David Hargreaves looks at the astonishing change in mood across the country in the last few weeks and how that leaves us placed for next year - election year

David Hargreaves looks at the astonishing change in mood across the country in the last few weeks and how that leaves us placed for next year - election year

Well, where did all those (metaphorical) storm clouds go then?

One minute we were talking ourselves into a right old funk, the next minute the sun was rising into clear blue skies with the birds twittering away merrily.

As I reflected at the end of October and then a few weeks later the 'year of delivery' from the coalition government had turned out to be nothing of the sort. But I said then the closing weeks of the year were looming as crucial scene-setters for next year, which of course just happens to be an election year.

To my mind, four key events stood out as being pivotal - these were the Reserve Bank's Official Cash Rate review on November 13, the RBNZ's Financial Stability Report (FSR) on November 27, the RBNZ's final decisions on bank capital on December 5 and the Government's Half-Year Fiscal and Economic Update (HYEFU).

I thought the OCR would be lowered again (from the current 1% to 0.75%) and it wasn't. I thought in its FSR the RBNZ would loosen the limits on high loan to value ratio (LVR) lending - and it didn't. I thought the bank capital requirements decision would keep a tough face but include some crucial softening that would show the ridiculous pre-announcement posturing of the big banks to be what it was. And I thought Grant Robertson would produce some pre-Christmas infrastructure spending goodies.

So, I'm running at about a 50% efficiency ratio in terms of my predictive powers. But far more importantly, these big pre-Christmas announcements have collectively painted a much more glowing picture of the economy than was visible just a few short weeks ago and will be sending everybody off on to the beach for their holidays in a good mood. In short, the four announcements have all run in favour of the economy, and crucially ahead of the election, for the Government.

What do we make of it all?

Clearly the business confidence surveys were wrong. I feel personally a bit chastened by all this, because I'm not a fan of surveys and opinion polls at all. Generally I've always tried to avoid giving too much credence to opinion polls and surveys. This year I've joined the crowd and did give credence to the ever-dropping business confidence figures - just because they were so bad. To my mind surveys that bad had to be pointing towards adverse future intentions when it came to things like investment and employment.

Off the boil

The economy HAS come off the boil, so moderation of business confidence levels was to be expected. I think the fact that the Government made such a hash of its 'year of delivery' (and personally I don't think the Government should ever be let off the hook for the unmitigated disaster that was KiwiBuild) led to business leaders 'venting' in those surveys. And I think that's absolutely understandable. Businesses need certainty and with a Government that was often sending hugely contradictory signals, the past year cannot have been comfortable for those running companies.

Obviously though, the stated intentions of business leaders in those various confidence surveys have not been matched by their actions. Yes, the economy has slowed. It has not ground to a halt. And nor, seemingly is it going to - unless of course something very untoward happens globally, which is always a distinct possibility.

Does this all mean that everything is after all 'fine' and that we can look forward to a glorious year of economic prosperity?

Well no. The next year promises to have ups and downs for sure.

The improving mood of the country over the past few weeks probably just gets us back to a more 'realistic' perspective. We had collectively as a nation been standing in front of the bathroom mirror shouting "boo!" at our reflections.

Oh, the relief

What we are now seeing is something like a 'relief' rally. It doesn't mean things are necessarily going to be brilliant for the economy next year - but it does turn out we were not justified in getting ourselves into such a right old state.

To go back to the big four set-pieces I referred to earlier, it's worth breaking down what each of them has meant.

The decision not to lower the OCR, when it was widely expected that it would be lowered, was a vital boost. My best guess would be that at the time it made the decision the RBNZ had a least some inkling that the Government was going to announce something in the way of fiscal support and therefore the RBNZ was in a position to wait and see what happened over the Christmas and New Year period before coming at things again fresh in February, when the next OCR decision will be made.

The decision not to relax the LVRs may well have hinged on the RBNZ's reading of the results from its own household inflation expectations survey - showing a large spike in expectations of house price rises - and of the much stronger October mortgage lending figures. 

Yes, the house market is awakening and that will have done much to perk up the mood of the country. In a housing obsessed nation like this one, the whiff of rising house prices always gets those fortunate enough to have their own house whistling.

The clouds have lifted

On the bank capital proposals, I think ultimately the RBNZ has handled that very well. The upshot is that banks will have to carry more capital, but they are going to be able to achieve that and they are probably not going to have too many excuses to start rationing lending or pushing interest rates up aggressively. So, that's definitely one cloud lifted from the horizon. 

The fact is, no matter how much of the banks' pre-announcement posturing was just, well, posturing, we didn't need an ongoing state of antipathy between the major banks and our central bank.

What of next year then?

I'm not going to make big predictions. I've already indicated to you in this column that I'm reasonably lousy at that (well, 50% success rate - I suppose my glass is half full if we want to be all upbeat about it). 

What I'm going to be looking out for though is how a few key things pan out.

As ever I think the housing market will be real important in setting the mood of the nation over the next year. With the OCR now seemingly on hold, it is possible we have seen the bottom (finally) of the mortgage rates. That would certainly encourage those so inclined to go out and buy now.

If the summer housing market is as buoyant as early indications suggest it might be then that's going to set a very positive mood for the first half of the year. The prospect of rising house prices generally gets the wallets out of jackets and gets a bit of money circulating.

How will it hold up?

Then it's a question of seeing whether the economy does hold up okay. Any signs of weakness and of course the RBNZ may have to go back to the well with another OCR cut. And that would change the mood again.

And then we need to see whether the Government, having signalled plans for more spending on infrastructure, actually gets any money out of the door before the election. It will have a strong incentive to do so, but it's record in terms of actual implementation is to this point not good. 

All these things put together are likely to be very significant when it comes to the mood of the nation in deciding which way to vote in next year's election. 

The only thing I would confidently predict is that the outcome of the election is likely to be a close one. Having staggered through its year of non-delivery the coalition will have been re-energised by the events of the past few weeks. 

Which way the election goes now will be very dependent on which way the economy swings in the New Year.

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64 Comments

14
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This government priorities the wrong things after failing its promise on immigration and housing.

Climate change and reduce carbon dioxide emission!!???? Does that matter to NZ letting alone the world!!??

Legalising cannabis of a legal limit of 14 gram a day??!!?? Is the policy intention to let the already rotten population of NZ keep rotting?

Well-being over productivity??!!! Without increase in productivity, there would be no increase in real wage and no increase in well-being.

Messing with education!??? See the recent PISA results ??!!!

The current political system is too outdated to produce any useful political parties and leaders.

16
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Thankfully you are so wrong on pretty much all of the above that its funny.

blind,deaf and silly

13
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There are no limits on the number of bottles of rice wine that are consumed per person per day in China. In fact any time I went to dinner they had to send someone to buy a few extra bottles. How can you have a nice dinner with limits imposed? You create a reasonable limit. That limit also keeps controls on illegal production.

What I found in China is that some regions have really rotten moonshine that is destroying the local population. It will ultimately destroy the social fabric of China. The outdated political system is ineffective at controlling this.

Perhaps we should turn to a forward thinking country like Japan.
https://www.kotaku.com.au/2012/06/japanese-politicians-are-thinking-abou...
You get one giant battle robot for $725m USD. Finally, a political system that actually works.

10
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Can this commenter be blocked already (X) - getting tedious mouth piece for CCP.

Blocking is not enough. He also should be exiled to a re-education centre to be undergo re programming. How about an int.co hate speech protocol.

And forced to sign a confession that he is a spy and working for Russia.

along with his good mate Donald Trump

Along with the rest of you that want to censure free speech.

You can understand that X gets a fair amount of social credit points for each positive comment. Only 1,870,000 points more to get a free standard issue Mercedes Benz for being a good member.

He better watch if there's a change in leadership. All those social credit points can be cancelled and can end up with a travel ban, and the Government wanting its money back.

31
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Darn it. I find myself in agreement, Xing. The political system is buggered. It has become entirely unrepresentative and thus democracy in name only. MMP means that half the MPs are just arse licking party hacks, answerable to no electorate. It seemed like a good idea at the time, but is totally anti-democratic in practise. Stagnation and decline has followed. We rely on the inflow of foreign capital to finance our overspending. Like irresponsible teenagers, our Dear Leaders choose the easiest path. The immigration, housing, finance, 2% inflation target racket weakens our productive base. We have adopted a de-industrialisation economic policy worthy of Pol Pot with the call for "No more oil, No more dairy, Less farmland, More trees".

We have adopted the de-industrialisation economic policy of Pol Potwith the call for "No more oil, No more dairy". More wine, tourism and song - not sure about the Pol Pot reference?

13
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Pol Pot and his mates emptied the cities. He too, thought he knew best. It didn't go well. I am painting a verbal cartoon, of course, at least that is the intention. These ideas are a very slippery slope and I am trying to point that out. The difference is merely one of degree, in kind they are the same.

16
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Roger, you are right to remind us that seemingly innocuous ideologies can by increments take us to a dark place. The Khmer Rouge descent into hell began with Pol Pots vision of an agrarian society that eschewed modernism. The doctrinal origins of the vile Nazi lebensraum policy were strongly informed by Himmlers similarly bizzare rural lifestyle political philosophy. They are extreme examples but the zealous gleam in the PMs eyes as she kneecapped NZ energy industry and the glow of righteous conviction on James Shaws face as he advocated a 50% $8bn cut to NZs dairy herd, evoke disconcerting comparisons.

Facepalm...

I suspect the reason why some people are bashing Xing is not due to the comment he made, but because of his chinese sounding name (or uid, to be more precise). Xenophobia is one of the causes that put NZ on the back foot in the 21st century. To me, the biggest problem of the modern NZ politics is that not a single political party has the balls to acknowledge that we run an immigration economy here in NZ, hence we need to plan it strategically.

13
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It has nothing to do with his name and everything to do with the communist propaganda he posts on here. He's often on here discrediting western society in favour of the slave regime back in China.

I laugh at most of his comments. They are too vain to be qualified as propagandas to me. I will call them mindless copy-n-paste jobs instead. I also believe most of us commenting here are intelligent and rational enough to not buy into them.

But I think part of his comment makes some sense in this case. For example, our government does not realise what they have promised initially on immigration. In my opinion, it is a reflection of the lack of strategical planning. It is challenging for a political party to focus on the long term vision and its realisation with the current political system.

10
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NZChinese - 'does not realise what they have promised initially on immigration'. Oh yes it does. Both Labour and NZ first campaigned on moderating immigration but have cynically broken that undertaking. Robertson recently stated that immigration on the upside of projections was something he was pleased about. It was a key issue for many NZ first voters but Peters has dismissed their concerns by supporting one of the highest per capita inwards migration rates in the world.

Unfortunately, politicians have power without accountability equal to the damage they can cause. If the average person promised his employer 1000 units of a product and delivered just 80, they'd be turfed.

Someone will soon dig up some old maps, then game will be over for us politically and all!

nz First will be pushing the port of auckland move , it will be interesting to see if that translates for votes up north
my thoughts no

12
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Well I think Winston has not won an electorate for 10+ odd years, so yes will be interesting if you can buy a win.
Imagine if we did not have MMP how we would not have Winston first for 10+ years and would not have had Jacinda who in 10 years has also never won an electorate either.

Buy a win with our money. It's so perverse.

I don't think we realised that MMP would mean politicians electing their mates. Was it misrepresented?

Is a FPTP system so different? If a party parachutes someone into a safe seat it's hard for them to lose. In the UK, most vote for party rather than candidate.

Yes, I think the differences are very important. Firstly, an electorate MP is exposed to the consequences of government stupidity as its victims turn up at the electorate office doors every single day.

Secondly, the selection of MPs should be done locally. It was an article on how David Cameron had stuffed up the Conservative Party selection process that got me thinking. The author argued that traditionally the local Conservative Party members chose the candidate. They would choose someone known to them as a competent, honest, open minded person who understood the effects of government policy locally and could therefore represent the whole electorate effectively. The Conservative ethos is that they must represent everyone in the electorate. Cameron engineered a system where Party Central Office put up a candidate for the local party members to approve. The result was Conservative Party MPs who voted Remain in electorates that voted overwhelming for Leave. A failure of representative democracy to actually represent their electorate.

This is deadly serious stuff. Centralisation of power is usually a very bad idea as it destroys the feedback process. It matters.

This has to be weighed against the FPTP alternative where if you are not in a swing seat you have very little power, and where a majority government can form from 40% of the vote (or less). Minor parties are extremely difficult to establish, although with the 5% threshold here it is much the same.

I don't disagree with your points, but both can be somewhat reconciled with the NZ system as we still have electorate MPs to provide that feedback. I don't know the details of candidate selection for any parties here, but I don't see any reason why electorate MP candidates couldn't be chosen locally. Overall, I'm currently of the opinion that NZ does a pretty good job and I prefer the system to the UK's.

The UK is a basket case. GDP growth peaked way back in the 1970s, before they became an EU colony. The Scottish Labour party is part of the problem, too, it has an outsized influence, bit like Dear Winston, our defacto El Presidente.

The pendulum may be swinging back the other way, though. London has re-gained it's position as a world finance centre, and Brexit should help restore a bit of self government, at least.

Interestingly, Commonwealth GDP is growing rapidly, based on English Law with its emphasis on the individual, on the importance of property rights and what is fair and reasonable. In contrast the EU is headed for oblivion, probably because of their legal system, which outlaws anything that is not explicitly allowed by the State , and emphasises the power of the State over the individual. The Central Planners are firmly in charge. Northern Europe blindly follows the rules wherever they may lead, and Southern and Eastern Europe largely ignore them.

Party functionaries entering parliament through the list system has eroded the quality of representation of electorate concerns. Taxpayer funding of election campaigns would exacerbate this disconnection between MPs and the electorate by reducing the extent of participation grass roots citizens have in the political system.

Not true, Jacinda won an electorate seat on her 4th try (2017 Mt Albert By-Election).

You are correct it seems, a solid win.
From the Wiki page "The by-election was avoided by all right and centre-right parties, and turnout was low. "

Winston won the Northland by-election in 2015. The one where National tried to stand a carrot with a blue rosette pinned on and Simon "no bridges" Bridges promised 10 new bridges for Northland. Remember that?

Also if we continued to use the old formula for electorates that we had under FPP (1 per 35,000 people), New Zealand would now have 142 electorate seats due to our population of almost 5 million, instead of the 71 electorates + 49 list seats to bring it to 120 that we have right now.

Under such a system where each electorate was about half the size of the ones we have currently, it'd be easier for MPs like Jacinda and Winston to win a seat.

Are you talking about the bridges that are being built now? i.e the bridges promised are being built (well the ones that Labour weren't able to stop at least)

Voter intentions will be formed by the extent to which the woeful incompetence of govt ministers is counterbalanced by NZs fortuitous improvement in our terms of trade and Robertsons purse opening. Ardern had strong support from 40+ voters and boomers but crucially, this is slipping as the year of delivery is lost in the post. If enough terminally bewildered NZ first supporters decide Jones is a swaggering lout and Peters a cantankerous has been, a sunnier economic outlook won't save the coalition.

16
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in effect - no real change in the economy over a number of years -- its growing in volume- but so is population -- volume does not equal productivity - and unless we improve productivity we are not likely to escape from the current malaise that we have -- lack of housing, lack of infrastructure, lack of innovation and investment, underfunded and poorly run services such as health, education and social services

this COL promised many differences -- but in truth - have delivered more of the same with a few kneejerk deviations - and nothing that joins up - Even the port debate -- lets move it north and then what - ? stick another thousand environmental destructive trucks on the road to transport it all back south again ? All based on a report chaired by a Northland mayor and a northland MP - ignoring previous reports

They inherited the best financial situation that any new government has ever been lucky enough to get -- and after two years have delivered very little with that !

more immigration - more temporary work visas 20000 for fruit picking when we have 100K of our own on the benefit - more regulation - more captains calls undermining democracy - SHANE Jones enough said !

In auckland, ratepayers subsidise over 50% of the costs of every public transport journey - yet we are going to keep building a new light railway that does not connect to any other piece of infrastructure ? why

the economy is a house of cards -- and equally fragile to an ill wind -- nothing in the last two years has done anything more than make it more vulnerable - and even with virtually 0% interest rates - we are still effectively going backwards

After the 3 month MP holiday ...... watch the fireworks as the COL blows itself up in desperation to distance itself from eahc other !

Nice little summary. But leaves us where?
One of my majors is immigration and Labour can't blame NZF for this lack of delivery. So looking like a vote loss to Lab but no gain to Nat from me.
So a vote for TOP, no point in not voting, but to hell with the majors - useless.

On immigration - did you miss the strident millennial public protests and their mass voting campaigns against the surging migration that is robbing them of their home ownership aspirations? Yes, I musta too. Far easier and more politically approved to attack soft target, generally old white boomers for acting logically by buying more houses.

11
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I have a theory or two for this. In the past we climbed a tree and sat there, or sailed a boat to an atoll, invaded a rugby ground or walked across the Harbour bridge. Nowadays people they hit the comments section and think 'jod done'.
Second theory is that the young are giving up. Many I speak to have. Backing this up is the social problems that are exploding around us, along with all the negative social indicators.

That doesn't excuse old white boomers for creating the self interested rules they have. They have a lack of self awareness and insight it what they have done to the housing market for young people. Disgraceful and as a boomer myself, I let and many a landlord know how I feel. They should p#### off out of the market and give our young a fair go..

Or support a government which committed to curb the housing demand side by moderating immigration. Yeah, tried that but then the buggers welshed on their promises.

Old white boomers acting logically buying more houses is a bit like saying a drunk acting logically by buying another bottle of whiskey.

It's satisying in the short term, but in the long term questionable.

If the boomers intentions are to pass this as inheritance to their children/grandchildren fine - but what lessons are you teaching them? (be greedy?) Or are you doing from a place of fear? Or a desire to inflict pain towards another part of society? (younger generations). What are the motives? When is enough enough?

If you're a boomer and you have enough to comfortably retire on - why buy more houses that could be homes for younger generations to raise their families? I say go and enjoy your retirement, play some bowls, tend to your gardens, look after your grandchildren and volunteer at the Citizens Advice Bureau (like my grandparents did - and they were very happy).

Gobsmacked - finally some Boomers who are offering some good advice for the future of NZ.

Independent - you nicely capture the low aspiration kiwi bach, boat and BMW mentality. Imagine if Datacom founders Hargreaves and Battersby or Xeros Rod Drury thought the same. It is the building of great enterprises that is critical to our standard of living. The entrepreneurial aspirations of kiwis make a valuable contribution to our rather special little country and society.

Would be fantastic to encourage more entrepreneurial aspirations instead of the stupor of buying and selling existing housing stock to each other for more and more. Lower company taxes and implemented land tax or (at least) CGT. But it's hard to get that passed the massive whining noises that start whenever it's proposed.

I am not surprised on the underwhelming delivery from the incumbents. They ran their election campaigns on idealistic values and presented best-case scenarios as policy outcomes on housing, migration, child poverty and the environment.

There are always winners and losers as a consequence of any policy change but trying to deliver a favourable outcome to both sides will end up in a deadlock every time.

Take migration for example, I understand that Labour is reluctant in delivering a full-blown reform on migration out of fear of being the ones to shatter the Kiwi dream for thousands of low-income migrant families in NZ.

that is my problem with MMP, no chance for me to have any say with who is on the list and what position,
maybe they need to do an internal party vote for positions on each parties list that party members vote for.
it would mean joining a party (which I will never do) but at least then somebody voted for them.
at the moment it seems a way to bring in mates for the person in charge to shore up their leadership support or change it. ( example WP bringing in SJ)
I can understand the top three of each party being top of the list but after that there must be some way of voting for the makeup of each list

@ sharetrader. Anybody can construct any sort of list they like. Good thing. Your input is to vote for the list or not. Simple, don't like the list, don't voter for it. They get the message.

that's why I can never vote national as they have a former spy on their list

"As ever I think the housing market will be real important in setting the mood of the nation over the next year"

Bit of a worry when the housing market determines the mood of the nation! Wouldn't it be much better if we just back the All Blacks or something?

Or we could actually just focus on what we can control and become more productive?

And house prices are only up because interest rates keep falling - so are you saying in a non-direct way that NZ mood is determined by falling interest rates and increased levels of debt? (this sounds insane to me...)

Surely our optimism for the future comes from our thinking of the good things we are going to do (products and services provided) for one another, instead of the setting of a cash rate? But if our well being is just based upon the price of our home or our rental portfolio, one needs to question our moral character as a nation.

...standing in front of the bathroom mirror shouting "boo!" at our reflections"

The doomie gloomie's favourite pastime. They also like to scare themselves by pretending that Ashley Church is hiding in their closet after dark.

I agree with you David that the election could be close run, though Labour could still turn things around quite easily and pull the rabbit out of the hat and improve things for Kiwibuild and our economy over all.

There is a very simply solution "Create Tax Revenue from Overseas Property Investors and use the profits for Kiwibuild". We just need and Empty Homes Tax for our larger cities such as Auckland which has the highest concentration of empty dwellings, currently 39,393.

Auckland clearly needs to follow Vancouver's successful example with their Vacant Homes Tax at 1% of their overall value, that would probably fund our Kiwi builds in their first year mostly funded by this tax. We know the majority of those paying the new tax would be Overseas Investors. Anyone who can afford to leave their homes empty in Auckland, can certainly afford to pay an extra tax on it otherwise they can simply sell or rent it out.
Financial Post article: Vancouver to rake in $30 million from empty homes tax in first year.
https://business.financialpost.com/real-estate/vancouver-to-rake-in-30-m...

But the problem is with this is that it might have the intention to cause house prices to fall and as we have seen, any policy that may cause house prices to fall is politically unpalatable (capital gains tax...).

Not necessarily, you would be surprised to see how much Overseas Investors are willing to pay to hold on to their boltholes. There are lots of other cities that also have an Empty Homes Tax including Paris. Article from Better Dwelling: Vacant Homes Are A Global Epidemic, And Paris Is Fighting It With A 60% Tax. https://betterdwelling.com/vacant-homes-global-epidemic-paris-fighting-6...

I wonder if the year of non delivery has been somewhat deliberate. Isn't it best to achieve everything in the election year rather than the years beforehand? It would make sense to get the left wing policies (free electricity, free education, etc) in place early so they would be forgotten by the important centre voters and then leave the centre policies (housing, transport, etc) until closer to the election.

So there it is. Kiwibuild, regional development fund etc deliverables all intentionally deferred to the year after the year of delivery as part of a cunning master plan by the dear leader. Repent ye doubters.

The economy has held up pretty well, and in the end that is key to winning elections. Any hint of recession and the Coalition are toast. After this year of delivery 2020 will, as usual, be the year of the bribe - Coalition have been softening us up for a borrow and spend splurge where they will finally commit to building some infrastructure after sitting on their hands for 2 years. Pity they have done nothing to address the massive regulatory driven escalation in house building costs, (per m² cost up 200% in 20 years vs just 50% inflation).

Ditto

I'm surprised so many were surprised the OCR was held! The double cut "got out ahead of these things" as he said. Now look at the"confidence". Orr got exactly what he wanted. Top leadership.

This Government has been an unmitigated disaster for all New Zealanders .

Its , arguably , the worst Government in living memory .

It has failed on every count, not met or implemented one single election promise .

The members of the coalition can be likened to a herd of cats

Boatman, why do you say arguably?

Here's a thought ............

Our august leaders take more from us as in taxes a % of GDP than the Aussie Government does over the ditch

Our Government clearly does not need all this money , they have a budget surplus , so they are not spending it .

We have something called the working poor ............people too poor to feed their families properly, to the point we give some back in a complicated and expensive -to manage money- go- round called Working for Families , and by the way WFF is a disincentive to working more , so we rely in giving visa's to migrants to fill the jobs.

Why not just take LESS TAX from the worker and let people keep more of their hard -earned money ?

It would be cheaper to manage , easier to understand and much fairer on those souls who must feel awful when they have to go cap-in -hand to WINZ to beg for an accommodation supplement or rent subsidy

We have working poor in large part because of mismanagement of the housing situation over the last decades. I.e. the very thing that John Key campaigned on addressing and then pretended for the next decade was no problem at all.

Labour need to find their courage to act, but it's not like National provides a viable alternative at present to address this situation.

This election is going to be exhausting...