By David Hargreaves
We can only speculate for now how much long term damage is being done to this country by the Government's cynical stance of pushing the 'big issues' into the future.
If an issue looks like a 'bomb' that could have bad electoral consequences, then it's dispensed with for now in favour of short-termist strategies, such as the Government's championing of large scale immigration to help pump the economy.
The intransigeance of the now departed PM John Key on the age of superannuation entitlement is a cross this country will have to bear.
Bill English has shown a move away from the Key stance, but only really symbolically.
By my count we will have another seven elections before the changes English announced hurriedly and inelegantly this week after his weekend slip of the tongue start to take effect.
Everybody seems to be forgetting how quickly the transition was made - under a National Government no less - in the entitlement age from 60 to 65, as this background paper from Treasury explains:
"The age of eligibility for NZS was to be raised progressively from 60 to 65 over the relatively brief timeframe of nine years, 1992 to 2001. The schedule involved delaying payment to age 61 for those born in the period 1 April 1932 to 30 June 1932 and then raising the eligibility age by an additional 3 months for each successive 3-month birth cohort. This formula resulted in the age of eligibility reaching 65 for people born after 31 March 1936 and the transition was completed on 1 April 2001."
So, it certainly could be done if there was a will and if we could achieve anything like a political consensus.
And while English might be trying to signal a move away from Key's dogmatic position on Super, let's not forget that English's paw prints are all over the extremely short-sighted decision to stop payments to the NZ Super Fund.
According to the Fund's own estimates, as of June last year it was around $20.5 billion worse off than it would have been if the Government had not stopped contributions back in 2009. I honestly think restarting those contributions right now would be a more positive step than some vague and woolly intention to do something in seven elections time, by which point I would lay large wagers the policy WILL have changed.
But lest the movements by English on Super this week are designed to show that National is now really tackling the future issues - when it hasn't been before - let us not lose sight of the fact that this Government is still willfully delaying decisions that need to be made. The intertwined issues of immigration, the housing market and the debt levels of Kiwis come readily to mind as areas in which this Government is either failing or just pushing the problem into the future.
New Finance Minister Steven Joyce has only recently pulled the extremely cute trick of kicking into touch till after the election the Reserve Bank's plans for debt-to-income ratios to be included in its macro-prudential toolkit. And that's even after the RBNZ did something it shouldn't have to do, which is promise it wouldn't use them right now.
The IMF had plenty to say about New Zealand's household debt and housing market this week.
Specifically on DTIs it said:
"To strengthen household balance sheet resilience and reduce the probability of household defaults under downside shocks, the macro-prudential toolkit should be extended to include a DTI or (stressed) DSTI instrument, in line with recommendations by the FSAP. These directly target the most acute household vulnerability. Other macro-prudential instruments available to the RBNZ are approaching their practical limit (LVRs) or address the problem indirectly, with limited effectiveness and higher risks of unintended consequences. The new instrument should be activated in the event that effects of the most recent macro-prudential package on credit growth prove to be temporary."
For me the most disconcerting part of that passage is the suggestion that other macro-pru instruments available to the RBNZ are "approaching their practical limit (LVRs) or address the problem indirectly, with limited effectiveness and higher risks of unintended consequences". In other words the RBNZ is running out of water if the housing market catches fire again.
With an election coming and the banks tightening lending criteria of their own accord, the Government might get lucky for now. But the concern I think is next year, which will dawn with no DTIs in sight and a housing market potentially ready to march off again - particularly if the new housing construction momentum in Auckland continues to stall and the Government continues to allow record numbers of immigrants in - mostly to Auckland.
All this is going on while Kiwi households are getting into record levels of hock. I was very interested in a section of a report credit rating agency Moody's released this week, which was specifically related to covered bonds, but also did some number crunching on housing affordability, notably on what happens when interest rates go up - as they are now starting to do.
Moody's looked at the impact on housing affordability of:
- a 0.25-percentage-point mortgage interest rate increase,
- a 0.25- percentage-point mortgage interest rate decrease and
- mortgage interest rates rising to the 10-year average of 6.5%.
The effective mortgage rate at December 31, 2016 of 4.86% - was used as the base for this analysis.
Moody's says for every 0.25-percentage-point change in mortgage interest rates, the percentage of household income needed to meet mortgage repayments changes by 0.8 percentage point on average across New Zealand. In Auckland, a 0.25-percentage-point change in mortgage interest rates results in a 1.2-percentage point change in the percentage of household income needed to meet mortgage repayments. If mortgage interest rates were to rise to the 10-year average of 6.5%, the percentage of household income needed to meet mortgage repayments would increase by 5.5 percentage points on average across New Zealand and 8.2 percentage points in Auckland.
The bold in that last bit is mine. We are taking a risk with debt levels going the way they are - particularly given that the Auckland housing market supply problems are not close to being addressed, which could see a return of rising house prices and may also result in increase inflationary pressures (pressures which are already mounting in the building industry). Increased inflation would see increased interest rates of course.
So, while the economy is looking good at the moment, there are plenty of things for New Zealand to be concerned about looking to the future. Not least of these concerns is the need to get our Governments more worried about the long term viability of the country than our three-year electoral cycle.
72 Comments
Who has got a vision or long term plan when the opposition is focused in the past ?
The Greens are opposed to EVERYTHING and want to take us back to the 18th century.
Labour is focused on failed socialist ideologies of the 20th century and want us to go back there .
Winston Peters wants everything for the boomers and take us to go back to the period between 1945 and 1965 .
Seymour is a lost cause
Peter Dunne is worse
And Maori would really like to go back to before all those troublesome Europeans arrived here
Depends on what you mean by "socialism". If you mean that the state owns the means of production then no, Norway did not try that. What they tried was a very large social welfare system which of course helped by large amount of natural resources. Everywhere that tried socialism failed miserably.
theres a couple of good summaries comments down this link re why capitalism will tip over ...
https://ourfiniteworld.com/2017/02/20/oops-the-economy-is-like-a-self-d…
"to generate the interest currency required to service present debts demands an increase in the money supply. However to prevent devaluation of the currency it also demands the growth of energy stocks. So in essence this website has revealed a paradox. Perpetual growth is impossible in a finite world but capitalism can’t function without perpetual growth.
This was well identified in 1972 with Limits to Growth but here’s the rub. The government knew it would crush them if they implemented any of the fixes needed so they chose to do nothing. Business as Usual. However you can’t outrun the consequences."
"Because of diminishing returns with respect to energy extraction, it takes more and more future promises, to obtain a unit of today’s energy. Thus, we need an increasing amount of debt, just to stay even with respect to energy extraction. We end up with a Ponzi Scheme, of ever rising debt. Then someone decides to raise interest rates, and the whole thing tends to fall over"
The big question is whether the majority of voters want to think beyond the immediate measures of prosperity: GDP, their own house prices, investment property values, what you or others can make by 'flipping' property, the WMP price etc; or, on the other hand, the costs of day-to-day living: the rates bill. the cost of petrol, etc.
One thing that Bill English, and maybe all parties, learned from John Key's overwhelming popularity is that the majority of voters don't appear to want to think about anything difficult, anything out in the future. For John Key was a master at persuading people that there were no big issues to think about, even no problems in forgetting things, and it certainly did him no harm.
So for Bill English, the lesson learned is to follow that line. Immigration for instance, he says is 'about right', the rivers will be 'swimmable' in a few decades, etc. The wonder is that the government would even raise the issue of superannuation. An inquiry into petrol prices is much easier going.
The future? Whose problem is that? The next generation's presumably - the same lot of people from whom we're happily stealing the opportunity, the independence and security, of owning their own homes. Who cares what the next generation's inheritance is? We're doing just fine.
Id like to introduce a new economics term callled flagellation.
This is a medieval trick where typically males beat themselves with whips and went on long marches.
They were taking responsibilty for things that werent of their making.
Two generations ago NZ housing was typical of its time and by modern assessments substandard.
One generation ago the situation was improved, post second world war, probably using surplus from the period of second and korean war.
It was an accident of history, as is the situation today, not due to the forsight or shortsight of the people involved.
The boomers and the XY generations are just flies on the wall, a moment in time.
If you want to beat yourself or others up over it please call yourself a flagellant, in fact we could have a poltical party for those who enjoy it.
My own view is that most people can think beyond their own self interest...
Given the right platform for sharing information...debate....enquiry....learning... referendums might be the best way to make the big, long term decisions..
Some how, we could make the whole process apolitical...
After awhile kids at school could learn the "gestalt" of the process of open society and collective decision making..????
we might end up with the sense of being part of a team..??
The key lies in our schooling. Education doesn't encourage independent thought unfortunately.
We have a lot of people in New Zealand who obtain all the their knowledge from very mediocre sources, i.e television, facebook, Mainstream media.
I certainly wouldn't want that in charge....Let's leave it to the experts.....
if only we could find some experts.
Just wait and see how 'selfless' property investors are when the bubble bursts or when it becomes apparent we've bleed the capital gains rock dry. Greed to fear - fear to greed....much the same really. The herd just drifts from one state to the other.
I think we'll find the boomers become quite selfless when they hit about 75, realise they don't have long to live, and that there is more to life than punishing the generations below them. A cancer scare or two over the next 10 years or so might wake them up to the fact that their short term self-interest really isn't that beneficial for themselves, or NZ as a whole.
The long-ignored future is starting to arrive in the forms of housing crisis, household debt, maybe even climate change. This year's election could be a good one to lose but National now have the odd problem of possibly getting a fourth term. Bill English needs to do more unpopular things, fast. Then the train-wreck can be blamed on Labour.
The conservatives are kinda gone after their scandal last election and ACT seems to be very inconsistent, so we don't really have much choice other than National. If another party campaigned on cutting taxes and reducing regulation they might be able to convince me and my cohort to vote for them. We were born in the 90s, so are well below 40.
Make tertiary education entirely user pays so that those who don't get fine arts degrees aren't subsidising everyone else. Add 3% interest to student loans so that people actually pay them off as opposed to dragging them out for as long as possible (I do this, because why not get the interest/investment returns from the money that would otherwise pay down the loan when it costs nothing to keep it)?
Allow a max of 3 years on the dole in any 5 year period. Cap extra benefits for kids at 3 per family. Maybe also deport all foreigners / multiple citizenship holders who commit jailable offences in NZ. These changes alone should free up over 10 billion per year for tax cuts.
That's a strange contradiction - user pays tertiary education and student loans? Having entirely user pays would result in universities having considerably less funding, requiring more foreign students to fund research, and enhance the effect of generational wealth.
For reference sake, there are multiple different types of dole. Sole parent and supported living payments obviously cannot get cut down to three years only. Jobseeker allowances - if cut down - would result in more homeless, which would cost more in time than just supporting people into jobs. Cutting dole money to extra children would unnecessarily punish children instead of parents, and is a hamfisted financial suggestion to a societal problem that would only serve to aggravate the issue further according to most studies. Poverty very rarely begets prosperity.
There are NO politicians who are honest and tell it like it is because most are career politicians. Their personal interests and those of the greater population are diametrically opposed. Super is only part of the problem. Govt as a whole is a giant Ponzi scheme. The only way it can continue is to keep consuming (i.e. Taxing) a greater proportion of the economy until the economy eventually stalls completely. I disagree with the govt making super contributions...with borrowed money??!! Get real. Auckland Council's rates income will come nowhere close to covering the interest on its debt within 10yrs. Central govts financial position won't be far behind.
Thanks David for calling it as it is. The war generations were courageous enough to make hard decisions at great personal cost for the betterment of future generations yet the current government seems to hold such low expectations of baby boomers that they deny them the opportunity to make sacrifices for their children and grandchildren. Come on Mr English (or anyone else) man up and give all kiwis something to vote for! Cut immigration to a sustainable level, make the necessary changes to make superannuation sustainable now, sort out the tourism mess which is making us all poorer etc etc.
fairly obvious that some significant change needed to be made - no possibility that the country can afford to pay a non means tested superannuation to all at 65 at a level that provides any quality of living - so something has to change - something that the Labour Party strongly advocated for many years - and only dropped after it realised that it was a total vote loser - not that it was a poor policy just a vote loser
Some Options ? - raise the age of entitlement to superannuation - ( entitlement not retirement age)
- accept that future generations will have to pay a significantly higher level of tax to fund not only superannuation but the increase in related services to a far larger ageing populations
Means test superannuation for all recipients -
- increase taxes now in order to pay into the Cullen fund -
Ultimately - no matter what decision is reached - the costs have to be paid for - there is no magic answer and that includes the Cullen fund - whatever contributions that are made still need to come from government income - so either more taxes or less public services -
Of course - if National do lose - and this does not go through - there is no way that any left coalition can raise the age - and of course National will have to drop it for the election after - so the can that you so elegantly say National is kicking down the road - wont even be on the road for kicking for another 10 years!
as at least put it on the table prior to the election - so its both up for debate and we can vote on it - not doing anything until after the people have a chance to speak on the issue - that's democracy in action if you don't like it - vote Winnie - who is the ONLY person who has always said no to raising it - the others have all proposed it as a good idea and policy !
kpnuts. Add another option. Replace National Super with Universal Kiwisaver. 30-40 year transition from one to the other.
You are completely completely correct. There is no magic answer. If individuals can't afford the government can't either, so we have to just take the hit, building our assets over a lifetime. Individual accounts are much better than intergeneration transfer and dodgy slushfunds.
kpnuts. Add another option. Replace National Super with Universal Kiwisaver. 30-40 year transition from one to the other.
You are completely completely correct. There is no magic answer. If individuals can't afford the government can't either, so we have to just take the hit, building our assets over a lifetime. Individual accounts are much better than intergeneration transfer and dodgy slushfunds.
So here's a question ..... How is the NZ Super fund actually performing ?
Bloomberg has this evening reported that the Worlds largest Pension fund the Japanese Government Pension fund has grown by its larget quarterly amount EVER , thats 8% in just 90 days
How are we doing in comparison ?
I thought the Norway fund is the largest in the world, interesting only been going 20 years
and is one of the best designed funds.
the Cullen fund should have been modelled off it, http://www.economist.com/news/business-and-finance/21707435-norways-glo…
Here's what the savings Working Group said
The Government’s role
Clearly, there are serious questions to be asked about New Zealand’s economic policy and how we got into this mess. Why was it not better designed and managed, and more focussed, coordinated and strategic? Did the electorate simply get what it voted for, without realising what was really happening, or have New Zealanders not been well served over the years?
Underlining the current difficult situation, the government is spending at an unsustainable level and running large deficits (the opposite of saving). As a result, it is borrowing a hefty $300 million a week. It needs to return the Budget to a surplus of no less than 2% of GDP as soon as possible.
Looking ahead over the next 20 years or so, the government will face increasing costs from the effects of an ageing population. If the government is to keep its borrowing within a sustainable level (as it must) over this period, its options are to: substantially increase tax revenue, reduce government spending, or increase government sector productivity and performance. The first two options are clearly unpalatable. However, modelling shows that if the government can lift its performance and increase productivity by 2% a year for five years and 1% thereafter, there would be no need to raise taxes or cut government services. The SWG strongly recommends this.
On other government policy issues, SWG recommendations include:
- A much more strategic and integrated approach to policy generally.
- Serious consideration of the impact of the level and variability of immigration on national saving, and the impact that this might have on the living standards of New Zealanders. There are indications that our high immigration rate has pushed up government spending, house prices and business borrowing.
- Improving data on household and business saving.
http://www.treasury.govt.nz/publications/reviews-consultation/savingswo…
Local Government NZ say
Equality and social cohesion On some measures inequality has worsened over the last 40 years
• The shift. Inequality is difficult to measure, but looking at income levels and the concentration of wealth, inequality has worsened over the past 40 years. Research suggests that inequality reduces social cohesion—and moving from an area of high social cohesion to an area of low social cohesion is as bad for personal health outcomes as taking up smoking.
wow!
however
New Zealand’s ethnic composition is changing • The shift. From a mix of natural population increase and net migration to New Zealand, the European population is expected to decrease by 12 per cent while all other ethnicities are expected to increase (the Māori population by 25 per cent, the Asian population by 71 per cent, and the Pasifika population by 40 per cent).
• Enduring questions. How can we best embrace the changing face of New Zealand? How might we empower and enable communities to express and celebrate their diverse cultural heritages, and respect the particular cultural significance of Māori as tangata whenua of New Zealand?
http://www.lgnz.co.nz/assets/42597-LGNZ-2050-Challenge-Final-WEB-small…
In line with evolutionary psychology
Parr (2000) writes “[T]he views of New Zealanders are not conducive to the population of New Zealanders becoming more diversified globally.”
From localism to globalism? New Zealand Sociology, 15(2), 304-. 335
IT HAS BECOME increasingly popular to speak of racial and ethnic diversity as a civic strength. From multicultural festivals to pronouncements from political leaders, the message is the same: our differences make us stronger.
But a massive new study, based on detailed interviews of nearly 30,000 people across America, has concluded just the opposite. Harvard political scientist Robert Putnam -- famous for "Bowling Alone," his 2000 book on declining civic engagement -- has found that the greater the diversity in a community, the fewer people vote and the less they volunteer, the less they give to charity and work on community projects. In the most diverse communities, neighbors trust one another about half as much as they do in the most homogenous settings. The study, the largest ever on civic engagement in America, found that virtually all measures of civic health are lower in more diverse settings."The extent of the effect is shocking," says Scott Page, a University of Michigan political scientist.
http://archive.boston.com/news/globe/ideas/articles/2007/08/05/the_down…
So how are the elderly supposed to thrive in diverse communities?
I agree with you David, unfortunately, we have an opposition that thinks the age still stay the same. Labour/Green are still just opposing what the Government says/does rather than providing a credible alternative for the electorate to consider. If they provided a credible alternative then maybe they would get votes.
For me however, the bigger question is "what is the purpose of Super"? If we can answer that then maybe we can work out policies to achieve that. I suspect that the original purpose no longer stands.
Yesterday I was cold called by someone from the National Party asking why I hadn't renewed my membership. I explained that I had voted National in every election since I was eligible, but have become disillusioned with what I believe is the party's 'head-in-the-sand approach' over the last few years. What ever could I be referring to, they asked?
I told them I disagreed strongly with National's approach to immigration and to housing. The woman on the other end of the phone tried every trick in the book to change the subject away from the issues I wanted to talk about. "But isn't New Zealand a wonderful country to live in", she said going for the feel-good way out of what had become a difficult conversation. And then that oldy but a goody, "the young ones today don't know how lucky they've got it, my father used to wear sacks tied around his feet". This was designed to make me pull my head in and stop complaining. She didn't even want to talk about the recent IMF report on New Zealand, probably because she wasn't aware they had been here.
I suggested to her that if the Govt was not careful they may find themselves ousted by a Brexit/Trump style movement as there was a high level of discontent and anger in New Zealand at present. She replied that she didn't think we would see a "Nazi" style movement in this country, going for the obvious negative connotation that such an alignment presents. I tried to reason with her saying listen I am a high income earner, my friends are high income earners, the top 1%, we are your traditional core supporters but even we are estranged from the National Party, I'm trying to help you, just listen to me and take on board what I say.
She wouldn't have it. She even had a crack at Winston Peters which I will not go into here as it was verging on slanderous.
Just a spin doctor armed with a telephone.
Look at the new subdivisions they often have very little grassed areas. Where are children supposed to play? Once i had a japanese family stay with a two year old child. They loved my deck, lawn and garden. When they got back the two year old cried on entering the apartment. This is what john key [and others] have been pushing on New Zealanders.
Dont be too one-eyed - The responsibility of power is a powerful moderating influence
I was around in the dying days of the Muldoon government where the only alternative option was Billy Bunter AKA David Lange
The National Party painted Lange as an obese buffoon with no experience
However the electorate had come to regard Muldoon as so loathsome they were consumed with it and didn't really consider the alternative. They turned on Muldoon and surprise, surprise, woke up the next day to "Billy Bunter" PM which turned out to be not a bad thing
The responsibility of power is a moderating influence
I would have also shredded her for raising something that inappropriate, and would have escalated her offensive comments back to the Party.
If they win the election then I'll refer to them as lazy bludgers and drug addicts.
Polling closer to the election is usually a bit more accurate but as always there's only one poll that matters this year.
Exactly. I was fully aware of the subtle game of language that was being played against me. That's what made the experience so disappointing.
Does no one care enough about the future stability of the country to speak frankly and shoot straight? Is everything really just a facade?
Unfortunately everything is a facade. There's a difference between their personal beliefs and the party line. Essentially they know the right things to say and do to manipulate voters. Closer to the election look for emotionally manipulative actions.
Biased polls are used tactically as it's well known that people like to vote for the party they think will win as they want to be on the winning side. Edward Bernays has a lot to answer for.
>" provided our personal wellbeing is perceived as being OK and the Kiwi sense of Fairplay is in evidence"
I think that Kiwi sense of fairplay has been dropping by the roadside all too much in recent times, as the opportunity to win the housing lottery overcomes the regard many have for what's left to the next generations of Kiwis.
@JH
On ethnic diversity - we moved from a suburb with limited ethnic diversity to one where there is a strong concentration of recent migrants. Both high decile. Previously it was common to be invited to people's places for social events and routinely greeted when out walking. People looked after the vulnerable and were deeply invested in the local infrastructure. In the new suburb it's all self contained insularity. Head down, keep to yourself. But not just the new Kiwis - our own ethnic demographic is the same. The contrast in social cohesion is startling.
Robert Putnam found that an increase in diversity lead to lower levels of trust between and within the various ethnic groups. This lowered level of trust is also correlated with lower confidence in local government, higher political advocacy, but lower expectations that it will bring about a desirable result, less expectation that others will cooperate to solve dilemmas of collective action (e.g., voluntary conservation to ease a water or energy shortage), less likelihood of working on a community project, less likelihood of giving to charity or volunteering, fewer close friends and confidants, less happiness and lower perceived quality of life and more time spent watching television and more agreement that "television is my most important form of entertainment."
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