The two major political parties take similar big picture views around how to grow the economy, what to do about inflated house prices, debt and Reserve Bank QE

The two major political parties take similar big picture views around how to grow the economy, what to do about inflated house prices, debt and Reserve Bank QE
Paul Goldsmith (National Party photo), Grant Robertson (Getty Images)

Labour and National are broadly campaigning on the same economic formula.

Both want investment in infrastructure to be a key driver of economic growth.

Neither are pledging to pivot the economy away from its reliance on house price and immigration growth.

Both see debt reduction as a goal.

Neither believe the Government needs to loosen its purse strings to the same extent the Reserve Bank (RBNZ) is loosening monetary policy.

Both see increasing the supply of housing as the key to improving affordability.

Both have ruled out slashing benefits and have committed to improving welfare, but not doing so near in line with the Welfare Expert Advisory Group’s recommendations.

Both are pledging to make relatively minor tax changes - Labour by introducing a new top income tax rate, and National by adjusting income tax brackets according to inflation and making a raft of tweaks (on top of temporary changes already made due to Covid-19) to ease the tax burden on businesses.

Both want to encourage businesses to hire new staff - National's JobStart policy being larger and more broad-base than Labour's by subsidising businesses regardless of who they hire. Labour also wants to help SMEs by extending its interest-free IRD loan scheme.

The similarities between the two parties were laid out starkly on Wednesday, as they addressed media following Treasury releasing its Pre-Election Economic and Fiscal Update (PREFU).

The largest difference from a pure dollars and cents perspective is National's commitment to suspending contributions to the NZ Super Fund - worth about $7.7 billion over four years (excluding gains likely to be made on this investment). 

Robertson: ‘Huge uncertainty’ around house price growth forecasts

The headline-grabber of PREFU was the divergence between house price growth, CPI inflation and wage growth.

While Treasury forecast house prices dipping in the year to June 2021, it saw a steady recovery with the annual average change in the year to 2024 hitting 8.5%, all the while CPI inflation rebounds to 1.9%.

Put to Finance Minister Grant Robertson that the only thing immune to Covid-19 appeared to be the housing market, he recognised the impact the RBNZ’s accommodative monetary policy (leading to low interest rates) was having on the market.

However, he downplayed the forecast increases, saying there was a “huge amount of uncertainty” around what would happen to prices.

Treasury said the risk in its forecasts were “upside”, given the “recent resilience” of the market.

Robertson said increasing the supply of housing was his focus.

Asked whether he accepted inequality was likely to increase on the back of disproportionately strong house price growth, Robertson responded: “We think the interventions we’re making across a range of things from housing, to incomes, to what we do with the broader settings of social development - all of that contributes to reducing inequality.”

Collins: Housing demand might be suppressed by people flocking to Australia

Turning to National Leader Judith Collins, she questioned whether house price growth would be as major as forecast by Treasury given her prediction the supposedly dire state of the New Zealand economy would see an exodus of people to Australia.

Collins reiterated repealing and replacing the Resource Management Act was key to ramping up building.

Asked whether there was such a thing, in her eyes, as house prices being too high, Collins said: “If you can’t afford a house, it’s too expensive.”

Goldsmith: 30% debt target derived from former Treasury secretary

Asked whether Collins believed it was time to have debate around the way monetary policy is conducted and what its impacts are, she said: “Right at the moment, it’s really time for us to grow the economy.”

On the issue of whether the RBNZ should buy New Zealand Government Bonds direct from Treasury, rather than working through the secondary market at which point banks and fund managers clip a ticket, National’s Finance Spokesperson Paul Goldsmith said: “It is a significant step to buy the bonds directly from Government and there is a real fear that would lead to even more borrowing.

“The real question is the quality of the spending and ultimately that needs to be paid back…

“[Quantitative easing] is a short-term measure that’s happening all around the world. Nobody knows where it’s going to lead and what the outcome will be. And so, the best thing we can do is make sure that we spend any money that we spend wisely.”

While the RBNZ’s QE programme is supporting the large amount of borrowing the Government is doing, Goldsmith didn’t recognise the purpose of the programme is to stimulate growth to boost inflation and employment.

Goldsmith said National was campaigning on reducing net core Crown debt to 30% of Gross Domestic Product (GDP) within 10 years or so, because the former Secretary to the Treasury, Gabriel Makhlouf, said 30% was a prudent number.

Goldsmith conceded there was “nothing magic” about 30%, but said the point was that you need to have a path to getting debt back under control.

He noted Treasury is projecting debt to be higher than it expected at the May Budget, surpassing 55% of GDP.

Robertson cautious - forecast bond issuance cut by $10 billion

On the issue of debt, Robertson reiterated it was about getting the “balance” right when it comes to how much to borrow and spend.

He stressed his caution around spending the $14 billion of unallocated Covid-19 funding he put aside for a rainier day.

“We are not committing to spending it unless we absolutely have to, with a recognition that with a virus as unpredictable as it is now, we want to leave that on the table for as long as we can,” Robertson said.

Treasury forecast the size of the Government’s Covid-19 response shrinking from $62 billion to $58 billion, as the uptake of the likes of the wage subsidy, Small Business Cashflow Loan Scheme and Business Finance Guarantee Scheme have been slightly lower than expected.

Furthermore, the New Zealand Debt Management Office (which is part of Treasury) on Wednesday cut its forecast bond issuance for the year to June 2021 by $10 billion to $50 billion.

Robertson unwilling to risk shaking confidence by taking less conventional approach towards QE

In terms of the way the RBNZ conducts its QE programme, Robertson said he was willing to pay a higher initial price for thr bond buying time be done on the secondary market, as opposed to the primary market, to maintain confidence in the bond market.

“New Zealand is well regarded overseas for our stability and we want to make sure we maintain that. There is an element of this being about the overall functioning of the market,” he said.

Asked what evidence he had of the market not functioning smoothly, should the RBNZ maintain a presence in the secondary market, but do most of its bond purchases direct, Robertson accepted it was difficult to consider the counterfactual, but said: “The advice I have, and the view that I’ve taken, is that stabilising the overall bond market, New Zealand playing its role in keeping liquidity available, people seeing New Zealand as a stable force in that, is important and significant in all of the short, medium and long term.

“I absolutely accept that there are other pathways that could be taken, but from our perspective, this is the one that best serves New Zealand today and in the future.”

NOTE: This story was written the day before National announced income tax and debt target changes. 

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50 Comments

16
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They are both singing the wrong song, out of tune.

11
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Labour party = National party

Now what ?

Vote for.....

16
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Greens. Far from perfect, but at least they take inequality and the environment seriously.
Unlike the two major parties.

10
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My anecdotal survey indicates there a lot more folks considering a Green party vote than one might think. The issue here is that Labour have taken the middle ground from National by ditching socialist policies.

It might even pass that the Greens drag a Labour coalition to the left...

Yes agree. And probably quite a few who can compartmentalize the school debacle.
Let's hope they can get at least 8%, to keep Labour honest.

“You can't tax your way out of an economic recession - you've got to grow your way out“
As we all know, Judith and team’s plans to ‘grow’ the economy while paying down a significant portion of debt shall entail high migration, cutting back public services and worsening our infrastructure deficit (except building lots of roads).
We also know how post-GFC fiscal austerity did to Southern Europe and I am really afraid NZ National will force us down that track in order to achieve their debt reduction promise.

What about the last 2.5 years pre-Covid19 possibly suggests Labour is any different? People are happy to swallow the same bullshit provided it's got a good looking young female leader fronting it, it seems.

....good looking young female leader....

Oxymoron on many levels.

You still don't provide a justification for jumping from the frying pan into the fire.

10
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If they took the environment seriously their immigration policy would differ. They're just as hooked on the growth ponzi as the two major parties.

Don't agree with your second sentence, but yes to your first sentence

From what I can see on Green's policy website, they have no numerical targets for net migration but still have a sensible approach towards managing it.

- Iwi and hapu should have opportunities to contribute to immigration policy decisions
- Te Tiriti education should be compulsory for all immigrants
- Effects of population growth on the environment, economy, and infrastructure need to be actively managed and planned for
- Temporary migrant workers with in-demand skills should have pathways to residency

Before we set arbitrary targets like the 10k NZ First has been suggesting, we need to work up an immigration strategy for how that fits into our values and long-term prosperity. Can't disagree with any of it.

16
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I can fully understand National being National and toning down their individualist/conservatism in light of the current circumstances - but I can't understand Labour not being Labour, as surely this is the time for them to dial up on their collectivist/liberalism in light of the current circumstances.

Both the majors are pushing their traditional base out to the minors.

What a weird election.

Kate, what's your view of Ardern? I have been really disappointed. I mean she's a good communicator and empathetic, but she's the leader of a party that promised transformation and they have been a million miles from that.

Hi Fritz, always enjoy your posts! I'm quite happy with the Labour coalition's work thus far - but much of the transformational-type policy was led by the Greens (Zero Carbon Act and ETS changes) and NZFirst (Regional Development/PGF Fund). David Parker did lead the new National Policy Statement on Freshwater - and the changes are definitely in the right direction, although it is yet to deal with nitrogen (the biggest ticket item). I'm also pleased with Nanaia Mahuta's work on the Three Waters, as I think central government definitely needed to step in and fund the needed infrastructure upgrades themselves. And on social policy there has been tinkering on the edges of the welfare system, but only better than nothing - and certainly not transformational. With housing, the new organisation Kainga Ora has real promise - a very sensible restructure and plenty of money in the pot to get social housing development really moving. Jacinda Ardern has been solid in terms of responding to crises (Chch attack and COVID health response).

So as an administrator, she's been solid, and kept the coalition together, alongside representing us admirably from an international perspective.

But, they need now to step up a gear and use the trust the electorate has in her. I'd have hoped this election we would see new and innovative, call it revolutionary/tomorrow-type policies. I do wonder whether they were there, but haven't been launched due to the COVID situation.

They (Labour) obviously determined that a steady-as-she-goes - "Let's Keep Moving", as opposed to "Let's Get Moving" campaign was warranted.

I've always felt there is something missing at the end of "lets keep moving" A few words come to mind. sideways, backwards or down. Take your pick

TOP have really impressed me when I've sought out info on them. The greens are saying some good stuff but I haven't seen any specifics like I have with TOP.

13
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Swing back to TOP?

Wasted vote.

17
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Rubbish. Wasting your vote is voting for National or Labour.

Agree. I have given some thought to TOP

I just took a political compass test out of curiosity and I'm most aligned with TOP apparently. Perhaps I should through a vote their way too.

Plenty of interest.co.nz readers will give thought to TOP. The comments section is infested with them. The smart ones will vote Greens instead because their policies are very closely aligned, but aren't a near guaranteed wasted vote.

1) If you vote for the party that doesn't align most closely with your interests, that's a wasted vote.
2) If you vote for TOP and they don't get in, they still get a higher % of the vote and therefore more electoral commission funding/inclusion in TVNZ debates next term.
3) Arguably all votes for Labour/National above 50% are wasted votes.
4) A lot of TOP voters vote TOP because TOP has designed their policy around the right economic incentives to the perceived problems. Greens policy tends to be different in the most important way. It often fails to take into account economic incentives. GMI + Wealth Tax + Higher Income tax brackets demonstrably does not provide the same economic incentives from the tax system and would have the reverse incentive with regards to property speculation vs other asset investment as UBI + Flat income tax + RFRM tax on property.

Both see increasing the supply of housing as the key to improving affordability.

This is obviously correct.

Anyone that thinks they can tax their way out of a housing crisis has a tenuous grasp on reality. I’d love a VW Amarok, but they are too expensive. Dear government, can you please tax them until they are cheap, because apparently that is a thing now.

Unfortunately, both parties have too much faith in the market to increase supply.

I agree. What you need to do is stop subsidising the price of housing/accommodation by way of the accommodation supplement and introduce a land tax - not to influence housing/accommodation prices but to widen the tax base.

And get the RBNZ to amend the risk weighting on residential housing assets, while improving the risk weighting on commercial/business loans.

Oh, and implement more rent price controls.

We disagree. Land tax will do little but create a nation of tenants, serfs to the landlord government. Luckily the idea is so politically unpalatable that it will never happen. Common sense shall prevail. You should look into the unintended consequences of rent price controls.

Nah, it will happen for sure - and labour and business will be taxed less. Common sense will prevail.

The rent price controls need only be implemented in the interim whilst the country remains in recession.

I agree that it will happen but I doubt business or labour will pay a cent less. That's not how government works. We've now got 50%+ of debt to GDP, seems like the perfect excuse to just keep things exactly where they are.

Nah, it will happen for sure - and labour and business will be taxed less.

She says shortly after CGT gets rejected and the Government proposes to tax labour more.

I didn't mean to imply it would be this government or even the next that we elect shortly. But we've got the place in NZ tax policy where you can't get blood out of a stone. Hence all the welfare top ups being extended to the middle classes. JK understood this too and over 9 years in government retained WFF and AS - both which had been brought in by the previous Lab government. And now we have baby bonuses and winter energy payments - extensions of the same middle class welfare, and an ever growing State Housing wait list (as more working poor/middle classes find themselves below the poverty line).

And, to this, enter a global pandemic and world-wide recession.

So, our understanding that you can't get blood out of a stone has been evident to politicians for well over 20 years now.

As I said common sense will prevail.

There could be movement in the CGT space in decades to come. At least a half logical argument can be cobbled together for it. The same cannot be said for LVT, and there is very little support for it amongst the public and mainstream politics. For the same reasons that I don't think we'll ever be paying annual tax/rent for our own bicycles and factory equipment, I'm very confident that LVT will never eventuate here.

Land Tax in NZ's history actually did the opposite, breaking up large land banks and getting smaller pieces of land into the hands of more Kiwis.

A little balance in taxation would not be a bad thing, as opposed to the current protected and nurtured investment class.

DueD,last time I looked people weren't buying Amaroks,getting subsidised for renting them out, then selling them for a 20% gain after 5 years...lets compare apples with apples.

Actually it has kind of ended up working that way with cars too, in a very weird way. Import and emissions rules (as well as cars getting very boring very quickly) means that performance cars under 20 years old (think 2001 - 2007 Imprezas, Evos, etc) that can no longer be imported are now beating the depreciation curve locally. There are some parallels there with housing in that we've strangled the supply of them with import restrictions, and predictably, prices have remained stubbornly defiant, and in some cases, risen.

Your Amarok doesn’t appreciate in value thus is not subject to speculation. Your Amarok is also not a basic necessity.

Bollux - the favourable tax treatment that applies to property leads to a lot of artificial demand (i.e. people trying to own 5 houses rather than 1). With a more balanced tax system, investment would flow more towards productive assets which would leave everyone better off.

Working out really well for Sydney apparently /s/

I think this depends what you believe is causing the crisis. I believe it's speculation on a low tax low risk asset. I'm not convinced we are actually short that many houses, certainly part of the issue, but far from the bulk. Taxing properly will solve one if those problems.

14
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Jacinta and Robertson should be put in stocks and pelted with rotten food for their lies and incompetence over housing.

Let's do this!

How can this report forget to include the cost of the PM & GRs great costs of progressive greening the economy a la Shaw & Co.

Comparison needs be made:
The growth they wish to throttle is substantial.
- example gas jobs taken away from Taranaki.
- Al jobs happy to see gone from Bluff.
- D Parker OTT Sounthland farming by consent.

Remember the only green recovery will be driven by John Deere.

Would National roll back the new NZ Institute of Skills & Technology if elected?
https://www.stuff.co.nz/national/education/122774439/nzs-new-mega-polyte...

Mental health is substantially worse for people who do not have the security of owning their own home. The added insecurity of being a tenant whos life is totally beholden to the whims of the landlord puts an incredible stress on a person. Jacinda was voted in last time to fix this problem by making homes more affordable. There is no doubt that many lives have been ruined and lost due to her failings. She is now ignoring the problem much like John Key did for so long. Why do they become so arrogant? Incredibly the greens are now the only option?

I do wonder how much is a case of politicians now having too much faith in Treasury policy wonks and the RBNZ's direction of having a supported investment class and an economy built on ascending house prices and high-volume immigration.

In the past Treasury recommended liberalisation against the wishes of a Muldoon playing favourites. But now when Treasury and the RBNZ seem to have abdicated from recommending useful economic policy and are the ones pushing subsidising house prices, politicians seem no longer to have any will to have any independent thought from this present defeatist orthodoxy.

TOP seen to have some really good options. If we all party vote them, perhaps they have a chance. The new king makers perhaps?

Not much talk of securing the inflation target which supposes the citizens are in receipt of disposable incomes that potentially out strip economic production to be addressed by increased GDP qualifying production capacity down the track..

I dont think Labour or National have the competency to pull us out of this ,if we are lucky it will be global market demand for our exports if they take a turn for the better .
I believe Colins is right ,i believe there will be a lot of people trying to go to Australia seeking better employment opportunities ,im leaving this month and have approval from the Australian government ;but,i dont believe they will let a lot of kiwis in ,they have their own problems.

Seve...which is it? "a mass exodus" or "they won't let a lot of kiwis in" ?

Exodus when kiwis are allowed in.

Once there is a whiff of the Ozzy borders being open-

https://youtu.be/Z1mc8LCe0tc