Winston Peters on the economy

Winston Peters gave a speech on the economy yesterday to a Wellington business audience.   Going by Alex Tarrant’s report, the delivered version must have been quite a bit different than the prepared and published text, but here I’m going to focus on the published text.

When I first started thinking about the possible role of immigration policy in explaining New Zealand’s dismal long-term economic performance, the immediate response from the person I sat next to at Treasury was “careful, or you’ll be sounding like Winston Peters”.  In a similar vein (although I stress that it wasn’t the representative reaction –  most people were simply puzzled and didn’t know what to make of it) one manager  thumped the table and with the emotion very evident in his voice declared that it was disgraceful that we were even having such a discussion at The Treasury.

Peters has long been a polarising figure, and particularly so for the denizens of economic orthodoxy (of whom I generally counted myself as one).  And, of course, he has been around for a long time –  first becoming a Cabinet minister the same day in 1990 as Murray McCully, and presumably with aspirations to again becoming a senior minister after  this year’s election.  He has been Minister of Maori Affairs, Minister of Foreign Affairs, Treasurer, and Deputy Prime Minister.  Very few ministerial careers will have spanned a longer period –  Sir Keith Holyoake at 28 years is the longest I could think of.

And yet there has always been the question of what he has actually achieved, or delivered.  At present, the list of concrete New Zealand First achievements includes the Super Gold Card, some stuff about cheaper doctor’s visits for children, and……..well, not that much else.  That isn’t to say the presence of New Zealand First has had no other influence on policy over the years (quite possibly some of the government’s immigration policy changes last year and this have been partly pre-emptive measures).  But in office, Peters just has not accomplished much.

That is true of monetary policy –  long one of his bugbears.   He negotiated a new Policy Targets Agreement when he became Treasurer in 1996.  That agreement slightly increased the inflation target –  mostly reflecting actual outcomes which had been in the upper half of the previous range.  But even that agreement was a very long way short of the pre-election rhetoric.    And once the agreement was signed he never gave the Bank any subsequent trouble.   We managed to do some really daft stuff under his watch –  the infamous MCI experiment –  but he never called us out on it.  He served as Foreign Minister under Helen Clark, and while he seemed to be a safe pair of hands in that role, his biggest achievement seemed to be securing a much bigger budget for MFAT.  Somehow, I suspect that was not one of the priorities of his voter base.

And, of course, it is true of immigration policy.  As I wrote about here, despite all the rhetoric –  much of which I think was touching on, or prompted by, legitimate issues and concerns – there was nothing material in the detailed coalition agreement in 1996, and also nothing in the arrangement with Labour over 2005 to 2008.    Throw into the mix his opposition to asset sales, his unease about foreign investment, his opposition to raising the NZS age and so on, and I’ve long been pretty sceptical of Peters.

And so I turned to an election year speech on economic policy with wary interest.

I liked some of his lines (even recognised some of them).    He is totally right to call out the government for the way they make up lines to try to (a) pretend all is well (or even better) in the economy, and (b) to mask evident points of vulnerability (eg housing problems are “quality problems”).  In his words, from the title of the speech, “the facade of prosperity”.    Productivity is poor and per capita real GDP growth is pretty weak.

And while I wouldn’t word things quite this way

The fact is, massive immigration is neo-liberal, globalist voodoo.
It is an attack on those who believe in the nation state.

As a general proposition, I think the ideology of large-scale immigration in much of the advanced world isn’t far from that description.  Based on faith rather than sight.  Our politicians typically aren’t ideologues and like to think of themselves as practical people, but they’ve supped from the same streams of thought, and seem indifferent to the lack of hard New Zealand specific evidence on the benefits to New Zealanders of their preferred approach.  For many, as Peters put it,

In their make-believe world immigration is a free good – a gift.

I’ve been pretty critical of the ex post government “spin”, that attempts to suggest that all is rosy.   But Peters portrays it as the fruit of some deliberate and different economic strategy adopted by the current government.

Every country could flatter its economic growth by turning on the immigration tap.

But only NZ has seen governments reckless and irresponsible enough to try it.

In fact, to a considerable extent the current government has been running much the same immigration policy as its predecessors, including governments of which Peters was a part.

One can see it in the centrepiece of our immigration policy, the residence approvals target.  It hadn’t changed for years, until a modest cut was announced last year by the current government.  And what of actual approvals?

residence approvals 2017

For the 12 months to March 2017, the number of approvals is a bit lower than the last June year.   Overall approvals fluctuate from year to year, but average approvals under the current government are pretty similar to those under the previous government.

And here, using the MBIE data, is the numbers of people getting a first work visa in each year (excluding for the moment working holiday scheme people).

work visas granted

Not surprisingly, numbers dipped during the recession, but even with the increase in the last couple of years, the total number of people granted first-time work visas was still barely higher than in the last year of the previous government.

There are big differences in two areas.   The first is working holiday scheme arrivals.

WHS

Even The Treasury has raised concern about the labour market impact of these visitors, but looking at the chart, it is a pretty strong and steady trend increase going back almost 20 years now.  It certainly doesn’t look like a whole new strategy by the current government.

Students are another matter.  There has been a recent big increase in student visa numbers, although still only back to around the 2002/03 peak.

student visas 17.png

Here, of course, there has been a deliberate policy change by the current government, in allowing many or most students significant work rights while they are in New Zealand.    It looked like, and was, an “export subsidy”, and has probably had adverse implications for New Zealanders at the lower end of the labour market (with commensurate gains to the students and their employers).   But this looks like the only significant liberalisation by the current government.  Otherwise, they’ve largely been running the same (misguided) immigration policy as their predecessors

The student issue aside, I suspect that most of what has happened isn’t strategy –  has there been any sign of a serious economic strategy? –  but of being overwhelmed by unexpected events (while the large scale mediocre New Zealand immigration policy ran on in the background).  In particular, the weakness of the Australian labour market (perhaps reinforced by the increasing recognition of the limited entitlements most New Zealanders have in Australia) means that the net outflow of New Zealanders has slowed markedly, and for longer than most had expected.   The escape valve for New Zealanders for the last 40 years or so isn’t working at present, and New Zealand has to cope somehow.

It is a bit like the larger influxes of settlers back to France, after Algeria gained independence, and to Portugal in the 1970s when Mozambique and Angola gained independence.  Opportunities that once existed abroad were no longer there, and a huge reflux of people put pressure on the home economy.  It boosted aggregate GDP quite a bit –  all these new people needed roofs over their heads –  but it didn’t do anything very evident for productivity or the per capita things that matter.

So I don’t buy the line that the current government set out to supercharge population growth.  It just happened.  Perhaps the protracted weakness of the Australian labour market was foreseeable, but it wasn’t widely foreseen.  If it had been the government could have wound back our non-citizen immigration programmes.   It probably wouldn’t have, because ministers still seem to believe the twin gospels of “productivity spillovers” and never-sated “skill shortages”, oblivious to the way that in aggregate immigration increases aggregate pressure on resources, not eases it. But they could have done something.

As it is, they seem mostly overwhelmed by events, without any real strategy other than a desperate hope that it will all come right, in the meantime all the “made up stuff” serves mostly to try to distract attention from the unbalanced, not very productive, mess the New Zealand economy is in.

The government might well be without a strategy, but you have to wonder if any other party has a serious alternative on offer.  Because in the Peters speech yesterday there was a lot of rhetoric about the past, and talk of how

New Zealand First has comprehensive, common sense economic policies designed to build a strong and resilient economy.

But there wasn’t a single word about they would actually do about immigration policy, in any of its dimensions.

I’ve heard Peters in the past talk of reducing the net PLT inflow to around 10000 to 15000 per annum.   But not even that was repeated in yesterday’s speech –  which, in a way, is welcome, because there is no meaningful way the net PLT inflow can be successfully targeted from year to year.  And there was nothing else, at all.  Even though it is only 4.5 months until the election.

Perhaps Peters thinks he can ride high simply on rhetoric.  And perhaps he can.  Perhaps he is concerned not to be outflanked by the Labour Party, which has also yet to release its immigration policy.  But there was nothing at all in the speech.   I’ve seen references to Peters wanting to set something around Pike River as some sort of “bottom line”, but (with due respect to the families of the victims) there are many more important issues in New Zealand.  Judging from his rhetoric, you might suppose Peters thinks immigration is one of those things.

And so I can’t help wondering if we are being set up for a repeat of the last two times Peters went into government: lots of talk in advance, and no action on immigration policy at all.   If it happens, of course, the establishment will be quietly content.  But nothing fundamental will have changed.

Of course, one can only hope that is true of another area of policy that he did discuss in some detail.

Since the Global Financial Crisis we have been in a new economic era that makes reform of the Reserve Bank Act urgent.

Updating the obsolete Reserve Bank Act is critical to take account of the realities of 2017 rather than using a tool that is now decades out of date.

While we cannot slavishly copy from others, in the area of monetary policy we can certainly learn from the experience of countries like Singapore.

The city-state of Singapore has a population of around 5.7 milllion people in a country hardly larger than Lake Taupo.

They don’t have our advantages but they have achieved an enviable record of growth and stayed competitive through using an exchange-rate based monetary policy.

Singapore has a managed float and has a good record in moderating short-term currency fluctuations to ensure that the Singaporean dollar reflects their economy’s fundamentals.

There is no magic wand to get the dollar down to an appropriate and competitive level – and we have never pretended that there is.

But in today’s environment of historically unprecedented low interest rates, failure to reform the Reserve Bank’s Act to make it fit for purpose is inexcusable.

Reduced exchange rate volatility might be helpful, but it simply isn’t the main game.  And Peters offers no thoughts at all on how the average level of the real exchange rate –  one of the critical symptoms of our economic problems –  might be lowered.    And even if you were after materially reduced exchange rate volatility, a Singapore style policy simply isn’t feasible in a country as dependent on foreign capital as New Zealand is.

All in all, it was pretty disappointing stuff –  the more so, because he isn’t far wrong in calling out the unreality of so much of emerges from the government on economic matters at present.

21 thoughts on “Winston Peters on the economy

  1. He did seem to solve a number of problems for the racing/thoroughbred industries while their Minister;

    http://www.harnesslink.com/News/WINSTON-PETERS-LAUDED-35804

    It’s a niche, high value industry – the kind that should be supported (as opposed to intensification of high volume, low value-add commodity production, such as agriculture via irrigation subsidies, for example). The racing initiative was a bit like the SuperGold Card. He seems best at delivering focused initiatives. And as I recall when in government when he was Treasurer, he implemented a sort of no-new-money (without going through a rigorous application process) departmental policy (effectively capping and reducing existing Votes). As Vote budget managers we had to write in a 2% decrease in expenditure annually, if I recall correctly.

    Re the Reserve Bank Act – I think they put a draft bill up in that regard (didn’t get the votes to go forward), so some of the detail would be in that I imagine.

    All in all I think he would have made a better job of change-agent as PM, as opposed to being leader of a minority coalition party. You only have to look at what he managed to do for Tauranga over a period of many years as its local MP. And there really has been no more effective opposition party throughout National’s painfully long nine years than NZF.

    But yeah, being able (or perhaps, more to the point – willing!) to enunciate policy in a detailed manner, as opposed to his rhetorical way, isn’t one of his greater strengths.

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    • Thanks Katharine,

      I’m still a bit surprised that this country has a Minister of Racing! The interesting question on that or things like the fiscal example you cite, is how much was him/NZF, and how much was just channelling officials. I guess the gist of my observation was that in office he seemed like the sort of minister officials liked – didn’t make too much difficulty, and was senior enough to get thru things they wanted.

      As for the RB Bill, yes I’m familar with it, altho in my view Labour is now better positioned than NZF on those issues. And the answer to a lower real exchange rate has never lain with the RB (or its Act).

      Perhaps NZF is best seen a “reactionary” party – in the sort of sense Andrew Sullivan wrote about in New York magazine this week – rather than one with a positive agenda or prescription. If so, perhaps it serves it most useful purpose (and as i say, i think some of the instinctive reactions are right, others v wrong) in opposition rather than in government?

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      • I agree – he’s likely very capable at “channelling” officials – in other words, giving them the big picture outcomes wanted and then trusting them to complete the detail accordingly. And, he’s experienced enough as well to be able to read legislative text and be able to know whether it will or will not deliver the outcomes he’s looking for. This latter ability was a weakness of Key. I don’t think he knew enough about how to read regulation/law in a manner that would understand its application in practice.

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      • My scepticism is more along the lines that he looks quite good at implementing what officials want to implement (rather than, say, him giving them the big picture and them giving back the details). It seems like the most plausible story for the big increase in the MFAT budget (even tho no doubt Peters shared the Nat/Lab security council ambitions).

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      • Katherine, John Key came from from a successful job overseas, came back to NZ to retire and ended being the Prime Minister of NZ for 8 years. Winston Peters have been trying for the last 40 years to be Prime Minister and at best a wannabe opposition leader and you rate him higher than John Key?

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      • Katherine, your use of a Law society commentary that disagrees with the Government Queens Counsel is a very long stretch in terms of supporting your comments on John Key. None of that supporting document supports your contention that John Key understands the law any less than Winston Peters. Could come well within the concept of defamation.

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  2. Given National is firmly against cutting immigration, and Labour has promised to, you might think Peters would be obliged to go into coalition with Labour, but there’s no telling with him. And, yes, I had also been wondering if he has been reading Croaking Cassandra!

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  3. With 600,000 New Zealanders being targeted in Australia as unwanted migrants, expect escalating numbers of New Zealanders to return and fewer to leave for Australia. University Fees in Australia will start to be expensive and in turn the states will likely start levying primary and secondary schools as well. The free ride in Australia and the dirt class NZ category is well and truly now entrenched in the Australian Psyche.

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    • Labour having no clear immigration policy is surprising. As an opposition party they are not quite as constrained as the government in making proposals. As you and most of the public have noticed over the last 15 years (since I arrived) it doesn’t seem to make much difference whether Labour or the Nationals are in power (slight reduction in government officials in Wellington??). This leaves voters irritated (ref Brexit, Trump, France) and searching for any kind of change.

      This is the time for Labour to make it clear that they have changed their mind about immigration and they now will tackle it with two main aims: (a) remove all corruption, rorts and worker exploitation (b) reciprocal arrangements for visas as far as possible. If implemented the results would be reduction in migrant numbers, PTEs closing down, service industry wages increasing, possible reduction in house prices – all contentious but OK if admitted in advance.

      In other words appeal to the workers and leave the rich to the national party.

      Today’s Herald (page B5) “.. the continuing influx of migrants kept wage inflation muted.” Isn’t that crying out for a socialist response?

      Your analysis of Winston Peters is persuasive.

      PS. I hope Andrew Little doesn’t read this or if he does is not persuaded because such a policy will do me no favours – retired, owns two homes, enjoys sitting in coffee shops.

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      • You are making stuff up

        The 600,000 figure has been in existence for 25 years and unsurprisingly hasn’t increased in that time – the point being the bulk of that figure have been in Australia prior to 2001 as Special Category A residents enjoying full residential privileges with the exception of voting rights.

        A large proportion of the 600,000 will also have AU citizenship

        The changes the Australian Government is enacting apply to all non-resident non-citizens regardless of their origins – not just NZ’ers – there is no targeting

        The degrees from AU Tertiary Education are higher quality Universities than NZ Universities but their subsidised course costs are far less than those charged by NZ Universities and the increase in Fees is the quantum of the subsidy which has been withdrawn from all non-citizens and result in the amount being increased by 2 not 3 as per the alarmist call in the NZ Herald article

        Even after the withdrawal of the subsidy the cost of an AU degree is on a par if not cheaper than NZ

        Fact-checking would be good

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      • Iconoclast, guess you have to lodge a fact check complaint with the Sydney Morning Herald. Michael has found whenever he challenges my facts, it is usually more right than wrong and that he has made a mistake.

        APRIL 15 2016, Sydney Morning Herald

        “New Zealanders in Australia are still treated like second-class citizens.

        An estimated 600,000 New Zealanders live and work in Australia, mostly quite happily, but only when something goes wrong do they discover how few rights they have.”

        http://www.smh.com.au/national/new-zealanders-in-australia-are-still-treated-like-secondclass-citizens-20160414-go691n.html

        Well, irrespective of whether you hold a Australian passport or not. The fact is your roots are in NZ and it is not a good feeling to have to deny your roots and that you will your entire life be tagged as a migrant even if you have lived there pretty much all your working life. Nice feeling is it? Whether you are affected directly or indirectly, the feeling of being targeted is the same.

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    • West Australia started charging state $4000 school fees for children of Temporary Work Visas 3 years ago

      ‘http://absoluteimmigration.com/school-fees-impacting-457-visa-holders-in-wa/

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  4. In 1965, when Singapore left the Federation of Malaysia, the idea of an independent Singapore was a “political, economic, and geographical absurdity”. It is not hard to see why.

    An island of 580 squares kilometres at low tide, Singapore in 1965 had no natural resources, no hinterland, no industry.
    It depended on the outside world not just for food and energy, but even water.
    Industrial strife was common. Unemployment was close to 9%.

    The government made two strategic decisions – both sharply at odds with the conventional economic wisdom of the time.

    The first was to shift away from import-substitution in favour of export-led industrialisation.
    The second was to attract global multinational corporations as vehicles to achieve industrial growth. Promoting exports and promoting foreign direct investments.

    The 1990s were the structural reforms to:

    enhance wage flexibility in the labour market;
    tap more decisively into regional markets for trade and outward investment;
    step up the pace of industrial upgrading;
    promote innovation, enterprise, and entrepreneurship in the economy; and
    liberalise various services sectors such as finance, telecommunications, and utilities.

    By 2011, Foreign labour, which had driven Singapore’s labour force growth since the late 1970s, was already one-third of the total workforce.

    The important lesson is that Foreign investment was the primary driver together with an imported migrant workforce up to a third of the Labour workforce in order to drive a successful Singapore Economy.

    http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/Speeches/2015/An-Economic-History-of-Singapore.aspx

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  5. Singapore’s Exchange Rate-Based Monetary Policy

    1. The Singapore dollar is managed against a basket of currencies of our major
    trading partners and competitors.

    2. The tradeweighted exchange rate is allowed to fluctuate within a policy band, the level and direction
    of which is announced semi-annually to the market.

    3. It is important to continually assess the path of the exchange rate in order to avoid a misalignment in the currency value. A Monetary Policy Statement (MPS) is released after each review, providing information on the recent movements of the exchange rate and explaining the stance of exchange rate policy going forward. An accompanying report, the Macroeconomic Review, provides detailed information on the
    assessment of macroeconomic developments and trends in the Singapore economy, and is aimed at enhancing market and public understanding of the monetary policy stance.

    4. Interest rates in Singapore are largely determined by foreign interest rates and investor expectations of the future movements in the Singapore dollar. Domestic interest rates have typically been below US interest rates

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    • CPF as a macroeconomic stabilisation lever

      The CPF also played a major role as a macroeconomic lever used on and off by the
      government over the past decades. This was evident in the fluctuation of CPF contribution
      rates during various periods of economic shocks.

      https://lkyspp.nus.edu.sg/wp-content/uploads/2015/02/CPF-Case_final_Feb2015.pdf

      The 1985 recession marked a turning point for the role of CPF. When the CPF system was originally developed, cost competitiveness was not an issue. Prior to 1985, Singapore enjoyed two decades of high growth rates of an average of 9% per annum. As wages rose, CPF contribution rates were increased steadily until they peaked at 50% in 1985, with a 25% contribution rate by both employers and employees.

      The CPF rate thus became an economic lever for wage flexibility and cost competitiveness in good and bad times. As the economy recovered from 1988 to 1994, restoration of employer’s contribution rate was made in stages of 2% in 1988 and 3% in 1989, followed by smaller quantum increases in subsequent years. Employees’ contribution rates were also reduced by 1% in 1988 and 1989. The long-term contribution rate of 40% was achieved in July 1991 and remained at this level till 1 January 1999 when the contribution rate was lowered to 30%. In April 2000, the CPF rate was restored by 2% to 32%. This was based on projected economic growth rate and wage pressures.

      https://www.cscollege.gov.sg/Knowledge/Ethos/Ethos%20July%202004/Pages/The%20Central%20Provident%20Fund%20More%20Than%20Retirement.aspx

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    • Winston has brought up the Singapore Exchange Rate Monetary Policy. This program works hand in hand with the CPF(Central Provident Fund) which the Singapore government uses in macroeconomic tool to control inflation and therefore keep interest rates below the USA interest rates.

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