A fresher approach for ordinary New Zealanders

I’m as fascinated by the rise of Jacinda Ardern as any other political junkie.  I’ve always been a bit puzzled, struggling to see what issue she has led or what blows she had managed to land on the government.    Then again, she seems to have something different –  perhaps even more electorally important.   I’ve been dipping into accounts of Bob Hawke’s rise –  the last case I’m aware of that where major opposition party changed leaders close to an election (in that case only four weeks out) and won.     It isn’t clear that Bob Hawke was a better Prime Minister than Bill Hayden might have been, or that David Lange was a better Prime Minister than Bill Rowling would have been, but in both cases the new leaders had something –  a degree of connection, engagement etc –  that the deposed leaders didn’t.     Reading the accounts of the last weeks of Bill Hayden’s leadership of the ALP, the party had become as disheartened and lacking belief in its own ability to win (despite still leading in the polls), as some suggest the New Zealand Labour Party had become.    Quite what the Ardern phenomenon amounts to I guess we’ll see over the next few weeks.  From her comments so far, I could imagine her campaigning as Hawke did –  both the upbeat theme of “reconciliation”, and the more cynical description in (sympathetic) leading Australian journalist Paul Kelly’s book “no avenue of vote-buying or economic expansion was left untouched”.

For now, we are told that the “Fresh Approach” slogan is apparently out, and a new slogan and some new policies are soon to be launched.  Since no party really seemed to be campaigning on policies that might make a real and decisive for ordinary New Zealanders’ prospects, in many respect a fresher approach should be welcome.  Of course, it rather depends what is in that policy mix.

My interests here are primarily economic.  In an interview with the Dominion-Post this morning, the journalist put it to Ardern that “National will campaign on its economic record. Is that where Labour is weak?”.     Perhaps it is Labour’s weak point.  But what sort of “record” is the government to campaign on?  An unemployment rate that, while inching down, has been above the level it was when they took office –  already almost a year into a recession –  every single quarter of their entire term?  An economy that has had no productivity growth for almost five years?     House prices that, in our largest city, have gone through the roof?  Exports that are shrinking as a share of GDP?    And, at best, anaemic per capita real GDP growth?   If it is a weakness for Labour, it must be in large part because (a) their messaging has been terrible, and (b) nothing they offer seems likely to make any very decisive difference to the mass of ordinary New Zealanders.

What might?   Here’s my list of three main sets of proposals.    An effective confident radical Labour Party could offer the public these sorts of measures –  in fact, on some points arguably only a left-wing party could effectively do so (Nixon to China, and all that).

  1. A serious commitment to cheap urban land and much lower construction costs.
    • In a country with abundant land, urban land prices are simply scandalous.   The system is rigged, intentionally or not, against the young and the poor, those just starting out.  Too many of Jacinda Ardern’s own generation simply cannot afford to buy a house.
    • To the extent that there are poverty and inequality issues in New Zealand, many of them increasingly trace back to the shocking unaffordability of decent housing.   With interest rates at record lows, housing should never have been cheaper or easier to put in place.
    • And yet instead of committing to get land and house prices down again, the Labour Party has been reluctant to go beyond talk of stabilising at current levels.  Talk about entrenching disadvantage……(and advantage).
    • It is fine to talk about the government building lots of houses, but the bigger –  and more fundamental –  issue is land prices.  It is outrageous, and should be shameful, for people to be talking of “affordable” houses of $500000, $600000 or even more, in a country of such modest incomes.  International experience shows one can have, sustainably, quite different –  much better –  outcomes, but only if the land market is substantially deregulated.
    • I don’t have any problem if people want to live in denser cities –  I suspect mostly they don’t –  but it is much easier and quicker to remove the boundaries on physical expansion of cities (while putting in place measure for the associated infrastructure).   Labour’s policy documents have talked of moves in this direction –  as National’s used to do –  but it is never a line that has been heard from the party leader.     If –  as I propose –  population growth is cut right back, there won’t be much more rapid expansion of cities, but make the legislative and regulatory changes, and choice and competition will quickly collapse the price of much urban, and potentially developable, land.
    • It is clear that there is also something deeply amiss with our construction products market –  no one seriously disputes that basic building products are much more expensive here than in Australia or the US.  Make a firm commitment to fix this.  Perhaps it involves Commerce Commission interventions (supported by new legislation?)?  Perhaps it might even involve –  somewhat heretically –  a government entity entering the market directly.     But commit to change, to producing something far better for New Zealanders.
    • The vision should be one in which house+land prices are quickly –  not over 20 years –  headed back to something around three times income.  A much better prospect for the next generation.
    • No one will much care about rental property owners who might lose in this transition –  they bought a business, took a risk, and it didn’t pay off.  That is what happens when regulated industries are reformed and freed up.    It isn’t credible –  and arguably isn’t fair –  that existing owner-occupiers (especially those who just happened to buy in the last five years) should bear all the losses.   Compensation isn’t ideal but even the libertarians at the New Zealand Initiative recognise that sometimes it can be the path to enabling vital reforms to occur.  So promise a scheme in which, say, owner-occupiers selling within 10 years of purchase at less than, say, 75 per cent of what they paid for a house, could claim half of any additional losses back from the government (up to a maximum of say $100000).  It would be expensive but (a) the costs would spread over multiple years, and (b) who wants to pretend that the current disastrous housing market isn’t costly in all sorts of fiscal (accommodation supplements) and non-fiscal ways.
  2. Deep cuts in taxes on business and capital income
    • the political tide is running the other way on this one –  calls for increased taxes on foreign multi-nationals and so on –   but it remains straightforwardly true that taxes on business activity are borne primarily not by “the rich”, but by workers, in the form of lower incomes than otherwise.  So if you really care about New Zealand workers’ prospects, cut those taxes, deeply.
    • and one of the bigger presenting symptoms of New Zealand’s economic problems is relatively low levels of business investment.   Taxes aren’t the only thing businesses  –  and owners of capital  –  think about, but they are almost pure cost.   Tax a discretionary activity and you’ll get a lot less of it.   That is especially true as regard foreign investment –  those owners of foreign capital have no need to be here if the after-tax returns aren’t great.  For all the (mostly misplaced) concerns about sovereignty, foreign investment benefits New Zealanders –  ordinary working New Zealanders.     Cut the tax rates on such activity  –  they are already higher than in most advanced countries –  and you’ll see more of it taking place.    More investment, and higher labour productivity, translates into meaningful prospects of much higher on-market wages –  the sorts of wages they have in the advanced countries we were once richer than.
    • simply cutting the company tax rate will make a material difference to potential foreign investors.   It won’t make much difference for New Zealanders’ looking to build or expand businesses here, because of our imputation system    That’s why I’ve argued previously for adopting a Nordic system of income taxation  –  in which capital income is taxed at a lower rate than labour income.  Note the description –  it is a system not run in some non-existent libertarian “paradise” but in those bastions of social democracy, the Nordic countries.  Not because they want to advantage owners of capital over providers of labour, but because the recognise the well-established economic proposition that taxes on capital are mostly borne in the former of lower returns to labour.
    • some argue against cuts to business taxes on the grounds that it will provide a windfall to firms (especially foreign firms) already operating here.  Mostly, that is false.  It might be true if foreign firms dominated our tradables sector –  where product selling prices are set internationally.  But in New Zealand, foreign investment is much more important in the non-tradables sectors.  Cut taxes on, say, the banks, and you’ll find the gains being competed away, flowing back to New Zealand firms and households in lower fees and interest margins.  If for some reason it doesn’t happen, feel free to invoke the Commerce Commission (and/or expand its powers).
    • much lower business taxes should be a no-brainer for an intellectually self-confident centre-left party serious about doing something about long-term economic underperformance and lifting medium-term returns to labour.     I’m not really a fan of capital gains taxes, but if you need political cover promise a well-designed CGT –  it probably won’t do much harm, especially if you take seriously the goal of delivering much cheaper houses and urban land (see above –  there won’t be many housing capital gains for a long time).
  3. Deep cuts to target levels of non-citizen immigration
    • This item might be entirely predictable from me, but it is no less important for that.    Labour started out with some rhetoric along these lines, but as I’ve noted previously what they actually came out with was a damp squib, that would change very little beyond a year or so.   So
      • Cut the number of annual residence approvals to 10000 to 15000 per annum –  the same rate, per capita, as in Barack Obama’s (or George Bush’s) United States,
      • Remove the existing rights of foreign students to work in New Zealand while studying here.
      • Institute work visa provisions that are  (a) capped in length of time (a single maximum term of three years, with at least a year overseas before any return on a subsequent work visa) and (b) subject to a fee, of perhaps $20000 per annum or 20 per cent of the employee’s annual income (whichever is greater).
    • In substance, you will be putting the interests of New Zealanders first, but you will also strongly give that impression –  a good feature if you are serious about lifting sustained economic performance, while being relentlessly positive about it, and about your aspirations for New Zealanders.
    • Change in this area would immediately take a fair degree of pressure off house prices, working together with the structural housing/land market reforms (see above) to quickly produce much much more affordable houses and land.  Markets trade on expectations –  land markets too.
    • You’ll also very quickly alter the trajectory of urban congestion –  those big numbers NZIER produced in a report earlier this week.
    • But much more importantly in the longer-term, you’ll be markedly reducing the pressures that give us persistently the highest real interest rates in the advanced world, and
    • In doing so you’ll remove a lot of pressure from the exchange rate.  Lets say the OCR was able to be reduced to around typical advanced country levels (say 0.25 per cent at present).  In that world, the NZD offers no great attraction to foreign (or NZ institutional) holders – it is just one of many reasonably well-governed countries, offering rather low interest rates.  In that world, why won’t the exchange rate be averaging 20 per cent (or more) lower than it is now?
    • And that should be an adjustment to be embraced.  Sure, it will make overseas holidays and Amazon books etc more expensive, but in sense that is part of the point.  We need a rebalanced economy, better-positioned for firms to take on the world from here.  Combine a lower exchange rate, lower interest rates, and lower business tax rates, and you’ll see a lot more investment occurring –  and firms successfully selling more stuff internationally.  And with more investment will come the opportunities for sustainably higher wages –  and all the good stuff the centre-left parties like to do with the fiscal fruits of growth.

I don’t suppose anything like this will actually be part of the fresher approach.  But if it were……we could really look forward to a better, more prosperous, and a fairer New Zealand.

28 thoughts on “A fresher approach for ordinary New Zealanders

  1. Michael, I agree with all of what you have written above!

    IMHO, switching from our present money system, in which our money is issued by banks as debt when they grant loans, to a debt-free Sovereign Money system, would make NZ an even fairer place for ordinary people. But first, we must overcome the ‘Groupthink’ that there is no alternative!


  2. Michael,
    Your ideas would be a great start even if the more ‘difficult’ nuances were blunted a bit to make it more electorally acceptable. The upgrade could be done once elected.
    Jacinda Ardern has a one-time chance to make statements like “We are going to go for falling house prices”
    There are more Renter voters out there than there are Landlord voters. All we need is to incentivise them to get out and vote.

    Liked by 1 person

  3. Excellent ideas for their housing policy. It also needs to be supported by a reversal of standard “go to” left wing policies of preferring public transport over road development. Aucklands new Waterview tunnel has been highly successful – so they could build on that by promising more roads especially ring roads at the fringes to service the new housing areas.

    Imagine if Labour came out promising more roads than National – instead of the ludicrous idea of the Govt actually building the houses for us.


    • Labour is better to come out saying we will fix the transport system quickly in Auckland. Thats what the public & businesses want. However to do so requires congestion tolls to be rolled out now to manage demand and provide for a short time some additional funding. Labour would need to sell that. There are pelnty of upsides to congestion tolls like increased public transport usage and reduced subsidies which can be sold as positives

      Liked by 1 person

      • Yes, I’d agree with that policy, although (a) given waterview, and (b) adopting my immigration policy, it would be much less imperative than yesterday’s NZIER numbers (on last year’s data) might suggest.


  4. Presumably National could issue exactly the same policy statements. But if they did Labour (and the Greens) would oppose them!


  5. Housing will be the bellwether policy. Most of the elements of a policy suite that could drive down housing costs quickly already exists in the Labour ether. It seems that Little was just too conservative to adopt them in full. I am hoping for an announcement soon that incorporates at least the following four strands:

    – Kiwibuild (not that I particularly want the govt returning to the days of being the country’s main developer but it would be an effective way of signalling to land bankers that they will be bypassed);
    – reform of urban planning/development legislation (I hesitate to say RMA reform because councils are the problem not the RMA) leading to more flexibility in what gets built, where, and by whom. Twyford is already on the record favouring MUD’s so this would not be a big leap for Labour;
    – a focus (if only for the short term) on upgrading road transport links in and around cities. I agree with Graeme that we could put a moratorium on walking and cycling (immediately freeing up $61m for higher benefit projects) and low-return passenger transport projects
    – financing local government infrastructure expansion – almost anything would be an improvement on the Housing Infrastructure Fund


  6. Just to help you in Australia. with Bill Hayden the ALP though they may win. with Bob Hawke they knew they would win. He actually turned out to be our best PM with an exceptional Cabinet neither which was seen at the time


  7. Thanks. Of course, weren’t most of the key players in the cabinet were put into their roles by Hayden – incl Keating as Treasurer, and Walsh at Finance – and Hayden demanded and for Foreign Affairs for himself.

    Both your Labor party in the 80s and our Labour party then had a group of very able people who generated a huge amount of useful change. That doesn’t happen by chance, even though circumstances matter, Sadly here, on either side of politics, there is no comparable group these days – a few impressive individuals and that’s all.


  8. I doubt any of those will happen to be honest ! I agree with points 1 and 3, but I wonder about 2. If we made deep cuts to company tax, in what areas are we going to cut spending ? Government spending in many areas seems to low in my opinion. Are deep cuts really going to attract a lot of foreign investment ? As you have argued before NZ is a small country a long way from key markets. Deep cuts to company tax sound like the corporate version of discredited trickle down economics. This Australian article I read a while back makes some interesting points


    • Like you, I’m not expecting reform of this sort in any of these areas.

      Total company tax receipts look to be around $10bn at present. Halving that would cost around 2 per cent of GDP – a bit less as some of the company tax is just roundtripping within the govt. Personally, I would probably not be unahppy if the govt went into defict (1-2% of GDP) as part of serious reform. Like you I agree that in quite a few areas of govt not enough is spent at present, but if one is in the realms of the hypothetical, early material increases in the NZS eligibility age would be one saving, as – over time – would the lower interest rates from the lower trend rate of immigration. I’m not suggesting it is fully costed – and company tax revenue isn’t the only base relevant (eg interest earnings and deductions). Would we see more investment? With a materially lower average exchange rate, I think we would see some – including from some NZ firms not relocating abroad – but obviously we wouldn’t see a lot more non-tradables investment, so there the gains come by lowering domestic costs and prices, a pervasive gains to consumers and producers. (re the Aus article, recall that i am talking not just about cutting company tax, but also the final personal income tax on earned capital income) [UPDATE: I should add that we would also tend to see more capital intensive production processes adopted across existing industries, incl agriculture, which is part of the process of lifting labour productivity and sustainable wages]

      Of the three items on my list, I’d probably count this as least important, but (a) we do now have a relatively high company tax rate by global standards, and (b) if we were to pull back on immigration materially, I’d want to give it our best shot for trying to boost productivity growth etc. In principle, I would probably prefer a progressive expenditure tax, but no one I’m aware of has actually tried to operationalise that.


  9. I’ll add my voice to the chorus of approval.

    I know very little about business taxation – when I did the accounts for our investment property and before I closed it down on my computer programming business I just took the profit out as managers wages once a year. Being on a personal tax rate less than business tax rate made that a simple decision. I do suspect the Nats are propped up by the business lobby and if Labour said no tax cuts to individuals this year because they are all going to cut business taxes that would mess up the National party where it hurts.

    Totally agree that just a commitment to minimal population growth would reduce prices dramatically and immediately. Yes it would hit my families wealth and no I don’t care – I want a NZ where my children can have as good a life as I have had. Your proposal for guaranteeing home owners against major loss when selling their house is inspired; it would allow most voters to get on board with the remainder of your proposals.

    One minor query – the 3 times annual salary worked for a long time; my grandfather as a railway guard bought in the twenties at that ratio and as a single man I did for my first house in the seventies. However we now assume two roughly equal incomes in a relationship so is it 6 times annual salary?


      • OK, that makes sense. Earnings can be considered essential expenditure (food basics, heating) and discretionary (sport, holidays, eating out) and paying for home ownership comes from the discretionary and this as a fraction of total earnings has increased.
        Still an average wage is just under $50,000 so for an average single man a property ought to be $150,000 and for a couple not producing children $300,000. Doesn’t sound like an average worker can own property in Auckland.


  10. Labour needs to act for employees. As far as i know, most kiwis are employees. To garner votes they need to go back to what is important to workers.

    1. More holidays.
    2. Shorter working weeks
    3. Higher company kiwisaver contributions to 8%
    4. No tax changes on investment properties as these are their retirement vehicles.
    5. Reverse the Bright Line Test as this is National policy. It was idiotic of Andrew to suggest increasing the time to 5 years
    6. Allow depreciation on building which was removed by National.
    7. No change to negative gearing.
    8. Forgive all student loan debt immediately.
    9. Tell the Greens that they are a dishonest and fradulent bunch and walk away from the MOU.

    These 9 issues will win Labour enough seats to govern alone. No need for coalition partners.


    • Jacinta Ardern needs to ignore the misconception that it is the leader’s fault that Labour is downtrodden. This is the lie perpetuated by the press and by Labour’s policy analysts(if they have any) that have wrongly identified the policy issues. When Labour has had 5 leadership changes in 6 years it is clearly not a leader issue but a policy issue. Jacinta needs to understand she does not have the intelligence nor the skills that her previous leaders have. Go back to the issues and so far they have missed the target by a mile.


  11. The Nats went thru Jenny Shipley, Bll English, Don Brash….and then lit on John Key. I’m not sure the policies promised changed that much…..but Key seemed to make a difference. (As Hawke did in Aus in 83 – altho of course Hawke had far more relevant experience than Ardern did).

    Of course, unlike the current situation National was already in the lead in the polls when they replaced Brash with Key.


    • National has a very clear policy direction under John Key. Do the minimum necessary to keep the most people happy and smile a lot It’s just that Labour policies have been so very bad and that makes National so very good.

      Liked by 1 person

    • For most employees National is not a party that we as workers would naturally gravitate towards. By default most workers would vote for Labour. Therefore it has never been about how good National is. It has always been how bad Labour is.


    • Jacinda Ardern was the senior policy analyst in London in the final 2004-2007 decline years of the Labour party under the Tony Blair government and returned to NZ after the decimation of Labour Party in government in the UK. She then returned to NZ in 2007 under Helen Clarke as a Research analyst and guess what? She oversaw the decimation of the Helen Clarke Labour party in NZ.

      It seems to be a pattern of poor judgement and Labour policy failure and the finger looks like it is pointing towards Jacinda Ardern as the most senior policy analyst of the Labour Party.


      • She was adviser in the UK Cabinet Office – and not that senior either. Not sure one can blame her for Blair, Brown, the financial crises, or the end of Helen Clark.

        Still not clear what she actually has done, but…..were I a Nat (which I’m not) I’d be getting worried. I thought the Ardern/Davis performances on The Nation and Q&A were pretty impressive – and I approached them as something of a congenital sceptic.


  12. Michael

    Labour’s policy:

    “Labour will remove the Auckland urban growth boundary and free up density controls. This will give Auckland more options to grow, as well as stopping landbankers profiteering and holding up development. New developments, both in Auckland and the rest of New Zealand, will be funded through innovative infrastructure bonds.”


    I’m not sure how much more specific they can be. Phil Twyford has been publicly in favour of this for quite a while now.

    I would further point out that it is consistently the right wing majority on the Auckland Council that has consistently prevented denser housing within the existing urban limits. The left has always voted in favour of denser housing.

    Increased density is a more sensible policy, in my view, if coupled with associated moves such as huge investment in public transport and state acquisition (confiscation, with compensation) of suitable land to eliminate land banking and plan for future expansion.

    However, I accept the current situation is so messed up that a simple scorched earth policy may be the best alternative. But I shudder to think of what it will do to Auckland as a place to live.

    Maybe I’ll move to Wellington.


    • This Labour. Housing policy is total rubbish. It also demonstrates that they have zero understanding of the zoning regulations.


    • Luc

      I agree Phil Twyford’s language is quite encouraging, and I’m happy to accept that he is serious about it. My concern has been – as I noted in the post – that the leader has never made anything much about land use reform etc, and had often consciously disavowed any desire to see house prices falling. Fixing the mess is a tall order – no one else in other countries has yet done it – but I guess I’d take the stated good intentions more seriously if they were seriously committed to lower house prices. To be clear, I think Labour is probably better than the govt on housing at present but National’s rhetoric in 08 encouraged people too.

      On Auckland, recall that I’m running a package of proposals. Pull back immigration along the lines I propose and there won’t be much population growth or much more “sprawl”. Fix the housing market as I suggest, and I’d very happily move to Auckland (“swapping” with you moving the other way).


      • I appreciate your reply, Michael.

        I just don’t think it is realistic to expect the leader of a major political party to campaign for lower house prices, so I totally understand Andrew Little’s public position.

        Now we have Jacinda, and I would expect her to have a similar public position. In New Zealand, as I think you have acknowleged,house prices traditionally just stall – in real terms – for long periods when the tailwinds turn into headwinds, and Labour’s policy would achieve this, given resource constraints, without an undue political price.

        Therefore, we do need to rely on policy statements, and if Labour backtracks on its official policy, I hope you will march in the streets with me to protest.

        I remain unsure how much room there is to reduce immigration as a housing pressure, especially given this analysis:


        I’m interested in your response to that work.



      • The BERL analysis is interesting but limited, given that it uses the PLT data rather than MBIE administrative data about approvals. As you know, my main focus is on the residence approvals programme, and the persistently high level of non-citizen approvals over 15-20 years or more (rather than the swings in PLT numbers over the last few years).

        On Labour, I have some sympathy with your perspective but if it is true that no one can campaign for lower house prices (even with some sort of compensation scheme) that is probably a reason why it won’t happen – why NZ won’t end up being any different from the other jurisdictions that have not been willing to sort out the land use restrictions that keep prices so unaffordable for so many.

        I’m the other way round – rather than join a protest if Labour don’t seriously follow through (and even their writings are full of talk of using better means of planning), I will openly celebrate, congratulate them, and welcome the fact that I was wrong if a new Labour-led government were to implement far-reaching change in this area. Such reforms, if serious, would material lower house prices – and although that would be tough for some, it would be a better, more sustainable, outcome on the whole.

        [update: i thought this was interesting, and hadn’t seen it until just now http://www.interest.co.nz/opinion/88913/steven-joyce-came-very-close-last-week-saying-he-wanted-big-fall-auckland-house-values ]


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