Shadow Finance Minister Paul Goldsmith on how he's yet to be convinced bank conduct needs regulation, why foreign capital restrictions are counter-productive and why fiscal stimulus isn't what the economy needs

Shadow Finance Minister Paul Goldsmith on how he's yet to be convinced bank conduct needs regulation, why foreign capital restrictions are counter-productive and why fiscal stimulus isn't what the economy needs

National’s Finance Spokesman Paul Goldsmith is opposed to central government getting a “fire hose” out and splashing lots of cash around in a bid to stimulate the economy, despite Reserve Bank Governor Adrian Orr’s wish for it to “go and spend”.

Speaking to interest.co.nz’s Jenée Tibshraeny at the Financial Services Council’s annual conference on Thursday, Goldsmith said: “We’re getting good income from what we sell in the world at the moment. We should be doing well.

“This is not a time where we should be sort of having the fire hoses out, trying to necessarily stimulate the world.”

Goldsmith a few weeks ago conceded the current level of net Crown debt, at 20% of gross domestic product (GDP), was “about right”.

The comment was interpreted as a change of tune by National, as ahead of the 2017 election it campaigned on cutting debt to 20% of GDP by 2020, and then further to between 10% and 15% of GDP by 2025.

Yet Goldsmith refuted the claim National was on the same page as the Government on debt, as he disagreed with it broadening its debt target to a range of between 15% and 25% by 2025, saying it was inevitable it would work to this upper limit.

The Government is taking on more debt. But because the economy has grown, net debt as a portion of GDP has fallen.  

Goldsmith believed restoring business confidence was the key to spurring investment and stimulating the economy.

“The real issue with the interest rate cuts is that… it reduces demand from savers,” Goldsmith said.

“We all know people who have been relying on their savings and are getting incredibly low returns.”

He said that if the Government capitalised on the low interest rate environment and ramped up spending, it would be doing so with the expectation that this stimulus would offset the contractionary effect of savers tightening their belts.

“But the real danger is that because confidence is so low, you don’t get that investment and you don’t get the spending. The overall effect could be negative.”

Foreign capital restrictions ‘counterproductive’

Goldsmith was also supportive of New Zealand keeping the door wide open to foreign capital.

“New Zealand has been built on foreign capital right from the very start,” he said.

“We’ve got another wave of that coming with Chinese immigration - people coming here, moving here, bringing their capital, trading back with the country they’ve come from.

“Obviously we need to be mindful of New Zealanders’ concerns around land and sensitive areas, but I think ultimately the restrictions that we’ve put on in some areas have been counterproductive and ultimately make it harder for us to grow.”

The Government has banned foreigners from buying residential property. As a part of a review of the Overseas Investment Act, it is also considering requiring overseas investors that apply to buy sensitive assets to meet a 'national interest' test that Ministers can call the shots on.

“If we rely purely and solely on our domestic savings, then that’s fine - we’ll grow slowly because there’s not much of them. If we want to grow faster, we need to import capital as well,” Goldsmith said.

Like the Government, he didn’t want to put a figure on the level of net inward migration he wanted to see.

Yet he said the Government needed to keep the gate open enough to attract the necessary skills, while being mindful of pressures on infrastructure.

“There’s no question, it [immigration] was going a bit faster than we could handle for a couple of years there,” he admitted.

Case for bank/insurer conduct regulation yet to be made

On the issue of banking and insurance regulation, Goldsmith was yet to be convinced the Financial Markets Authority (FMA) should have the power, through the law, to regulate conduct and culture.

“I think they’ve got to make their case; they’ve still got to make that case,” Goldsmith said.

Following the reviews the FMA and the Reserve Bank did into banks’ and life insurers’ conduct and culture, the Government has committed to this year introducing legislation to Parliament to regulate the conduct of financial institutions and protect consumers.

Goldsmith said the question was, “How far you put into legislation expectations around things that are hard to define?

“The more detail you get into, the more people find their way around it. When I was a minister, I worked on the assumption that half of the regulations that are put before me are likely to achieve the exact opposite of what they set out to achieve.”

Having been Commerce and Consumer Affairs Minister between 2014 and 2016, he didn’t take responsibility for New Zealand, according to FMA CEO Rob Everett, now being behind the ball when it came to regulating bank/insurer conduct.

Referencing work done on the Financial Markets Conduct Act and review of the Financial Advisers Act, Goldsmith told the financial services sector audience: “It was a big call for us, because our basic instinct is one of regulatory restraint. We’re pretty cautious about adding high levels of regulation, but there were areas where it needed to be done…

“We’ve added an enormous amount of regulation and complexity to this sector already. If you keep on piling it on, we’ve to assure ourselves at every stage that we’re really genuinely adding value.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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46
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There ya have it folks! The National Party (head office in Beijing) will be overturning the Foreign Buyer Ban if the get into government.

Treason is the word that comes to mind

22
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If government stimultus isnt called for now, someone should ask Goldsmith when?

How is selling off more of the internal economy going to help, when we have a huge deficit of income to the rest of the world already?

How do you pay your bills, if you have sold your future income stream?

Encoruaging overseas investment is a false economy. These same interests control much of our monopoly companies, who bully the officials into keeping the status quo of their super profit cartel prices.

The best thing governments could do is to starting regulating these monopoly practises, and restrict overseas investors from having controlling stakes in them.

Goldsmith, who do you actually represent? Any chance you might be a Brethren?

When would stimulus be good? I am picking when the Nats are in power again so they can take whatever kudos may come the way of whoever does it.

20
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You can also guarantee that not only would National remove the Foreign Buyers Ban they would also 'relax' the Anti Money Laundering rules so they can directly benefit from ill gotten gains, boosting house prices in expensive areas recreating their false economy and before you know it NZ will be a very dangerous place to live.

They'll be a lot more money laundering going on if National get in power again: NZ Herald article: Accused money launderers barred from ANZ after luxury cars, Remuera houses targeted by police, About $9 million in assets was seized by authorities during Operation Menelaus in Auckland. https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12262884

They'll be a lot more money laundering going on if National get in power again

I agree, but only because Labour are less savvy at sniffing out the fat envelopes. In Australia, money laundering and corruption stemming from China is out of control. Everyone's on the take over there.

Yes and it's actually China that's having to work hard to suppress money launders from their regions that have tried to clean their money ill gotten gains overseas. Here's a recent initiative for Australia; Project Dragon and China's attempts to reclaim money from inside Australia.
"Project Dragon: On the Gold Coast, two former police officers have been engaged by a company based in Hong Kong to recover properties, sell them and return the proceeds to China as part of Project Dragon". https://www.abc.net.au/news/2019-02-18/chinas-attempts-to-reclaim-money-...

You kind of contradict yourself there. And I suppose also you could deduce from that the old "it takes a thief"

Yes agreed it could be tokenism, but one the other hand it could be a good way for them to accumulate overseas property owned by the Chinese state. Who know at this stage? :)

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Really highlights the shameful dishonesty of Key and the last National government over foreign buying of houses. To insist it wasn't an issue, and yet now to be bemoaning not having foreign capital inflows. If this is the stance of the 3.4 houses per MP party then National needs to stop pretending they care about young Kiwis' chances at building a home and life.

Stop lying to young Kiwis and just be honest about the fact they want foreign money to push house prices up and out of the reach of young Kiwis.

And I would not put it past the sods to try to close the loophole that allowed the govt to do what it did. Cynical, anti-democratic @%^%$s that they are

20
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NZ is poorly represented on both sides of the aisle.

We need a return of the McGilllicuddys .... hope they take politics seriously this time ...

Between a rock and a hard place, comes to mind but more like Stuck between a knob of crap and a rancid object, sounds more like what I'm looking at.

... I liken it to the choice Americans had at the last presidential election , Hilary Clinton or Donald Trump ...

You want the rat sandwich with tomato sauce , or the rat sandwich with mustard ....

... Taxcinda is the tomato sauce option , Bridges and the Gnats the rodent with mustard ...

The stock market fell on news on Labour
last week then failed to gain any traction on Bridges China lap dog interview.
Big call but I'm seeing a further drop due to the confermation from the Nat's that they intend to sell out. More than a 1% loss but think it could go -2%.
Confermation that their is no life raft at the next electiom...

... it seems to me that Labour and the Gnats are jostling in the dead centre of politics ... stomping on each others feet for the middle earth ...

And that is why it's a shame that TOP or ACT gained so little traction with their policies to shake things up ...
.. the Greens have shooken the cradle ... but not for the better ... destroying our natural gas industry in favour of imported coal , and cancelling roading upgrades is just plain stupid ..

10
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The Greens are a loby group at best. They shouldnt be anywhere near power. No commonsence and out of touch of reality.

... the one saving grace is that the voting public have now witnessed what the Greens are like ... like , completely ideologically driven ... not living in the real world ...

The only ones who should not be anywhere near power are the sell your granny for a buck Nats

GBH you forget to mention Hobson's Choice. New Zealanders need to wake up and smell the roses before its to late

28
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Once again, I'm speechless.

Quote: Goldsmith "We’re getting good income from what we sell in the world at the moment. We should be doing well."

What he really means to say is:

" FOREIGN OWNED companies are getting incredible profits from what we sell in the world. $38 Billion sine 30 June 2017. Tab 7. below

SInce the start of the Globalist Neo Con model (just after Rob Muldoon sadly passed away) we sold Foreigners our prize assets, and hence our factors of Production, at the cheapest price.

Tab 7, Investment income from foreign investment in New Zealand. $38 Billion since 30 June 2017.

Jun 2017 Sep 2017 Dec 2017 Mar 2018 Jun 2018 Sep 2018 Dec 2018 Mar 2019 (note: $ in millions, )

4,542 4,705 5,069 4,408 4,885 4,911 4,800 4,675

Total is $38 BILLION, to Foreigners, since 30 June 2017. 2 years earnings..

On the other hand, our Trade Surplus is a pitiful $2.4 billion over the last 2 years.

Tab 1: Trade Surplus Goods and Services $2.425 Billion.

Fonterra, NZ's largest exported and bigger than and of the Foreign Banks in scale and work effort and risk , since June 17 has made maybe $1 Billion profit or thereabouts.

Here's the question, what hope have our children got if this is the level of economic understanding these polititians have got.

Worse, what hope have our children got if this is deliberate, un questioned policy.

Where;s the analysis of Asset Sales, and the loss of profits that results ?

What is the taxpayer paying you to do ?

These statistics have been around for 30 years for all to see.

The impact Globalisation and Asset Sales strips a country of hope..

That period also saw nz corporates investing big and failing spectacularly offshore. Spark, the warehouse, fletcher building, fonterra. One of the few to prosper was michael hill. We have an unwavering belief that we must look overseas to be credible. While sadly we undervalued and missed the best opportunities right in front

You have a lot to say for someone who is speechless

Leonardus you are sounding Like Donald Trump.

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Quote Goldsmith "“New Zealand has been built on foreign capital right from the very start,” he said.

But what about Tab 7, Foreign Owned profits leaving NZ from these Investments.

Tab 7, $38 billion since 30 June 2017 to 31 March 2019. (2 years).

What he really means is, "our Foreign friends assets have been built by their profits being made from the Capital Invested in NZ, and the world, who foolishly sold their prime assets to the foreigners over the last 30 years".

I would question who's side he is on based on this article.

Be the same side as BeijngBridges you'd think

Leonardus your opening sentence says it all

The FMA wants more power and the question is to do what? What exactly is the issue that they want to solve? They can't seem to articulate the issues apart from some vague statement about been behind compared to the rest of the world. But what does that actually mean? ASIC got more powers because the FCA in the UK did. But the legal arrangements in Europe, with ESMA etc, is very different to this part of the world - it is very hard and slow to get 27 countries to agree on anything. It seems the FMA wants to catch up to the big boys like the little brother wanting to hang out with the bigger kids - rather pathetic.
I am deeply reluctant to give power to a government agency just because they ask for it. Tell me what are the problems in our financial markets and how these specific powers will address that. It seems the real issue we have in our financial markets is that we prevent new players entering the market. Maybe we could solve that rather than giving the FMA the power to regulate banks and other financial institutions for some vague reason.

27
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I think Goldsmith needs new glasses. The global economy is slowing. Both China and the US have started ramping up money printing. It's necessary to respond as events unfold.

The foreign buyer ban is necessary to avoid properties being bought up and left empty. Better to have lower house prices and houses with people living in them. Under National we ended up with 1% of the population homeless through their complete arrogance of denying the housing problem right up until just before the election and once John Key had left. I'm not surprised that he's suggesting lifting the ban given that the National Party has it's HQ in Beijing. It's strange to see a conservative party so readily embracing communist rule. Although National is a far left party when they are in power, but talk right when in opposition.

The insurance sector needs a lot more regulation. Typically life insurance is the biggest scam as it's often sold to people who don't need it. Look at the insurance problems that came out of Christchurch. Not only did they not have enough capital but they didn't have appropriate reinsurance. National is more interested in having the power to cover up their activities and have a scape goat in case they are in power when the next insurance disaster occurs.

"We’re pretty cautious about adding high levels of regulation" yeah, well, they don't have the chops to do it if they wanted to.

Goldsmith a few weeks ago conceded the current level of net Crown debt, at 20% of gross domestic product (GDP), was “about right”.

If Goldsmith was honest, he would demand the government opened it's off-balance sheet NPV liabilities, in respect of Public Private Partnerships, to public scrutiny.

A recently released report in the UK was less than glowing about the extended costs of such projects.

NHS hospital trusts are being crippled by the private finance initiative and will have to make another £55bn in payments by the time the last contract ends in 2050, a report reveals.

An initial £13bn of private sector-funded investment in new hospitals will end up costing the NHS in England a staggering £80bn by the time all contracts come to an end, the IPPR thinktank has found.

Some trusts are having to spend as much as one-sixth of their entire budget on repaying debts due as a result of the PFI scheme. PFI was introduced by John Major’s Conservative government but its use proliferated in the Blair era. Link

Is this what Mr Goldsmith has in mind?

"Ken Elton never thought he'd end up the only Pākehā on his street.
But at 93, after four decades (on an) east Auckland road, he thinks he might be.....when Elton walks around his block "everyone smiles but they can't speak English", he says. ....His neighbour 'SP' Suni lives in two storey McMansion... The 78-year-old, his son, daughter-in-law, and 23-year-old grandson have been there just over a year. Suni, originally from India.... loves walking around a nearby park for an hour each morning, in toil free greenery. He also loves his Gold Card...."Here is a beautiful country, good for old people! So many facilities the Government gives us: free medicine, free transport on buses, it's all very helpful."

https://www.stuff.co.nz/national/115713304/the-last-pkeh-how-aucklands-s...

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"good for old people .... free medicine, free transport on buses" lol what are we, the worlds OP home? Big reason for the excessive immigration was the pension and benefits, at least eligibility has been tightened now.

“If we rely purely and solely on our domestic savings, then that’s fine - we’ll grow slowly because there’s not much of them. If we want to grow faster, we need to import capital as well,” Goldsmith said.

A basic argument by economists has been that we first need to accumulate scarce savings in order to fund investments and hence enjoy economic growth – or alternatively borrow those savings from abroad by taking a loan from the international banking community. But this argument is based on the erroneous belief that banks are merely financial intermediaries that require savings first in order to be able to lend money out. In reality, increased domestic investment requires neither savings nor borrowing from abroad. Domestic banks can fund domestic investment without prior savings becoming available.

References:
We do not need to save or borrow from abroad in order to expand investment and growth, Section II-4
FDI comes from domestic banks - with consequences!
Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain

Werner's writings that you have linked over the last few days should be mandatory reading for everyone. Thanks.
"...it is now becoming apparent and visible even to laymen that the central banking narrative has collapsed on all fronts."

10
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To quote Goldsmith: “We’ve got another wave of that coming with Chinese immigration - people coming here, moving here, bringing their capital, trading back with the country they’ve come from".

Wow National are so behind the times, have they not noticed that China has clamped down on their capital outflows that includes business investment in foreign countries which will continue for years to come.
Or perhaps National are looking embrace these so called entrepreneurs: Canadian Xiao Hua Gong claims evidence to freeze $70m in NZ 'coerced' in China. https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12157900

* Man on China’s most-wanted list admits money laundering in New Zealand court https://www.scmp.com/news/china/diplomacy-defence/article/2093768/man-ch...

16
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Everyone is going to rage about foreign investment here, but let's talk fiscal stimulus.

1) Auckland is congested for hours each night. This is lost productive time, time with families and lost quality of life. National makes sweeping generalisations about 'slow trams' but offers no alternatives. This is confirmation that they will build nothing on a large enough scale to make an impact. If Goldsmith has a solution, he needs to start talking about it. Fast.

2) This would also preclude any large-scale house building or housing investment from the Government. So we are back to tinkering around the edges with no supply reform and continued high levels of immigration with open season on residential property investment.

I'm not sure who National wants to vote for them, but it isn't young families, first home buyers or people who go to work each day and still try to fit in time with their families.

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Is National short for "The Progressive China National Party" ?

14
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" National " is short for " new Asian territory is open now at last " ...

10
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So there's the guan xi kickback for Simon's jolly in China. Compromised, much?

He said that if the Government capitalised on the low interest rate environment and ramped up spending, it would be doing so with the expectation that this stimulus would offset the contractionary effect of savers tightening their belts.

“But the real danger is that because confidence is so low, you don’t get that investment and you don’t get the spending. The overall effect could be negative.”

So here we have the old idea that fiscal stimulus can somehow have a negative multiplier via crowding out or some kind of ricardian equivalence. The reality is that when the government increases spending that is income for someone which will be spent over and over until leakages to savings, imports and taxes have exhausted it. Most likely increased demand from fiscal stimulus will spur private investment not hinder it. The gfc austerity experience has shown us that expansionary fiscal contraction - or inaction- is not a thing. Ideally the stimulus goes to the bottom, not into already inflating sectors.

The infrastructure of this nation has been allowed to run down by both Labour & the Gnats , over 25 years or so ...

... now is the time to borrow up large , at low interest rates , to ramp up our productivity through better roads , electricity distribution , water supplies , rubbish and recycle , poop recycling ...

If not now ... when ?

Soapboxes have kind'a gone out of style. Perhaps you failed to notice, Mr Semple.

GBH at last some good constructive thinking

12
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I think the reporters description of Goldsmith is a little off...he is not Shadow Minister of Finance, he is Shadow Minister of Shadow Banking. This hard on the heals of Bridges serenading of China last week is almost too much for this National supporter to bear. If supporting my party means supporting the commies then I have a very hard choice to make next year.

.. be of good cheer , friend ... I'm appalled by Bridges craven sucking up to the Chinese too ...

But ... if there is a GFC part 2 , as many of us predict ... China will collapse like the house of cards it is ... and all those toadying sycophants who lauded them as the new world order will be shown up for the shortsighted fools that they truly are ...

Some countries may have over hedged their bets. Nikkei Asian Review article: China clamps down on capital flight risk as yuan weakens, Quote: "Banks and real estate developers pressed to keep funds within the borders. The new rules include stricter oversight of banks in times of capital flight and restrictions on real estate developers' access to foreign currency bonds. Wiring money overseas is not allowed for the purposes of purchasing real estate or insurance products, said a representative at a second-tier Chinese bank". https://asia.nikkei.com/Business/Markets/Currencies/China-clamps-down-on...

That is far too great a risk to take as far as I am concerned. If your strategy is to vote National and cross your fingers so you can have more convenient bus rides then heaven help the country.

10
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Yes, exposing the truth behind National and $20 Billion per annum profit to foreign owners.

Can we trust them to get back to representing the National interest from the Muldoon era ?

Not from the last 40 years as they are the crowd that is responsible for the Foreign ownership and loss of $20 Billion a year.

$2.4 Billion trade surplus the last 2 years.

National are bankrupt

Gee, the Gnats are bad. I might even consider, heaven forbid, voting Labour to keep them out!
That's saying something...
And while Labour might be quite hopeless, at least they are not intent on selling their soul

.. if waiting half an hour in the pouring rain for a bus ... or riding a burro is your thing... vote Taxcinda and Julie-Anne ...

But the Gnats are not intent on selling their soul ... it's an offence punishable by law to sell that which you do not possess...

The Nats are terrible, I am half expecting an announcement any day to say they have sold naming rights to the party. The NZ National Party...brought to you by Golman Sachs.

Or "The Huawei National Party!"

Hu a wei hu, hu, hu, hu

Fritz Labour sold their soul to the Greens and NZF. Look at the shamble they have all created in the last two years. New Zealand will self implode with another years of this cabble

.. if you mean our natural gas industry is in its death throes ... and that dairy farming is hot on its heels ... then yes ... luckily the well being and feel good budget will save us ... heee heeeeee ....

That's your way of looking at the Economy. Present Govt killing off our Income by punishing the farmers, banning oil exploration, Towting EV without proper research into how we dispose of the used batteries.
People have forgotten how New Zealand got its present standard of living, off the backs of hard working New Zealanders not some ideological dream. Time to get back int the real world and make New Zealand great again.

I hate to say it but farming needs to be eclipsed by higher earning industries, it is happening slowly. The relatively meagre standard of living in this country has long been held back by farmings preferential position in the economy, its a lazy spoiled child. Oil and gas has been receding in activity for a longtime and needs a coherent, direct government led exploration project to open up the reserves we possess. The privateers won't carry the risk, as we see. And not even National party's previous efforts for 3 terms could get that addressed.

Oil exploration is still ongoing.

Wasn't the "banning oil exploration" on new "exploration permits"? I.e. there's still existing permits to explore for oil.

...apparently the last permit granted was in 2017 ... NZOG is being taken over , and will probably wind down ... Canadian firms are upping stakes and moving to Australia for exploration ... bit by bit our lucrative and jobs rich natural gas industry is being destroyed by this governments policies...

10
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“There’s no question, it [immigration] was going a bit faster than we could handle for a couple of years there,” he admitted."

It still is.

The immigration rate needs to be managed down to a sustainable level that maximises gdp/capita & reduces the rate at which dis-economies of scale occur, especially, in Auckland

“We’ve got another wave of that coming with Chinese immigration - people coming here, moving here, bringing their capital, trading back with the country they’ve come from."

And why such focus on Chinese specifically, whom do they serve?

Is this idiot Goldsmith unaware of the findings of the Australian Royal Commission into banking practices? I am in the UK just now and the PPI insurance scandal has already cost the banks around NZ$90bn and rising. We have more than enough evidence to show that bankswill do whatever they think they can get away with.
Of course they need to be regulated,they are inherently untrustworthy.

He is well aware and doing everything to say 'nothing to see here people, move along' in typical Nats fashion. We really ought to expect better from our representatives. I cottoned on to the PPI scandal recently and put my claim in for cardcover which I was talked into paying for when I ran a HSBC creditcard when I lived in London

national economic policy is totally about high immigration and selling assets to pay short time pain,
and a history of running up government debt
I could never vote for that BUT I don't have much other choice,

I voted for the current circus because they promised to do something about immigration. There's no one left to vote for that isn't a bald-faced liar.

Nothing wrong with foreign investment. Foreign land ownership, especially by the Chinese commies who won't reciprocate, can bugger off.

“We’ve got another wave of that coming with Chinese immigration - people coming here, moving here, bringing their capital, trading back with the country they’ve come from."

So National's official policy is that New Zealand's economy should rely on waves of Chinese immigrants. Things looking a bit dire? Let's get another wave of Chinese in. Another serious earthquake? We're gonna need two waves of Chinese.

Absolute crooks.

National's economic policy is to sell the family silverware off to foreign buyers. Including NZers' land.

Well...that'll work out well in the long term, won't it? Worked out fantastically for the Maori.

Line up for your National Party branded muskets and blankets, folks!

Can someone please explain why we need foreign capital when interest rates as so low. Doesnt that mean we have a demand problem not a shortage of money problem?
Also I heard somewhere that the domestic adjustment to foreign savings requires either houshold indebtedness to go up or unemployment to go up. Neither adjustment good for the local economy. Dont ask me to explain it but I heard it's true.

Very good point. It's not as if we have a shortage of capital looking for a return at the moment.

Suggests it's not about availability of capital at all. Perhaps rather availability of buyers who want to swell certain folks property portfolios.

Flabbergasted at the shortsightedness! National turned a generation of Kiwis into tenants in their own country and this guy wants to ramp up foreign house buying again! Regarding the surplus, from a cynical viewpoint I suppose they want labour to create a gigantic recession, so that National can come to the rescue. Regarding banking, no acknowledgement growing risks, Australian royal commission, corrosive effects of our FIRE economy. Just more of the same from National.