Treasury is urging the Government to continue rolling out temporary policies to boost the economy, particularly as there’s little scope for the Reserve Bank (RBNZ) to keep lowering interest rates.
“Fiscal policy will need to support economic activity, particularly as monetary is approaching its limits,” Treasury said in its briefing to the incoming Finance Minister Grant Robertson last month.
“At present, the risks of fiscal policy doing too little outweigh the costs of it doing too much.”
It didn’t detail what these policies could be, but said they could “minimise labour market scarring” while enabling sectors, firms and individuals to adjust to the new environment.
It said ‘building back better’ means "setting in train the few, crucial, long-term living standards-enhancing changes even as we continue to fight Covid-19".
Contrary to Robertson's line - growth alone won't get books back in shape
However, Treasury warned that looking further to the future, taxes will need to be hiked.
It said with Covid-19 shrinking the economy and increasing debt, existing financial challenges driven by an ageing population and cost increases in health and education, have been brought forward.
“Though measures to enhance productivity remain important, even under optimistic scenarios higher economic growth alone will be insufficient to secure long-term fiscal sustainability,” Treasury said.
“Strong management of revenue and expenses is required.”
Treasury pointed out that at 33%, the New Zealand central and local government tax take as a percentage of gross domestic product (GDP) is just below the OECD average of 34%.
A nod to addressing inequality
Treasury also noted New Zealand relies on a "few key tax bases":
And it said: “While New Zealand’s tax and transfer [welfare] system is redistributive, it is less so than most other OECD countries.”
Treasury said it was “more important than ever” for the Government to prioritise spending and ensure it’s getting value for money.
It said the Government needed to “shift resources to the drivers that matter most for lifting living standards, stopping or delaying other areas of work”.
“Many of our long-standing economic challenges need regulatory reform to shift the incentives in the system,” it said.
Treasury recommended the Government engages with the private sector to consider regulatory settings to support growth.
'House prices could continue to rise for some time'
Coming back to the RBNZ, Treasury said the alternative monetary policy tools it’s using, which include it committing to printing up to $128 billion, “have both positive and negative distributional and sectoral impacts through the effects on asset prices, financial markets, economic activity and unemployment”.
“However, their net impacts are highly uncertain at this stage.”
Specifically, Treasury said: “There is uncertainty on how economic contraction and rising unemployment may interact with house prices, and what impact this could have on distributional outcomes.
“Given that interest rates are likely to remain at record-low levels for several years, and that we have a considerable existing housing shortage, house prices could continue to rise for some time.
“This is already exacerbating the challenge of finding affordable housing for low-income households or those who have lost income in the downturn.”
114 Comments
What are we going to get for "more tax"? The infrastructure we have been supposedly paying for all this time? More transfers with distortionary effects on labour and housing? A health system that can't fund treatments for what are entirely curable issues like low-end cancers in other parts of the world?
That's the whole problem. "we" haven't been paying for the infrastructure etc... We were/are still paying off the initial outlay to develop it.
No one wanted to pay the ongoing maintenance/repairs because it cost too much.
Both Local and National Governments need to look into exactly what is necessary vs what is a luxury, and start cutting the luxuries. Unfortunately this means some people will have to give up a few of the nice to haves in order to drink their tapwater, flush the toilet, etc.... Question is will they?
Let me be more specific: If I haven't been paying for the infrastructure we need, why are we paying what we are now? Why is there no consequences for not delivering key projects? Look at Waterview/Transmission Gully/Auckland Rapid Transit (light rail, Sky Path, North Shore busway upgrade) - the things they actually started slipped by months, or even years, with little consequence. The things they haven't started are trapped in an endless cycle of case studies and being moved from one desk to another in the capital. What is going to change for me to buy in to the idea of paying more tax, especially if it's not going to be adjusted for the same sort of inflation I also have to cover in all my other living costs? If the pitch is just in reality "more tax, more missed targets and scrapping bench-marking when we fail to hit our own targets", then no deal.
Why pay taxes when the RBNZ can create money out of thin air?
If Safety Warehouse creates fake bills and they're called out as the devil.
If you or I counterfeit money we are put in prison.
If the central bank creates money, it's called stimulating the economy.
Fix the money. Fix the world.
Reserve Banks are still fundamentally wedded to the idea of moving inflation from future periods using credit creation tools (ZIRP, LSAP, FLP etc.) instead of actually helicoptering money to consumers directly to create demand. They are innately very conservative.
Though measures to enhance productivity remain important, even under optimistic scenarios higher economic growth alone will be insufficient to secure long-term fiscal sustainability
The assumption here seems to be that the entire country has benefited from the last decade of migration-led economic growth. Therefore, we should all share the burden of expanding social services and infrastructure to a larger population base, since the army of cooks, café workers and tour guides heading over in droves don't generate enough tax revenue.
We all know low-quality public spending and low-wage migration has brought us down this fiscal hole but bureaucrats at the Treasury would rather not upset their bosses by saying that out loud.
Treasury hasn't said it's focussed on income tax. If anything, reading between the lines, it's in favour of tax and welfare reform to help low-income people who aren't the ones accumulating wealth by trading property. Here's a bit on tax from the briefing in full:
Beardsley Ruml was a chairman of the New York Fed and he had this to say.
Since the end of the gold standard, "Taxes for Revenue are Obsolete". The real purposes of taxes were: to "stabilize the purchasing power of the dollar", to "express public policy in the distribution of wealth and of income", "in subsidizing or in penalizing various industries and economic groups" and to "isolate and assess directly the costs of certain national benefits, such as highways and social security"
What we need from our treasury department is some honesty and truth and not the usual neo-liberal mumbo jumbo that we hear from them.
More and more people are now learning about the financial capabilities of our currency issuing government and that taxation and borrowing do not actually finance the government, it must spend first.
As the Levy Economics Institute tells us here. http://www.levyinstitute.org/publications/can-taxes-and-bonds-finance-g…
Just so I have this straight:
1. me a millennial, needs to borrow to the absolute hilt to buy a house. Effectively equal to the net present value of my entire lifetime earnings (which, with ~0% interest rates is effectively equal to the future value of my lifetime earnings too);
2. all this borrowing, ultimately, goes directly to some Boomer cashing out (tax free) their house for more money than they could ever imagine earning in their lifetime to fund a comfortable retirement;
3. I'm likely to have my income taxed at a high rate at some point in future coz we're never going to tax anything or anyone else except PAYE earners in this country; and
4. This higher tax will basically be used to fund a deficit in infrastructure investment coz said Boomer in (2) voted it down or opposed it at some point. And we need to repay all this debt that, really at the end of the day, is just being taken on to protect said Boomer's asset values so that, despite under-provisioning, they may have a comfortable retirement (using tax free proceeds).
Sounds great.
What a future to look forward to.
Every time a green mp and green party activist campaigns against development of homes, said boomer automatically gets to make more t-f capital gain whether they like it or not. Not all boomers what's higher house prices. We wouldn't be having the cgt debate were it not for numpties and nimbys. Nimbys are boomers who were given power to stick their noses in by those who advocate for community input in what others can do with their so-called freehold land
Are you assuming I am a boomer, I aren't, or that I'm a greenie, that I am but I'm pragmatic and not extreme and definitely would not vote for their ridiculous naive candidates ... over the last 25 to 30 years the greenies have pushed their policies through local and central govts.
Truthfully the deck is stacked against you and that won't change for at least another generation even if vast reforms where made now (which they are not and will not it seems.) My advise would be to leave New Zealand, it's what I'd do in your situation. This is no country for the young people.
Yes you have it right. And also as a millennial, you and your friends: 1) Love immigration, cause you know, hugs and kisses, 2) Want super duper quality houses (double glazing, heatpumps in every room etc.), 3) With said houses being in a high-rise (super duper expensive to build) near a train station near a CBD (super duper expensive land) so you can walk, bike or catch public transport to work so that you're green and don't produce any CO2.
And all of that goes straight to the bottom line of property costs.
So, I feel for you in regards to what the RBNZ and the government are doing in terms of driving up house prices. But millennials and their ideas add to that.
No, Davo, I can't afford so much as a garden shed within 100km of where I was born.
And I'm extremely thrifty, in a professional job.
(Also, apartments are cheaper than houses, and public transport is cheaper than driving. You make it sound like they're millenial luxury.)
Sorry to hear that, that's very unlucky. You may be a little shell-shocked, but in reality the biggest threat to modern people's health comes from inactivity. Biking increases your life expectancy despite the high impact, but very rare, accidents.
Together with the economic and environmental benefits, biking is a clear winner for those able to do it.
Welcome to the Great Ponzi that is late-Western Civilisation. When the link between effort/competence and reward becomes broken enough, I would not be surprised to see a flight of NZ's most productive (Atlas Shrugged style) to less shamelessly redistributive climes.
The alternative, as you've rightly surmised is that left unchecked, most of us will eventually get to a point where the 'securitised' lifetime value of disposable earnings is inadequate to afford to own reasonable shelter close to work. When this happens, the illusion might just peel away and the reality of debt serfdom will be better understood.
Presumably you have/had parents (Boomers), if things do not change then their accumulated wealth or part of will pass to you. If you change it and tax away some/all that accumulated wealth you will get less/none. Hope this explains why us Boomers consider you Millenials somewhat lacking in the brain cell department.So keep enjoying the benefits of what us Boomer and our parents have created for you whilst we are here to maintain it for you.
I like how you assume younger people will like boomers because of the promises of inheritance and that the greed and the excess on display is all for the benefit of future generations. If you actually talk to younger people want you think they want and what they actually want are very different things. Boomers in my experience falsely assume younger people want what they have.
I just want to work hard and at least see something for it.
Doesn't feel like there is any point to working hard anymore.
Especially with comments about inheritance.
So everyone should strive to emulate Epsom daddy's girls?
That honestly is a concept that makes me want to vomit.
Awesome, neo-feudalism.
What a country to look forward to.
Exactly why people left Dickensian England to come here right?
To build something even worse.
I'll just have to increase the fence height at my (inherited?) property from the standard 8ft Boomer privacy compound to 15ft razor wire topped version to keep out the poors who didn't inherit anything.
Safer communities together.
And when should I expect this huge windfall, including an ability to own a home - when I'm... 60? 70? and my kids are 30? 40?
Should my 3 siblings expect the same when my parents die too? There will surely be enough to go around right?
Man, you've got this whole thing figured out. We are so ungrateful.
I don't know why I was fed the whole work-hard-at-school, get-good-grades, get-a-good-job, save-up-and-invest narrative when all I really was supposed to do was **nothing**, sit back be unquestionably grateful for the utopia your generation has created and just patiently wait for my parents to cark it.
What’s more... you essentially saved these old buggers by lockdown and throwing economy into spin then they repay you by buying up all the housing stock at over-inflated prices!
Yet, put up the hands of all who voted for these virtue signalling, do nothing, spin-doctoring, woke, racist nimbies and take a bow!
Pretty much sums it up. I’d like to put my whinge in though, my generation (gen x/y) will pay the bulk of boomers retirement as we will be in the prime of our earning/taxing ability, and then we will feel the force of pissed off millennials when we come to retire so we will most likely get nothing (or we at least have to plan for that). To be fair I’m not sure many of my generation are much better than the boomers though, especially in regards to the environment we will leave you.
Ho ho son, you got it.
Now you know why Gen Xers are the worst timed generation in recent history. The slacker generation. The sandwich generation copping it from all angles.
Yep the blinkers are really coming off now, Dec 2020. The narrative was so effective at distracting people while the real money was made behind the scenes.
Brutal.
But no one said life would be fair or easy.
Jagg, may I suggest you get a job at the NZ Herald. Listening to their add on the radio they supposedly have some of the best journalists in the country and even in the whole world, yet you have managed to put more facts into one short post than I have read from the herald all year.
^ This. Not all people of that age group are out to do you in - my parents certainly don't have a property empire on the go, were never far away from being broke and are as worried about where we are heading as a country, but they'll be a target for all this hate regardless.
But at the end of it all you'll be the boomer cashing out after many years of paying in and taking advantage of those (hopefully tax free) capital gains
They've been through the high tax, high inflation periods, and came out with assets, which are now priced relatively similarly in terms of servicing costs. Not saying it is right, but there isn't too much differential in the outcomes at the end of it, but getting in at the start is hell.....
The alternative - renting for life - is much worse.....
What's renbtcontrolnow Kate?
As far as I can tell it doesn't work: https://freakonomics.com/podcast/rent-control/
Depends on how you design it. I would make it universal - in other words, all residential rental properties NZ-wide would be subject to it.
It would be calculated by a formula based on (RV/1000) +/- x%, depending on the median household income of the suburb/region; with the variable (x) set to achieve a weekly rent maxima of 30% of that median household income.
The policy being designed to lower rents, particularly for the lower income working households, to an affordable level of income. Much like our state housing charge is an income-related rent for non-working/beneficiary households.
The main objections/unintended economic consequences with rent controls as implemented elsewhere is that;
a) they are not normally universally applied to all residential rental properties - and hence renters in the designated 'rent controlled' properties are dis-incentivised from moving as their housing needs, work opportunities and incomes change.
b) They may dis-incentivise new builds - however new builds in NZ are not aimed at the affordable end of our housing supply. And typically, the rents asked for these new builds already run below a likely weekly rent maxima as it is. (i.e., the investors settle on lower yields, if not losses, I assume based on their expectation of capital growth over time).
c) they are not pegged in any way to 'market value' of the property - whereas by using RV as the basis for the formula here - rent increases applied 1/3 years will reflect the updated RVs. Rent increases in the between years can be set at CPI.
I put the suggestion forward to the PM in an email - happy to copy you on that if further interested. I plan to take it further afield in the new year. My aim is that I do not believe the government can afford the continual increases/costs in accommodation supplement and other tax/welfare transfers. What they need to do via regulatory policy mechanisms is lower the cost-of-living in NZ - starting with the biggest cost as a %age of income: housing/accommodation.
If it is nicer than the other one down the road - it likely has a higher RV. But, even if its RV is the same, you will choose the person based on the household/people that you most want as tenants. You won't be able to accept a higher price than the rent maxima as that would be illegal. And the same rules apply to all rental properties - so no advantages/disadvantages as the metric is based on RVs. People might apply to QV to have their RV reviewed upwards, and that's a fair process as they are very thorough and the valuation is done on an individual basis.
But RV's are far more about land than capital improvement - and higher RV = higher council taxes so that negates some of the increase in rent. Also, you didn't answer my question - I have multiple parties who all want my property and are prepared to pay more, what do I do? We have solves this problem in the West with capitalism and market forces. Maybe I could ask for a motorbike or boat from my new tenants to help push them to the top?
Yes, but higher land values normally reflect a more prime location - e.g., distance to CBD; handy to PT; good schools in the area, etc. So, one would expect rents to be higher based on location, location, location.
I did answer your question - it would be illegal to accept any rent in excess of the rent maxima - so you would choose based on the tenant you were most pleased with. Yes, of course we have solved it with capitalism and market forces, but the problem is that capitalism is distorted (e.g., QE et al.) and the market is dysfunctional (e.g., Accommodation Supplement, et al.) Hence, regulation of the market is needed.
The final sentence does you no favours morally or intellectually.
.
Rent control has all sorts of perverse incentives that undermine the effectiveness of it and is generally economically destructive. The only solution is to tax land. https://en.wikipedia.org/wiki/Progress_and_Poverty
For as many of the arguments against - there are equally as many reasons in favour. But the most important one is that it ensures that rents are affordable. The Accommodation Supplement has many perverse incentives as well - I recall a Cabinet Minister telling one of their tenants to apply for one, as it would likely more than cover the cost of their rent increase (they had not previously been claiming one).
Just like the 'free' money for FHB deposits - tax/welfare transfers just put the price of housing/accommodation up in accordance with the subsidy. That's the real perverse incentive associated with government policy at the moment.
We don't need more government welfare subsidising rents - we need good rental market regulatory policy.
I agree that subsidising landlords has the opposite effect than that desired.
However taxing land reduces land values, reduces debt, motivates productive and efficient usage of land which spurs development and expansion of tenancy space supply and actually has the effect of reducing rents. And could be used to offset the taxes on work and trade which are currently hamstringing our economy.
On the taxation front, totally agree - I've always favoured land tax as taking some of the pressure off PAYE and company tax rates. But, the shift would need a relatively long timeframe to implement such a transition smoothly. And rent costs, particularly for the lower household income quartile really need to move down to an affordable level, to save all taxes needing to be hiked to pay for the increased need for welfare/tax transfers to supplement the high cost of living/accommodation. Which is why I put the 'now' on the end of 'rent control'. Things are so out-of-hand and worsening by the day - action via regulation using a publicly available metric like RV, can be effected immediately.
I don't disagree if we are actually going to tackle the most pressing issues head-on. As you saw with Child Poverty we made no progress because the root of the issues was housing affordability and government transfers to welfare recipients didn't address that core issue. Similarly tax, if we can't tackle taxing wealth appropriately we might as well not pusue this because the burden will fall upon the shoulders of salary earners.
But everyone from TSY, RBNZ down is finally admitting that the housing market is dysfunctional.
They will all be ripe for a solution. Neo-liberalism was in general a retreat from state-interference in markets, and I think we all realise in many ways (particularly with respect to financial/FIRE markets) - we lost our way. Regulation will make a comeback in policy circles.
As I pointed out earlier, having looked at the rents being asked for many of the new builds, they are not targeted at the lower/median income household. If anything those rents are likely to come in under a weekly rent maxima - and I would hope that due to market competition for those properties, the maxima would not be interpreted as a signal to increase rents at this higher income end. Even if buy-to-let owners at that higher end did up the rents (beyond what is the current market rate) - their potential clientele will likely have the ability to purchase such new units/builds instead. The tenants of the higher end rental target market have options - the lower end of the household income spectrum does not.
so Growth is dead
so interest rates are zeroing out, so
We need more funny money
Which in the absence of rising demand (ie lack of affordability) will have to go into pumping up asset prices
Which means we need more rental subsidies
Which means we need more renters
Which will mean we need more people
which will means we need more houses
which means we need more infrastructure
which means we need more tax
sorry, what was the question again?
You sound like you would like NZ to be a place where everyone's needs are met regardless of their inputs to society.
That's an amusing but flawed take of things. We're actually in the process of moving further away from being a meritocracy the longer this form of neoliberal capitalism continues.
A welfare state, which is what all Western nations purport to be, are meant to be "[places] where everyone's needs are met regardless of their inputs to society." Maybe you're confusing that with communism because China is confused about what Communism means too.
Unfettered laissez-faire capitalism heads to Monopoly as you describe. That's why we have mixed economies. No society with either left or right extreme has been successful. Countries with between 30-50% of GDP from government spending appear to be the most successful.
'You sound like you would like NZ to be a place where everyone's needs are met regardless of their inputs to society'
Modern capitalism is more of who can become the fattest parasite and/or socialism for the rich - hardly a morally desirable economic philosophy. Perhaps Marx was right that communism will ultimately win.
What you are referring to is monetary policy, low interest rates creating a credit boom for the banks. The banks also create money when they lend. Fiscal policy is what the government does when it spends on providing public services. The government could use its fiscal capacity to build more houses and this would help to lower house prices rather than raise them.
Banks in the US are not stimulating economic growth with loans to the GDP qualifying productive sector. Its much the same here.
For the first nine months of 2020, the domestic banking system added an astounding three-quarters of a trillion of these things. The first two quarters this year would be understandable, but that rate, and the behavior/outlook driving it, did not change in Q3!As of these latest estimates, domestic banks now hold nearly 19% (above) of all their assets in the form of US Treasuries or agency debt. This highly defensive posture hasn’t been this high of a proportion since the early 1990’s. Rather, this kind of determined safety allocation is reaching S&L Crisis, and even pre-eurodollar, post-Great Depression era, levels. Link
I really wonder if we are not over reacting. Is our economy in such bad shape that we need to be throwing such enormous sums at it.
Our balance of exports has never looked so good.
Unemployment has only gone up marginally. And despite this we have heaps of employers bleating that they cannot find staff. The newly unemployed were happily and usefully employed a few months ago, there cannot be much wrong with their work ethic or reliability. (just maybe that they are not vulnerable minimum wage immigrants who will accept any sort of abuse and exploitation that employers want to dish out)
Put bluntly
- We are exporting more than we import so we can buy everything from overseas that we want. (and a lot of the stuff that we import is Chinese crap that we would be better of without anyway)
- We make more than enough food to feed ourselves
- If we continue keeping out the immigrants and direct some of our so called unemployed to building houses, we will catch up with the housing shortage and our chronic infrastructure deficits will stabilise.
What else do we want? Where is the problem?
If that is not good enough for us then this covid thing will soon be over and we will be inundated with the bloody tourists again. If they are such a cash cow then we will have more money than we know how to spend, so we certainly will have no problems.
The biggest problem that I see is that the RB and government are throwing more money into the economy than it knows how to use sensibly. It is going straight into a property bubble. This will probably burst at some point and we the tax payers will be left with the consequences and debt. (It has always been thus; privatise the profits and socialise the losses) Just stop wasting petrol and stop pouring it on the fire. Do that and we might find the resources to do some useful things in the economy like greatly increase productivity and address the very unfair deficits that many of our people experience. What they are doing now is having the opposite effect given that many if not most social ills can be tied back to house affordability.
On what planet are these idiots who are supposed to be wisely running the country for our benefit?
They are behaving as if they are blindly reading the instructions from some sort of out dated manual that they probably never understood in the first place and has absolutely no relevance to the situation we face now.
The money that goes into housing is created by the banks not the government. The Bank of England explains here how banks create money. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creati…
QE doesn't give the banks more money to lend as they do not lend out this money, its only effect is to reduce interest rates.
Treasury to Robertson: Spend more temporarily to boost the economy, make 'crucial' policy changes to improve living standards, consider tax hikes in the future
What's the government's intent when it parks tax and bond issuance proceeds amounting to $31.645 billion on the RBNZ's liability ledger?
As economist Prof Bill Mitchell explains here, these accounting structures are all a smokescreen to disguise from us what is really happening. http://bilbo.economicoutlook.net/blog/?p=38885
Was it not Ruth Richardson that decided that the government had to display its accounts as though it were a business, which it is not.
MBIE read it & weep
- its telling you more make your own arrangements.
The new minister for economic development has been delivered a blunt message about New Zealand's lack of progress on climate change and the potential price tag that could result in........ (buying overseas credits - no mention of where the funding comes from).
It [the Ministry] views the screen industry, space and major events as good potential areas of growth for the economy.
https://www.rnz.co.nz/news/political/432886/climate-change-new-zealand-…
The screen industry - do these folk realise the scale of subsidy uncapped, or come up against any Hollywood royalty accountants?
They are in the movies, La La Land....
Cripes, what next?
"Despite a responsive labour market, New Zealanders suffer from relatively severe wage scarring during downturns. Following a recession ... there is a risk that people return to work in lower-skilled, lower waged roles than what their experience and skill would suggest.
"This results in persistent wage scarring impacts that last well beyond when headline figures have returned to 'normal'," the briefing details.
"Economic outcomes are not evenly distributed across groups of people and regions, and income distribution is more unequal than the OECD average.
"Education, health and housing outcomes vary strongly by socio-economic background and ethnicity - Māori and Pasifika tend to fare worse. The unemployment rate for Māori and Pasifika is typically more than twice as high than for New Zealand Europeans."
Covid has "compounded" this and other economic challenges.
Space seems a little ambitious.
US must take care of its Moon orbiter’s compatibility with Russian spacecraft — Roscosmos
This would enable Russia to extend a helping hand in emergency, according to the space corporation CEO
I wish I was clever enough to have all the answers to the problems of the property market. Given where we are, the solutions will surely be long term and might lie in a combination of;
Adding significantly to the housing stock,
Bringing in some form of tax on capital, whether through a land tax or a CGT.
Having more severe restrictions on investors.
My sons are ok. They are in their 40s and have been in the house market for many years, but i worry about their children. Will the median price in Auckland be $2m when they are looking to buy?
We need a tax base change because the workers are increasingly under pressure from the retired and soon to be retired cost mountain. We also have a productivity issue and a real-estate speculation issue to solve. So do it all in one stroke of the pen. Reduce income tax, and implement a flat land tax.
Simple. Unavoidable. Effective.
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