Treasury is yet to be convinced the Reserve Bank’s (RBNZ) use of new or “unconventional” monetary policy to lower interest rates has increased wealth inequality.
Treasury Secretary Caralee McLeish shared this view with Parliament’s Finance and Expenditure Committee on Wednesday, despite Treasury and the RBNZ in January 2020 advising Finance Minister Grant Roberson quantitative easing (QE) may raise asset prices more directly than lowering the Official Cash Rate (OCR) would. This in turn “may” increase wealth inequality.
Yet responding to questions by Green Party MP Chlöe Swarbrick, McLiesh said: “It’s still too early to assess the full impacts of the pandemic on inequality.”
She said the RBNZ’s QE or Large-Scale Asset Purchase (LSAP) programme is playing a crucial role supporting the economy.
“You don’t think that’s driven more investment in housing?” Swarbrick asked.
McLiesh responded: “It does have flow-on effects and clearly lower interest rates is one of the drivers of higher house prices.
“But the overall impacts on wealth inequality are quite complex and difficult to unpack.
“Lower interest rates both benefit borrowers, as well as those who hold assets. And they also benefit the economy and open up more jobs. And so, the full picture on inequality is one that is quite complex. And we don’t yet have a detailed quantitative assessment.”
January 2020 warnings
Treasury and the RBNZ in January 2020 told Robertson using unconventional monetary policy involved “significant” trade-offs.
They provided this advice before COVID-19 escalated and the RBNZ ended up launching LSAP and Funding for Lending programmes. Together these programmes involve lowering interest rates by creating up to $128 billion.
Treasury and the RBNZ noted it wasn’t the RBNZ’s job to make sure the benefits of these policies were evenly spread across society from a fairness perspective, so said the Government may need to step in to mitigate some of the side-effects.
However, McLiesh on Wednesday steered clear of talking about the impacts lower interest rates, higher house and share prices, and lower mortgage costs have had on wealth inequality.
Instead, she responded to Swarbrick’s questioning by discussing the impact of COVID-19 on the labour market. She referred to the way women, young people and Maori/Pacific people are bearing the brunt of job losses, despite there being fewer job losses than expected.
McLiesh didn’t speak to media after the meeting and was otherwise engaged on Wednesday afternoon, so couldn't do a phone interview.
Interest.co.nz would’ve liked to clarify whether - as McLiesh's comments suggest - Treasury had softened its January 2020 view around government policies being needed to address the side-effects of unconventional monetary policy, and if so - why.
Robertson's view
The backdrop to this is Robertson is considering Treasury and RBNZ advice on how to curb housing demand. He’s due to unveil his response at the end of the month. Housing Minister Megan Woods will announce further supply-side measures at the Budget.
The Greens, National and ACT are also on Robertson’s case over soaring house prices.
His defence over not acting on Treasury and the RBNZ’s advice has been that it was based on a “hypothetical scenario”. It was provided when neither agency saw the need for an LSAP or Funding for Lending Programme.
Robertson also made the argument, in response to a question in the House by National Shadow Treasurer Andrew Bayly (see video above), that the RBNZ and most economists were in mid-2020 forecasting house price drops.
Some direct impacts of lower interest rates
The country's median house price has increased by $121,000, or 19%, in the past year.
Someone with a $500,000 mortgage, paying the average 1-year rate will be paying $73 less per week than they would've been paying a year ago.
Meanwhile households charged the median rent will be paying $20 a week more.
And someone with a $100,000 term deposit, receiving the average 1-year rate, will be receiving $1,700 less annually in interest (gross) than they would've a year ago.
RBNZ puts onus on Govt
Contrary to McLiesh, RBNZ Governor Adrian Orr clearly put the onus on the Government to respond to the side-effects of unconventional monetary policy.
Asked by Swarbrick in the select committee whether he believed we were seeing growing inequality, Orr said: “Yes. The asset prices have moved.”
Orr later in the meeting again stressed: “Lower interest rates tend to mean higher asset prices, almost in a mechanical sense.”
Swarbrick went on to ask, “You’ve indicated in the past - it’s actually alluded to in this [January 2020] advice - those distributional impacts have to actually be addressed by fiscal policy in particular. Do you stand by that?”
Orr responded: “Yes… Monetary policy is incredibly limited in the longer-term structural type issues you’re talking about.”
Easier for the RBNZ than for a politician to act
After the meeting Orr told media he believed the Government was responding to soaring house prices.
“From everything I’m hearing, they’re hearing it loud and clear. It was eyes wide open going into this crisis,” Orr said.
“These are externalities that have happened, but the alternative was higher unemployment, a higher exchange rate, more people out of the labour, etc. So these were the difficult choices made in haste.”
Interest.co.nz put it to him that the “alternative” could’ve been the Government acting pre-emptively to mitigate the side-effects of unconventional monetary policy. This way the RBNZ could’ve achieved its employment and inflation targets with fewer negative externalities.
Orr responded: “I think really what you’ve got to is the core of the difference between monetary and fiscal policy and why, in a sense, monetary policy has been outsourced to an independent institution.
“Because it’s very very hard to turn on a dime and shift fiscal policy instruments around. People seem to be far more willing to accept the tax cut than the tax increase, or the relative changes.
“These are significant long-term settings that are being challenged - not just here, internationally. It’s the story of the decade.”
Here are videos of ACT Deputy Leader Brooke van Velden and Green Party Finance Spokesperson Julie Anne Genter asking Prime Minister Jacinda Ardern and Robertson questions in the House this week on the issues discussed above:
88 Comments
The lack of care, understanding of their average citizens, their arrogance of absolutely not doing anything while screwing their voter base is mind blowing to me. Here is a combination of greed, arrogance, incompetence and utter narcissism from a party that preaches kindness. Hey but let’s just tilt our heads, nod our heads with a frown, explain with a concerned expression on their faces about how it’s all the previous National governments fault. Honestly I am beyond belief that this is labour government I voted for. Lies, lies and more lies. Utter self serving arrogant ministers. No matter what I won’t be voting for Jacinda again. Fool me once, Shame on you. Fool me twice, shame on me.
So did I. No idea why people could not see this fluffy bunny party for what it was the first term and yet they voted them in again. Now less than a year later they are all pissed off with them. The strange thing is that Labour supporters must be Goldfish with short term memories because Labour will announce big promises just prior to the next election and all will be forgiven. You guys got what you voted for, suck it up.
only increases in productivity can effectively raise wages and standards of living -- these artificial hikes just lead to increased prices and ultimately make the very people who get them worse off - Take a $1.50 an hour rise -- thats $60 if you work full time -- so $40 after tax -- which is way less than the average rent hike in the last year on its own -- not to mention other basic CPI increases - fuel food power -- inflation figures factoring in the cost of white goods etc just deflects away from the way above average increases in basic living costs --
This is how it worked with a capital gains tax. Suddenly, even though the tax act went through a major rewrite under their watch between 2003 and 2007, it was immoral to not add a capital gains tax. The only that changed was that Key had pushed them into opposition.
Treasury is yet to be convinced the Reserve Bank’s (RBNZ) use of new or “unconventional” monetary policy to lower interest rates has increased wealth inequality.
Is this a joke and Finance Minister believes it. House prices were rising on weekly basis from 10% to now uptill 30% to 60% and STILL Mr PM is not sure or have doubts.......
What a farce.....
The posts above, except this one take the line that the lowering of interest rates by a govt desperate to remain in power, boosts house prices which increases inequality.
To take this line feels really really wrong to me. It feels way too simplistic to me. As if those who are more wealthy, losing their jobs is their ultimate aim.
Grunty handled the questions well, I can't imagine which heahea would do nothing in his shoes fronting a pandemic lock down. Stop being hard on him.
Just increase housing subsidies for renters and income - price caps for first home loan- the noise will subside.
National policies shouldn't be driven by minority interests- there's no real demand when it's not backed by buying power.
A fly on the wall of the 9th floor.
PM: Granters, we simply Have to Do Something about these house prices. 19% in a year, and much more in some provincial localities. This is gonna Cost us if we don't handle it. What can we Do?
FM: Well, to be perfectly Francis, Jace, you haven't helped the cause by saying out loud that house prices should Keep Going Up. I mean, talk about Mixed Messages. We are gonna try to dampen demand - after all, with fewer immigrants and students, there should be a bit of wiggle room.
PM: But honestly, less demand by whatever method you dredge up, is surely gonna hurt those least able to climb aboard the Property Rocket - I mean, get themselves into an Affordable First Home. Making the minimum deposit Higher strikes directly at them, doesn't it?
FM: Well, yes, but it's more intended for those Awful Speculators, and the banks seem to have taken that to heart already. We are having a little difficulty defining 'speculator'. But I've got the IRS trawling the books, and a team looking through CCTV footage to see who owns those Teslas and Ferraris - there's gotta be some dirty money there. Fingering unloved Rich Pricks always goes down well in the cheap seats - I mean - with our valued Electors.
PM: But all that's gonna take Absolutely Ages, Granters. I've got FHB's besieging most of our Auckland electoral offices, and there's even talk of a Hikoi of the Dispossessed. That's Bad Optics, I need not Remind you. These poor folk need answers Now, else it's another Previa for the next accommodation option. And there's talk, now that the RMA is gonna get trisected, about Councils, their crazy Land policies, and their effects on pricing by causing 'artificial scarcity' - whatever That means. Gosh, having queues outside offices is one thing, but having 70-odd Councils, their elected Councillors and their Staff, all up in arms because we are evidently gonna cut their lucrative Consent, Planning, Inspection and whatever rackets - I mean - Services Revenues, down to size, is altogether another. Can't we promise them some of the Magic Money Tree fruit? Heck, look what it did for He Who Must Not Be Named, while the PGF money tap was flowing. Give them a slice of GST? Make it no GST on Rates? Anything? Granters, you've gone white. Are you OK?
FM: Jace, Jace, Jace. There are many threads to weave here, and the whole sorry mess can't be solved in a day, a year or even a Term. Oh, now You've gone white. Join the club.
No Goods and Service Tax on rates but it has to be because said rates are a goods and service charge therefore attract a Goods and Service Tax 15% government rake in actually. But then again rates are levied calculated on values, the more the property is worth the more the amount of rates pro rata, so if we call that by its real name that is, a wealth tax, perhaps we can argue, same as with petrol, shouldn’t be taxing a tax. Yikes heretics are on the loose, for a mouth rinse, vinegar anybody, and quickly.
The poor marginalized NZ people have been violated and defiled in the most sick and perverted way. It is only a question of the extent of the damage and whether they will ever be able to recover from it and become part of an inclusive NZ society again.
But we have been kind and inclusive to 100K foreigners every year and provided them with jobs, housing and a better life at the expense of poor and vulnerable Kiwis who have seen their dreams of reasonable pay, rents and house prices disappear and they can do (almost) nothing about it.
Tell it to the farmers who have to dump tonnes of their produce due to the shut down. Tell it to them that they should hire locals, I'll leave it to them to give you some advice.
Out of a random 100K Kiwis, how many can do neural computer programming?
You can rile up anti-immigration sentiments and make up sob stories- businesses aren't in the business of buying dramas.
Time must have been a luxury down in Naki that people can write their manifestos.
Most of the people who want less immigration only want less poorly skilled people working at petrol stations and $2 shops, not highly skilled and in demand. I doubt we were bringing in 60-70K people a year and most of them highly skilled, if we were our skill shortage list would be very small.
I'm all for highly skilled people coming in, but against the visa rort.
CWBW... I thought you were in favour of a free market. If farmers (or anyone else) pay a fair wage Kiwis will do the job. I could accept a handful of foreign neural computer programmers as long as part of their employment and visa conditions were that they trained Kiwis for the job so they could ALL leave (never to return) in a few years. Most foreign countries have a very strict list of jobs foreigners can do for very good reasons and there is hardly an Asian country where you would gain citizenship or even be able to own a house in.
and the vast majority of them should not have the opportunity to do it in NZ. I lived in Asia for over 20 years and I do not know of even one country in Asia that would grant me residency. The main reason. They want to put their own people first, and rightly so. If NZ gets to full employment and has all kiwis housed then I would possibly be open to high immigration. But yes, at the risk of being racist, I do agree, as a generalization foreigners are prepared to work harder than the average Kiwi, certainly longer hours anyway.
I see where you're coming from. Singapore does offer PR fairly easily and eventually citizenship as well. Pros and cons for countries offering such. Looking at the bright side, the strong candidates help lift the country up, and the lower level ones help with agriculture and production. At this point, both are not yet fully filled by kiwis. That's why NZ opened up. It doesn't mean locals can't grab these jobs, many times they just didn't want to.
J.C....did not know that. Doubt I could wash dishes or drive a taxi and get PR though. And yes you are right, super xenophobic (but super nice and polite as well) and doubt you would ever be seen as more than a second class foreigner (gaijin or outsider) whether you spoke the lingo, got PR and lived there for years. It is nearly impossible to get PR in ,most Asian countries, unless you are prepared to pay a huge bribe of course.
Mrs Wong... kind of agree that strong candidates lift the country up. I would be happy accepting these strong candidates, partners of NZ born citizens and foreigners who could (and were prepared to) invest a few million in the NZ economy (in productive business and certainly not in housing). But I would guess that would total no more than 10 000 per year, which would not really adversely affect rents and house prices. Interesting about Singapore. Presume you would also need to be very wealthy. Doubt I could obtain citizenship there serving coffee or alcohol or driving a taxi.
With regard to agriculture and production NZ needs to force our businesses to pay wages that are high enough so the jobs are filled by NZ born staff. Giving businesses the easy option of low cost and compliant foreign slave labor does not assist NZ, unless you are a greedy business owner who is not prepared to pay what you should. A year with rotting wasted fruit etc (and the knowledge that foreign labor was no longer permitted) would see them forced to train and pay whatever amount it took to attract Kiwis to the jobs.
What I really hate to see is 100K extra people flooding into NZ, most of whom are competing with our poor for low paid unskilled jobs and a place to live. We need those low skilled jobs for our own people and we especially need the houses we are allowing foreigners to occupy. But just to clarify, if you (or anyone else) already has PR then I welcome you to NZ and view you as a Kiwi and will treat you equally and politely. But I will also do my best to protect our poor and I believe one of the best ways to do that is to protest very strongly and loudly against the current immigration settings and hope, for the sake of struggling NZers our Govt wakes up to their madness. Good luck to you.
'foreigners are prepared to work harder than the average Kiwi, certainly longer hours anyway.'
This is not unique to NZ, all immigrant groups work harder than the indigenous population in any country, for a variety of reasons, not the least is that the immigrants are a different type of group even from their own indigenous population that never travel. Also, another reason is many immigrants are younger and have a short-term goal so the harder work is not seen as a lifestyle ie life sentence and they expect to slow down to the pace of the locals if given the opportunity.
While work for work's sake is good for people, we have a NZ culture/lifestyle we were proud of, and that is what we should be sorting out and protecting. We don't want to be just another *name a city*.
What more evidence do they need:
The country's median house price has increased by $121,000, or 19%, in the past year.
Someone with a $500,000 mortgage, paying the average 1-year rate will be paying $73 less per week than they would've been paying a year ago.
Meanwhile households charged the median rent will be paying $20 a week more.
And someone with a $100,000 term deposit, receiving the average 1-year rate, will be receiving $1,700 less annually in interest (gross) than they would've a year ago.
#rentcontrolnow.
So the medium rent has never been higher and mortgage interest costs never lower. 24400 pa enables you to rent the medium rental home against 15000pa on a 750000 interest only loan to buy a better quality median priced home. When it finally all goes horribly wrong apparently everyone gets to take it on the chin
She has no clue what is going on, probably wouldn't know an asset from an elbow, and is wheeled out for the virtue signals. Chubby funster is wheeled out for his sarcastic responses at question time and for BNZ hosted breakfasts. Apart from that they do FA and care even less
PM Ardern's monetary literacy is improving - definitely superior to the average NZ reporter. Unfortunately her hodge-podge knowledge is just that. Still, she is aware of what's happening in NZ. Jacinda's omissions make her dishonest.
Jenee could eat her alive if she was so inclined. Tibshraeny would make an excellent MP, if she were to ever sully herself with politics.
If so she would make a fearsome shadow Treasurer or Finance Spokesperson, streets ahead of the either party's respective members in those roles currently. But the paper machine isn't interested in outcomes or proper direction, it just wants to be fed more paper and the chance to use it to justify why we should buy more paper. She, like many of us, would soon be driven insane.
A quick look through local Facebook and Neighbourly groups will tell you that crime particularly burglary is on the increase, every day we are reading about gang anti social behaviour, noise control calls increasing, motorbikes racing through areas making it unsafe for residents..... but I imagine they are waiting for someone sitting in an office to make a detailed report which can be manipulated to suit their own narrative/agenda. Politicians are doing the same the world over. We are no different.
If the Greens understood what was going on, they would be asking whether the Government’s new found ability to create money out of thin air could be used to tackle child poverty or finance a move to a greener economy. They are sadly too busy scoring points to spot the opportunity.
Greens are too busy swanning it over to Mexico to take care of parents that supposedly and conveniently cannot look after themselves. And then heading back to NZ with your partner in tow, whom you stated had been looking after your sick parents, and who presumably would have not been able to gain entry to NZ for some time had he been arriving alone. If I understand this situation correctly nothing less than the Spanish Inquisition is appropriate for this little turd (to steal the great Bob Jones' apt description). People dying of cancer are being turned away. Apparently he has been going over there at the same time (for the same 6 weeks) every year for several years. Documentation and a parliamentary grilling required. Maybe Sir Bob can interview him on it.
From the part of the picture I have seen it looks suspiciously like the main reason he went to Mexico was to have his normal annual holiday and bring his partner back to NZ. The least he needs to do is provide documentation to show one of his parents currently has a terminal condition and is likely to die in the near future. If they are just sick (but not terminal) he could have left his boyfriend in Mexico to continue to care for them until our travel restrictions are lifted. This whole thing is fishy in the extreme. I hope Sir Bob will take it upon himself to investigate.
All this despite ignoring the government advice not to travel overseas - and the miraculous ability despite not receiving any preferential treatment to secure TWO MI spots in early feb - -when we were told before christmas that there were none free until April ! -- luckiest guy alive really -
as said above -- all MP's and their staff should have to request permission from their employer/ boss the primeminister - to leave teh country -- then the accountability is clear!
Can anyone can explain how LSAP (QE) actually flows through to house price asset inflation? My take is:
1. Low interest rates and buyer confidence are the primary drivers of increases in house prices in the short-term.
2. QE is being used to protect yield rates on Govt bonds (and therefore the value of other financial assets).
3. So, QE undoubtedly inflates the value of bonds and other financial assets (that's the point), and this makes rich folk richer. But, the channel from QE to the mortgage retail market (and therefore house prices) is, as the Bank of England put it, 'opaque'.
So I find QE guilty as charged on increasing inequalities - but probably an innocent bystander on house prices?
Yes, most economists have nothing to say about unemployment or inequality - thinking they only exist because of frictions (or even unnecessary Govt intervention!) In fact, I would go further and say that the advice that economists give Governments on the need to have 5% (ish) unemployment to prevent inflation is actually a direct cause of poverty and inequality.
Meanwhile the biggest story of the week is an attempt to smear Christopher Luxon over who Air NZ has been fixing engines for. Just some of New Zealand exports to Saudi Arabia for 2019
Dairy products, eggs, honey, edible products $308.18 Meat and edible meat offal $55.12M
Was all of that food labeled "Not to be used for the sustenance of personnel of the Saudi Arabian Military".
Yeah, another convenient clickbait beat up by MSM. JA must have positively glowed to get another opportunity to "virtue signal"
Foran, Walsh and Luxon - FFS!! Really??!! all this over a couple of turbines??!! Doesn't send a great signal to the GTD business' customers. They should at least have finished the job
Went to Barfoot auction and a house bought in 2019 for 865000 went for 1245000 and was sold as purchased.
Still FM is thinking and now been forced will take months to announce measures to curb ponzi and once announced will give window opportunity to all speculators of months.
This buyer was investor and was rushing before the LVR so will see huge jump in house price as investors rush till May and by tgat time average housr price rise will be 50% to 100% and still FM and our PM thinking
What if there was a government run casino where only those of the right class and financial means were allowed to gamble? But with the implicit guarantee of the government that they could never loose and all winnings would be theirs to keep. Tax free. What a wonderful opportunity that would be. At least everyone else might be lucky enough to get a minimum wage job at the casino serving them drinks.
That's basically what's happening, the chosen class are property owners, the government is saying "well renters, you should just be happy you still have jobs". Of course most of the money they get from those jobs get's sent directly to their chosen class again, so the renters aren't really lucky at all...
It's not far away from full blown Communism, state supporting all their friends at the expense of screwing everyone else, with a whole bunch of propaganda directed at those being screwed to try and make them comply.
Yesterdays paper featured a patronising 2 page section with advice from Andrew Duncan former RE, 'counselling for FHB', on how to deal emotionally with missing out on yet another house, take a long walk etc. What next, taxpayer funded mental health helplines especially for failed FHB?
house prices up 20% by now-- most jobs lost in low income sectors - most job losses to women and maori /pasifica - lots of money to agencies providing food parcels in South Auckland -- but hey way too early to work out if its impact on equality levels ha ha ha ha ha
Still - not sure why National voters are complaining and want her out -- best thing thats happened to them in decades- 20% rise and 2.5% interest rates - 2.99 for five years -- hell JK never managed to get away with that :)
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