The Northland by-election may pave the way for increased Regional NZ v Auckland political posturing

The Northland by-election may pave the way for increased Regional NZ v Auckland political posturing

By David Hargreaves

Only history will accurately judge, but the Northland by-election might in future be seen as a big turning point in the development of New Zealand's political and economic policies.

Suddenly people are thinking and talking regionally - and by 'regionally' we can infer 'non-Auckland-ly'.

As I say, time will tell, but it is to be wondered whether there will now be a kind of backlash against Auckland and a move toward more populist 'regional' development policies. And would this be a good thing?

Economists from both the ANZ and Westpac have recently touched on this topic in their weekly commentaries.

ANZ's economists said that while the Northland result didn't change much politically, the pork-barrel politicking in the lead-up to the by-election was "undermining a big theme we were constructive on (leadership trumping populism)".

They went on: "Whether this is truly a turning point towards clear populism remains to be seen, but it needs to be watched.

"Regions flexing their muscle will bring regional-based development initiative thinking to the fore. We’re not a big believer in regional growth being central government led; central government can be the supporting actor but not the lead one. But the Northland result will see thinking shift."

The economists made the additional point that the Reserve Bank could be a focal point "as part of a game of monetary policy political football, with growing sensitivities over Auckland (housing and consumption) versus the regions (production and the high NZD)".

And then there was with this from the Westpac economists: "One potential consequence of the by-election is that the National government may recognise that it can’t take the support of the rural regions for granted.

"That could see a more tailored approach to economic growth policies across regions, though not necessarily with an increase in total spending given that the fiscal purse strings remain tight.

"And while macro-prudential policy is the Reserve Bank’s domain, the Government might be more supportive of future restrictions that distinguish between regions (IE Auckland vs the rest).

"Make no mistake: the theme of a two-speed economy will be out in full force this year. Income growth in the rural regions is strongly influenced by changes in dairy prices, and the impact of the drop in Fonterra’s farmgate milk price from a record $8.40/kg last season to $4.70/kg this season will take some time to play out..."

Point of friction

Okay, so, back to me. The extent to which Auckland's growth and development has run ahead of the rest of the country's has always been a point of friction. But there do seem to be signs that friction is growing.

What might have once been mostly good-natured (though probably always with an under-current) ribbing about 'Jafas' is now giving way to a deeper brooding resentment - a sense that New Zealand is now becoming two countries, AUCKLAND (imagine that in shiny neon) and 'the rest' (cue shots of tumbleweed in a deserted street).

The fact that Auckland house prices are now galloping ahead of the rest of the country in itself provides a kind of envy factor, but there's an additional edge to that too because of the fact the whole country already faces limits on high loan to value lending and may soon face further RBNZ measures - when the overheating house market problem that the RBNZ is seeking to tackle in fact begins and ends in Auckland.

That's right New Zealand as a country is being asked to take its medicine for the ills of Auckland.

Deepening resentment

I suspect such under-currents and resentments are only going to deepen as New Zealand begins to develop what - and I'm in agreement with the Westpac economists - is looking very much like a two-speed economy.

In a fairly simplistic sense the 'regions' have been trotting along fairly nicely on the cow's back as soaring global milk prices have pumped billions into farmers' pockets - and therefore back into the mostly regional economies.

But as the current travails of Fonterra tell us, the soaring prices have rapidly become SOURING prices, with the dairy farmers heading for a below break-even season. And while the forecasts are for better dairy prices next year, I really do wonder about that as we see such things as the removal of EU quotas make more product available.

When all is said and done, we didn't think the rest of the world was going to allow little old NZ to dominate dairy supply forever, did we? Or did we?

Opposition MPs have talked about a six billion dollar hole in the economy this year due to lower dairy prices - and of course it's 'regional' New Zealand that will feel most of that.

Tension

In most countries one might care to think of there is at least some tension between the wants and needs of the largest city and the rest of the country. In the most basic sense the big city will normally generate a large portion of the service-related income for the economy, while the regional parts of a country will provide the production. That's a very basic description.

Current dominant economic themes in New Zealand might be seen as: The rebuild of Christchurch (providing an almighty positive kick to GDP), a boom in Auckland's service industries, falling dairy prices, and the high Kiwi dollar.

The last of those, the high Kiwi dollar is both a positive and a negative. It's good for service industries, such as outbound tourism, but real bad for productive industries. What you might say, therefore is that Auckland and Christchurch (different reasons in Christchurch) have buoyant prospects, while the 'regions' get to cop a large part of the negatives from the high Kiwi dollar and the falling dairy prices - and they are going to be invited to face up to more RBNZ housing-based restrictions because everybody's going nuts buying houses in Auckland.

The recipe for increased The Rest v Auckland resentment is very much there.

I've already suggested it might be a very good idea to look at specific Auckland targeting to try to take demand out of the Auckland housing market and it's interesting to see the Westpac economists suggesting that the Government might now be more "supportive" of future RBNZ restrictions that "distinguish between the regions" .

One country or two?

But while I think that Auckland-specific targeting of RBNZ restrictions would be a good idea, we then get ourselves into the territory of asking how far we should go with, as a country, starting to treat ourselves as effectively two countries.

I think this is a question that's going to be asked a lot in coming months and as we lead up to the next election in 2017. The National Party in particular is vulnerable to pressure from its rural heartland base - and from all available economic evidence, that pressure will only increase as the disparity between Auckland and the rest becomes clearer.

As I said further up this article, there's always a tension between the needs of a country's largest city and the rest of the country. For example, should the rest of the country be expected to bankroll expensive new roads and public transport systems in Auckland? I bet some people would say 'no'. I think the answer is a resounding 'yes' because having a largest city that functions is essential to attracting tourists, businesses etc into the country - IE there is a clear benefit to the rest of New Zealand from Auckland function properly as a city.

But there's no doubt there is some sort of pretty high-powered juggling act required by central government. It's got to be done well.

I thought the pork-barrel politicking that went on in Northland was quite sickening. Any move to a more general sucking-up to the regions would be very disconcerting from my perspective and could help to severely undermine the economy. Cool heads will be needed in the face of what will be increased political pressure.

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

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Face up to it. Auckland would be much less of a separate animal without the unfettered immigration of recent years that is also not only an economic divide but also one of ethnic and cultural significance.
Until and unless central government is prepared to deal with that one, the problems will only be exacerbated.

When most of the population is regional as you call it, shouldn't that be the focus of government?  It's hard to see how outgoing tourism is a net gain for the economy? 
 
I like how Key is acclaimed for his leadership not populism because of how he rushed through the asset sales, which have been a net loss for society. 
 
Auckland needs good roads, sure, so does everyone else and if Auckland is so great why can't they afford to pay for their own roads?  Seriously they have the high land values and the population, and the high wages (kinda) yet we are paying a special fuel tax to reduce traffic jams when they all head off to the coromandle over summer holidays.  Somehow that benefits me, ok I'll accept that, but many of the places I spend money have HQ in Aucland, so I'm constantly sending money there anyway.  It's not as if it's a one way flow where somehow it's only Auckland that benefits the regions, the benefits go both ways, and if you could track the money I guarantee more is heading into Auckland then out of it.
 
Personally I have no problems with a nationwide approach to limiting house price inflation, other parts of NZ are overheating as well, though not to the extent that Auckland is.  People need to stop viewing housing as some ever appreciating asset, and relying on capital gains.  Housing can't keep rising faster then wages, thats a recipe for severe pain. 

The problem with Auckland is the amount of tax payer funds it absorbs against what it creates. The vast majority of the country's exports income is generated from "Not-Auckland". Indeed if the analogy wre a body then the closest comparison for Auckland would be a cancer tumor, something that is bleeding resources from the rest of the country, while producing not one iota of benefit!  

It is more of a symbiotic relationship. Auckland may be a parasite, but the host (rest of NZ) would die if the parasite was somehow removed

Often said. But I've never heard the argument backed up. Usually the arguement runs along the lines of provincial New Zealand losing all sorts of things they now have, the proponent not realising most don't give a stuff for those trinkets.
But I'm listening.

My understanding is that Auckland receives slightly less in government expenditure than its share of population would suggest, and considerably less than it pays in taxes. Taxes and export dollars are of course different things.

less the tax charge...but thats because they have the lions share of higher incomes

I suspect you are right, but I can't find the data, Wellington will obviously be the highest.

Leadership vs populism? I thought populism was exactly what national were about. I also thought northland rejected the pork barrel when national ran off with it, tail between legs after being soundly criticised over the ten bridges.
This isn't about envy or parochialism. This is a question of economics, the regions produce while our biggest city consumes and most of us don't see the logic or reason behind supporting that.

Bring back the South Island movemnet
 

Cut the cable and let them float away!  Haha.

Didn't take long for that old chestnut to be rolled out.
 

If Auckland wants it, then Auckland can pay for it! They have sent a message they don't want the port. Doesn't Whangarei want to expand theirs?

I expect to see Winston Peters as our Prime Minister in the not too distant future. Remember his namesake, Winston Churchill- vilified by the English PTB, pre WW2. 
Watching John Key hammering a nail like a 7 year old made me realize this.

You forgot Winston Smith of the Ministry of Truth

There are I believe plenty of Aucklanders, including me, who would strongly prefer even for Auckland the kind of recipe that many would advocate for the regions- namely some immigration restriction and or non residential property sales rules and or some capital management and a lower dollar managed policy. 
I personally enjoy the new cultural diversity of the City, and also understand that many local services would not apparently be managed well without many immigrants. However you sense that immigration is being encouraged more to keep GDP up, or to get the capital of the immigrants, than to perform essential tasks. 
There is no benefit to me, at least while I want to live here, in my house potentially being worth more than I paid for it. My children are faced with a considerable challenge getting on a housing ladder in time. Transport really is an issue. 
So the Reserve Bank Act being fixed really could help both Auckland and the Regions. 
It won't fix that Auckland will still be full of us Jafas, nor will it fix dairy prices (but it would help returns to farmers), or our rugby team, or probably the urban magnet that Auckland is, but it could fix a few things.
Most Aucklanders by the way are not travel agents, although a fair number may be estate agents. It seems Barfoot and Thompson sold $1.2 billion of property in Auckland in March. At say 3% commission, that's $36 million gross profit. That would pay for a few flat whites. Nevertheless I would prefer property was not the city's focus.

Until you see data and studies on the social effects and social changes being imposed on the social fabric of the new zealand and auckland way of life nothing will be done, especially while the "let the fittest survive" party is in power
 
Have you ever noticed that there is any amount of commentary about housing prices, capital gains, affordability, unitary plans, supply, demand, government, local and central, but total silence on the biggest crocodile in the swamp that is the social consequences of an increasing population but an increasing number of housing units becoming rentals and held in fewer and fewer hands
 
I have never once seen an article published here on interest.co.nz from a social service organisation dealing with this issue. Does one assume it's not an issue?

National fully deserved to get towelled up in Northland, the bridge bribe amoungst other things was a disgrace.It will be interesting to see if NZFirst will be able to gain some traction as a champion of the provinces. Rural NZ has not grasped the possibilities that MMP offers it given our general blind loyalty to National.
Down here in the south there is a very real possibility that sealed roads are going to be ripped up and returned to gravel because of lack of funding to maintain them and dont even mention our internet connections or phone reception. The very same provinces that are expected to double export earnings from their primary products by 2025.
It makes no sense to have Auckland bulging at the seams continually sucking resources when there is latent capacity almost everywhere else in NZ, apart from ChCh, aided and abetted by govt centralisation and policies. Freemarket economic dogma trumping genuine strategic thinking. 
The govt failing to take anywhere near sufficent measures to stop rampant Auckland house price inflation, as everyone on this site is well aware, is keeping comparative interest rates high leading to an uncompetitive dollar which is affecting me on my farm. Make foreigners wanting to buy in Auckland build new homes as they do in Aus, dont add fuel to the fire by offering first home subsidies, drop the LVRs outside Auckland postal codes, skew the immigration points system to further  favour settling in the provinces, bring in a capital gains tax....just do something! 
 
 
 

Stephen L comments above that Auckland receives less tax expenditure than it pays...  soooo...  why should our taxes be used to pay for your under used roads?  Why shouldn't these roads you refer to be paid for by tolling or local rates?

What about the wealth transfer from the less well off elderly of Nelson to the overpaid lawyers of Auckland? Perhaps this point should have been included.
 
My reasoning is thus, people who lend money to the bank (rather than invest it in shares, property, or bonds) will tend to be less financially sophisticated. They will also tend to be older and living in the regions. Borrowers will tend to be earning good money and hence living in Auckland.
 
When the RBNZ sets interest rates below the natural rate they take money from savers with bank deposits and give it to those with large mortgages. This makes sense in a crisis but is a dereliction of duty as a policy.
 
 

Good article David.   Auckland is big but I disagree it is richer. "Tumbleweeds" of a sort run in it's Zombie suburbs.
I go there often and see a lot of poverty, on the outskirts.  My peers really struggle,  even if their Mt Eden villa is now worth a couple of million.
That Aucklad centric thing means the inhabitants have not worked out how tough they have it.

Poverty???  In Auckland???  You need to get overseas more.  There is no real poverty in NZ and to say there is would be insulting to those in the world that live in real poverty.