I certainly raised an eyebrow when reading last week – in the middle of the Government announcement on new deposit taking proposals – the seemingly too-casual reference from Finance Minister Grant Robertson to “a new process for setting lending restrictions, such as loan-to-value ratios”.
But it was only a raised eyebrow. I didn’t see it as the end of the world as we know it. Some have taken a more reactionary view, viewing this as a power grab by Robertson.
This “new process” will apparently give the Minister of Finance “a role in determining which types of lending the Reserve Bank is able to directly restrict”.
While a few more details of what this might actually mean have subsequently been released by the Government, it’s fair to say there’s quite a lot about this “new process” we don’t yet know.
The sensible thing then is to wait and see what is forthcoming in the proposed legislation when the Government introduces it into Parliament.
That’s the sensible thing to do. But it hasn’t stopped some people from indulging in a rather over the top response, to even start comparing Robertson to one Robert David Muldoon.
Long time gone
Muldoon was voted out of office just coming up to 37 years ago. Yes, it was that long ago. Coincidentally, the median age of New Zealanders, according to Stats NZ, is 37, which tells you that a lot of us have no physical memory of Muldoon or what he did.
Well, he presided over one of the more regulated economies in the world, had a penchant for ruling by making up new regulations, he liked unleashing ‘mini budgets’ (his own creation - kind of ad hoc packages of price increases etc), he was the Prime Minister and Finance Minister rolled up into one. His ultimate solution for rising prices and wages was to decree that they weren’t allowed, he outlawed them - IE the ‘wage and price freeze’ announced in 1982.
Muldoon left quite a legacy. And not the sort he would have wanted to, I’m sure. Thanks to him we now have a formal, legislated process for the handover of Government after an election (basically because of the stunt Muldoon pulled after the 1984 election when he refused initially to devalue the currency as the incoming Labour Government wanted). And while, so far as I’m aware, nobody has ever formally said such a thing couldn’t happen ever again, we have not subsequently had a Prime Minister who is also concurrently Finance Minister.
The point is, Muldoon was incomparable as an NZ politician. And people should not start making casual comparisons now with modern politicians, when in reality so few Kiwis have any practical memory of him and what he did.
What seems clear is that Muldoon has left a kind of cringe legacy in this country, a mindset of ‘don’t do what he did’.
What's so wrong with an assertive government?
And this seems to extend to the idea that a government here should not be assertive, should not definitively push what it wants.
Well, that’s absurd. A government should govern, without being apologetic and fearing it is taking the kind of extreme liberties a long-ago leader took.
What Grant Robertson is proposing for the RBNZ (in so far as we can guesstimate based on too little information to date) doesn’t look extreme.
If you look at it, we have come to accept the idea that an unelected authority such as the RBNZ is able to put upon us fairly wide-reaching rules and regulations (such as the limits on high loan to value ratio – LVR – lending).
Why shouldn’t our elected Government be involved in those decisions? I don’t have any problem with that. And Grant Robertson being involved – through enacted legislation – in what types of lending restrictions the RBNZ may select to employ is sensible enough. It is also light years away from Muldoon’s deciding arbitrarily to make wage and price rises illegal.
We should not be scared of a Government to some extent ‘telling us what to do’. After all, if we don’t like what a Government is doing, we can vote them out. And at just three years we have a short electoral cycle. Remember also, Muldoon governed under the old ‘first past the post’ system that by its nature heavily leant toward one political party getting an absolute majority and being able to rule largely unchallenged.
We can get rid of them easily
Yes, for the first time in a long time we do currently have one party with an absolute Parliamentary majority. But our MMP proportional representation voting system ensures that this situation could be reversed very quickly. MMP would make it very difficult for any aspiring near-dictator to ever take control of this country again through the democratic process.
All of which is a long way around saying, let’s see what Robertson is proposing.
As I say it doesn’t look extreme.
However, having said that, I will be and others should be too, looking for any sign that what Robertson wants is overtly political.
We want measures implemented by our governments that are in the best interests of the country – NOT in the best interests of getting political parties re-elected.
FHBs as a political tool?
My suspicion is that a significant driving factor in Robertson's move to be more involved has been the desire on his part to see first home buyers excluded from macro-prudential measures the RBNZ might implement.
Now, you can see why someone would want that. But it also runs dangerously close to being overtly political as well. As I've said many times before, TV footage of young couples, babe in arms, looking wistfully at a house they can't afford is ballot box poison for a Government. But policies to appease or even bribe the young (and their parents) should have no place, particularly not when they could risk financial stability.
Look, young people absolutely should be able to buy a house to call their own.
But I think it would be a dangerous game to start employing a total 'hands off' approach to the FHBs, to effectively start underwriting them, to signal that you won't let them fail. I think there is that danger at the moment with this Government.
It simply would not make sense to implement a policy of controlling the levels of debt-to-income ratios for housebuyers, but explicitly exclude FHBs. They will inevitably be the ones most stretched financially to buy a house. Exclude them from the policy and I think there is a real risk of distortions and bad things happening. Logic says you would not exclude FHBs from such a policy - unless your thinking was politically motivated.
Just keep an eye on it
So, yes, having said I'm not overly concerned about what Robertson's proposing, I would say the proposals do need to be closely examined when we have some detail - in case there is that overtly political consideration coming into play. Because if there is, then there should be a kick back against that.
But let's wait and see and not be hasty. And let's not be too concerned about a Government assertively saying what it wants to do.
There is no such thing as 'Muldoonism'. There was only Muldoon. And what we have now bears no comparison. Not remotely.
36 Comments
Excluding FHB in DTI is not a good idea as it will avoid FHB from overstreching to buy under FOMO - prevention is better.
FOMO as an emotion is very strong and one has to experience it to feel the intensity ( at that time no logic or reasoning work), just like when you tell a child, not to touch fire as your hand will burn but it is only when they touch and experience the pain, do they realise what the pain is. So to avoid FHB getting burned by overstreching specially in this uncertain time, DTI may be a blessing in disguise for them - though painful but not having a house is better than buying by overstreching and repenting afterwards ( FHB writhing budget should buy and not try to time the market but buy sensibly - if possible with as much as 50% jump in a year as if earlier houses were cheap).
No mention of Interest Only Loan : One tool that is mostly used only by speculators mostly ( as even investors wants to pay of principal and interest as wants investment to be debt free as soon as) and hard for FHB to opt for it - giving undue advantage to speculators over other buyers is not fair and should be stopped specially in very low interest environment and is no brainer, why IO loan should be stopped and stopped as soon as (should be only allowed for a short time in extreme situation).
Also will like to know percentage of house government buying against FHB as if speculators with their advantages were not the only worry for FHB :
https://www.newshub.co.nz/home/politics/2021/04/government-buys-hundred…
Do not want government to go extra mile to support FHB but atleast remove the extra undue advantage that speculators have / enjoying like interest only loan as have already removed tax advantage for the same reason though tax change will affect everyone, be it speculator or genuine investor but removing interest only loan will mostly effect speculators - if the aim of the government and RBNZ to target speculators than .........
I think you are right Stu. And David is correct to invoke the ghost of Piggy Muldoon. He betrayed the public of NZ in so many ways, much of which could be said to be the roots of the mess we see today. But I am concerned that that legacy is at least a part of what has led to successive governments from being afraid to act to prevent a significant problem. We are often guilty of painting this inaction in other colours, but the truth is for governments you can't do nothing, but doing the wrong thing can be just as damaging or worse. Damned if they don't, damned if they do. And worse there are easy solutions that require courage, will save the tax payer $billions, and need some regulation, but because they go against the banks and the PR campaign from the RBNZ they won't do it. On the PR campaign from the RBNZ, remember in 2019 Adrian Orr told us the banks had been stress tested and told us they could withstand a 50% collapse in house prices without coming under threat of collapse. Now he's saying any collapse in house prices would be catastrophic. Me thinks the emperor has no clothes!
Oxford University researchers have discovered the densest element yet known to science.
The new element, Governmentium (symbol=Gv), has one neutron, 25 assistant neutrons, 88 deputy neutrons and 198 assistant deputy neutrons, giving it an atomic mass of 312.
These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called pillocks.
Since Governmentium has no electrons, it is inert. However, it can be detected, because it impedes every reaction with which it comes into contact.
A tiny amount of Governmentium can cause a reaction that would normally take less than a second, to take from 4 days to 4 years to complete.
Governmentium has a normal half-life of 2 to 6 years.
It does not decay, but instead undergoes a reorganisation in which a portion of the assistant neutrons and deputy neutrons exchange places.
In fact, Governmentium's mass will actually increase over time, since each reorganisation will cause more morons to become neutrons, forming isodopes.
This characteristic of moron promotion leads some scientists to believe that Governmentium is formed whenever morons reach a critical concentration.
This hypothetical quantity is referred to as a critical morass.
When catalysed with money, Governmentium becomes Administratium (symbol=Ad), an element that radiates just as much energy as Governmentium, since it has half as many pillocks but twice as many morons.
"And this seems to extend to the idea that a government here should not be assertive, should not definitively push what it wants.
Well, that’s absurd. A government should govern, without being apologetic and fearing it is taking the kind of extreme liberties a long-ago leader took."
Thank you, thank you, thank you. Governments should not be afraid to be assertive and push through hard legislation just because it's unpopular with some groups. What you say is exactly right though and it's why we have had caretaker, do nothing governments for quite some time. People hopefully are waking up to the fact that do nothing governments are actually very detrimental to the country, the longer they refuse to act on things when it's clear to all and sundry that they should have acted a long time ago. That applies to our horrific tax system which encourages speculation above productivity and any of the various crises we find ourselves in with governments without the courage to act. And unfortunately that very much applies to the population.
Muldoon did do some pretty bad stuff. At the same time, his think big projects have somewhat helped the country long term (Clyde Dam probably being the best of them). If only our recent governments could look to the future...
Yes, they need 'will,' but it still has to be the right thing to do, not just something for the sake of it, and doing something is not automatically the solution to doing nothing.
And that is the real problem. IE They are doing the wrong thing. It does not matter if you do more of the wrong thing or do the wrong thing quicker, you will still end up with the wrong thing.
And how do we know they are doing the wrong thing?
Are houses, on a like-for-like comparison, getting more or less affordable?
"...and thanks to him also we now have a formal, legislated requirement for a Government to ‘open its books’ before an election (in homage to the grievous mess Muldoon left the finances in in '84)"
Not sure of your age David but while theres much Muldoon can be held responsible for that isnt one of them....that one is owned by the 4th Labour government and the Act was introduced by the subsequent National government.
PREFU....minutes 9.30 to 14.00.
https://www.rnz.co.nz/programmes/the-9th-floor/story/201840999/the-nego…
"The fiscal responsibility principles and reporting provisions first introduced by the Fiscal
Responsibility Act of 1994 and now embedded in the Public Finance Act 1989, ushered
in an era of vastly improved fiscal performance for New Zealand compared to the
preceding decades. "
https://researcharchive.vuw.ac.nz/xmlui/bitstream/handle/10063/7693/Wor…
There are a number of provisions which I feel are available now to the MoF to instruct the Reserve Bank in various matters and which GR is either not aware of or doesn't want egg on his or the labour parties face if he instructs the RBNZ in matters in which he is legally entitled. I believe there is a coterie of Labour party financial advisors, outside Treasury and RBNZ who want to give the MoF more power than currently exists in the Act
It is pertinent to look at parts of the Reserve bank Act as it stands now to see what power/authority the minister of finance has. Some extracts.
"10 Remit for MPC (Monetary Policy Committee)
(1) The Minister must, after having regard to remit advice, issue a remit for the MPC (the remit).
(2) The remit must set out operational objectives for carrying out the function of formulating monetary policy.
(3) The remit may specify or provide for the operational objectives in any way that the Minister thinks fit,
including by specifying or providing for one or more of the following matters:
(a) a target or targets for an economic objective:
(b) a framework for weighting the economic objectives:
(c) defining any matters in connection with an economic objective:
(d) a requirement for the MPC to have regard to one or more matters in connection
with seeking to achieve an economic objective."
"10(3)(d)
a requirement for the MPC to have regard to one or more matters in connection with seeking to achieve an economic objective."
"12 Order providing for different economic objective or objectives (1) The Governor-General may,
by Order in Council, on the advice of the Minister, direct the MPC to formulate, and the Bank
to implement, monetary policy for 1 or more economic objectives for a period not
exceeding 12 months that is specified in the order."
"(1) The Governor-General may, by Order in Council, on the advice of the Minister,
direct the MPC to formulate, and the Bank to implement, monetary policy
for one or more economic objectives for a period not exceeding 12 months that is specified in the order.
(2) The economic objective or objectives may be—
(a) only one of the objectives specified in section 8 (instead of both); or
(b) one or more new objectives in addition to or instead of
either or both of the economic objectives specified in section 8."
"23 Bank to advise Minister on foreign exchange matters
The Bank shall, from time to time, advise the Minister on—
(a) foreign exchange rate systems:
(b) the management of foreign reserves:
(c) the operation of the foreign exchange market: (d) any other matters relating to foreign exchange."
http://www.legislation.govt.nz/act/public/1989/0157/latest/resultsin.as…
"Now, you can see why someone would want that. But it also runs dangerously close to being overtly political as well. As I've said many times before, TV footage of young couples, babe in arms, looking wistfully at a house they can't afford is ballot box poison for a Government."
The reason they can't afford it is not because of restrictions on lending. They can't afford it because ASSET BUBBLE HOUSE PRICES.
And the reasons for that are reserve bank stimulunacy policy and central government mass immigration policy.
I wouldn't just say 'this government' Carlos. Its been every government for the last 15 years. We've had ample opportunity to put the breaks on house price appreciation - but it hasn't been something that is politically palatable so it hasn't been done.
John Key and Bill English said that having some of the worlds most expensive houses was a sign of success and should be celebrated.
Start of rant...
Brock, what we have done with immigration is utterly shameful. The government has been bought by people from far away land, let it be National or Labour. National let wealthy immigrants pay them donations in return they got a "invest a million and get NZ citizenship" Suddenly you saw NZ house prices jump as foreign nationals invested in residential property (which went up millions more in capital gains) and obtained citizenship for them and all the extended family who never ever paid tax ever.
Under aunty Helen, work to residence was so easy. I use to waitress in a restaurant where managers changed every 6 months. The restaurants also had multiple shift supervisors. They are all people who are low skilled but did a year hospitality course in some really dodgy "education" facility, got a 6 month work permit that then got upgraded to permanent residency. These really low skilled people, bought their entire family including elderly parents who immediately went on dole. When eligible got NZ super, got free healthcare, accommodation supplement you name it which will go to their children who bought that home for the parents. Basically government/ tax payers paid for their investment property.
Now you still have the study to work to residency rort running wild. Have the past and any successive government first thought, Oh hang on a minute...how is this affecting NZ culture? How is our infrastructure, hospitals, schools, healthcare incl mental health being affected?
Crime has increased, you see several stories in the media about immigrants using fellow immigrants as slaves, not paying wages, ripping them off etc etc. Tax avoidance. Dodgy businesses. When will we learn? I am all for sustainable, healthy, productive immigration but what we have now is incredibly stupid. Crime increases, unaffordability increases, mental health decreases and you see exodus of kiwis who cannot compete with the immigrants.
Corporate organizations hire juniors or immigrants now as they can pay a lot less than hiring a kiwi who would do the same job. A kiwi wouldn't take a job for peanuts while an immigrant who wants to convert their study visa to work then to residency will have no hesitation to grab it for 30-40% less pay. No wonder kiwis end up leaving. How can you compete with that?
End of rant.
Can I add to stimulunacy and mass immigration - no tax on ghost houses. Other civilized countries tax owners of unoccupied houses. So thanks to our whimpy ineffectual government there's some dog ugly weed and rodent infested houses blighting NZ neighborhoods quietly making their Chinese and Aussie owners rich. The occupied ones probably aren't much better either, with absentee landlords
No it isn't; it's because there is a housing shortage man. Orr in Sep 2019 and Feb 2020, said his response to an economic downturn may include UCM and rate cuts. In one of those documents, it detailed a warning system of possible externalities. In particular, it mentions house prices may rise and drive wealth inequality. He went on to explain that the government has the powers to manage those externalities and the use of those powers would be warranted. In response, Robertson said he was skeptical of the link between interest rates and house prices. Robertson then took no action until it was much too late. It may be no surprise given Robertsons education and history don't include much finance of the relevant scale. Without a housing shortage prices wouldnt rise like this, and without UCM and low rates we would be in big trouble right now. It was on the goverment to manage house prices and they didnt.
I agree a government should govern, however there must be a certain degree of experience. From what labour have shown since elected in 2017 is complete and utter incompetence in so many areas. Twyford, Woods, Mahuta, Robertson,Parker, one thing in common no work experience in the real world.
I agree to a point. However, I wouldn't consider someone with upper management experience as the "real world", private or public sector. We need people with actual operational aka boots on the ground experience to contribute in our politics as they understand the flow on effects of governance on business, environment and society.
Do you think Reagan would be a fan of central bank and government backed property bubbles there CWBW? Giving excessive quantities of people who don't want to do anything productive with it other than to buy more of the same thing making the problem even worse!
#yeahnah
The market isn't free CWBW, it is being manipulated by investors, the banks, the Real Estate companies. The RBNZ and government are supposed to regulate to control the level of manipulation so everyone gets a fair shake, but they haven't and now we have this mess.
David I think the issue is that during the election campaign the Prime Minister was implying that any intervention to restrict the independence of the Reserve Bank was akin to the politics of Muldoon. She is the one who said governments shouldn’t intervene because the separation is so important.
‘I need to leave the decisions of the Reserve Bank to the Reserve Bank’
https://www.stuff.co.nz/national/politics/300160288/jacinda-ardern-wont…
Also the arguments on the ability of the electorate to remove government under MMP don’t wash. The election was less than 6 months ago and they didn’t campaign on any of this stuff or their new tax policy - in fact they explicitly ruled it out.
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