular groups of immigrants getting the kicking.

The number of immigrants can’t just be turned off and on at the whim of opposition politicians. Rules and quotas are used and while they can be tweaked it would be poor practice to keep making major changes. If we want to encourage good immigrants we need to have clear and consistent rules and requirements.

And a major factor that can’t be controlled is New Zealanders leaving, and New Zealanders returning. We are free to come and go as we please.

There’s currently a surge in net migration into New Zealand because the flow to Australia has dropped significantly and the flow of returning Kiwis has increased significantly. That has changed in a relatively short time and will change again if the Australian economy picks up again.

If we want growth we need to maintain immigration numbers at approximately the current levels and increase housing to cater for them.

Video: Interview: Treasury Secretary Gabriel Makhlouf

Full transcript (Scoop): Lisa Owen interviews Treasury Secretary Gabriel Makhlouf

Treasury Secretary – Capital Gains Tax won’t help Auckland

The Treasury Secretary Gabriel Makhlouf was interviewed on The Nation yesterday and said he doubted a capital gains tax would help the escalation in property prices in Auckland.

A CGT isn’t a quick fix and it won’t address the current problems.

Well, just this week the Deputy Reserve Bank Governor, Grant Spencer, is calling for a capital gains tax, or some kind of tax on investment. What do you make of that?

Well, I think what Grant Spencer was talking about was the need for us to address the housing issues in Auckland, and at the heart of the housing issue in Auckland is that we’re not building enough houses, and the Productivity Commission said a few years ago when it looked at this issue that building more houses is the answer. Looking really carefully at our planning regulations is the single biggest thing that will make a difference to how we build— how many houses we build in Auckland.

So you don’t think a capital gains tax or a tax like that is part of the solution?

I’m quite sceptical. If the issue that people are talking about is house prices, London and Sydney have got capital gains taxes and they’ve got similar issues as us. This is a phenomenon that’s actually playing out in large urban areas which are successful, right? And New Zealand is successful, Auckland is successful, so one of the consequences of that, as in Sydney and London and in Vancouver, is the current phenomenon, house prices. But we need to build more houses to actually meet the needs that we’ve got.

So in your view, it’s a supply side problem, then?

That’s the principal issue, is the supply side problem. And it’s not just my view; it’s the Productivity Commission’s view as well.

A Capital Gains Tax would do little or nothing to address the soaring property prices in Auckland.

A CGT (as proposed by Labour last term):

  • It would phase in very gradually so would have little immediate impact
  • It would not tax capital gains already realised
  • It would affect the whole country, not just Auckland
  • It has proven to not limit property inflation in other countries

So it’s a solution to a different problem, the broadening of the tax take. That’s a different debate with varying views on it’s worth.

Capital gains are already taxed on property speculation – where property is bought and sold with the aim of capital gain (according to IRD rules). Capital gains on share trading is also taxable.

Makhlouf is correct saying “building more houses is the answer” – building more houses in Auckland where the biggest demand is. For this to happen more land must be made available more easily. It’s land inflation that’s the problem, and that’s happening due to a shortage of supply and too many restrictions on higher density use.

Video: Interview: Treasury Secretary Gabriel Makhlouf

Full transcript (Scoop): Lisa Owen interviews Treasury Secretary Gabriel Makhlouf