Trapped in a low inflation vice

Bernard Hickey argues councils and the Government are now trapped in a political vice of low inflation expectations as they grapple with funding big infrastructure investments

2nd Nov 14, 7:30am by Bernard Hickey

By Bernard Hickey

This week's Auckland Council report on its transport future and choices was a stark reminder for everyone about how the new extremely low inflation landscape is changing everything.

It has changed the politics of rates increases and it is forcing councils to look for other revenue raising tools.

It is putting intense pressure on a social contract that was once taken for granted - that today's ratepayers would happily pay to build an asset that tomorrow's ratepayers would use.

The pressure cooker of an inflation rate bearing down on 1% is causing problems for both local and central governments, but it also offers an opportunity. More on that later.

Firstly, it's worth looking at how governments used to do infrastructure. For decades any council needing to build crucial infrastructure would simply build that into its rates increase forecast and take the plunge.

A big enough project spread over a long enough time-frame would add just a little bit each year to rates bills that most wouldn't notice. It was the same for central Government.

Regular and substantial growth in the nominal value of the economy, largely because of high inflation, made it easier to justify a big project because by the time it was built, a tax take inflated by fiscal drag would be easily high enough to pay for it.

Councils in particular have stuck to this strategy for much of the last two decades despite the structural lowering of inflation.

This has now created a backlash as their rates increases outpaced general inflation for long enough that ratepayers began to notice and revolt. Council rates rose 61.7% in the eight years to September 2014, while the Consumer Price Index rose 19.9%.

Prices of so-called 'tradable' items, which are those where prices are subject to international prices or competition, rose just 8.5% over the same period.

The backlash has been written all over the Auckland Council's thinking this year.

Mayor Len Brown slashed billions from the Council's plans for the next decade and lowered the forecast rates increases from 4.9% per annum to 2.5-3.5%.

This new low bar for rates increases was the one that the Independent Advisory Body had to limbo under in producing its "Two Pathways" report on Funding Auckland's Transport Future, which aims to fill a NZ$12 billion gap in funding new transport plans. It came up with two options.

One involved no increase from the current rates path, but a NZ$2 charge for each drive on a motorway during weekdays.

The other option was a combination of a 0.9% increase in the rates increase to 3.4% to 4.4% per annum and an extra 1.2 cents per litre regional fuel tax.

The problem for the Council in this new low inflation environment is that one option is for a rates increase that is still three times the current inflation rate and the second is for a rates increase four times inflation. Both are as bad as the last eight years, in that the relative rates inflation would still be double or triple wider inflation.

In many ways, Councils are now trapped in a tragic vice of low inflationary expectations.

This is a pity because rates increases are a very effective, efficient and fair way of funding these big infrastructure projects, particularly in Auckland, where property owners have been the biggest beneficiaries of (still) rampant house price inflation.

Rates increases would see the richest beneficiaries of Auckland's growing infrastructure pay over an extended period for that infrastructure, which would benefit a much wider group of often poorer people over a long time.

Instead, the user-pays alternative to rates increases would see a much wider group hit hard with a two new taxes that penalises them whenever they drive on the motorways, or drive anywhere at all in Auckland.

It's tempting to say the Council should simply argue harder for rates increases and use its bully pulpit to shame Auckland's ratepayers, who have just won the biggest game of real estate Lotto in the history of New Zealand, into coughing up for the good of the city and the nation.

But trying to dismantle that vice of low inflation expectations may prove politically too hard for a generation of ratepayers now ingrained with user pays and short termism.

The remaining options may require some new thinking and a few new financing techniques.

The Congestion Free Network idea of a much bigger emphasis on public transport and cycling is much cheaper than the gold plated network proposed in two pathways. That would help close the gap.

The ultimate solution may actually be created by this super-low inflation outlook we and the rest of the world now faces. Low and stable inflation encourages investors to accept lower interest rates, and for much longer periods.

One of the great success stories of the Council scene in recent years has been the Local Government Funding Agency, which has borrowed on behalf of many smaller councils at much lower interest rates than if they borrowed individually.

If this agency could start borrowing for 20 or 30 or even 50 years at low rates then the economics of these big projects begin to stack up, making tiny rates increases a more viable option.

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A version of this article first ran in the Herald on Sunday. It is here with permission.

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42 Comments

by Roger Witherspoon | 2nd Nov 14, 12:06pm 1414883216

Snafu allright.

We have almost $200 billion of household debt. We therefore need new credit creation of $12 billion every year just to pay the interest. This can come from the private sector by blowing a bigger bubble or from the government running a deficit.

I'm seriously worried that the fruitcakes will get elected next election as National repeat Labour's end of term mistake of causing a recession by running a surplus when private credit creation stops. Bill English needs to do what he did so well in the first term - cut taxes so the government runs a substantial deficit. People will find the best use for the money, each according to his or her specific situation.

The fruitcakes at the extreme ends of the political spectrum are taking over Europe as their current leaders follow the silly ideas of the IMF (the incompetents who didn't see the last crisis coming), please let's not follow them.

by Roger Witherspoon | 3rd Nov 14, 11:07am 1414966057

Yes, but that is money that is already in the system. The extra $12 billion needed over the next year does not as yet exist.

by Roger Witherspoon | 3rd Nov 14, 12:08pm 1414969732

The income of which you speak is a redistribution of money already in existence. The interest bill creates a requirement for $12billion of new money or a default. Only the government can create the new money if private credit creation stops.

I see the recent fall in the NZD as the warning bell that international money is starting to flee our shores as the global carry trades unwind. These things start slowly at first but gather increasing force as they progress.

by Mike B | 3rd Nov 14, 1:07pm 1414973261

nzcoolie - stop and think about what you are saying

If you are an American and come to live in NZ you bring with you American dollars.

STOP - take note - "You bring with you American dollars. NOT NZ dollars"

Now - you have to change your American dollars into NZ dollars

BUT - where do those NZ dollars come from?

Well, those NZ dollars come out of our existing pool of NZ dollars. NO one creates new NZ dollars just for you.

So stop and think about it.

Thank you.

by KH | 2nd Nov 14, 12:11pm 1414883468

Is local Government really in a trap, or has low inflation caught them out in their strategy of compulsory charging us for their ever increasing empires.

Everybody else earns the price they get, working hard in a competitive environment. Councils just did what they wanted, at the price they wanted and built empires.

We need infrastructure and just have to pay for it. Pity we have to pay for all the frills councils have gone for as well.

There is some justification for borrowing, eg an individual buying a house at multiples of annual income. But each of us only needs the one house to live in.

Infrastructure, especially for a big council like Auckland is a regular daily purchase, like groceries for the rest of us. A replacement sewer main is daily stuff for them

There is really no justification for borrowing at all. It should all be paid out of income, eg. That bridge monday, the new sewer main tuesday.

If you want to live in a place like Auckland then you need to pay the price. If you live in Omakau, then borrow maybe for the new water scheme, over max ten years, but no borrowing to replant trees.

by steven | 2nd Nov 14, 12:54pm 1414886040

Councils cannot pay for say a bridge or sewage in the years/time it costs to construct, ergo they should borrow sensibly.

Now borrowing as a way to put off rates rises, no, either front up to the voter or dont do it.

"Everybody else earns the price they get, working hard in a competitive environment" patently untrue. Monopolies like say Microsoft can charge prices far in excess of true costs while councils charge to cover costs.

"live in Omakau" I dont know many other councils that well but ppl tell me that say Marlborough seems to be spending up big assuming the rates off the grapes would see them well off, doesnt look that way now.

Really as long at 40k ppl are allowed into NZ and most stay in Auckland, Auckland is going to continure to suffer.

regards

by Kumbel | 2nd Nov 14, 6:11pm 1414905074

Bernard is only talking about raising new capital. Money for operations and renewing existing assets is already built into rates.

Councils can't issue equity of course so when they want to build something new they really only have three financing choices:

some kind of upfront charge or levy
deliberately making a profit on serivces accounts to build up an investment war-chest
debt

The first two options tend to be unfair on today's ratepayers and gift a free ride to tomorrow's ratepayers. But, while debt is incredibly fair about allocating costs on a user-pays basis, it does come at a cost. Councils can't win.

But there is a little trick that can mask some of these problems when inflation is moderate or high. Depreciation is a legitimate (compulsory would be a better description) charge on the value of assets. There are various ways of accounting for depreciation but councils depreciate on the replacement cost not the historic cost. Basically they charge more for depreciation every year while the debt stays fixed in nominal terms. And depreciation can be quite legitimately used to pay back the principal of the debt. In moderate inflation not only does the value of the debt go down in real terms but the cash to repay the loan goes up. Its easy to pay down debt quickly under those circumstances. You can paper over all sorts of cracks in the finances with this trick.

But low inflation buggers the whole thing up.

by Andrewj | 2nd Nov 14, 1:16pm 1414887402

Deflation requires more efficiency, not more debt, debt becomes a weight that soon crushes all before it. The Auckland council needs to cut wages to reflect the world it finds itself in. Rates in a deflationary environment need to fall to reflect the increased purchasing power of a $, exisiting comfortable cabals will be turfed onto the street. Rates need to fall.

Defaltion is just a correction that brings costs back to reality when there is no longer credit growth to hide behind.

The world is changing, I talked to a friend yesterday, who just replaced his trucks waterpump, he wasn't confident before he watched a youtube clip, on 'how to change the water pump on an F150 truck', he saved $400, took him 3 hours.

The knowledge of the internet, the ability to, learn as you need the information and the ability to purchase direct without the middleman,is changing the game we have grown accustomed to.

Hans Redeker, from Morgan Stanley, said Japan is exporting its deflationary pressures to the rest of Asia. “It is not clear whether other countries can cope with this. There have been a lot of profit warnings in Korea. The entire region is already in difficulties with overcapacity and a serious debt overhang. Dollar-denominated debt has risen exponentially to $2.5 trillion from $300bn in 2005, and credit efficiency is declining,” he said.

Albert Edwards, from Societe Generale, said Japan is at the epicentre of a currency maelstrom, a replay of the Asian financial crisis from 1997-1998, though this time the region is a much bigger part of the global economy. “China cannot tolerate this kind of shock when it already faces a credit crunch and has suffered a massive loss in competitiveness. Foreign direct investment into China has already turned negative,” he said.

http://www.telegraph.co.uk/finance/economics/11202675/Japan-risks-Asian…

I have posited that borrowing at zero in a devaluing yen to play higher global yields is likely history’s greatest speculative wager. I have pondered how Draghi’s “Do Whatever it Takes” market backstop for European periphery debt created the world’s most attractive higher-yielding securities for leveraging. I’ve as well presumed that the “yen carry trade” has likely played a significant role in financing a Europe periphery bond Bubble. Especially over recent weeks of global market instability, I’ve pondered the consequences of a “yen carry” unwind. To this point, the weak euro has not hurt those leveraged in European periphery debt – not if these speculations were financed by borrowing in a devaluing yen. But in a world of increasingly vulnerable speculators and a heightened risk of de-leveraging, a yen rally could have very well pushed European debt markets over the cliff. When it comes to global monetary policymaking, I do not believe in coincidences. Kuroda to the rescue.

The alternative universe is a totally different world: Kuroda is one of a very select group of leading central bankers working desperately to sustain a runaway global financial Bubble. There’s a historic experiment in “money” printing that is at the brink of failure. Around the world there is a speculative financial markets Bubble of unprecedented proportions at risk of bursting. History’s Greatest Credit Bubble already has serious cracks. Moreover, the incredible widening gap between (Truman Show) securities prices and deteriorating (bursting Bubble) fundamental prospects boosts the likelihood of a global market accident.

One of these days, global central banks will lose control. For now, they will continue to print “money,” spur destabilizing speculation and exacerbate global imbalances. Importantly, their measures continue to promote wealth redistribution and inequality – within nations and among nations. Bernanke previously referred to Kuroda’s policy as “enrich thy neighbor.” I wonder if Japan’s neighbors these days see it in such rosy light. With Draghi and Kuroda promoting King Dollar, I wonder how commodity-related companies and countries are feeling about the state of the world. Gold sank below $1,200 this week, crude traded below $80 and the GSCI Commodities Index traded to new four-year lows. Central bank policies are inflicting some real damage this time around.

http://www.prudentbear.com/2014/10/kuroda-bubbles-and-king-dollar.html

by KH | 2nd Nov 14, 4:39pm 1414899590

Debt and interest crushes all I agree Andrew. I think it is a poison even with inflation. With nil or negative inflation you have no future.

For the councils - they need to get into the debt repayment game. Halve their expenditure, and double the rates - to pay it down as quick as possible.

A murderous experience for ratepayer, but that's what happens when the chickens come home to roost. It's consequences.

by iconoclast | 2nd Nov 14, 2:40pm 1414892413

Misleading

[quote]

Council rates rose 61.7% in the eight years to September 2014, while the (national) CPI rose 19.9%

Questions:

(a) Is that rise of 61.7% a national (average) comprising all regions or is it just Auckland?

(b) If it's the national figure what was the Auckland increase?

(c) Is the rates rise of 61.7% the increase in the base rate?, or

(d) Is it the sum total of rates revenues received reflecting the increase in the number of rateable properties, or

(e) a mixture of both, and if so

(f) What is the actual increase in the base rate alone?

(g) what is the additional revenue attributable to the increase in the number of rateable properties

by Kumbel | 2nd Nov 14, 3:23pm 1414894981

Good question. There is a series (SE9044 - Property rates and Related Services) that forms part of CPI. It shows that for consumers (ie residential properties) the increase in that period was about 51% - still way ahead of CPI but not quite to Bernard's number.

by iconoclast | 2nd Nov 14, 4:22pm 1414898524

Yeah, when you look at the weekly articles by Greg Ninness with the auction results of apartment sales (in Auckland) he gives for each property the amount of rates and Body Corporate fees

The rates per apartment are not cheap

The annual council rates for a 40 sqm shoebox are not much cheaper than the council rates for a 150 sqm house on a 650 sqm section

And in the past 10 years a lot of apartments have been built which in turn have filled the council's coffers. Wonder where all the extra money goes

An announcement in yesterdays Herald, 5 older houses side-by-side, on sizeable sections in Onehunga are being auctioned off and will be replaced by 70 small units

The councils income from rates for those 5 properties will increase by 1400%

And they won't have to do hardly a thing - just sit back and rake it in - forever

by Kumbel | 2nd Nov 14, 6:17pm 1414905423

As long as you realise that there are no windfall revenue gains from adding new properties. We have been over this a bit lately that councils work backwards from identifying their revenue requirements and then dividing that number by the number of rateable properties to determine what each property's rates are.

In fact because rates are set in concrete at the start of the financial year new properties often get a free ride until the next financial year.

by Mike B | 3rd Nov 14, 12:15am 1414926921

iconoclast - you dp not understand how rates work

by Kumbel | 2nd Nov 14, 3:05pm 1414893922

It feels like we are reaching a crisis point in local government or even publically funded infrastructure generally.

It's a crisis we don't have to have but as long as our councils remain as isolated from their own communities as they have become and as long as the public of NZ continue to value council services lowly we will have that crisis.

The core strength of councils today is actually being a financial intermediary. They perform a very complex task of aggregating large, intermittent long-term expenditure and converting that into what amounts to a reasonably fair and predictable daily charge for services. Debt is not only a significant way of making that possible - and pretty much exactly what banks do - it is also the fairest way of distributing costs to users over time. In this context there is no moral argument against debt.

We also forget these days that the traditional set of services supplied by a council were once aspirational. Thre was a time when it was a big deal getting 'indoor plumbing'. In living memory some places in NZ still had nightsoilmen doing the rounds collecting sewage and disposing of it. But there are very few people in the country today who pay any thought at all to how great it is to have potable water, sewage disposal, stormwater disposal and good roads.

There are a couple of thing to add to Bernard's piece.

The first is that the rates blowout of the last 10-15 years has been caused in the main by two things: (i) massive rises in input costs: civil construction, insurance, energy and (ii) central government impositions on councils: water upgrades, sewage/stormwater upgrades, new requirements around building, dogs, prostitution, alcohol and gambling.

The second is that there was no golden age in the past. Councils have used all sorts of methods for raising capital: debt, capital levies, dodgy asset management (deferring maintenance). But higher inflation was a godsend to paper over the cracks.

Grumbles about staffling levels and remuneration feel good but they don't come anywhere near what's going on. Rates pretty much get spent on public works almost always carried out by contractors who have tendered for the work. The council's own payroll is not a big part of that story.

Thre is no magic pot of gold - believe me hundreds of councillors have looked for that gold over the last ten years and failed to find it. So, councils have reached a point where either they are going to have to make some unpalatable choices which will lead eventually to a lowering of infrastructure quality or the government is going to have to make a meaningful change to the way councils fund new infrastructure.

The Auckland story is a teachable moment. What the council have done is choose a preferred option for the future shape and function of the city - constrained physical growth and a big increase in passenger transport especially rail - without costing the plan. The funding analysis of the regional land transport plan that falls out of the Unitary Plan comes hard up against the fact that it will cost a lot more to build the Auckland they want to build than they ever imagined.

There is one key fact that emerges from the report issued by the Independent Advisory Board: Auckland council can/will only raise $4b in development contributions but wants to build $15b - $20b of new works. AC cannot afford the plan for the city that they have already hung their hat on.

In a world where nobody cares about what councils do until it directly affects them, Auckland Council needed to have a full and frank conversation with its community not only about options for accommodating future growth in the city but also the funding impacts of each option. But they didn't.

When I said that the core strength of councils is their role as financial intermediary I also had in mind that their greatest area of weakness is urban planning. Len Brown and the Auckland Council have made a huge mistake in how they have gone about getting some kind of real consensus about Auckland's future and this mistake has blown up in their faces.

by Brendon | 2nd Nov 14, 7:21pm 1414909299

A worthy contribution Kumbel. To give a slight variation on your analysis is that given the limitations rates. Councils, even really big ones like AC cannot act as a 'financial intermediary' for large scale transport infrastructures - motorways, electrified passenger rail, big tunnels and bridges. Whenever these have been provided in NZ they have required the buy-in of Central Government which has greater resources of a bigger tax base.

The mistake as I see it that AC made is they thought they could get Central Government to pay $15-20 billion or give AC taxing resources for that amount. That hasn't happened. So AC cannot enact its planning function. This forces them into a more growth constrained town planning model.

A similar pattern happened in Christchurch when between 1980 and 2008 there was no new transport infrastructure provision and what has been been supplied more recently -the roads of national significance is more relevant for moving trucks not people.

by Kumbel | 2nd Nov 14, 11:13pm 1414923211

Can't agree with you entirely, Brendon.

There are no technical or legal limitations on rates. What limitations exist are purely in the minds of councillors and commentators. The point I was trying to make long-windedly above is that it is tough to keep hiking rates when there is little perception that they deliver value for money.

There are lots and lots of people who would buy at least one cup of coffee each work day. Over a year 240 cups of coffee costs these people more than their individual share of rates (rates being levied at the household level not individual level). For their rates they get 24/7 potable water, flushing loos, roads to whisk them here and there plus all the parks, museums, art galleries etc. If people valued public services more than a takeaway coffee they would accept rates rises. But obviously they don't.

I would agree that the funding impact of $20bn even spread over 30 years would be difficult to sell. Bernard's point is that politically it's impossible.

My other point is that it was the choice of the growth constrained model that generated this big price tag. Deputy Mayor Hulse likes to think that denser cities are cheaper to provide infrastructure to. I don't agree. Transport infrastructure gets really pricy once you are dealing with dense networks. And of course there is the issue that AC are trying to retrofit congestion-busting roads and PT over a pre-existing city. Never going to be cheap.

by Brendon | 3rd Nov 14, 3:20am 1414938052

Kumbel the limitation on rate rises is as you indicated political and economic. Rates cannot rise higher than big political aware blocks of ratepayers will bear. I will argue that group is widowers and the elderly in general, this group have accumulated large property assets. Yet the time they have to benefit from new infrastructure connecting to these asets is short and they fear being on a single fixed income with limited means to pay for high rates demands. That group do not waste their money on 'flat whites' every morning and if they are still going to work it is not for long. This group value 'aspirational' new public services less than younger groups.

Councils can give exemptions or rebates to groups of ratepayers in hardship. But that only partially negates this effect. Councils are inherently conservative and I believe it is the above group that makes them so. I have found no evidence in NZ or overseas that a ratepayer based infrastructure providing local government system provide really big ticket items like major motorway systems, passenger rail or other big transit services or large bridges or tunnels.

I think you are right that Councils have been tempted to go down the urban planning model of restricting 'sprawl' for a variety of reasons. One of these reasons being they thought it would be more cost effective. As you point out this has not been the case and their 'plans' are in tatters.

When you look at countries like the US, Germany and Japan that each have cities bigger and smaller than ours with affordable housing. Each of those countries has a different form of 'big ticket' infrastructure provision but all of them is independent of local rate payers.

I think NZ needs reform in this area.

by Kumbel | 3rd Nov 14, 7:53am 1414954436

No argument on the politics of it all.

But central government already fund the lion's share of Auckland transport. I was amazed to read in the IAB report that even if ratepayers stumped up the $16b shortfall in AC's big plan the government would still be spending more than half of the next 30 years transport spend (on it's own motorway network, Gold Card subsidy and other subsidies to AC).

The current AC LTP shows that only 45% of revenue is collected via rates - the rest of us should be so lucky. And I should remind you that council don't rebate low income/elderly ratepayers rates, the government do.

Central government is already pouring money hand over fist into Auckland - but they want to control how that money is spent. Hell will freeze over before any government would hand over billions more to AC and trust them to do the right thing with it.

If AC could prove that they had developed their plans for Auckland from the bottom up, that they genuinely represented what Auckland residents prefer or want then the purse strings would be loosened. As I say, if the plans looked like good value the Auckland community would support higher rates and, of course, the government would do a one-for-one type subsidy on that big spend.

Auckland Council don't need reform of funding they need to act in service of their community and give up the ego trips.

by Brendon | 3rd Nov 14, 8:13am 1414955616

Kumbel how can we expect local goverment to represent the community from the bottom up if the major dictator of the shape of that community -transport provision is provided from the top down. How can we expect local government to know the value of money if they are not responsible for it. It is like a parent feeding and clothing their grown-up child and then complaining that they do not act as an adult.

In a way our Central and Local government relationship is like an abusive controlling 'parent' dictating to their 'child' and using this child as an excuse, a 'whipping boy' for when things go wrong.

by Kumbel | 3rd Nov 14, 8:33am 1414956824

Again no argument on the relationship between central and local government.

The point of Regional Land Transport Plans was to provide linkage between the needs and aspirations of the local community channelled via the TA's and Regional Councils to central government in the form of NZTA. All the regions have one.

But in a world where the local wants are also develpoped through a top down exercise (mostly driven by staff) with a little faux "consultation" tacked on government can ignore what they want. If Auckland (the people not the Council) said loudly that they want central rail loops etc and backed a rise in rates to help pay for it central government would be backed into a corner and would have to support the plan.

by Brendon | 3rd Nov 14, 10:32am 1414963973

Auckland has voted for local government politicians who support public transport. That is the voice of the people. Likewise Christchurch appeared to voice in the 'share an idea' campaign a non-automobile centric city in the form of promoting cycleways.

Kumbel as you say at least half of transport funding even in urban areas comes from Central government and this government is not listening to local voters about the shape of this spending. This government is all about cars and trucks, especially trucks. That is the logic of the Roads of National Significance big spend up.

The government, whether it is Bill English, Gerry Brownlee, Nick Smith or Simon Bridges repeatedly use the tactic of attacking Local government -mostly about housing affordability matters to avoid responding to local city folk desires. Local government is beginning to learn to call these Central government politicians bluff. Responding with if these politicians want affordable housing there is nothing stopping them buying farmland at rural prices and rezoning it residential for housing. This is how places like Japan and Germany to a greater or lesser extent have provided affordable housing. Especially for transit orientated developments. Kiwirail for instance could be given permission to get into the real estate game in this way.....

by Kumbel | 3rd Nov 14, 1:38pm 1414975128

It's one thing to elect a politician with a policy preference for public transport it's another to be happy with whatever spending package they come up with in pursuit of that preference.

Obviously the Auckland councillors balked when they costed out the transport implications of their Unitary Plan and have tried to finesse even more taxpayer largesse from the government. As opposed to, say, doing the hard work of finding out what the whole community (as opposed to the 45% that voted) will actually wear.

I am really sympathetic to the idea of funding local government by a means that is more linked to the actual economy (like central government). You would have to completely rewrite the rule book on how local giovernment works and be prepared, for instance, to grant mayors executive power. There is too little responsibility exercised by the elected members now so too little accountability to simply hand over a whole bunch more money with no strings attached.

And, of course, you would have to be prepared to unwind 140 years of central government taking local powers back to itself.

by Brendon | 2nd Nov 14, 7:48pm 1414910939

Cities also need good transport links to achieve economic gains. If they don't have this sort of planning and common good provision they would be slums, favelas or shanty towns.

Alain Bertaud article -'Cities as Labor Markets' (it is on the internet). Shows research papers from France, Korea and the US that indicated the more workplaces that residents can access in less than 30 min and to a lesser extent 60 mins was linked to measurably improvements in productivity and wages for the labour force. Also lower gerneral prices for goods and services were linked with better transport links.

Alain Bertaud also advocated that planners focus on increasing mobility by addressing the factors causing housing costs to rise relative to income, rather than going on mission creep of addressing subjective unmeasurable factors such as obsisty, livability, resilence and sustainability.

Given this it would make economic sense if workers and firms invested' say 1% of there wages or profits to gain a bigger return in higher wages, higher productivity, lower prices and lower housing costs.

by Boatman | 2nd Nov 14, 4:25pm 1414898758

The burden of paying for the City to run falls too narrowly on homeonwers , the middle class ordinary homeowner.

The 517,000 ratepayers pay for nearly 1,6 million people who use the services , infratructure , etc .

Its unfair

Everyone should pay for what they use , so its perfectly feasible that the USER-PAYS principle be introduced to make everyone pay their fair share

Secondly , the cuts in expenses we were promised when we became a Megacity , need to come to light .

All we have seen is more and more staff being employed, more debt being incurred and astronmical salaries being paid to lazy public servants that have no bearing to economic fundamentals or reality .

Lastly , Auckland city needs to stop funding every man and his dog , including the minority cultural stuff , the lunatic arts fringe , and special interest groups .

If they want to use the facilities , thats fine , but I resent paying for all sorts of stuff that most residents have no interest in whatsoever.

If a cultural event is not self sustaining , or an arts event attracts no interest from the Public , it should find some way of doing its thing within its budget .

Just dont ask me to pay for it.

by Ergophobia | 2nd Nov 14, 4:46pm 1414900005

Very good Boatman, agree. esp. hero parade and the maori nose-flute orchestra!

by MortgageBelt | 2nd Nov 14, 7:09pm 1414908555

At least, finally, there is a general acknowledgement that we are in a low inflation / deflationary environment for the medium term.

The effects of deflation are much worse than mild inflation.

by Ergophobia | 2nd Nov 14, 9:13pm 1414916013

MB, you can count Olde Ergophobia out of yer consensus - the cpi and stats are rigged to produce a chimaera of low inflation; ignoring big things like housing and tax but stressing carrots at 1.5cents. Thereby facilitating RB's delivering cheap money for their clients: banksters, real estate agents, commodity traders and stockbrokers. We plebs consequently have our savings stolen and take a cut in living standards via a debased currency and higher cost of imports.

by Alter Ego | 2nd Nov 14, 8:10pm 1414912232

Waste not want not.

Any fool can live within my means...and does.

My biggest problem is keeping up with them.

My message to the overheads is curtail yours.

My entire reason for blogging on this site to finally have no reason for coming back.

We are lucky in that we have no real money, so it can be conjured up by flim-flam artists who never have to live within their own means, they get other suckers to pay for their profligac by creatibg huge electronic debts..

But finally will come a day of reckoning.

Avoiding that day is any sane mans aim in life.

Never havings to blog would be an asset.

An asset is one that one person peceives is worth being credited with.

Would you credit the past 4 years of crap to reward bankers who scammed the general public aided by politicians, who blew your hard earned money.

Personally, my main aim is to avoid the OBR, the Combined Credit Union, the Rates increase, The Bank draft, the Public Convenience and any debt taken on in my name, without my written consent.

Strangely that is not easy, in this day and age.

And in my dotage,I have only just realised it is almost impossible.

No wonder we need overeseas debt to pay off our own, sorry yours.

Poor children. Poor middle classes...what ever next.

http://click.lfb.org/t/DQ/mhc/pIc/AB_Xzw/Nr0/MTMwMjI5fGh0dHA6Ly93d3cuY2…

by Mike B | 3rd Nov 14, 12:28am 1414927732

I like low inflation. I like deflation even better.

I like to live in a world were i do not have to keep racing to get more and more money because the money i have is wasting away.

I like to live in a world were i do not have to panic buy because prices just keep rising and rising because my money continues to loose its value.

I like to live in a world were i get a real return on my money and not an inflated one.

I hate it when 99% of my mortgage repayments are just to cover the interest payments

Money, they say, is a 'Store of value" if you believe that propaganda stick some money under your matress for a few years then see how much value you have stored.

I like living in a real world, not an inflated one.

by Mike B | 3rd Nov 14, 12:34am 1414928079

People who say deflation and zero interest rates are bad for savers do not know what they are talking about.

Example.

A TV set costs $300

You loan me $300

One year later i pay you back your $300 but no interest.

But now that $300 TV is sold for $285.

That is you can now buy more with your money because your money has increased in value.

Look at why Bitcoin increases in value.

by steven | 3rd Nov 14, 7:19am 1414952392

Really then you are not looking at the bigger picture or at the economy overall or the safety of yoru $s.

That TV, if its going to be cheaper tomorrow ppl wont buy it today, forcing that discount, hence deflation becomes self-reinforcing. If they still dont buy (or buy enough of them) the TV shop will buy less wholesale, let go some staff, maybe even close branches. Ppl with no jobs and businesses with no demand dont borrow, or take on workers. Your taxes will have to rise to pay the benefit, so sure you saved $15, but you lose $5 or $10 in higher taxes. With no one borrowing on the scale they used to, you get no interest at all. The banks are highly leveraged, ppl above losing their jobs means the banks can go insolvent and as a depositor you take a nasty hair cut. Suddenly that $300 you have sees a 30% haircut so you have $200 left, when eventually you get it back. The TV is now what $250? do you care? no because your $200 is hidden under the bed in shear fear, you dont spend.

As the saying goes, be careful what you wish for.

Bitcoin is frankly a ponzi scheme....much loved by Libertarians, as a tax dodge...good luck with the tax evasion.

regards

by Mike B | 3rd Nov 14, 12:51pm 1414972296

Steven - Wow, what a massive contradition.

You have been arguing all along that growth is NOT sustainable. Now you are arguing that we need it.

Your argument that we need a weekening $ to force us to spend, spend, spend is misguided.

Further, in a depreciation environment the $ is becomming MORE valuable so you need less of it. Taxes are not exempt from this. The governments tax take becomes more vauable without a tax increase. The more valuable our money becomes the less we need of it. Study Bitcoin and why it is becomming more valuable.

I prefare to buy what i truely need rather than panic buy everything and get into debt in the process.

As far as jobs are concerned if your money is becomming more valuable and you are buying what you need rather than trying to buy everything then you can work a 30 hour week rather than a 60 hour week. If we all need less work then we need less jobs.

Etc, Etc

by steven | 3rd Nov 14, 7:24am 1414952676

There are 2 mutually exclusive sets of people in that "savers" catch all. The saved ie the OAPs living off their savings. They as such are not saving unless their incomes are higher than their outgoings.

Then there are the savers, those who have wages and save the spare. The savers also are split, those with no debt and those like me who save some for emergency but otherwise pay down debt as that has a higher interest.

Really these 2 at least want a different economy.

regards

by Mike B | 3rd Nov 14, 12:53am 1414929184

We have to push aside all the crap, the smoke and the mirrors and see the real world.

Take a rising kiwi dollar.

Example

Farmer A exports his milk through Fontera. The NZ dollar is worth 75 cents US.

Farmer A spends most of his overseas income on new tractors, computers, TV and so on. That is most of his expenditure is on imports.

Farmer B exports his milk through Fontera. The NZ dollar is worth 95 cents US

Farmer B spends most of his overseas income on new tractors, computers, TV and so on. That is, most of his expenditure is on imports.

Who is the best off. The farmer with low income and cheap imports or the farmer or the farmer with a high income and expensive imports

Farmer C is up to his eyeballs in debt and needs all the money he can get so he wants the NZ dollar to keep falling

So the real reason we all need a low value dollar and pay more for our stuff is so those farmers, who took on too much debt, can pay it off.

We may as well just have a high value dollar and go back to farm subsidies because that is what a low dollar is

by steven | 3rd Nov 14, 7:30am 1414953037

No, farm subsidies take away the incentive to be efficient and effective.

The high debt is driven by the expectation of a tax free retirement sum, hence why we need a CGT. High debt means paying low tax day to day as the interest is offset, two bad behaviours that need fixing IMHO.

"who is best" neither matter as the most important thing is the Nation's economy. So if anything the latter as expensive imports are good things to discourage as these are consumer items and give no profit.

The levels of debt are plain silly but make sense in the tax environment we have. Fix the tax dodge, fix the excessive debt as there is then no incentive for it.

regards

by steven | 3rd Nov 14, 11:14am 1414966440

3 things,

1) If those assets are in a x2 bubble, which they are then we get to the bedt being 1/2 the "assets"

2) If then you take a financial event of the 1930s occuring which it will, those so called assets

3) That debt v asset ratio is an average but there is a significant % of mortgage borrowers who are in the 80% plus category and when 1) corrects itself they are in negative equity and technically bankrupt/insolvent as are the banks.

We do have a debt problem at local level. Councils seem to be close to debt maxed out ie many can lend no more, eg kapiti aimed to re-value the "worthless" land under the roads in order to not breach its lending covenants.

Of course as a vested interest you are looking to be nothing more but a parasite on ratepayers by getting them to pay for the infrastructure you need to make building profitable for you. I object to that behaviour, if you want it you should pay for it all.

regards

by KH | 3rd Nov 14, 12:06pm 1414969588

Nah Coolie. If you want the infrastructure you need to pay for it. No wriggling will get you past that. And the infrastructure does not produce an income as such. It produces usefulness, but not a cash flow.

So if you want to live in a hive like Auckland, then there is a lot of infrastructure to build. Especially at times of expansion. You just gotta dig deep. Rates might need to triple. Or you pay tolls. Or there is the 5% 'living in Auckland' extra GST . Whatever.

But you can't live cheap and have the infrastructure as well. Magic dust don't work. Write the cheque. Your bank balance will be affected. Thats reality.

by Brendon | 3rd Nov 14, 12:15pm 1414970151

There could be other taxes available to Local government not just rates. GST, petrol tax and PAYE are all forms of taxes that are commonly used overseas to fund local government infrastructure needs.

Our poorly funded infrastructure is how our politicians -John Key, Bill English etc like it.

by waymad | 3rd Nov 14, 1:41pm 1414975296

Good thread - down to about halfway.....

I think there's a key phrase in Kumbel's epistle:

"the local wants are also developed through a top down exercise (mostly driven by staff) with a little faux "consultation" tacked on "

This is the issue in a nutshell.

Staff exist largely in a planning echo-chamber without windows. They beaver away, piling Ossa upon Pelion, and inflating the size of their Plan, the cost thereof, and Guess Who Pays?

Outside the aforesaid windows, there are a number of facts which in a sane and logical world, would inform infrastructure plans:

175,000 Lifestyle blocks, which represent preferences, choices and are largely ignored except for the routine squawl of 'swallowing up good agricutlural land'
Rampant land price inflation, largely caused by planning squiggles on maps: the Clueless Councils have never figured out that such price rises are subject to a 'ratchet effect': a rise is quickly rendered irreversible via mortgages taken out with that value as collateral, by equity withdrawal as the unearned increase is tapped, and by osmosis effects whereby the price rise spreads all over. It would be in the community interest to moderate/minimise such effects. Too late now.....
Most of the dense cities globally, got that way because infrastructure preceded density. A useful primer here is John Lanchester's 'What we talk about when we talk about the Tube', which details the dynamic by which London grew along the lines. Awkland is, evidently, trying to do all this in reverse: hence Kumbel's note re the cost of densifying, as it relates to infrastructure. Do-able in engineering terms, yes. Cost efficient??
Planner obsessions with Cycling, Walking and PT don't assist much with the core functions of life: Food, Shelter, Transport and Security. Even if one subtracted the trinkets and frippery from all retail, there's still the hard yards of keeping essential FMCG on supermart shelves, building lotsa new houses (39,000 in the next 3 years...), mining/growing and transforming raw materials to supply all this, and carting the whole lot around between locations. Ain't gonna happen with fleets of cargo bikes and solar panels, especially as both require (ooops!) Metals.

I tend to agree with Kumbel that LG is irretrievably broken: a fatal combination of political vanity, botched or absent communication, staff-driven dynamics, and limited resources - both financial and intellectual.

And yet most of the core LG functions are no different than are carried out by, say, Rio Tinto at Tom Price.

Perhaps there's a model....

by Kumbel | 3rd Nov 14, 3:17pm 1414981077

And there is a living example of how growth and infrastructure interact right on Auckland's doorstep.

NZTA have been steadily upgrading the highway between Auckland and Hamilton over many years. And guess what? Waipa and Waikato Districts are growing at a faster clip than Auckland.

Maybe one day someone at Hamilton City Council will wake up to the fact that all the manufacturing in Auckland and the associated workforce are theirs for simply making land affordable.

by Brendon | 3rd Nov 14, 4:51pm 1414986699

Waymad check out transportblog.co.nz 'The Geography of Unemployment' and 'What does the next Aucklander want' for some pragmatic and well researched articles indicating why cycling, walking and PT assist a cities core functions of life -especially the big one you missed -employment.