Kerry McDonald analyses the many challenges the country faces and concludes we need effective leadership and recognition that good policy, in a sound strategic framework, is critical

By Kerry McDonald*

Having successive three-term New Zealand governments has highlighted their ineffectiveness. The evidence is compelling! The most important policy goal is higher living standards for New Zealand residents, with a reasonable distribution. But policy has been poor, dominated by political objectives. Consequently, New Zealand’s Global ranking has steadily declined from top ten to the mid-twenties and social, economic and environmental problems have become much more pervasive, debilitating and dangerous.

Tick, tick, tick! Who needs terrorists? Forget the mythical Rock Star economy; this is reality – and New Zealand’s future!

The serious consequences of having no clear and sound strategic framework for policy are evident and New Zealand as we know and value it is being fatally damaged. Think about it:

o Auckland is booming but it’s the struggling regions that contribute most exports and tourist destinations – the critical determinants of living standards.

o Excessive, low value immigration is a disaster. It boosts GDP, so is politically attractive, but increases housing demand and prices, is causing serious social problems, puts pressure on Government spending AND, most importantly, reduces the living standards of New Zealanders. Building more houses for more people who don’t add economic value just digs a deeper hole!

o Immigration inflates house prices but much of the increase in house prices reflects the large tax subsidy to investors in housing, compared with savers.

o High volume - low value tourism is destructive. It adds little economic value but puts serious pressure on the environment and fundamentally erodes New Zealand’s desirable features.

o Deliberate policy targeting of savers and savings is politically expedient but bad policy, and damaging, economically and socially.

o Low productivity is a critical weakness, contributing to low incomes, low tax payments and low living standards - and welfare dependency.

o The windfall gains from Auckland house prices should be substantially taxed, to fund critical National projects, such as restoring river water quality and more effective social programs. River water quality is a disgrace!

o The Public Service needs to be sorted, urgently. It has too many serious policy and performance failures. It has too many weaknesses and is too much a lap dog rather than a source of leadership and free and frank advice and information. “Better Public Service” is dead in the water!

o And so on!

It’s not a “housing crisis” but a comprehensive failure of policy crisis. The Minister of Finance acknowledged this, that policy was ill founded and unsustainable, (public comment, 7 June, 2016) when he stated that slowing immigration would put house prices at risk!

Tick, tick, tick, tick!

The flag change process was not a waste of time and money, but a valuable showcasing of how inept we can be, in terms of policy design and implementation.

Experts – who needs them!

Most of the current economic policy problems were addressed in the Government’s Savings Working Group Report (SWG, 2011), but largely ignored.

So, a few specific policy issues:

Strategy

Most policies have interdependencies with other policies and long term implications. So, effective policy needs an overall, strategic framework, which New Zealand lacks. Instead, policy is ad hoc, piecemeal and lacks coherence - and the results reflect this. The critical living standard growth engines of productivity and exports (foreign exchange earnings and savings) remain weak and there is a disconcerting aura of complacency and disingenuousness.

Immigration

The high rate of immigration is a national disaster. It is lowering the present and future living standards of New Zealanders by serious adverse economic, social and environmental consequences.

The critical criterion for policy is impact on the living standards of New Zealand residents. The impact on the immigrants is irrelevant. But, the political view is a simple and misleading “quantity” based one – more immigrants means population growth and more jobs, houses and infrastructure spending, so GDP increases. This suggests a strong, well-managed economy - which is a nonsense in New Zealand’s case with an export dependent economy.

In terms of national benefit the “per capita” impact is the important one. Unless immigrants increase New Zealand’s exports and foreign exchange earnings and savings per capita, or bring particularly valuable skills to the economy, they simply impose substantial additional costs on and reduce the living standards of New Zealand residents.

Having a job, even in an export industry or tourism, is not enough, and many immigrants lack the particular, high level of skill and productivity to add the necessary value. Using them to fill low skill, low productivity gaps in the labour market, eg. building houses for our excess population (other than on a temporary basis), is damaging to New Zealand’s interests, in the short and long term. So, we scramble to build more houses and ignore the fundamental policy problems.

An Australian Productivity Commission study estimated that a 50% lift in skilled migration would reduce productivity generally, but increase GDP per capita slightly – but with most of the gains going to the migrants themselves - which doesn’t count as a national benefit. We can’t save the World!

Moreover, New Zealand data indicates a close, long term relationship between house prices and migration flows. A net inflow, equivalent to 1% of total population (the current level is higher than that) increases house prices by about 10%, indicating that the current Auckland (and spreading) housing problems are largely demand driven, not supply – again reflecting bad policy.

Auckland and the Regions

The regions are critical in the economy, and for our living standards. They produce a high proportion of exports and are the main tourist destinations. But, they are struggling because the NZD is too strong, they are less valued politically and their competitiveness and quality of life is being undermined, mainly by poor policy which doesn’t recognise their paramount role in the economy.

Auckland is increasingly a millstone around New Zealand’s neck: “its economy is inwardly focussed, driven by consumption, real estate and domestic services”; “measured internationally it’s performance is poor – ranked 69 of 85 OECD metros”; and “ it must shift from import to export-led, but is not a centre of export excellence or innovation” (source: The Auckland Council Plan).

Its population growth is increasing the negatives: more spending on infrastructure and government services; more agricultural land for housing; a less attractive living environment for existing residents; more demand for urban water use at the expense of more productive uses; greater population pressure on the environment generally; and an increasing dependence on the rest of New Zealand to subsidise it’s weak export performance – which reduces the living standards of everyone else.

The scale argument (bigger is better) is a typically wrongheaded quantity not quality political argument; and the innovation centre argument is not economically viable – if it depends on Auckland’s size then the national benefits are inadequate to justify the cost.

The tax free wealth gains on Auckland property is a major opportunity lost in terms of national benefit. In a rational world the gains would be taxed to fund important national programs, such as: a rejuvenated regional development program; or a major blitz on the adverse environment consequences of agriculture; or a major program to reduce the vulnerability and decline of the conservation estate; or a major program to develop future jobs and a more effective transition to a more innovative economy. The tax would also partly compensate the Regions for their export based subsidy to Auckland!

Savings

Savings have a critical role in the National Economy. So, it is surprising that savers are being targeted and victimised by the Government and Reserve Bank, in contrast to borrowers, tax payers and the protected species - Auckland property owners. Savings finance productive investment. Since the 1970s New Zealand’s savings have been inadequate to fund its investment, constraining investment and leaving foreign savings to fill the gap. This has led to a large Net Foreign Liabilities position and two serious economic problems:

  • The economy is more vulnerable to external shocks; and
  • Too little productive investment has led to low capital intensity (capital per employee), low productivity and low living standards.

There are a number of related policy issues:

- Low interest rates make savings less attractive. Nominal interest rates have declined since the early 1990s, but more sharply recently.

- Monetary policy has been damaging for savers: pre GFC when credit growth was excessive but interest rates low higher interest rates would have had a useful moderating influence on the economy; and since then very low interest rates have been deliberately used to encourage economic growth. Thus, savers have lost out twice, due to deliberate policy decisions!

- There is a strong argument that a more balanced and targeted policy approach with more emphasis on fiscal policy would be more effective in stimulating economic activity and less discriminatory against savers, given that the fundamental problem is insufficient demand.

- In fact, monetary policy, based on low interest rates and easy supply has largely lost credibility, fuelling asset price inflation, not growth.

- Incompetent regulation and oversight of financial markets, particularly since early-2007, resulted in very large losses of savings and a loss of confidence in many institutions, advisors, regulators and politicians.

- Tax policy is distortionary and seriously penalises savers. Savings are double taxed – as income and then as interest earned. And, the real effective tax rate on investment in rental housing is half that on simple saving products. This is inequitable and ridiculous.

- However, the favourable tax treatment of property investment is estimated to account for 50% of house price increases ( source: Savings Working Group); and the inflation in house prices accounts for most of the increase in the wealth of New Zealand households, which makes it a sensitive political issue.

The Government’s Savings Working Group recommended policies to increase National Savings, reduce the tax distortions and boost productivity and exports, all in the interest of raising living standards, but to no avail.

There is another serious risk to savers. They have been specifically targeted to meet the costs of restoring any registered bank in New Zealand to solvency, in the event that one fails and taxpayers and the bank’s borrowers are excluded. Why? That is a very good question.

It’s called OBR – Overnight Bank Resolution, which sounds benign but actually means a “haircut” for all depositors ( savers who don’t rely on “under the mattress”), taking as much of their hard-earned funds in the bank as are needed to restore it to solvency and meet all of the costs and risks involved.

But, the savers/depositors have no say in the running of the bank or its prudential management and governance. They have no say in the selection of managers or directors and no influence on the RBNZ’s oversight of the banks – all critical factors in the solvency of a bank. And, the Reserve Bank is not close enough to the banks and their directors, managers, policies and processes to be confident of their oversight capability. Banks are genuinely complex and challenging to operate, especially in uncertain times.

Banks typically fail because they misjudge risk in the pursuit of higher profits. So, why should savers/depositors compensate a bank for it’s failure to manage its affairs astutely. In a national policy context, given the national role that banks have, it should be taxpayers who carry the risk. There is also a good argument that borrowers should be included if depositors are – ranked pari pasu!.

Given the risk to depositor from OBR I am amazed that it is not highlighted with warnings in all bank customer service facilities and documents, particularly in deposit related documentation. Clear and comprehensive disclosure should be mandatory - but the highest priority is to abandon OBR.

Meanwhile, the most effective response for savers is portfolio - based risk management, with minimal savings held in the New Zealand banking system, in cash or near cash. Make sure you know which bank-related instruments are exposed to OBR, and minimise this risk. You are likely to want some cash or near cash in NZD and readily accessible, but look seriously at blue chip offshore options.

The Public Service

There are some excellent Public Service organisations and people but, it is notable for its numerous, costly failures. There are hundreds of examples – the media reports them daily and weekly, but just a few: leaky buildings; the failure to regulate financial markets and health and safety effectively; Solid Energy; Pike River; Cave Creek; the Fox River aircraft accident investigation; sub-standard building products (eg steel mesh); Child, Youth & Family; Government procurement; Corrections/Serco/etc; the vetting of foreign investment for national benefit; Defence acquisitions; the State Services Commission; and so on.

There is a common, fundamental cause of these: it is the failure of top level management to lead effectively, starting with, in my view the SSC. It should lead the Public Service, but hasn’t done so effectively for a long time. It is a pity that it’s confidential settlements are not made public.

Top level public servants now have substantial power and authority, but are not properly held to account for their performance and are more often than not reappointed, when the appropriate action would be dismissal. Many are promoted for their technical ability when the role needs leadership and management skills which they lack. Better Public Service is the latest attempt at improvement, it was well designed but is going no where!

The Future – Tick, Tick, Tick, Tick!

Because of poor policy there are now a number of bombs ticking. For example:

- Too many low skill, low productivity residents, on low incomes and substantially subsidised by others, diverting expenditure from more nationally productive uses, such as innovation, exports, water quality, etc.

- An aging population.

- Auckland is not economically viable; the rest of New Zealand would have a higher living standard without it.

- The critical Regions, and important export industries in them, are not sufficiently valued and are under pressure.

- Too much debt; too many loans at high loan to income ratios, which won’t be viable at long term average (more normal) interest rates.

- Inflated house prices and many barriers now to home ownership.

- The finance sector has a number of serious exposures.

- Regulators, in all areas, have a very poor track record. Now they are overreacting to compensate.

- Current spending is inadequate to maintain and protect the environment, let alone to remedy existing serious damage eg river water quality.

- Climate change is a major challenge to an already, fundamentally weak economy and society.

- Politicians do politics, not national benefit!

What is the answer? It is effective leadership, and recognition that good policy, in a sound strategic framework, is critical.

It must be the wind! I thought I heard someone whistling!

----------------------------------------

*Kerry McDonald is a company director, chairman and advisor, with experience in a wide range of industries and other activities in New Zealand, Australia and elsewhere. He has been a listed (ASX,NZX,TSX,etc) company director since 1991 and has been involved with many business, public sector and other activities and organisations in Australia, New Zealand and elsewhere. He was New Zealand Executive of the Year, 1996. This article is reproduced by permission of the author.

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91 Comments

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17

Whatever an expert may say but our Hon PM will deny everything as in denial mode.

NZ needs change and have to be saved from government that is not able to see the pulse of the nation and has become to arrogent and are living in isolation.

Fear is that still more than a year that will have to tolerate a govt that is working for few elite and their overseas friends except the people of NZ.

Demanding "change" is not a solution to anything, it is just an empty whinge,

What exact change do you suggest - and where is your solid rational to show it will improve,/i> things and not just make them worse or have zero effect?

I understand that opposistion is weak but absolute power corrupts and make arrogent and with the lie and insensitive statements that comes from national party everyday is hard to ignore.

My house may be a million but is damaging the future generation and his blind support to chinese money is hard to understand. Want development for the country but at what cost.

Open challenge that do the overseas buyer data properly and let the people of NZ knows how many non resident buyer / overseas buyer in Auckland. If one believes , one should not hide behinf faulty data. Lie and denial is more irriating.

Just the few elites? Yet he won a democratic election last time and is likely to next time. WP will be his friend if nothing else.

Arrogance and denial lead to downfall.

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22

What an excellent article. ! "......The most important policy goal is higher living standards for New Zealand residents, with a reasonable distribution......." Who would have thought that given what emerges from government currently.

But! A few! Too many! Exclamation marks!

Problem is KH, he would claim that's what they are doing, thus then pointing to the 45.4% poll in their 8th year.

Higher living standards is determined by whether you're sleeping in a sedan, hatchback or station wagon...

I can't agree KH.

Yet another person listing obvious problems without offering rational solutions; which is whinging. The entire article boils away to this:

1. Like every breathing person I see problems.

2. What is the answer? It is effective leadership, and recognition that good policy, in a sound strategic framework, is critical.

Like a fart in the wind you think you catch a whiff of something but as soon as you do it is gone because it had no substance.

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10

There is a solution in every paragraph there Ralph. And an overriding solution that policy has to be in the interests of New Zealanders.

"Every paragraph" you say. There are seven paragraphs.

1. Intro (not named).
???

2. Strategy.
???

3. Immigration.
???

4. Auckland.
His only "solution" is more tax. Captain Obvious I say.

5. Savings.
Some actual thoughts but no discussion of the pros and cons.

6. Public Service.
???

7. The Future.
???

I guess some would say tax more is a real solution to something, but I would score 1/7. Maybe I am missing the hidden solutions between the lines.

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12

Your comment is laughable. All the solutions are clearly stated. There are none so blind as those who will not see. You're not the Prime Minister, are you?

If it is so clear, then why don't you try listing them instead of resorting to character attacks?

I can't be bothered - as they are all stated by the author. Read it properly.

To start with how about Sydney - stamp duty on non residence buyer and see the result as kiwi first home buyer and even Kiwi investors do not 30 to 40% preimum knowingly as are not chanelising black money. Money laundering though nay not stop totaly as black money at home specially in china is worthless so will get it out country by any premium but will atleast slow.

Government too knows but are not interested as NZ ecenomy is mostly fueled by this money.

Not only a compulsory read for Donkey - to give him another chance to deny and further tighten the noose.
But also for the Government in waiting - however composed of the Opposition parties that make it up.

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12

Agree, a good, thought provoking article.

Why wont the National Government listen and do anything about the very obvious and painful problem that is affecting their citizens?

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14

Self serving and a hatred of their fellows citizens who are less well off?. NZ class system

Hi Tooth Bora, it is a million dollar question. Why is the government so obliged to please chinese at the cost of newzealanders. What is it that that they are afraid of / from Chinese that have turned blind and deaf to what is hapening around them. Housing bubbleis is in the air now and only topic of descussion when friends meet and in media but still the denial.

This is what absolute power has done to our national party.

It has come to a situation where if anyone takes a name of anyone from national and you hear choicest of swear words and coments. This arogancy and indifferent attitute should give birth to a movement and media/ sovial outrage.

Media too has understood and have now started to raise valid questions but should keep on highlighting and asking the question till get the response.

Actually interest rates in NZ are very high - relative to the developed world.
Floating mortgages 5.5%, personal loans 16%, credit cards 25%, overdrafts 15%, money is still very expensive in NZ.

Wonderful article

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13

great article.... many thanks..

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25

Yes excellent article and I very much agree with this statement: Auckland is not economically viable; the rest of New Zealand would have a higher living standard without it.

I currently live in Auckland, and have been wondering for quite some time about its economic driving forces, to warrant such a high cost of living such as compared to other major cities. Auckland's CBD is miniscule and mainly seems to be made up of insurance companies or independent teach institutions.

Also the tourist industry here seems to be dwindling, as most of the lovely New Zealand Cultural arty shops look to have been squeezed out replaced by tacky inward looking mass produced souvenir stores, that are completely lacking in any character and style.

So I can only conclude that Auckland's biggest economic driver is house prices and its main export product is New Zealand citizens trying to escape the high cost of living in Auckland.

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16

Great article explain8ng the failures of the "do nothing say nothing " government.

Do nothing n talk rubbish

Finally ... a Captain of Industry speaks out ... too late

Whatever one may say or write but will have no effect on shameless arrogant......

There you go DC. An article that gets a heap of positive comments from us common taters. Mind you - we still slag the gummint.

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17

Excellent article. How do we get rid of the current government and replace them with a sensible group of politicians. I am yet to be convinced that the alternative parties are that much better. Better in some ways but foolish in different ways. A big part of our problem is the level of media coverage and lack of informed debate that keeps the public largely ignorant of the important issues and voting on the basis of shallow personality politics.
PS I wouldn't be surprised if the ticking stops soon and leaves us in an ominously pregnant silence.

Rightly said we all are sitting on ticking time bomb but national party not that it cannot see but feel that by ignoring thr priblem will go away but do not realize that it will come back and with a BANG.

Power corrupts all sense and thinking process. Typical example is our national govt

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18

How do we get rid of the current government?
Several ways.
First you discourage the urban legend that there is no opposition. National is all about Key and he is all smoke and mirrors. The rest - Collins, McCully, Smith, Brawnlee etc - cmon you are joking aren't you?
Secondly you pass on to your elder relations the hardship that a lot of NZ is suffering because of National's housing and immigration policies. A lot of this age group seem to think everything is fine because their house prices have gone up although they are curious as to why traffic is so bad.
And thirdly - probably the most important - you encourage everyone to vote. My impression is that those most affected by National's policies are the ones that don't vote as much as the rest of us.

Good, constructive advice.

I believe another 1 million WILL vote when the main opposition parties push for radical and new progressive ideas but they seem lost and are still not connecting. Too many old faces, still too stuck in the PC 90's, too arrogant to admit their own failures around property speculation that let National continue that course even more aggressively.

Winston is connecting to a degree cause he shows some actual backbone and spirit when required.

NZ politics need the sort of concept that Bernie Sanders has used to attract a huge youth movement regardless of the US rigged system he's up against.

My thoughts exactly Mr McDonald, I wish to marry you and have your babies... Well maybe not, but its nice to see someone up there has some vision and a plan.

Our Hon PM fails to feel the strong undercuurent of rift that is taking place in our society. Just speak out his name and see the reaction. It is all build up anguish. Please try this, pop his name in conversation and see the reaction of the people or group u r with. If anyone does try pls give the feedback

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14

Most impressive.

The situation we are in and this government's response to it, seems intentional given they ignore so much of the advice they get from all these independent commissions. Thus, failing to stop the rot can only be intentional. To what end is the real question.

The really sad thing Kate is they know regardless there will be no personal accountability. We have such a political apathy here now that even if Key came out saying "NZ will become the 51st of the U.S. " half the country would back it, and the other half would just walk up the main st with a sign saying no.
Not really very scary to a politician

Yeah, and when a political gathering of young people got a bit more assertive last time round with the 'f JK' chant .. it was scorn all round from the MSM. Except for this guy, who nailed it;

http://www.stuff.co.nz/dominion-post/comment/10381758/Young-people-shoul...

Kate - that link you sent stated "six weeks out from the election, over a third of potential voters between the ages of 18-24 have yet to enrol"

While I have empathy with the young I find it distasteful that they can find the energy to abuse someone like the PM yet cannot be stuffed to enrol / vote. Don't you find that a bit silly? They don't have to march on Wellington with guns - it can all be sorted at the ballot box. They didn't bother so tough titty.

Who suggested they march on Wellington with guns - that's the kind of stupid, inflammatory type analogy made in association with this example of youthful fun .. which is exactly the authors point.
The political rally as I understand it was also attended by RockEnrol a great organisation - read about the work they did here;

http://publicaddress.net/speaker/things-i-have-learned-running-rockenrol/

So, I guess given the majority in attendance were likely enrolled - that gives them the right to chant whatever the f they like!!

Glad we're in agreement on that: only those enrolled to vote are allowed to swear abuse at their tormentors.

Sorry to say however, I doubt you have much empathy. You missed the whole point the author was making in that article!

You need to consider the wider picture. NZ is not alone in its dysfunctional state of democracy. Germany is probably currently the most abhorrent example where a so-called democratic government is trampling on the most basic interests of the people is claims to represent. The system of representative democracy has been highjacked by special interests world-wide. One can speculate who is behind it, but that is secondary.

The take-away is that systems of direct democracy as implemented in Switzerland or Iceland by and large have a lot better outcomes for the populus. Democracy needs to be re-asserted through people power. We need direct democracy now, or God have mercy on us what Key and his anti-elites will break next.

Agreed - we are not alone.

But, I feel for Germany if it's the decisions taken by the government on the refugee situation you refer to. I think the initial intention was to stand up as an example to others in Europe regarding the need for a compassionate approach to the crisis. But, yes, the crisis was bigger and more serious and complex in its nature than anyone could have imagined - and it continues. Southern European nations and peoples with all their own massive economic problems continue to pluck the drowning masses out of the sea, and attempts to process individuals and families without requisite mobilization of resources from elsewhere in the continent and the world. I feel for the refugees, I feel for the recipient migrant nations.

What, I wonder has New Zealand done by way of assistance to these recipient/host nations? I'd rather we had deployed troops there to pitch tents and process refugees than train troops in the Middle East. I feel guilty to be thankful about our isolation in this little corner of the Pacific where refugee crises are concerned.

But that aside, yes, to greater use of direct democracy.

clearly a loony lefty.

'Top level public servants now have substantial power and authority, but are not properly held to account for their performance and are more often than not reappointed, when the appropriate action would be dismissal.'

Spot on!

Additionally they should be charged with criminal negligence and a large portion of previously-paid salary and benefits returned to the public purse.

I do not understand why you would even care about this stuff. If only half of what you claim were true none of this would matter.

It does matter if you claim half the stuff that cares, even if its true you dont understand.

The status quo is no longer acceptable - British voters no longer trust their elites - sound familiar? I believe American voters gave up years ago. Is this going to become a worldwide movement?

Hard to believe that people like Key, Brownlee, Collins, Smithy and the other rogues would be considered our elites.

http://www.telegraph.co.uk/news/2016/06/15/leave-is-ahead-because-britis...

I agree that Auckland is in a pitiful state, but I think that fixing immigration - QUICKLY - would also help to improve Auckland. Immigrants with proper skills could make a big difference. However, it is a vicious circle. The more horrible Auckland gets, the harder to attract good people to NZ.

Let us be honest. People who have something to offer do not come to NZ to live in neighborhoods where Mandarin or Korean is the first language, they do not want to see Indians in EVERY petrol station, every taxi and every dairy and they definitely do want to see burka-clad ghosts in the street.

More than anything else the ideology of multiculturalism has failed and NZ is one of many places where this is evident. Let us put an end to the nonsense by voting out the state party made up of National, Labor and Greens next year.

We are not accepting low wage immigrants (except those on reciprocal under 30 1-2 year visa's from EU and US) have you tried to see what it takes to enter as an immigrant to NZ, I tried and as a degree holder I would not qualify to immigrate to NZ...even after 20 years overseas as a senior business manager...

Maaate, why didn't try for one of those 2 hr a week classes student visa thingies? Speak to some of the petrol attendants for the ins and outs. Or do you know how to sling a few raw veges into a wok - you could have come in as a fully trained Hong Kong chef. Our local Chinese takeaway has a 16 year old on the sticks on Friday night.

Anybody know how they do it?

How do they survive - there has to be a scam going on
Sub-continentals raise huge loans to pay a fee to the PTE recruiters, then travel costs to NZ, then course fees to the PTE course providers, then get a job at $4 per hour, pay accomodation costs in Auckland, miles from their job, travel costs to and from their job, working long hours, plus time for their education at the PTE, plus travel costs and time between the job the PTE and their flop house, then pay off the loan.

They use their networks, very simple.

These guys stick together. Something we would be well advised to learn from them.

Yes, seriously, if a pauper from India can play the NZ immigration system, why dont people from Europe or the US manage? You have to learn to be dishonest to make it into Key-Land. Is it really THAT hard :-) ???

True!
Our immigration is now being run by corner dairy, restaurant, takeaways, liquor shop and gas station proprietors.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1164...
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11626529
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1158...
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11532039
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1142...
And so on and on and on but I'm sure just the tip of the iceberg.
Is anything being done about this carry-on; a National embarrassment!

The reason for the drop in US and European immigration does relate directly to house prices and lifestyle.

Let face it, NZ generally can not offer as attractive salaries as their parent countries.
You only need to watch a TV series such as 'Wanted Down Under' to realise that.

One of the main driving forces to entice European and US citizens to move to some where so remote is the opportunity to follow a dream, and own your own life style block or large coastal home with view.

Since this NZ dream is becoming a non-reality for most of us, this is why you'll continue to see a immigration drop off for more Western countries.

The problems related with taking on low skilled, low waged migrants are:-

1) Takes away opportunities from young inexperienced Kiwis who need to start out on their career path.

2) Highly qualified and skilled migrants can offer more cutting edge business advantages to NZ in a global market place.

3) Highly qualified and skilled migrants are more likely to open new high end businesses for NZ once they are established and directly help our economy.

You are right, the breathtaking house prices play a big role, too. For the price of a shack in AKL you can get a modern penthouse in many cities across Europe or the US.

You are also right about NZ primarily attracting a crowd that is also looking for a life-style change. I dont think most expect a house with a view or country living romanticism, but they are certainly not coming to experience the 3rd world squalor that has been spreading in AKL.

So far, so bad. NZ still did not have a terror attack though. Look at how Australia's security ranking has suffered due to its imported terror problem, which both the Liberal and Labor parties are keen to aggravate by bringing in ten of thousands from the Middle East.

So John Key with his extended Syrian guest program is now working hard to diminish security as one of NZ's last drawcards. What a fool and what fools we are to have made him our PM. Selling the farm for a few glass beads. Peak stupid, really.

Why do people pay so much for a "shack" in Auckland when they could buy a "penthouse" in Europe or the US? Vast areas of Auckland are really rather nice you know.

I dont know, when I compare NZ housing stock to that of Europe ...

There are good reasons for the NZ real estate prices, as we have discussed many times. NZ works like an insurance for many people from dictatorships. Having a house here provides peace of mind for them. Europeans and Americans might buy because they feel NZ is further away from all the escalating trouble in their homelands. And then there is of course the simple investment aspect.

No offence intended :-)

2 bedroom flats in London cost 2-3 times more than equivalent 2 bedroom flats in down town Auckland...3 bedroom townhomes in secondary cities in Germany cost about 50% more than the equivalent 3 bedroom townhouse in say Ellerslie...please don't compare house prices in Auckland and call them expensive, when the "reality" is that homes in any major city in the world is MUCH more than Auckland...a 3 bedroom detached home in Kensington London would cost $5-6 million NZD dollars vs. a Ponsonby 3 bed villa say at 1.5 million

Exactly right Auckland is a drag on the rest of the economy, especially with it's way over sized share of the public pie it gets year after year, which is way out of proportion to what income comes from there, compared to the costs that also come from there.

So, in your world where 'share of the public pie’ is distributed on a GDP generated basis, dairy farming areas like South Canterbury, NI east coast fishing villages and Queenstown would have gold plated infrastructure while Auckland would decline to an under funded slum. Makes sense !

How do farmers get anything out of money being funneled away from there area's into Auckland which is mostly hundreds of miles away from where they are?
Most farming communities would I'm sure, rather they had a nearby town or small city that was vibrant and well run, and couldn't really care less about trying to support a city no where near them, that helps them in no way.

It is good for NZ to have one city of international standing. However, AKL as it looks today is nothing much to write home about. Last time I looked Lonely Planet listed as the best thing to do in AKL going to the White Lady Van for a burger. How pathetic is that?

We need modern industries that create high quality jobs, a high quality of life city and thus pull in the growing number of people fed up with the chaos mainstream politics has caused in the Western world.

We do NOT need yet more bogus students from the 3rd world, more Chinese Communist Party officials hiding their loot here, more - for Gods sake - "refugees" from countries with terrorism problems or any other of John Key's friends.

If AKL is managed properly, it can pay off for rest of NZ. So dont get rid of AKL, get rid of National, Labor and Greens politicians who are wrecking our wonderful country. Put New Zealand First again.

Lonely planet is for tourists. Auckland is a delightful city in which to live, transport woes and housing aside. Western political systems causing chaos ? Last time I looked those same systems had delivered a period of peace and prosperity, unprecedented in modern history. On immigration, I reluctantly concede part of your point. It pains my liberal soul to think we need to apply more rigorous screening to migrants from some islamic countries but I think the time has arrived.

Lonely planet is for tourists. Auckland is a delightful city in which to live, transport woes and housing aside. Western political systems causing chaos ? Last time I looked those same systems had delivered a period of peace and prosperity, unprecedented in modern history. On immigration, I reluctantly concede part of your point. It pains my liberal soul to think we need to apply more rigorous screening to migrants from some islamic countries but I think the time has arrived.

Peterpen, what a load of rubbish there's no advantage for the rest of the country, in the rest of the country's money being continually poured into Auckland, and no advantage in having just one city of "international standing", we should be aiming higher than that low goal.
Most successful countries don't follow that ridiculous model at all, being preached by....none other than Aucklanders themselves. Most successful countries have many large successful cities, I've never heard of any other country preaching such a ridiculous idea as pouring the rest of the countries money into largely one city.

How many large cities would you like to assemble from 4 million Kiwis? Do you want to depopulate NZ for that or - Key's model - rather import the 3rd world?

One big city is plenty for NZ until the population density approaches that of Europe or Asia. By then new large cities will have grown anyways.

What's with the obsession of having large cities? what will that actually achieve other than more consumption.
Auckland is a city that produces very little other than consumption, didn't you read the article?, what's the good for the country of that.
There a lots of very successful cities around the world that are great places to live that are in the 500K-1000K mark, and certainly often much less than that too.
There's no need to hobble to rest of the country's natural development to try to reach some ridiculous population goal in Auckland, that achieves absolutely nothing.
It's ridiculous to assume a city can't be successful unless it's over some arbitrary population mark like 1 million people, some of Americas most successful cities are the smaller ones of under a million people.
NZ is much stronger for having more than one largish successful city, throwing all your eggs in one basket has always been a stupid thing to do.
Also if you think any tourists are going to come to NZ to see Auckland you are really deluded, that's not what they come to NZ for, and never will be, if they want to be wowed by a big city, they will go to New York, London, Paris, Rome etc, any number of places, but it will never be to Auckland for that.

Auckland is the tourist hub city where most of the jets fly in. It is also a rather beautiful city and tourists will often spend a couple of days seeing the sights before venturing south.

Well mainly because most long flights are directed either there or Chch.
Tourists might spend a few days in Auckland, but they are not there based on how big the population of it is, truth is most would probably enjoy it if it was smaller and less busy than it is, increasing Auckland's size or continually pouring a much larger share of taxpayer money into it compared to everywhere else makes no difference at all to how many tourists will come to NZ, basically none of them come to NZ to see a large city, there's no point in kidding yourself about that.

I can see your point. Maybe it is more a matter of taste than anything else anyways. I can also understand your anger to some extent, although I feel it may go a little too far.

Large cities create the critical mass you need for "non-standard" stuff. But that would open a long discussion ...

It's not really a matter of taste, but I'm getting sick of hearing this flawed argument that somehow the rest of the country gains by having it's share of money spent somewhere else, being Auckland.
Auckland is effectively part of the same market as the rest of the country, so it makes no sense to concentrate on making only the Auckland market bigger, besides trying to get rich by consuming has never worked anywhere, and it's not going to work in Auckland either.

Best article I have read.
The summary being that our immigration policies are destroying NZ's economy and quality of life.

I think currently it is our government that is failing us and destroying NZ ecenomy as is being worked for the benefit of non resident specially chinese.

Govt does not understand that it is creating a big divide in NZ but why would they care, if they would have, the situation would not have arisen.

Ministers should be held personally liable. Acvountability is missing.

Does anyone here not realise the National party receives substantial donations from Chinese interests?

As seen in his moronic flag campaign.

There was a time when a PM caught grovelling to foreign interest would have ended up in court for treason very quickly.

Happy realisation

Agree with the low-skill immigration as an issue, which also affects the housing issue on the demand side.
You need to school yourself on savings versus investment though. These are not the same thing (exclamation mark). Savings do not "finance productive investment". Investment finances productive investment. The lower the interest rate, the more incentive to invest rather than save.

Thanks you for an excellent summary of what is wrong with current policies. The issue of savings, in particular, resonates with me. I have been trying to save something significant for retirement for decades now but I seem to be treading water. I guess I should just give up and become a property investor!

I don't see any of our alternative political parties being any better though - most will probably be worse. What a pity.

Great summary of all the symptoms. But you've missed the underlying cause - the end of cheap to produce energy. No amount of policy will fix this - we have had cheap energy for so long we have been sidetracked into thinking money drives the economy. Our collective wealth comes from CHEAP energy. We (ie the entire world financial system) is now a Ponzi scheme only - borrowing against a cheap energy future which doesn't exist. Oil producers are slashing capex massively on low prices, but high prices will break the economy = Predicament.
We are in big trouble.

A govt which acknowledged this would prepare its residents for the end of supply chains, the end of finance, the end of imported food and goods, and eventually the end of the electrical grid. A harder, tougher, more local life. Yip, not an election winner - so the facade trundles on ...

Good summary and understang but what do you do with not good government - who believes in see nothing, hear nothing and not talk nothing but talk whatever you feel as everyone who voted us are fools.

Great article to read. When you compare this type of clear headed analysis to our usual offerings of endless procrastination, pontification, side shows and non solutions, I can only think that somehow their intention is actually to destroy the NZ economy while making a small percentage of property owners 'rich' and impoverishing the rest.

What was that saying again.....

"Qu'ils mangent de la brioche"

An excellent article and summary of the problems with current policies. I am of the generation who was told by various governments to save for their retirement to help provide additional income over and above the basic income from NZ Superannuation. Now I find with the appallingly low interest rates on savings, I am going backwards. What is more, savers will also be penalised with the draconian OBR if that ever needed to be implemented. We are now in a debt laden world where borrowers not savers are encouraged and this is a fundamental problem which needs to be reversed urgently. Let us hope that those in power take heed of your very well considered and constructive comments Mr McDonald.

Everything can be corrected or atleast control to avoid major disastor but the national party to act has to first admit that their is a crisis.

When everyone is talking about property day in and day out, means it is so hot that can have reaction anytime. How far the rubberband will strech has to be seen.

Givernment reaction would than be that we told you so. It is like telling a child not to play with match stick instead of acting and taking the matchstick away from him.

How does it help if we do not act and let the child play with fire. Does it help if child is burned and tell him that told you not to play with matcstick. Too late as many childern of the country will suffer and govt must already have decided their defend and to whom to pass the blame.

This is Natioal govt of ours.

might just think about how the system runs...capitalism,globalization,keynesian economics,terrorism..
living standards...phew, do people aware what is happening in Venezuela? do they care?

"The most important policy goal is higher living standards for New Zealand residents"

I hear, read this statement about higher, better living standards and that more money, more exports etc, etc will deliver them. In my 40 years of hearing it I have yet to see any definition of what these living standards are.

Until we decide, define exactly what these living standards are, what the metrics are for making them "higher" (we grow good pot in NZ), how will we ever establish the policies and strategies for achieving them? Do we have to follow economic theory/dogma to achieve them or can we achieve them another way?

Government is too thick skin to act. No one know why they are not acting and immune to the plight of homeless.

This is related to rapidly growing house price as now many are used for speculation / capital gain and return on rent is so low that thoudands of houses are lying vacant as the owner speculator is not interested in rent but fast gain that is in speculation.

Also foreign buyer do not want to show overseas income so do not give out on rent but keep it close as their purpose if diverting their money from home country is achieved.

Why is govt so blind to reality in their love for chinese.

Advanced sales skills mixed with middling persuasion techniques are not the foundations of Nation building.
But seem produce Sugar Hit policies and programmes.
A couple of bucks says we are wrong.