February 6, 2025 • 45 mins
On the Tiles is back for 2025, and to kick off the year, Thomas is joined by NZ Herald Wellington Business Editor Jenee Tibshraeny and Interest.co.nz's economic policy reporter Dan Brunskill to look ahead at the economy this year. They discuss their predictions, house prices, credit ratings, the HYEFU from the end of 2024, debanking, and what this all means for the Government and the country.
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Episode Transcript
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Speaker 1 (00:06):
Hello and welcome to on the titles The New Zealand
herold's politics podcast. I'm your host Thomas Cochland. Joining me
today in the studio is our Wellington business editor Gene TIBs,
Training Welome and Interest dot quod n z's Politics and
Business and econow much reporter Dan brunscored.
Speaker 2 (00:25):
Pleasure to be here, Thank you having me.
Speaker 1 (00:26):
Happy Happy New Year to you both, Happy happy new
year to all are on the task listeners. Sorry to
have taken us a six week, six week break, so
but how rude. I hope you all my chairs a bit.
I hope you all had a lovely, lovely break. Let's
we're going to talk about twenty twenty five, the year
that we survived twenty twenty four to enjoy. When we're
(00:47):
recording this podcast again at the end of the year,
recapping the year, what do you think we will we
will be talking about what is? What do you what
do you think the has in store? Jane Al throw
to you first.
Speaker 3 (00:58):
I think the year will be defined by geopolitics. I mean,
it's been a crazy week in terms of Donald Trump
and Tariff's being put on and then perhaps being taken off.
I'm not too sure where they'll be by the time,
in one day's time, perhaps when people listen to this podcast.
But you know that has well and truly thrown discombobulated
(01:20):
everyone and thrown markets into you know, it's pretty shamboic,
and I feel like that will you know, that will
possibly only continue and it's hard to see positives around this.
The other thing I'm interested in is, you know, these
interest rate cuts that the Reserve Bank is expected to
cut the OCR a bit more. Now, where what is
(01:42):
happening in the US and Donald Trump and tariffs that's inflationary.
How that intersects with what's happening in New Zealand in
terms of the fact we've got inflation you know, within
the band, and we need growth, so we need lower
interest rates. How those things come together, That's something I'm
interested in. How you know, quite a few different forces
(02:02):
moving in different directions. How that affix our mortgage rates
and tomb deposit rates. I think everyone is really hanging
out for those rates to come down materially to just
you know, soothe some of the pain that that borrows
have been feeling.
Speaker 1 (02:15):
Would be good to borrow some more money and buy
a couple of houses. I think it could be nice
to return to the New Zealand that we mess.
Speaker 4 (02:20):
So, return to our terrible old ways.
Speaker 1 (02:25):
Then then, how many houses do you want to buy
this year? What do you think? What do you think
is in store for for for this this year? For
you all?
Speaker 2 (02:33):
Disclosure, I'm going to buy zero houses this year. I've seen.
I've seen the Wellington house price revaluation today. Don't want
anything to do with that.
Speaker 1 (02:41):
Painful, it's painful.
Speaker 2 (02:43):
I caught it down, caught it down, It's huge. I
don't know I'd feel nervous buying a house now. I
believe in price moderation. We can do a different podcast
episode on that. I think this year will not be
defined by runaway house price growth. I think it will
be defined by whether or not the promised economic recovery
actually occurs. It's very easy to forecast a recovery, assume
(03:05):
that things will return to normal, and all of the
green shoots that we're seeing, a lots of the green
shoots quote unquote that we're seeing a purely expectations based it.
Expectation has to become a reality, and that's not guaranteed
to happen. I think the extent the economy does or
doesn't come back to life is probably going to be
the defining economic issue both practically and politically this year,
(03:26):
is my heart take.
Speaker 1 (03:28):
I mean, it's interesting as a As a this isn't
really metric of economic recovery, but it was interesting to
see the first post high Foo Crown accounts published earlier
this year, and most of those metrics that are Bega metric,
that mutric were worse then they were forecast to be
in high food and obviously a high food that had
been forecast, you know, refecast downwards, and that that forecast
(03:49):
was was was revised downwards from from the beef from
the high food the year before, from the beef of
the year before before that, So the trend line continues
to go the wrong the wrong way. That that those
are obviously just the there's indicators out that the economic
ones could still recover. But yeah, I think that's those
are good. Those those are interesting predictions because certainly that
(04:09):
the whole narrative of this year is built around interest
interest rate driven recovery, I guess, and it's not clear
that we're going to get that, and certainly I would
say for the government's fortunes. They've tethered themselves this back
on track message. And you know when you look at
the economic indicators that that tend to be a good
have a strong correlation with party vote performance. Unemployment, well
that's probably going to go up, but it actually doesn't
(04:32):
correlate too strongly with party vote performance. Unemployment it's pretty
high under the Key government, and it's party vote it's
pretty strong. But house prices are the one House prices
and interest rates are the ones that tend to correlate
with a party's political performance. And there is meant to
be a house price recovery this year. Treasury is what
five point I'm looking at the high fun hour listeners
(04:53):
five point three percent in the year to twenty six
which begins in July this year. But whether that will
transpire difficult.
Speaker 2 (05:02):
Listeners should know that Thomas carries a copy of the
hypher with him everywhere he goes.
Speaker 1 (05:05):
I actually do on my phone. I save them to
I save them phone. Yeah, because I did it because
ended in me as a responsible user of subscribers funds
caps data on our phones, and I found that I
was downloading the PDF of the High four too.
Speaker 4 (05:24):
Often, not scrolling to I just you've got the highphone.
Speaker 1 (05:28):
I just saved it to save my data cap. So
that's what's happening.
Speaker 3 (05:32):
Wow, Just on interest rates, I wonder whether so you know,
economic growth and New Zealanders sluggish inflations within the band,
arguably there's room for the Reserve Bank to cut interest
rates that by quite a bit. But you know, if
the Federal Reserve in America this slows that the interest
(05:52):
rate cuts it's doing because Donald Trump's policies are inflationary,
you know. Then the question I have is how does
that affect the Reserve Bank? Presumably you know, it could
put a bit of upward pressure on interest rates. They
might not come down as much as we think. But
then again, the you know, all the central banks to
do their own thing. But the thing that could happen
(06:12):
if those if the central banks don't work in lockstep
as much as they have in recent times, is our
dollar can continue being weak, weakening even more. It's super
weak at the moment against the US dollar. Now. The
good thing about that for our growth agenda is that
you know, that's really good for exporters, makes our exports.
Speaker 1 (06:30):
More attractive, So you know, yeah, at all.
Speaker 4 (06:33):
So that could be a source of positivity.
Speaker 1 (06:37):
Another prediction I outsourced. I outsourced one of my predictions,
or so I had this. I had this when I
was reading other people's predictions over the summer. I sort
of thought, well, my big prediction is that we're going
to get some negative news from a ratings agency, which
I think is sort of it's the dog that hasn't
barked for a little while. And Labor when it was
an office, got a lot of positive news from the
ratings agencies intended to talk up this fact, and it's
(07:00):
press releases and marketing are because obviously when the ratings
agency is not favorable favorably upon you, then that's that's
pretty nice. So I outsourced this to Brad Olson. So
and I asked Brad, the infametric chief executive are, what
he thought about the likelihood that there would be an
interest some some some negative talk at least from a
(07:21):
ratings agency. So his reply, which I'll read, thank you, Brad,
is that the short answer is that it's likely. In fact,
they already are talking negatively. The real question is about
a credit downgrade. That's possible too. I'm not sure how
likely it is given the finances and the likelihood of
continue deficits for a longer period of time. That won't help.
A worry for ratings agencies too, will be that pursuing
(07:42):
growth to support the fiscals is an important goal, but
the outcome is not directly influenced by government compared to
the revenue and expenses leaders which the government directly controls.
So thank you Brad for your prediction.
Speaker 2 (07:52):
I have some I have some thoughts on that.
Speaker 1 (07:55):
Please share.
Speaker 2 (07:55):
Had us stand Yeah, yeah, no one is that. It's
it's interesting if you read those rating notes, how much
of the tone is like, we think things are going badly,
but New Zealand has such a great track record that
we trust it anyway, and then over time like that,
like institutional trust element of the credit rating is a
(08:16):
really big part of New Zealand's amazing credit rating. They
actually look at the underlying figures and they're like, yeah,
debt's quite low, so that's good, but everything else looks
pretty bad. So they're like, debt's low, that's good, relatively low,
don't nus Nichola will is that but that's what the
credit the rating agencies say, and they say, the institutional
frameworks really good, so we trust it, but they're constantly
being like, as surpluses slip away, as governments make bad decisions,
(08:39):
as they don't take action on the fiscals, that institutional
bit that underpins our rating weekends. So it's like, it's
not that the fiscals necessarily have to get that bad,
or debt has to double or anything. If the credit
rating agencies just decide we no longer have this outsize
trust in New Zealand, and it's amazing institutional framework that
would be enough to sort of push push the credit
rating interest downgrade or more negative outlook. And then the
(09:03):
other thing is that our credit rating is really good,
we can actually afford a downgrade. It would be a
huge political drama and I'm sure the government doesn't want
to and borrowers don't want to, YadA, YadA, YadA. But
it's not like having a nuclear bomb dropped on all clips.
It's just like an inconvenience.
Speaker 1 (09:18):
That would prepared for house prices well term.
Speaker 3 (09:24):
So you go, I had just on credit ratings. I'm
just having a look. I had to chat with S
and P at the end of last year, and you know,
just talked about the fact that because the government forecast
debt issuance program expanded a lot, so the government, you know,
as Thomas sort of suggested before, every time we get
new treasury forecasts, the Treasury increases the amount of debt
(09:48):
or bonds that thinks that New Zealander is going to
need to issue. Now, the problem with that is that
we're doing that because we haven't repaid our COVID debts,
so we're rolling that over. That COVID debt is still
there and we're issuing new debt for the new things.
So there are a lot of bonds in the market,
and a lot of other developed countries are doing the
same thing. You know, they are also doing that. So
(10:08):
you know, there are a lot of bonds out there
that need buyers. And at the same time, during the
COVID era, central banks were buying a lot of those bonds,
so you know, there were buyers of last resorts that
central banks were in there. Now central banks are no
longer in there. There are heaps of bonds in there.
So what that does is it lowers the price of
(10:29):
the bonds and that increases the yeld. That means that
governments have to pay more interest to you know, to
make the bonds more attractive to investors, and you know
that that sort of thing does weigh on our finances
because we're talking, you know, super large sums of money.
I think that the interest costs are looking at about
twelve billion a year ten or twelve billion, so it's through.
Speaker 1 (10:51):
Of GDP roughly, it's a lot of money. And I think
pre COVID it was we were spending a couple of
billion dollars a year on finance costs.
Speaker 3 (10:58):
Yeah, so that's yeah, So there's definitely something that S
and P. That's what I talked to them about. They
were kind of watching.
Speaker 1 (11:06):
Well an interesting I mean that that you know, obviously
finance costs of finance costs and New Zealand has has
has access to relatively affordable lending because of the good
credit rating, and you know, you're right down, we could
probably you know, there's no it wouldn't be the end
of the world for us if we were to were
not Greece, you know, wouldn't be the end of the
world if we were if if if if if we
(11:26):
were to slipper rating, and and we're not as indebted
as countries like the UK and France, which at the
moment they're going through fiscal crises because they they have
borrowed so much. As borrowing gets so more expensive, they
are really facing some difficult choices because their financing costs
really do weigh down on what they're able to do.
(11:49):
At the same time, it's it's it's sort of it's
a it's an unexamined I think part of or it's
it's we probably haven't examined how difficult it is for
a finance minister and a government in the post COVID
era when they're putting together a budget and all of
a sudden, you know your finance costs pre pandemic Jewish
(12:11):
billion dollars. Now you know you add eight billion dollars
to that. Well, that's that's you know, more than the
defense budget that you've just that's just sort of gone
out the window. That is a part of the a
part of the spending profile that didn't exist ten years ago,
five years ago, that now absorbs a whole lot of money.
(12:32):
It just makes life you know, it doesn't it's not
the end of the world. We can afford it, but
it just makes life so much more difficult.
Speaker 3 (12:38):
I mean, this is sort of stating the obvious, but
COVID really was a total game changer, and you felt
it at the time. Things were scary. The things that
were happening were just seismic. But it has shifted the
government's finances everything, and then you know, it's you think
would be able to recover from that, But then we
had all these ridiculous world events and wars, and then
(13:02):
you know, inflation was one thing, but now we have,
you know, instability when it comes to trade and some
of the institutions, you know, in the way that geopolitics
has operated. It's kind of unfortunate. We're just getting on
top of the whole inflation problem and now we're dealing
with voluntility in you know, the US, and some awful
(13:22):
wars that are still being waged around the world. Just
an insane amount of instability and no predictability.
Speaker 1 (13:30):
Now, just a rapid, rapid high food correction. Twenty twenty
finance costs for that whole year, we're three point two billion.
This is as far back because I can go on
the high food So three point two billion in twenty twenty.
That's the year two one, the year to June twenty twenty,
the year that there were two billion dollars is actually
twenty twenty one because the interest rates were so low,
so they actually despite all the borrowing that we did
(13:52):
in the year to twenty twenty one, borrowing costs fell
considerably and they have subsequently retched it up for the
current the current year there will be eight point six billion,
rising to nine point one billion and twenty six according
to Iphon, Interesting little. Were you keeping an eye on
the international bond market over Genuary? Interesting scene usual? I
think when I checked yasterday, the ten year bond rate
(14:15):
was down to four point four percently AVERAGEYLD on the
ten year bond rating. But we did the New Zealand
did belatedly get affected by the the American British we
spike after the but that seems to be less Donald
Trump related and more employment related, we think. Yes, No, I.
Speaker 2 (14:32):
Did not look at the bond market during my summer.
How I usually I'm so plugged in even during my
holiday because I love this stuff like I do it
for a job, but I love it.
Speaker 4 (14:41):
Into the beach. This year, Yeah, no, it was. It
was a spike, but I haven't checked it in recent
recent days.
Speaker 1 (14:48):
Interesting Free Treasury there there their average ten year bond
rate for this year's four point four, so that it's
right where it is sitting right now. So nice to
know that we can get a forecast right every now
and again.
Speaker 2 (15:01):
Jine does have a really good point about the higher
interest rates because we talk a lot about the Reserve Bank,
like the economy as weeks, the Reserve Bank will cut
interest rates, but that mostly effects like the shorter end
of the curve and then the longer end of the curve,
which is actually kind of probably more what businesses pay
attention to and making long term investment decisions and relative
to growth, and that kind of thing is not really
controlled by the Reserve Bank. It's controlled by international markets.
So if international markets are up to crazy things, if
(15:22):
developed countries are issuing a lot of bonds, that does
drive with her interest rates drives up by borrowing costs,
and it's not necessarily anything New Zealand can control in
any way. Share before you just kind of have to
take it, and.
Speaker 1 (15:34):
It came very different environment this time around with obviously
I think the well, one of the biggest interest rate
risks is Donald Trump with the amount of borrowing that
the Americans might do with their text plan, and then
the inflationary impacts of any tariffs that he imposes. That
Trump imposes. Obviously we didn't really see massive inflation under
(15:55):
Trump Part one and New Zealand at least, but you know,
that was an environment where I think the the europe
you know, Trump took office in twenty seventeen, the European
Central Bank was still doing QI back then. I think
the Americans might have even been doing some QUI you know,
before then, and continuing to sort of throughout the twenty
tens so and public that was a lot longer, you know,
(16:17):
during that period. Now post COVID, Trump and posts sort
of decoupling, you know, post the sort of experience of
decoupling that we saw during COVID and under Joe Biden.
You know, does does the Trump administration understand the environment
is different than that the policy decisions might have, you know,
a more inflationary impact. That they seem to be quite
(16:39):
lucky last time around, that they were able to put
the American economy and the global economy through such a
shock without really generating any problematic inflation.
Speaker 2 (16:47):
I agree with that assessment. You hear from economists from
time to time. Sorry, I dent have a citation on me.
But they say that business is more or less forgot
how to increase prices, and then COVID came along, inflation
came along, and they suddenly realized, like it's actually quite
easy to increase prices. And then obviously they have now
to a new Zealand because like nobody has any money,
but lots of economists think that, like, businesses are going
(17:07):
to retain this memory of how to raise prices, and
any opportunity they get, they're going to be like, oh,
we know how to do this. We did that last year,
let's pull the trigger. And they worry about things like
tariffs being inflationary, not necessarily because the economics are now
more inflationary, but just because businesses are way more primed
to be like, costs can rise, we have to manage that,
and we know how to do it. So like I
don't know if you saw people sharing screenshots or the
(17:29):
price of avocados after Trump announced the Mexico tariffs. They
it never took effect, the avocados never became more expensive,
but prices went up like and then came back down
again when the tariffs were lifted not imposed whatever, Right,
So it does seem like lots of economists think businesses
are way more responsive to price risk, whether legitimately or illegitimately,
(17:52):
Like where the for greed off a strategy, you know,
you take it how you want, and that just makes
inflation risks way higher. Interesting, interesting thing to watch out for.
Speaker 3 (17:59):
It's quite sort of behavior I love the sort of
behavioral economics. You know, it really is into science and
it is largely in art. There are lots of Feelds
there with that. And you know, as you say, like
what Watson, people's recent memories and how that drives behavior.
Speaker 1 (18:14):
That's quite interesting the whole the whole world. You know,
during the first Trump administration to what you're saying, that
was sort of a disinflationary amazonification, you know, and there's
only a sort of limited amount that the Americans could do.
But but you know now that now the decoupling agenda
is so far advanced that that that you would think
that that the inflationary impacts of what he might do
(18:37):
would just have a there's a sort of magnification effect
that they would perhaps wouldn't have occurred last time around it.
And then you know, the Chinese are happy to play
the inflation game. There the Europeans. You know, I'm more
inclined to sort of their security dilemma is more acute
now than it was ten years ago. Obviously with the
war in Ukraine, that the Europeans are less able to
(18:59):
play kind of geopolitical arbitrage with the Chinese and against
we're playing off the Chinese and the Americans, that they
probably are more inclined to lean American than they were before. Growth.
We would like to grow the economy. The economy has
not been growing as fast as or at all.
Speaker 2 (19:18):
Just hearing this, so.
Speaker 1 (19:22):
Growth do what? What do we think about the growth
of gender? What do we what would we like? What
were what? What? What?
Speaker 3 (19:28):
What?
Speaker 1 (19:28):
What? What are people telling you they would like to see?
Everyone wants to grow the economy. It's slightly ridiculous to
say that this great idea of to grow the economy,
but everyone would like to grow the economy.
Speaker 3 (19:37):
Well, a few years ago there was that big old
debate about you know, where the growth was bad? You know,
back in the good old days where we didn't have
any problems. We were debating whether actually too much growth
was bad. And you know, have we hit in the
developed world peak peak growth?
Speaker 1 (19:51):
Well, the Green Party still has a network inside the
Greens called the d Growth Greens, who believe that a
sort of an equitable shrinking of the economy as a.
Speaker 2 (20:01):
Way to go.
Speaker 3 (20:01):
Yeah, but it is interesting. But anyway, I think the
mainstream viewers that growth well, I do. Actually just remember
I was on a podcast years ago and we had
Arthur Grimes and ray.
Speaker 1 (20:14):
Worth Kate Rayworth economic.
Speaker 3 (20:18):
And it caused a massive ruckus because they clashed over
two economists that got really heated, clashed over with the
growth was good. And I remember being asked what I thought,
and I was like.
Speaker 4 (20:30):
I don't know. I was like, sustainable growth is good.
Speaker 3 (20:34):
But anyway, I mean, according to the economic model we use,
we do need growth. I'm not sure if there's that
much meat on the government's growth agenda though.
Speaker 1 (20:43):
Or colon the mine.
Speaker 2 (20:46):
You know, everyone likes growth, nobody likes the negative potentially,
you know, no one likes the risk or the or
the negative downside. So that there are some there are
some quite clear obvious economic things you could do to
help the economy growth, make the economy more growth, but
they might make inequality worse, so they might make the
environment worse, and there's all these trade offs we don't
necessarily want to make and it's kind of like a
laundry list of right wing Javier Malay type policies you
(21:10):
could do. We can cut corporate tax rates. Nicola Willis
has been out talking about that will grow the economy.
It'll make the fiscal problems worse, and it might make
inequality worse, but it will help grow the economy. Cut
the corporate tax rate, go for it, fast track, just
build stuff. Don't worry about the environment. Just build stuff
that will help the economy. It will hurt the environment.
RMA reform, similar sort of thing. The other thing, like,
(21:30):
the US performed quite a lot better during COVID and
through inflation because they have a much more flexible labor market.
You want to fire someone, go to the desk, bang
on it, send them out. In New Zealand much harder
to do. If we made our labor market more flexible,
that would make the job market more responsive. They would
make the economy more dynamic. It would probably grow more,
but people wouldn't necessarily like it because they'd be getting
(21:51):
fired and hired. And it's very unstable. So is you know,
do we really want that? How we're willing to take
growth at that price. I think that's kind of more
question rather than like, oh, no, what can we possibly do?
There are like lots of things we can do, but
do we like the trade off?
Speaker 1 (22:05):
It's a kind of.
Speaker 2 (22:06):
Thing that I think, you know, worries me more.
Speaker 1 (22:09):
Yeah, that American labor market stuff is fascinating. I remember
with horror the budget twenty twenty, Grant Robertson had that
New York Times front page with the number of well
forget how the Americans reported the number of jobless applications
that America that had been received in March twenty twenty,
(22:30):
and the line plunged so far downwards that it took
up the whole you know, the New York Times quite
a long long and the newspaper took up the whole thing. Great,
great graph. But obviously, you know, in terms of the
economic recoverage from COVID nineteen COVID nineteen, the Americans can
argue that that is not that you know, by some metrics,
(22:52):
and you know, as you said, that there are trade offs,
but by some metrics it's been it's been a pretty
good recovery. It's sort of exploded that idea of the
best economics as well as being health response, while you know,
the best economic response to COVID nineteen by some of
those very broad metrics has actually to just be very
very right. Well, but as you say, I'm not really
sure the trade offs on the social side are ones
(23:12):
that New Zealand workers would want to make, and fair
enough's a democracy. Those are the trade offs that you
know that we adjudicated the ballot box. And if we
want a slightly despixable labor market meaning lower growth, lower pay,
then that's our choice to make.
Speaker 3 (23:41):
The Reserve Bank Chief Economists Paul Conway did a speech
recently and talked about productivity. Now this is kind of
his topic that he's really big on, but also suggested
New Zealand's lack of productivity gives us a less maneuverability,
you know, into of responding to crises. That the inference
(24:03):
is potentially that if if we were more productive, we
could have lower interest rates without that causing inflation as
easily because we have more capacity in the economy to
absorb you know, the stimulus. Whereas if we're not productive,
what happens We just lower interest rates and then and
then and then what do we do, like where does
(24:24):
that where does that go? Are we're actually doing anything
with it?
Speaker 1 (24:27):
He made the remark of MPs as well, didn't He
sort of made the point that you could potentially squeeze
inflation out using interest rates without necessarily triggering a recession
by the boring old definition with if you had a
more productive last year.
Speaker 2 (24:45):
Every time someone talks about productivity and want to smash
my head against the wall, like what do you mean?
What are you going to do? Like what like there's
no button? This is productivity that we can push. It
drives me up the wall. So yeah, I had it
whole talk about like, well we need more productivity measures.
I'm like yes, but what.
Speaker 1 (25:01):
But how what? Yeah?
Speaker 4 (25:02):
Exactly? Well actually that does that? Does? Raise?
Speaker 3 (25:05):
AI? Is the other thing like is you know I'm
no no tech expert, but I mean how does that
affect I mean productivity but also jobs? Does that mean
you know if we have could that curtail inflationary pressures?
Because we have AI doing stuff that that people normally do?
Speaker 1 (25:24):
What? What?
Speaker 4 (25:25):
What does that do?
Speaker 2 (25:26):
It's really hard to get your AI settings right, like
like your your assessment of it. I mean, because like
you can look at it one way and be like
it's going to completely transform the economy or be unrecognizable
in three to five years, and then you can be like, oh, actually,
these things tend to happen gradually. The Internet has transformed
the economy, but it was a very slow, smooth process.
And you know, it's a little bit hard to say,
(25:49):
like which which of those things is it going to be?
It's going to be the industrial revolution or is it
going to be the arrival of the Internet. I struggle
to work out whether AI. I don't think AI in
its current form is bigger than the Internet. But if
we achieve like artificial general intelligence, like the superintelligence, I
think that could be bigger than the Internet. But we're
away way off that yet.
Speaker 1 (26:09):
So yeah, but it sort of feels like something that
will happen in our lifetime. You know, there's these things
that you sci fi movies that you watched as a kid,
even as a kid thinking I'll never see this. Now
you think I might.
Speaker 2 (26:23):
This isn't this is a nerdy podcast, you guys might
have have you have you ever read the John Maynard
Kane's essay called like Dreams for My Grandchildren?
Speaker 1 (26:30):
No, it's funny. I'm just I'm just finishing the economic
consequences of the piece I finished on the bus coming
into work this morning.
Speaker 4 (26:40):
I can't partaken that.
Speaker 2 (26:41):
But it's a very short it's a very it's a
very short and Q essay where he just like writes
about all the productivity advancements that are occurring in the
economy at the time, and he says, it's going to
be great for my grandchildren who are going to spend
their time building relationships and painting and walking by the river.
And they might work two to four hours a day,
they might do some volunteering, but all these amazing productivity
(27:03):
advancements will mean that my grandchildren will basically have all
this leisure time for self actualization. And he's so excited
about that, and he's so happy about that. And I
think it was written like nineteen twenty or something like
we recently hit the one hundred year mark, where as
grandchildren were supposed to be having all this leisure time.
And I read it and I'm like, I don't have
that much leisure time, Uncle John.
Speaker 3 (27:24):
Well, I mean, actually that is that was kind of
something I've been thinking about with AI and things, because
you know, technology it does allow if technology can do
the mundane work. You know, then that allows humans to
do the interesting stuff and to really think and solve
problems and innovation, et cetera, et cetera. But is that
actually what we're going to do or are we just
going to get the machines to do the simple jobs
(27:46):
and then we just end up being a bit useless,
Like we don't paint and walk along the river, We
sit there and scroll the internet.
Speaker 4 (27:52):
Or you know, I think we don't.
Speaker 1 (27:55):
Voluntar grandchildren a podcast, well great great grand nise or
child or ever as a podcaster. It's true, I believe
I believe that they are related to the ft podcast.
Speaker 2 (28:07):
You know, I would say doing a podcast while I'm
technically on the clock right now is a leisure time.
Let's be honest.
Speaker 1 (28:14):
Well, in my the book that I had finished reading
this morning, he I think the forty hour week must
have been it's some curtailment of of of the working
day was instituted, and he wrote rather disparaitly about it,
saying that that, you know, I hope it doesn't reduce
our national income too much, because you know, we don't
(28:35):
want to. We'll have to write off our Germany's ward
heeds and and and and and write off our wardts
to our fellow our lives, very anyway, very anti anti
French book, right to the other growth stuff. I think
your list, Dan, that makes a good point that politically,
(28:57):
when we talk about things to grow the economy, we
do we do sort of read out the laundry list
of sort of nineteen eighties right wing thinking. That is
the sort of your textbook grow the economy sort of stuff.
And you know, I do wonder whether that might have
worked back then, you know, when the last time we
got ourselves out of a debt packle, you know, slash spending,
(29:18):
deregulated the economy. You know, by the end of the
nineteen nineties, I think we New Zealand posted some years
of fourish five percent growth. Nice lovely, What a great
way to grow your way out of grow your way
out of a crisis. But obviously you know that the
politically those governments have a negative inheritance. I would imagine
if you polled, most people don't look at them very favorably.
(29:40):
And I can't you know when you think about this
government going to the elector only two years away saying,
you know, we might be privatizing some assets we might
be cutting the corporate text, right, we might be reducing
you know, workers rights, health and safety laws were we've
increased the minimum wage below the below the inflation straight
like two years in a row, probably three years in
the row by next Yeah, you know, we've put a
(30:04):
lid on public spending health systems and you know, disarray.
The public might look at that and think like yep,
like like the growth, growth is good, but like what
do I get done? And there is a sort of
bit of a cliche. But if the government, I think
of that, if if the government goes to the polls
(30:25):
and where the three parties of government goes to the
poles and go to the polls in between twenty six
and saying we've grown the economy and the benefits of
that will trickle down to you, which appears to be
the only benefit that they are selling at the moment.
They've got another thing coming, because it's just I just
don't think that the public will believe it. And you know,
the trickle down is fairly discredited. Now.
Speaker 3 (30:47):
I think, well, exactly, like, what what's in it? What's
in it for me? And by that point those income
text cuts will be long forgotten. If they're already forgotten
the adjustments of the income texts have well and truly
being swallowed up by inflation like many times over. But
you're right, So what's in it for me? I mean
(31:08):
I still have more people unemployed? I mean maybe I
guess an unemployment rate will probably by the election be
tracking back down.
Speaker 2 (31:18):
Only just only just.
Speaker 3 (31:20):
Yeah, what about the fifth tax regime? That's one that
they are the government might take. I need you to
un I do need to unburden myself. This is not
going to get This is not going to see this
government really, this is not going to be the thing
that wins the hearts and minds of voters issue exactly.
(31:42):
But look, I think it is an issue. Talking about
the growth agenda, the government has said that tax is
something that it wants to look at to try to
grow the economy. Now everyone's focused on the corporate tax, right,
that's twenty eight percent O we sit the average is
twenty four percent. Nikolobla said, she's, you know, she she's
open to looking at that. But an area I think
(32:03):
they might actually move on and we might get information
from this at the budget is what's called the Foreign
Investment Fund tax regime. Basically, what this means is that
if you have more than fifty thousand dollars invested in
offshore entities like companies, the way your tax can kind
of penalize you. So you can be taxed on five
(32:25):
percent of the value of your shareholdings. That means you
might pay more tax than you would pay if you
had just had your investments in New Zealand shares or
a fund. The other thing is you're paying tax on
the value of something. It's about like a wealth tax.
You're not paying tax on the dividend income that you
receive or the money that you receive, so you're not
actually receiving any money. You just have this investment overseas,
(32:45):
but you're having to find the money to pay the tax. Now,
you know, you could be like, oh, well that's fine.
If you have more than fifty thousand dollars to invest overseas,
then you're probably going to be okay. True, but the
worry for the government potentially and for accountants and things
is that if you're a migrant to New Zealand, you
might have a bunch of your money invested overseas, and
(33:08):
then this hits you pretty hard. And if you're a
wealthy foreigner you come to New Zealand, these are the
people we want, presumably you know they can encourage growth
and so on. Then this can can penalize you. Also,
if you're a key we who's lived overseas and you've
made your money and you've invested it, you come back home,
could this toter you? So the and then Revenue has
(33:29):
been consulting on this. Nicola Willis I talked to the
other day. She said she's receptive to making this change.
So I guess I do wonder whether at budget time
May twenty two, this is the a tax change that
we could see.
Speaker 1 (33:43):
And so the impact on growth is that there is
a fear that these investors would are either not attractive
to New Zealand and we want to attract their investment
and money here despite the.
Speaker 4 (33:53):
Fact that this is a text the wealthy people here.
Speaker 1 (33:55):
Yeah, the wealthy people, but despite the fact that these
are assets held offshore. Yes, And there's also fear that
were they to invest in a mixture of New Zealand
and offshore investments, that they might liquidate their New Zealand
investments in order to pay the government this tax.
Speaker 3 (34:10):
Or just that basically it's not that attractive for them
to be here. If they've got like a million dollars
invested in America where they come from or whatever, then
you know that the tax burden is quite heavy on them.
And the other thing with us is that these are
resultfully complex, but there's a four year There are heaps
(34:30):
of exemptions, but there's a four year gap. So if
you're a migrant, you come here, you've got a million
dollars saved up in America and invested in companies, you
don't have to pay the tax for the first four years.
So because we had this influx of immigration, you know,
four or five years ago, the concern is that we've
got all these people here now and they might leave
(34:53):
because this four year window is closing or might have
closed on them. So, I mean, that's just one argument.
But I think this is something that's quite Apparently the
idea has received quite a few submissions on this, like
a lot, so you know, it's been consulting on it.
It could fittened with the government's agenda.
Speaker 2 (35:12):
It is a bizarre law and seems like something that
could be perhaps designed better, But damn, I don't think
it's going to boost our growth through it.
Speaker 3 (35:20):
No, yes, no, but is any I mean, nothing this
government is doing is really big. You know, it's a
bunch of little things and.
Speaker 2 (35:29):
I kind of hope it will add up to something big. Yeah,
one hundred tiny changes. I'm not super convinced to myself.
Speaker 1 (35:35):
And there's so little fiscal space to do to do
it as well, you think, oh yeah, cut the coming
text right like that. You know, there's arguments to be
made around around that change the fifth regime, but all
of these things have fiscal costs. They're going to do that.
I'm you know, I put good money on them doing
the charity charity exemption issue this year. But you know
how much text can your rinse out of sanitarium? Not
(35:58):
a lot? Do you think you'll be the them? And
that put up the price of week books? How unkey
we is that?
Speaker 4 (36:04):
Yeah?
Speaker 3 (36:05):
So, I mean the cour so corporate tax makes up
fourteen percent of the Crown's tax take. So that's seventeen
billion dollars, so fourteen percent. You know, it's not the
biggest share banking, not the biggest share bane.
Speaker 1 (36:20):
When you've got a decision, yeah, you know, and then
every every billion dollars that you lose us.
Speaker 3 (36:26):
Yes, but I guess that the idea is and and
you know, i'd need you would need to see the
research on this, is that you cut the corporate tax
rate and then that's meant to stimulate growth, which then
you know, means we all pay more GST, we have
high earning jobs and pay more tax and that kind
of risky business.
Speaker 2 (36:42):
I'm pretty unconvinced. But but yeah.
Speaker 1 (36:45):
Give Craig Winning an aneurysm that kind of think.
Speaker 3 (36:49):
This is I'm not an economist, but that is that
that is what you need to consider as what but
what it's what it stimulates.
Speaker 2 (36:57):
I think we always always for get to talk about
the Reserve bankqu like the reserve Bank will set speed
limits and stuff, you know, like if you cut the
corporate tax rate, it doesn't improve productivity, which we love
to talk about unless they invest it in capital or whatever.
Like maybe maybe you can, but like, assuming it's just
more money to spend, the Reserve Bank will just raise
interest rates and completely offset that. Like we like have
(37:18):
this deliberately equalizing economy using the floating exchange rate using
interest rates, so like any just any metric where you
just put more money or less money into the economy
be it through text cuts or government spending. Well should
just prompt an interest rate reaction and a currency reaction
which levels it all out. You need to like actually
do things that change the quote unquote speed limit the productivity.
(37:38):
I feel like income tax cuts or corporate tax cuts
doesn't really do that unless it incentivizes investments in productivity
enhancing sets.
Speaker 3 (37:47):
So yeah, it's all it's all very capital investment. I
think that's what needs to be in centivized.
Speaker 2 (37:52):
Yeah.
Speaker 1 (37:53):
Yeah, And then you've got the challenges as well. If
you know New Zealand one of that bang on like
this too much. But you know, one of the things
we don't study enough in New Zealand is the fact
that we are very unusual in having an open labor
market effectively with one of the most successful economies in
the world. You know, it's sort of Canadians can't just
move to America. You know. In the EU, obviously they
(38:13):
can move around, but they don't all speak the same language.
And and then you know in other parts of I
suppose Ireland and the UK can move between each other.
But you know, it's it's very New Zealand is unusual
for having it. I mean, it's easier in some respects
to move from from New Zealand to the east coast
of Australia than it is to move from some of
the poorer parts of America to a coastal city. The
(38:36):
flights are cheaper, the distances are shorter, there's more mutual
recognition of qualification. Sometimes you know, it's it's a very,
it's a very. It's a good thing in terms of
sometimes having a remittance economy, but it's a tough thing
for a labor market.
Speaker 2 (38:50):
Part of the reason why we have unemployment at five
point one percent today instead of closer to six percent
is because a bunch of people have moved to Australia
that would always be sitting here unemployed. So it's an
interesting it's interesting.
Speaker 1 (39:00):
Employer of last resort they used to call the when
the UK was in the EU, they called it the
employer of last resort. And you know, this sort of
this this this theory that it's staved off revolutions in
southern Europe because at absorbed young, multi lingual but unemployed people.
And you know, I think there's there's no coment to
be made about that in the Australia and New Zealand.
(39:20):
The issue for us, I think as that you know
you you're and for productivity and inflation, the New Zealand
labor market has to catch up to the Australian labor
market to ensure that people, you know, not more people
move over there. I mean when you look at our
health costs, we spend a similar amount of our of
our spending on our GDP on health as other OECD countries.
(39:41):
But obviously the biggest cost of health labor costs. You know,
that's a global labor market, and it's a labor market
for New Zealand is very influenced by higher play in Australia.
So this is probably why we get lets out of it,
because you know we're spending the same amount, but the
costs in New Zealand relative to our total expenditures very
very high.
Speaker 2 (39:59):
We'll close the get with Australia though. When Shane Jones
starts mining the Toria Crossing.
Speaker 1 (40:03):
I remember, mine a whole all the way. Let's just
minor tunnel to Western Australia. I think big.
Speaker 4 (40:10):
The miners can get a can get a bank account.
Speaker 1 (40:14):
Very into this. It's very it's very it's been, it's been.
I love you I'd love to know people's thoughts. I've
been I've been reading a lot about businesses rights to
refuse custom and there's lots of very interesting anecdotical stories
from all over the world. There's a gay wedding that
was refused to cake in America that went to the
Supreme Court. They had to supply, so they were the
(40:38):
state courts that they had to supply the cake. The
Supreme Court overturned it. Religious freedom, So that's the human rights,
the human rights. Yeah. So, and then then Nigel Farage
was debanked by Coots in the UK. Coots only takes
people with more than two million pounds and and and deposits,
and they debanked him, but he said he did have
(40:58):
that amount. Very contray anyway, I agress.
Speaker 3 (41:02):
Yes, Well, actually, I would like to hear from listeners
if they have heard of businesses that have truly been debanked,
Like cryptocurrency is obviously really big. If you in that
you're debanked for money laundering purposes, those money laundering rules
are really tough. Money remittance firms. About ten years ago,
a spate of them, they were all debanked, that went
(41:23):
to court. The court ruled in favor of the banks
or Kipi Bank. There was one sort of president setting case.
Now the topic is on ESG, but quite honestly, I
would like to know who cannot actually genuinely get a
bank account, because you know, there's a price for everything,
and and I just wonder whether there's this is a
(41:45):
little bit of a political situation, you know, like we've
heard of one case of a of a mine. I
would love to know PETA, but could they not get
an alternative solution? That's the thing because in my view,
as if there's competitive market, you should be able to
find something. It might cost you more, it might be
more difficult, but you know that that's if you're a
(42:08):
viable business, then why would a bank say no to you?
If your credit worthy, you have a future, They'll take
your money. They might not give you a loan, but
they will set you up with a transaction account, you
would imagine. So I'd just love to hear a few
examples of where this is truly being difficult.
Speaker 1 (42:26):
If you've been d banked. Thomas dolans And has a
difficult name to spell, so you might have to click
on and byline, but it's easy to say, contrary to
what many broadcasts doing listening. Any last thoughts before we depart.
Speaker 2 (42:43):
Uh, just just that it probably looks difficult for the
opposition if the economy does get better. They're sort of
like seem to be leading in the polls right now.
There's a few little poles showing them neck neck or
a head even labor. And I think a lot of
that is that the economy is doing really badly the
worst moment and then making a lot of hay with that,
saying national crash the economy. It's a pretty good message,
(43:04):
but it's going to get a bit awkward if the
economy that improves, because then they might look a bit silly,
like what what's the what's the pivot from national cush
the economy are now it's fine again. That's kind of
like going to be a difficult message for them, So
I think they need to work out how they're going
to play that. They might have a plan. I don't know,
we'll see.
Speaker 1 (43:21):
I think like party party, that is sort of a
legging indicator of you know, be able to use that
that terminology. I think it's a legging indicator. It reflects
you know, the the the economy that you know, people
have experienced over the last few months. And as I mean,
you know, the the the economy will recover in some form,
whether or not it recovers in a way that you
(43:43):
can look back in five years time and say thank
God for the lux and administration that got our country
back on tract. But that's that that is a very
big question. But but you know things will be better
at one, wouldn't The likelihood is that things, the economy
will will will grow and things will improve apart from
that unemployment indicator this year, and you would think that
if this is the bottom of the trough, then the
(44:05):
party vot performance of the parties reflects the trough rather
than the future.
Speaker 4 (44:10):
Yeah, that's a good point.
Speaker 3 (44:11):
I wonder if Auckland will have forgiven labor as well
post COVID. The angst in Auckland from the lockdowns, I
think that actually cut people really deeply and Auckland went
totally blue. I know it's kind of seems like a
while ago now, but but I I well, actually another
thing be interested to hear from listeners. You know Orckland
is still holding that grudge from that, you know, tough time.
Speaker 1 (44:35):
It's very interesting, you know, as a wellingtony who spends
a bit of time in Auckland, but the cities have
never felt farther apart in my lifetime. Sort of Wellington
bearing the brunt of the public service cuts feels revolutionary sometimes,
and and and Orkland felt like that against labor, you know,
and it's still it still feels. Yeah, there's there that
(44:57):
that that that that vibe. But maybe we're just not
going to the right part. It's a big place. We
can't say the same. Thank you very much for listening.
Thank you Dan and Janet for joining us. Welcome back.
I hope you've had a lovely break everyone, I hope
you have a lovely year. We will be with you.
(45:18):
Ethan Sills is our producer and you can find us
on iHeartRadio wherever you get your podcasts, and on the
Herald app
Hello and welcome to on the titles The New Zealand
herold's politics podcast. I'm your host Thomas Cochland. Joining me
today in the studio is our Wellington business editor Gene TIBs,
Training Welome and Interest dot quod n z's Politics and
Business and econow much reporter Dan brunscored.
Speaker 2 (00:25):
Pleasure to be here, Thank you having me.
Speaker 1 (00:26):
Happy Happy New Year to you both, Happy happy new
year to all are on the task listeners. Sorry to
have taken us a six week, six week break, so
but how rude. I hope you all my chairs a bit.
I hope you all had a lovely, lovely break. Let's
we're going to talk about twenty twenty five, the year
that we survived twenty twenty four to enjoy. When we're
(00:47):
recording this podcast again at the end of the year,
recapping the year, what do you think we will we
will be talking about what is? What do you what
do you think the has in store? Jane Al throw
to you first.
Speaker 3 (00:58):
I think the year will be defined by geopolitics. I mean,
it's been a crazy week in terms of Donald Trump
and Tariff's being put on and then perhaps being taken off.
I'm not too sure where they'll be by the time,
in one day's time, perhaps when people listen to this podcast.
But you know that has well and truly thrown discombobulated
(01:20):
everyone and thrown markets into you know, it's pretty shamboic,
and I feel like that will you know, that will
possibly only continue and it's hard to see positives around this.
The other thing I'm interested in is, you know, these
interest rate cuts that the Reserve Bank is expected to
cut the OCR a bit more. Now, where what is
(01:42):
happening in the US and Donald Trump and tariffs that's inflationary.
How that intersects with what's happening in New Zealand in
terms of the fact we've got inflation you know, within
the band, and we need growth, so we need lower
interest rates. How those things come together, That's something I'm
interested in. How you know, quite a few different forces
(02:02):
moving in different directions. How that affix our mortgage rates
and tomb deposit rates. I think everyone is really hanging
out for those rates to come down materially to just
you know, soothe some of the pain that that borrows
have been feeling.
Speaker 1 (02:15):
Would be good to borrow some more money and buy
a couple of houses. I think it could be nice
to return to the New Zealand that we mess.
Speaker 4 (02:20):
So, return to our terrible old ways.
Speaker 1 (02:25):
Then then, how many houses do you want to buy
this year? What do you think? What do you think
is in store for for for this this year? For
you all?
Speaker 2 (02:33):
Disclosure, I'm going to buy zero houses this year. I've seen.
I've seen the Wellington house price revaluation today. Don't want
anything to do with that.
Speaker 1 (02:41):
Painful, it's painful.
Speaker 2 (02:43):
I caught it down, caught it down, It's huge. I
don't know I'd feel nervous buying a house now. I
believe in price moderation. We can do a different podcast
episode on that. I think this year will not be
defined by runaway house price growth. I think it will
be defined by whether or not the promised economic recovery
actually occurs. It's very easy to forecast a recovery, assume
(03:05):
that things will return to normal, and all of the
green shoots that we're seeing, a lots of the green
shoots quote unquote that we're seeing a purely expectations based it.
Expectation has to become a reality, and that's not guaranteed
to happen. I think the extent the economy does or
doesn't come back to life is probably going to be
the defining economic issue both practically and politically this year,
(03:26):
is my heart take.
Speaker 1 (03:28):
I mean, it's interesting as a As a this isn't
really metric of economic recovery, but it was interesting to
see the first post high Foo Crown accounts published earlier
this year, and most of those metrics that are Bega metric,
that mutric were worse then they were forecast to be
in high food and obviously a high food that had
been forecast, you know, refecast downwards, and that that forecast
(03:49):
was was was revised downwards from from the beef from
the high food the year before, from the beef of
the year before before that, So the trend line continues
to go the wrong the wrong way. That that those
are obviously just the there's indicators out that the economic
ones could still recover. But yeah, I think that's those
are good. Those those are interesting predictions because certainly that
(04:09):
the whole narrative of this year is built around interest
interest rate driven recovery, I guess, and it's not clear
that we're going to get that, and certainly I would
say for the government's fortunes. They've tethered themselves this back
on track message. And you know when you look at
the economic indicators that that tend to be a good
have a strong correlation with party vote performance. Unemployment, well
that's probably going to go up, but it actually doesn't
(04:32):
correlate too strongly with party vote performance. Unemployment it's pretty
high under the Key government, and it's party vote it's
pretty strong. But house prices are the one House prices
and interest rates are the ones that tend to correlate
with a party's political performance. And there is meant to
be a house price recovery this year. Treasury is what
five point I'm looking at the high fun hour listeners
(04:53):
five point three percent in the year to twenty six
which begins in July this year. But whether that will
transpire difficult.
Speaker 2 (05:02):
Listeners should know that Thomas carries a copy of the
hypher with him everywhere he goes.
Speaker 1 (05:05):
I actually do on my phone. I save them to
I save them phone. Yeah, because I did it because
ended in me as a responsible user of subscribers funds
caps data on our phones, and I found that I
was downloading the PDF of the High four too.
Speaker 4 (05:24):
Often, not scrolling to I just you've got the highphone.
Speaker 1 (05:28):
I just saved it to save my data cap. So
that's what's happening.
Speaker 3 (05:32):
Wow, Just on interest rates, I wonder whether so you know,
economic growth and New Zealanders sluggish inflations within the band,
arguably there's room for the Reserve Bank to cut interest
rates that by quite a bit. But you know, if
the Federal Reserve in America this slows that the interest
(05:52):
rate cuts it's doing because Donald Trump's policies are inflationary,
you know. Then the question I have is how does
that affect the Reserve Bank? Presumably you know, it could
put a bit of upward pressure on interest rates. They
might not come down as much as we think. But
then again, the you know, all the central banks to
do their own thing. But the thing that could happen
(06:12):
if those if the central banks don't work in lockstep
as much as they have in recent times, is our
dollar can continue being weak, weakening even more. It's super
weak at the moment against the US dollar. Now. The
good thing about that for our growth agenda is that
you know, that's really good for exporters, makes our exports.
Speaker 1 (06:30):
More attractive, So you know, yeah, at all.
Speaker 4 (06:33):
So that could be a source of positivity.
Speaker 1 (06:37):
Another prediction I outsourced. I outsourced one of my predictions,
or so I had this. I had this when I
was reading other people's predictions over the summer. I sort
of thought, well, my big prediction is that we're going
to get some negative news from a ratings agency, which
I think is sort of it's the dog that hasn't
barked for a little while. And Labor when it was
an office, got a lot of positive news from the
ratings agencies intended to talk up this fact, and it's
(07:00):
press releases and marketing are because obviously when the ratings
agency is not favorable favorably upon you, then that's that's
pretty nice. So I outsourced this to Brad Olson. So
and I asked Brad, the infametric chief executive are, what
he thought about the likelihood that there would be an
interest some some some negative talk at least from a
(07:21):
ratings agency. So his reply, which I'll read, thank you, Brad,
is that the short answer is that it's likely. In fact,
they already are talking negatively. The real question is about
a credit downgrade. That's possible too. I'm not sure how
likely it is given the finances and the likelihood of
continue deficits for a longer period of time. That won't help.
A worry for ratings agencies too, will be that pursuing
(07:42):
growth to support the fiscals is an important goal, but
the outcome is not directly influenced by government compared to
the revenue and expenses leaders which the government directly controls.
So thank you Brad for your prediction.
Speaker 2 (07:52):
I have some I have some thoughts on that.
Speaker 1 (07:55):
Please share.
Speaker 2 (07:55):
Had us stand Yeah, yeah, no one is that. It's
it's interesting if you read those rating notes, how much
of the tone is like, we think things are going badly,
but New Zealand has such a great track record that
we trust it anyway, and then over time like that,
like institutional trust element of the credit rating is a
(08:16):
really big part of New Zealand's amazing credit rating. They
actually look at the underlying figures and they're like, yeah,
debt's quite low, so that's good, but everything else looks
pretty bad. So they're like, debt's low, that's good, relatively low,
don't nus Nichola will is that but that's what the
credit the rating agencies say, and they say, the institutional
frameworks really good, so we trust it, but they're constantly
being like, as surpluses slip away, as governments make bad decisions,
(08:39):
as they don't take action on the fiscals, that institutional
bit that underpins our rating weekends. So it's like, it's
not that the fiscals necessarily have to get that bad,
or debt has to double or anything. If the credit
rating agencies just decide we no longer have this outsize
trust in New Zealand, and it's amazing institutional framework that
would be enough to sort of push push the credit
rating interest downgrade or more negative outlook. And then the
(09:03):
other thing is that our credit rating is really good,
we can actually afford a downgrade. It would be a
huge political drama and I'm sure the government doesn't want
to and borrowers don't want to, YadA, YadA, YadA. But
it's not like having a nuclear bomb dropped on all clips.
It's just like an inconvenience.
Speaker 1 (09:18):
That would prepared for house prices well term.
Speaker 3 (09:24):
So you go, I had just on credit ratings. I'm
just having a look. I had to chat with S
and P at the end of last year, and you know,
just talked about the fact that because the government forecast
debt issuance program expanded a lot, so the government, you know,
as Thomas sort of suggested before, every time we get
new treasury forecasts, the Treasury increases the amount of debt
(09:48):
or bonds that thinks that New Zealander is going to
need to issue. Now, the problem with that is that
we're doing that because we haven't repaid our COVID debts,
so we're rolling that over. That COVID debt is still
there and we're issuing new debt for the new things.
So there are a lot of bonds in the market,
and a lot of other developed countries are doing the
same thing. You know, they are also doing that. So
(10:08):
you know, there are a lot of bonds out there
that need buyers. And at the same time, during the
COVID era, central banks were buying a lot of those bonds,
so you know, there were buyers of last resorts that
central banks were in there. Now central banks are no
longer in there. There are heaps of bonds in there.
So what that does is it lowers the price of
(10:29):
the bonds and that increases the yeld. That means that
governments have to pay more interest to you know, to
make the bonds more attractive to investors, and you know
that that sort of thing does weigh on our finances
because we're talking, you know, super large sums of money.
I think that the interest costs are looking at about
twelve billion a year ten or twelve billion, so it's through.
Speaker 1 (10:51):
Of GDP roughly, it's a lot of money. And I think
pre COVID it was we were spending a couple of
billion dollars a year on finance costs.
Speaker 3 (10:58):
Yeah, so that's yeah, So there's definitely something that S
and P. That's what I talked to them about. They
were kind of watching.
Speaker 1 (11:06):
Well an interesting I mean that that you know, obviously
finance costs of finance costs and New Zealand has has
has access to relatively affordable lending because of the good
credit rating, and you know, you're right down, we could
probably you know, there's no it wouldn't be the end
of the world for us if we were to were
not Greece, you know, wouldn't be the end of the
world if we were if if if if if we
(11:26):
were to slipper rating, and and we're not as indebted
as countries like the UK and France, which at the
moment they're going through fiscal crises because they they have
borrowed so much. As borrowing gets so more expensive, they
are really facing some difficult choices because their financing costs
really do weigh down on what they're able to do.
(11:49):
At the same time, it's it's it's sort of it's
a it's an unexamined I think part of or it's
it's we probably haven't examined how difficult it is for
a finance minister and a government in the post COVID
era when they're putting together a budget and all of
a sudden, you know your finance costs pre pandemic Jewish
(12:11):
billion dollars. Now you know you add eight billion dollars
to that. Well, that's that's you know, more than the
defense budget that you've just that's just sort of gone
out the window. That is a part of the a
part of the spending profile that didn't exist ten years ago,
five years ago, that now absorbs a whole lot of money.
(12:32):
It just makes life you know, it doesn't it's not
the end of the world. We can afford it, but
it just makes life so much more difficult.
Speaker 3 (12:38):
I mean, this is sort of stating the obvious, but
COVID really was a total game changer, and you felt
it at the time. Things were scary. The things that
were happening were just seismic. But it has shifted the
government's finances everything, and then you know, it's you think
would be able to recover from that, But then we
had all these ridiculous world events and wars, and then
(13:02):
you know, inflation was one thing, but now we have,
you know, instability when it comes to trade and some
of the institutions, you know, in the way that geopolitics
has operated. It's kind of unfortunate. We're just getting on
top of the whole inflation problem and now we're dealing
with voluntility in you know, the US, and some awful
(13:22):
wars that are still being waged around the world. Just
an insane amount of instability and no predictability.
Speaker 1 (13:30):
Now, just a rapid, rapid high food correction. Twenty twenty
finance costs for that whole year, we're three point two billion.
This is as far back because I can go on
the high food So three point two billion in twenty twenty.
That's the year two one, the year to June twenty twenty,
the year that there were two billion dollars is actually
twenty twenty one because the interest rates were so low,
so they actually despite all the borrowing that we did
(13:52):
in the year to twenty twenty one, borrowing costs fell
considerably and they have subsequently retched it up for the
current the current year there will be eight point six billion,
rising to nine point one billion and twenty six according
to Iphon, Interesting little. Were you keeping an eye on
the international bond market over Genuary? Interesting scene usual? I
think when I checked yasterday, the ten year bond rate
(14:15):
was down to four point four percently AVERAGEYLD on the
ten year bond rating. But we did the New Zealand
did belatedly get affected by the the American British we
spike after the but that seems to be less Donald
Trump related and more employment related, we think. Yes, No, I.
Speaker 2 (14:32):
Did not look at the bond market during my summer.
How I usually I'm so plugged in even during my
holiday because I love this stuff like I do it
for a job, but I love it.
Speaker 4 (14:41):
Into the beach. This year, Yeah, no, it was. It
was a spike, but I haven't checked it in recent
recent days.
Speaker 1 (14:48):
Interesting Free Treasury there there their average ten year bond
rate for this year's four point four, so that it's
right where it is sitting right now. So nice to
know that we can get a forecast right every now
and again.
Speaker 2 (15:01):
Jine does have a really good point about the higher
interest rates because we talk a lot about the Reserve Bank,
like the economy as weeks, the Reserve Bank will cut
interest rates, but that mostly effects like the shorter end
of the curve and then the longer end of the curve,
which is actually kind of probably more what businesses pay
attention to and making long term investment decisions and relative
to growth, and that kind of thing is not really
controlled by the Reserve Bank. It's controlled by international markets.
So if international markets are up to crazy things, if
(15:22):
developed countries are issuing a lot of bonds, that does
drive with her interest rates drives up by borrowing costs,
and it's not necessarily anything New Zealand can control in
any way. Share before you just kind of have to
take it, and.
Speaker 1 (15:34):
It came very different environment this time around with obviously
I think the well, one of the biggest interest rate
risks is Donald Trump with the amount of borrowing that
the Americans might do with their text plan, and then
the inflationary impacts of any tariffs that he imposes. That
Trump imposes. Obviously we didn't really see massive inflation under
(15:55):
Trump Part one and New Zealand at least, but you know,
that was an environment where I think the the europe
you know, Trump took office in twenty seventeen, the European
Central Bank was still doing QI back then. I think
the Americans might have even been doing some QUI you know,
before then, and continuing to sort of throughout the twenty
tens so and public that was a lot longer, you know,
(16:17):
during that period. Now post COVID, Trump and posts sort
of decoupling, you know, post the sort of experience of
decoupling that we saw during COVID and under Joe Biden.
You know, does does the Trump administration understand the environment
is different than that the policy decisions might have, you know,
a more inflationary impact. That they seem to be quite
(16:39):
lucky last time around, that they were able to put
the American economy and the global economy through such a
shock without really generating any problematic inflation.
Speaker 2 (16:47):
I agree with that assessment. You hear from economists from
time to time. Sorry, I dent have a citation on me.
But they say that business is more or less forgot
how to increase prices, and then COVID came along, inflation
came along, and they suddenly realized, like it's actually quite
easy to increase prices. And then obviously they have now
to a new Zealand because like nobody has any money,
but lots of economists think that, like, businesses are going
(17:07):
to retain this memory of how to raise prices, and
any opportunity they get, they're going to be like, oh,
we know how to do this. We did that last year,
let's pull the trigger. And they worry about things like
tariffs being inflationary, not necessarily because the economics are now
more inflationary, but just because businesses are way more primed
to be like, costs can rise, we have to manage that,
and we know how to do it. So like I
don't know if you saw people sharing screenshots or the
(17:29):
price of avocados after Trump announced the Mexico tariffs. They
it never took effect, the avocados never became more expensive,
but prices went up like and then came back down
again when the tariffs were lifted not imposed whatever, Right,
So it does seem like lots of economists think businesses
are way more responsive to price risk, whether legitimately or illegitimately,
(17:52):
Like where the for greed off a strategy, you know,
you take it how you want, and that just makes
inflation risks way higher. Interesting, interesting thing to watch out for.
Speaker 3 (17:59):
It's quite sort of behavior I love the sort of
behavioral economics. You know, it really is into science and
it is largely in art. There are lots of Feelds
there with that. And you know, as you say, like
what Watson, people's recent memories and how that drives behavior.
Speaker 1 (18:14):
That's quite interesting the whole the whole world. You know,
during the first Trump administration to what you're saying, that
was sort of a disinflationary amazonification, you know, and there's
only a sort of limited amount that the Americans could do.
But but you know now that now the decoupling agenda
is so far advanced that that that you would think
that that the inflationary impacts of what he might do
(18:37):
would just have a there's a sort of magnification effect
that they would perhaps wouldn't have occurred last time around it.
And then you know, the Chinese are happy to play
the inflation game. There the Europeans. You know, I'm more
inclined to sort of their security dilemma is more acute
now than it was ten years ago. Obviously with the
war in Ukraine, that the Europeans are less able to
(18:59):
play kind of geopolitical arbitrage with the Chinese and against
we're playing off the Chinese and the Americans, that they
probably are more inclined to lean American than they were before. Growth.
We would like to grow the economy. The economy has
not been growing as fast as or at all.
Speaker 2 (19:18):
Just hearing this, so.
Speaker 1 (19:22):
Growth do what? What do we think about the growth
of gender? What do we what would we like? What
were what? What? What?
Speaker 3 (19:28):
What?
Speaker 1 (19:28):
What? What are people telling you they would like to see?
Everyone wants to grow the economy. It's slightly ridiculous to
say that this great idea of to grow the economy,
but everyone would like to grow the economy.
Speaker 3 (19:37):
Well, a few years ago there was that big old
debate about you know, where the growth was bad? You know,
back in the good old days where we didn't have
any problems. We were debating whether actually too much growth
was bad. And you know, have we hit in the
developed world peak peak growth?
Speaker 1 (19:51):
Well, the Green Party still has a network inside the
Greens called the d Growth Greens, who believe that a
sort of an equitable shrinking of the economy as a.
Speaker 2 (20:01):
Way to go.
Speaker 3 (20:01):
Yeah, but it is interesting. But anyway, I think the
mainstream viewers that growth well, I do. Actually just remember
I was on a podcast years ago and we had
Arthur Grimes and ray.
Speaker 1 (20:14):
Worth Kate Rayworth economic.
Speaker 3 (20:18):
And it caused a massive ruckus because they clashed over
two economists that got really heated, clashed over with the
growth was good. And I remember being asked what I thought,
and I was like.
Speaker 4 (20:30):
I don't know. I was like, sustainable growth is good.
Speaker 3 (20:34):
But anyway, I mean, according to the economic model we use,
we do need growth. I'm not sure if there's that
much meat on the government's growth agenda though.
Speaker 1 (20:43):
Or colon the mine.
Speaker 2 (20:46):
You know, everyone likes growth, nobody likes the negative potentially,
you know, no one likes the risk or the or
the negative downside. So that there are some there are
some quite clear obvious economic things you could do to
help the economy growth, make the economy more growth, but
they might make inequality worse, so they might make the
environment worse, and there's all these trade offs we don't
necessarily want to make and it's kind of like a
laundry list of right wing Javier Malay type policies you
(21:10):
could do. We can cut corporate tax rates. Nicola Willis
has been out talking about that will grow the economy.
It'll make the fiscal problems worse, and it might make
inequality worse, but it will help grow the economy. Cut
the corporate tax rate, go for it, fast track, just
build stuff. Don't worry about the environment. Just build stuff
that will help the economy. It will hurt the environment.
RMA reform, similar sort of thing. The other thing, like,
(21:30):
the US performed quite a lot better during COVID and
through inflation because they have a much more flexible labor market.
You want to fire someone, go to the desk, bang
on it, send them out. In New Zealand much harder
to do. If we made our labor market more flexible,
that would make the job market more responsive. They would
make the economy more dynamic. It would probably grow more,
but people wouldn't necessarily like it because they'd be getting
(21:51):
fired and hired. And it's very unstable. So is you know,
do we really want that? How we're willing to take
growth at that price. I think that's kind of more
question rather than like, oh, no, what can we possibly do?
There are like lots of things we can do, but
do we like the trade off?
Speaker 1 (22:05):
It's a kind of.
Speaker 2 (22:06):
Thing that I think, you know, worries me more.
Speaker 1 (22:09):
Yeah, that American labor market stuff is fascinating. I remember
with horror the budget twenty twenty, Grant Robertson had that
New York Times front page with the number of well
forget how the Americans reported the number of jobless applications
that America that had been received in March twenty twenty,
(22:30):
and the line plunged so far downwards that it took
up the whole you know, the New York Times quite
a long long and the newspaper took up the whole thing. Great,
great graph. But obviously, you know, in terms of the
economic recoverage from COVID nineteen COVID nineteen, the Americans can
argue that that is not that you know, by some metrics,
(22:52):
and you know, as you said, that there are trade offs,
but by some metrics it's been it's been a pretty
good recovery. It's sort of exploded that idea of the
best economics as well as being health response, while you know,
the best economic response to COVID nineteen by some of
those very broad metrics has actually to just be very
very right. Well, but as you say, I'm not really
sure the trade offs on the social side are ones
(23:12):
that New Zealand workers would want to make, and fair
enough's a democracy. Those are the trade offs that you
know that we adjudicated the ballot box. And if we
want a slightly despixable labor market meaning lower growth, lower pay,
then that's our choice to make.
Speaker 3 (23:41):
The Reserve Bank Chief Economists Paul Conway did a speech
recently and talked about productivity. Now this is kind of
his topic that he's really big on, but also suggested
New Zealand's lack of productivity gives us a less maneuverability,
you know, into of responding to crises. That the inference
(24:03):
is potentially that if if we were more productive, we
could have lower interest rates without that causing inflation as
easily because we have more capacity in the economy to
absorb you know, the stimulus. Whereas if we're not productive,
what happens We just lower interest rates and then and
then and then what do we do, like where does
(24:24):
that where does that go? Are we're actually doing anything
with it?
Speaker 1 (24:27):
He made the remark of MPs as well, didn't He
sort of made the point that you could potentially squeeze
inflation out using interest rates without necessarily triggering a recession
by the boring old definition with if you had a
more productive last year.
Speaker 2 (24:45):
Every time someone talks about productivity and want to smash
my head against the wall, like what do you mean?
What are you going to do? Like what like there's
no button? This is productivity that we can push. It
drives me up the wall. So yeah, I had it
whole talk about like, well we need more productivity measures.
I'm like yes, but what.
Speaker 1 (25:01):
But how what? Yeah?
Speaker 4 (25:02):
Exactly? Well actually that does that? Does? Raise?
Speaker 3 (25:05):
AI? Is the other thing like is you know I'm
no no tech expert, but I mean how does that
affect I mean productivity but also jobs? Does that mean
you know if we have could that curtail inflationary pressures?
Because we have AI doing stuff that that people normally do?
Speaker 1 (25:24):
What? What?
Speaker 4 (25:25):
What does that do?
Speaker 2 (25:26):
It's really hard to get your AI settings right, like
like your your assessment of it. I mean, because like
you can look at it one way and be like
it's going to completely transform the economy or be unrecognizable
in three to five years, and then you can be like, oh, actually,
these things tend to happen gradually. The Internet has transformed
the economy, but it was a very slow, smooth process.
And you know, it's a little bit hard to say,
(25:49):
like which which of those things is it going to be?
It's going to be the industrial revolution or is it
going to be the arrival of the Internet. I struggle
to work out whether AI. I don't think AI in
its current form is bigger than the Internet. But if
we achieve like artificial general intelligence, like the superintelligence, I
think that could be bigger than the Internet. But we're
away way off that yet.
Speaker 1 (26:09):
So yeah, but it sort of feels like something that
will happen in our lifetime. You know, there's these things
that you sci fi movies that you watched as a kid,
even as a kid thinking I'll never see this. Now
you think I might.
Speaker 2 (26:23):
This isn't this is a nerdy podcast, you guys might
have have you have you ever read the John Maynard
Kane's essay called like Dreams for My Grandchildren?
Speaker 1 (26:30):
No, it's funny. I'm just I'm just finishing the economic
consequences of the piece I finished on the bus coming
into work this morning.
Speaker 4 (26:40):
I can't partaken that.
Speaker 2 (26:41):
But it's a very short it's a very it's a
very short and Q essay where he just like writes
about all the productivity advancements that are occurring in the
economy at the time, and he says, it's going to
be great for my grandchildren who are going to spend
their time building relationships and painting and walking by the river.
And they might work two to four hours a day,
they might do some volunteering, but all these amazing productivity
(27:03):
advancements will mean that my grandchildren will basically have all
this leisure time for self actualization. And he's so excited
about that, and he's so happy about that. And I
think it was written like nineteen twenty or something like
we recently hit the one hundred year mark, where as
grandchildren were supposed to be having all this leisure time.
And I read it and I'm like, I don't have
that much leisure time, Uncle John.
Speaker 3 (27:24):
Well, I mean, actually that is that was kind of
something I've been thinking about with AI and things, because
you know, technology it does allow if technology can do
the mundane work. You know, then that allows humans to
do the interesting stuff and to really think and solve
problems and innovation, et cetera, et cetera. But is that
actually what we're going to do or are we just
going to get the machines to do the simple jobs
(27:46):
and then we just end up being a bit useless,
Like we don't paint and walk along the river, We
sit there and scroll the internet.
Speaker 4 (27:52):
Or you know, I think we don't.
Speaker 1 (27:55):
Voluntar grandchildren a podcast, well great great grand nise or
child or ever as a podcaster. It's true, I believe
I believe that they are related to the ft podcast.
Speaker 2 (28:07):
You know, I would say doing a podcast while I'm
technically on the clock right now is a leisure time.
Let's be honest.
Speaker 1 (28:14):
Well, in my the book that I had finished reading
this morning, he I think the forty hour week must
have been it's some curtailment of of of the working
day was instituted, and he wrote rather disparaitly about it,
saying that that, you know, I hope it doesn't reduce
our national income too much, because you know, we don't
(28:35):
want to. We'll have to write off our Germany's ward
heeds and and and and and write off our wardts
to our fellow our lives, very anyway, very anti anti
French book, right to the other growth stuff. I think
your list, Dan, that makes a good point that politically,
(28:57):
when we talk about things to grow the economy, we
do we do sort of read out the laundry list
of sort of nineteen eighties right wing thinking. That is
the sort of your textbook grow the economy sort of stuff.
And you know, I do wonder whether that might have
worked back then, you know, when the last time we
got ourselves out of a debt packle, you know, slash spending,
(29:18):
deregulated the economy. You know, by the end of the
nineteen nineties, I think we New Zealand posted some years
of fourish five percent growth. Nice lovely, What a great
way to grow your way out of grow your way
out of a crisis. But obviously you know that the
politically those governments have a negative inheritance. I would imagine
if you polled, most people don't look at them very favorably.
(29:40):
And I can't you know when you think about this
government going to the elector only two years away saying,
you know, we might be privatizing some assets we might
be cutting the corporate text, right, we might be reducing
you know, workers rights, health and safety laws were we've
increased the minimum wage below the below the inflation straight
like two years in a row, probably three years in
the row by next Yeah, you know, we've put a
(30:04):
lid on public spending health systems and you know, disarray.
The public might look at that and think like yep,
like like the growth, growth is good, but like what
do I get done? And there is a sort of
bit of a cliche. But if the government, I think
of that, if if the government goes to the polls
(30:25):
and where the three parties of government goes to the
poles and go to the polls in between twenty six
and saying we've grown the economy and the benefits of
that will trickle down to you, which appears to be
the only benefit that they are selling at the moment.
They've got another thing coming, because it's just I just
don't think that the public will believe it. And you know,
the trickle down is fairly discredited. Now.
Speaker 3 (30:47):
I think, well, exactly, like, what what's in it? What's
in it for me? And by that point those income
text cuts will be long forgotten. If they're already forgotten
the adjustments of the income texts have well and truly
being swallowed up by inflation like many times over. But
you're right, So what's in it for me? I mean
(31:08):
I still have more people unemployed? I mean maybe I
guess an unemployment rate will probably by the election be
tracking back down.
Speaker 2 (31:18):
Only just only just.
Speaker 3 (31:20):
Yeah, what about the fifth tax regime? That's one that
they are the government might take. I need you to
un I do need to unburden myself. This is not
going to get This is not going to see this
government really, this is not going to be the thing
that wins the hearts and minds of voters issue exactly.
(31:42):
But look, I think it is an issue. Talking about
the growth agenda, the government has said that tax is
something that it wants to look at to try to
grow the economy. Now everyone's focused on the corporate tax, right,
that's twenty eight percent O we sit the average is
twenty four percent. Nikolobla said, she's, you know, she she's
open to looking at that. But an area I think
(32:03):
they might actually move on and we might get information
from this at the budget is what's called the Foreign
Investment Fund tax regime. Basically, what this means is that
if you have more than fifty thousand dollars invested in
offshore entities like companies, the way your tax can kind
of penalize you. So you can be taxed on five
(32:25):
percent of the value of your shareholdings. That means you
might pay more tax than you would pay if you
had just had your investments in New Zealand shares or
a fund. The other thing is you're paying tax on
the value of something. It's about like a wealth tax.
You're not paying tax on the dividend income that you
receive or the money that you receive, so you're not
actually receiving any money. You just have this investment overseas,
(32:45):
but you're having to find the money to pay the tax. Now,
you know, you could be like, oh, well that's fine.
If you have more than fifty thousand dollars to invest overseas,
then you're probably going to be okay. True, but the
worry for the government potentially and for accountants and things
is that if you're a migrant to New Zealand, you
might have a bunch of your money invested overseas, and
(33:08):
then this hits you pretty hard. And if you're a
wealthy foreigner you come to New Zealand, these are the
people we want, presumably you know they can encourage growth
and so on. Then this can can penalize you. Also,
if you're a key we who's lived overseas and you've
made your money and you've invested it, you come back home,
could this toter you? So the and then Revenue has
(33:29):
been consulting on this. Nicola Willis I talked to the
other day. She said she's receptive to making this change.
So I guess I do wonder whether at budget time
May twenty two, this is the a tax change that
we could see.
Speaker 1 (33:43):
And so the impact on growth is that there is
a fear that these investors would are either not attractive
to New Zealand and we want to attract their investment
and money here despite the.
Speaker 4 (33:53):
Fact that this is a text the wealthy people here.
Speaker 1 (33:55):
Yeah, the wealthy people, but despite the fact that these
are assets held offshore. Yes, And there's also fear that
were they to invest in a mixture of New Zealand
and offshore investments, that they might liquidate their New Zealand
investments in order to pay the government this tax.
Speaker 3 (34:10):
Or just that basically it's not that attractive for them
to be here. If they've got like a million dollars
invested in America where they come from or whatever, then
you know that the tax burden is quite heavy on them.
And the other thing with us is that these are
resultfully complex, but there's a four year There are heaps
(34:30):
of exemptions, but there's a four year gap. So if
you're a migrant, you come here, you've got a million
dollars saved up in America and invested in companies, you
don't have to pay the tax for the first four years.
So because we had this influx of immigration, you know,
four or five years ago, the concern is that we've
got all these people here now and they might leave
(34:53):
because this four year window is closing or might have
closed on them. So, I mean, that's just one argument.
But I think this is something that's quite Apparently the
idea has received quite a few submissions on this, like
a lot, so you know, it's been consulting on it.
It could fittened with the government's agenda.
Speaker 2 (35:12):
It is a bizarre law and seems like something that
could be perhaps designed better, But damn, I don't think
it's going to boost our growth through it.
Speaker 3 (35:20):
No, yes, no, but is any I mean, nothing this
government is doing is really big. You know, it's a
bunch of little things and.
Speaker 2 (35:29):
I kind of hope it will add up to something big. Yeah,
one hundred tiny changes. I'm not super convinced to myself.
Speaker 1 (35:35):
And there's so little fiscal space to do to do
it as well, you think, oh yeah, cut the coming
text right like that. You know, there's arguments to be
made around around that change the fifth regime, but all
of these things have fiscal costs. They're going to do that.
I'm you know, I put good money on them doing
the charity charity exemption issue this year. But you know
how much text can your rinse out of sanitarium? Not
(35:58):
a lot? Do you think you'll be the them? And
that put up the price of week books? How unkey
we is that?
Speaker 4 (36:04):
Yeah?
Speaker 3 (36:05):
So, I mean the cour so corporate tax makes up
fourteen percent of the Crown's tax take. So that's seventeen
billion dollars, so fourteen percent. You know, it's not the
biggest share banking, not the biggest share bane.
Speaker 1 (36:20):
When you've got a decision, yeah, you know, and then
every every billion dollars that you lose us.
Speaker 3 (36:26):
Yes, but I guess that the idea is and and
you know, i'd need you would need to see the
research on this, is that you cut the corporate tax
rate and then that's meant to stimulate growth, which then
you know, means we all pay more GST, we have
high earning jobs and pay more tax and that kind
of risky business.
Speaker 2 (36:42):
I'm pretty unconvinced. But but yeah.
Speaker 1 (36:45):
Give Craig Winning an aneurysm that kind of think.
Speaker 3 (36:49):
This is I'm not an economist, but that is that
that is what you need to consider as what but
what it's what it stimulates.
Speaker 2 (36:57):
I think we always always for get to talk about
the Reserve bankqu like the reserve Bank will set speed
limits and stuff, you know, like if you cut the
corporate tax rate, it doesn't improve productivity, which we love
to talk about unless they invest it in capital or whatever.
Like maybe maybe you can, but like, assuming it's just
more money to spend, the Reserve Bank will just raise
interest rates and completely offset that. Like we like have
(37:18):
this deliberately equalizing economy using the floating exchange rate using
interest rates, so like any just any metric where you
just put more money or less money into the economy
be it through text cuts or government spending. Well should
just prompt an interest rate reaction and a currency reaction
which levels it all out. You need to like actually
do things that change the quote unquote speed limit the productivity.
(37:38):
I feel like income tax cuts or corporate tax cuts
doesn't really do that unless it incentivizes investments in productivity
enhancing sets.
Speaker 3 (37:47):
So yeah, it's all it's all very capital investment. I
think that's what needs to be in centivized.
Speaker 2 (37:52):
Yeah.
Speaker 1 (37:53):
Yeah, And then you've got the challenges as well. If
you know New Zealand one of that bang on like
this too much. But you know, one of the things
we don't study enough in New Zealand is the fact
that we are very unusual in having an open labor
market effectively with one of the most successful economies in
the world. You know, it's sort of Canadians can't just
move to America. You know. In the EU, obviously they
(38:13):
can move around, but they don't all speak the same language.
And and then you know in other parts of I
suppose Ireland and the UK can move between each other.
But you know, it's it's very New Zealand is unusual
for having it. I mean, it's easier in some respects
to move from from New Zealand to the east coast
of Australia than it is to move from some of
the poorer parts of America to a coastal city. The
(38:36):
flights are cheaper, the distances are shorter, there's more mutual
recognition of qualification. Sometimes you know, it's it's a very,
it's a very. It's a good thing in terms of
sometimes having a remittance economy, but it's a tough thing
for a labor market.
Speaker 2 (38:50):
Part of the reason why we have unemployment at five
point one percent today instead of closer to six percent
is because a bunch of people have moved to Australia
that would always be sitting here unemployed. So it's an
interesting it's interesting.
Speaker 1 (39:00):
Employer of last resort they used to call the when
the UK was in the EU, they called it the
employer of last resort. And you know, this sort of
this this this theory that it's staved off revolutions in
southern Europe because at absorbed young, multi lingual but unemployed people.
And you know, I think there's there's no coment to
be made about that in the Australia and New Zealand.
(39:20):
The issue for us, I think as that you know
you you're and for productivity and inflation, the New Zealand
labor market has to catch up to the Australian labor
market to ensure that people, you know, not more people
move over there. I mean when you look at our
health costs, we spend a similar amount of our of
our spending on our GDP on health as other OECD countries.
(39:41):
But obviously the biggest cost of health labor costs. You know,
that's a global labor market, and it's a labor market
for New Zealand is very influenced by higher play in Australia.
So this is probably why we get lets out of it,
because you know we're spending the same amount, but the
costs in New Zealand relative to our total expenditures very
very high.
Speaker 2 (39:59):
We'll close the get with Australia though. When Shane Jones
starts mining the Toria Crossing.
Speaker 1 (40:03):
I remember, mine a whole all the way. Let's just
minor tunnel to Western Australia. I think big.
Speaker 4 (40:10):
The miners can get a can get a bank account.
Speaker 1 (40:14):
Very into this. It's very it's very it's been, it's been.
I love you I'd love to know people's thoughts. I've
been I've been reading a lot about businesses rights to
refuse custom and there's lots of very interesting anecdotical stories
from all over the world. There's a gay wedding that
was refused to cake in America that went to the
Supreme Court. They had to supply, so they were the
(40:38):
state courts that they had to supply the cake. The
Supreme Court overturned it. Religious freedom, So that's the human rights,
the human rights. Yeah. So, and then then Nigel Farage
was debanked by Coots in the UK. Coots only takes
people with more than two million pounds and and and deposits,
and they debanked him, but he said he did have
(40:58):
that amount. Very contray anyway, I agress.
Speaker 3 (41:02):
Yes, Well, actually, I would like to hear from listeners
if they have heard of businesses that have truly been debanked,
Like cryptocurrency is obviously really big. If you in that
you're debanked for money laundering purposes, those money laundering rules
are really tough. Money remittance firms. About ten years ago,
a spate of them, they were all debanked, that went
(41:23):
to court. The court ruled in favor of the banks
or Kipi Bank. There was one sort of president setting case.
Now the topic is on ESG, but quite honestly, I
would like to know who cannot actually genuinely get a
bank account, because you know, there's a price for everything,
and and I just wonder whether there's this is a
(41:45):
little bit of a political situation, you know, like we've
heard of one case of a of a mine. I
would love to know PETA, but could they not get
an alternative solution? That's the thing because in my view,
as if there's competitive market, you should be able to
find something. It might cost you more, it might be
more difficult, but you know that that's if you're a
(42:08):
viable business, then why would a bank say no to you?
If your credit worthy, you have a future, They'll take
your money. They might not give you a loan, but
they will set you up with a transaction account, you
would imagine. So I'd just love to hear a few
examples of where this is truly being difficult.
Speaker 1 (42:26):
If you've been d banked. Thomas dolans And has a
difficult name to spell, so you might have to click
on and byline, but it's easy to say, contrary to
what many broadcasts doing listening. Any last thoughts before we depart.
Speaker 2 (42:43):
Uh, just just that it probably looks difficult for the
opposition if the economy does get better. They're sort of
like seem to be leading in the polls right now.
There's a few little poles showing them neck neck or
a head even labor. And I think a lot of
that is that the economy is doing really badly the
worst moment and then making a lot of hay with that,
saying national crash the economy. It's a pretty good message,
(43:04):
but it's going to get a bit awkward if the
economy that improves, because then they might look a bit silly,
like what what's the what's the pivot from national cush
the economy are now it's fine again. That's kind of
like going to be a difficult message for them, So
I think they need to work out how they're going
to play that. They might have a plan. I don't know,
we'll see.
Speaker 1 (43:21):
I think like party party, that is sort of a
legging indicator of you know, be able to use that
that terminology. I think it's a legging indicator. It reflects
you know, the the the economy that you know, people
have experienced over the last few months. And as I mean,
you know, the the the economy will recover in some form,
whether or not it recovers in a way that you
(43:43):
can look back in five years time and say thank
God for the lux and administration that got our country
back on tract. But that's that that is a very
big question. But but you know things will be better
at one, wouldn't The likelihood is that things, the economy
will will will grow and things will improve apart from
that unemployment indicator this year, and you would think that
if this is the bottom of the trough, then the
(44:05):
party vot performance of the parties reflects the trough rather
than the future.
Speaker 4 (44:10):
Yeah, that's a good point.
Speaker 3 (44:11):
I wonder if Auckland will have forgiven labor as well
post COVID. The angst in Auckland from the lockdowns, I
think that actually cut people really deeply and Auckland went
totally blue. I know it's kind of seems like a
while ago now, but but I I well, actually another
thing be interested to hear from listeners. You know Orckland
is still holding that grudge from that, you know, tough time.
Speaker 1 (44:35):
It's very interesting, you know, as a wellingtony who spends
a bit of time in Auckland, but the cities have
never felt farther apart in my lifetime. Sort of Wellington
bearing the brunt of the public service cuts feels revolutionary sometimes,
and and and Orkland felt like that against labor, you know,
and it's still it still feels. Yeah, there's there that
(44:57):
that that that that vibe. But maybe we're just not
going to the right part. It's a big place. We
can't say the same. Thank you very much for listening.
Thank you Dan and Janet for joining us. Welcome back.
I hope you've had a lovely break everyone, I hope
you have a lovely year. We will be with you.
(45:18):
Ethan Sills is our producer and you can find us
on iHeartRadio wherever you get your podcasts, and on the
Herald app
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