As I noted last week, government departments’ (and agencies’) briefings to incoming ministers have mostly become a bit of a joke: mostly devoid of any substance, typically specifically tailored to the preferences of the particular incoming government (ie written/finalised after the shape of the new government is clear), and mostly not much more than process pieces. If one is interested in the actual substantive advice – the sort of things the Lange government intended to make available when they began publishing BIMs in the mid 1980s – citizens need to fall back on the Official Information Act, with all its limitations.
There are exceptions – I wrote the other day about some substance in the Reserve Bank’s BIM. And even on the little that is released, sometimes tantalising hints sneak through. The intelligence services, for example, left unredacted a suggestion that governments might need to be concerned about the influence activities in New Zealand of foreign governments – something neither the current Prime Minister nor her predecessor have been willing to take seriously or address openly.
Of the other economic functions, neither the Treasury nor the Immigration BIMs say much. But sometimes there is quite a bit even in a few words. Take immigration for example. It was only a few years ago that MBIE was telling Ministers of Immigration (and the public) that immigration was a “critical economic enabler” – a potential catalyst to transform New Zealand’s dismal productivity performance. There isn’t much in this year’s Immigration portfolio BIM – mostly process again – but my eye lit on this paragraph
New Zealand’s immigration system enables migrants to visit, work, study, invest, and live in New Zealand. Economically, it contributes to filling skill shortages, encouraging investment, enabling and supporting innovation and growing export markets. Immigration has contributed to New Zealand’s strong overall GDP growth in recent years largely through its contribution to population growth. However, the evidence suggests that the contribution of immigration to per capita growth and productivity is likely to be relatively modest.
The theory – dodgy bits like “filling skill shortages” and the more plausible bits – is there in the first half of the paragraph. But by the end of the paragraph, even MBIE has to concede that there isn’t likely to be much boost to per capita income or productivity at all – the effects are “likely to be relatively modest”. It is hard to avoid that sort of conclusion – looking specifically at the New Zealand experience – when (to take MBIE’s list from the second sentence) “skill shortages” have been a story told in New Zealand for 150 years, business investment has been weak by OECD standards for decades, firms haven’t regarded it as particularly attractive to invest heavily in innovation (again by world standards), and the export share of GDP is now at its lowest since 1976. Still, it is good to see reality slowing dawning on MBIE. On my telling, they are still too optimistic, but even on their telling when such a large scale policy intervention seems to produce such modest economic results it might be time for a rethink.
And what about the BIMs prepared by Treasury? There isn’t much in the main Finance document (lots of process stuff, and plenty of talk of diversity and wellbeing and none on productivity). There is an appendix specifically aimed to address what Treasury understand to be the new Minister’s priorities, but not much about Treasury’s own view of what needs to be done, or the pressing problems. If anything, reading Gabs Makhlouf’s covering letter to Grant Robertson one might conclude that Treasury didn’t think there was much to worry about at all.
You are taking up your role at a time when New Zealand’s economy is in a relatively strong position. There is solid forecast growth, complemented by fiscal surpluses and a strong debt position. And while international markets still present a number of risks and uncertainties, overall the global economy – as reflected in the IMF’s recent outlook – presents opportunities for New Zealand to seize, in particular with Asia’s ongoing growth.
Presumably the Secretary didn’t think it worth emphasising five years of no productivity growth, seventy years of pretty weak productivity growth, shrinking exports as a share of GDP, sky-high house/land prices, pretty weak business investment and so on. Or even the fact that notwithstanding “Asia’s ongoing growth” – a story now for more than forty years – nothing has looked like turning around New Zealand’s continuing gradual economic decline. And perhaps when you are a temporary immigrant yourself – as Makhlouf presumably is – the cumulative (net) loss of a million New Zealanders isn’t something that concerns you?
In their BIM Treasury proudly asserts that “We are the Government’s lead economic and financial adviser”. Perhaps they hold that formal office, but it is hard to be optimistic about the content of what they might be offering the government.
But Treasury also had some other BIMs for other portfolios they have responsibilities for. The one I noticed was the Infrastructure one. Buried in the middle of that document was this observation
Auckland’s ability to absorb growth has been reached. Environmental, housing and transport indicators all reflect a city under increasing pressure. Traditionally, Auckland has been more productive than other regions of New Zealand but, on a per capita basis, this productivity premium has been shrinking over time. Auckland is not performing as well as expected for its size and in comparison to other primary cities around the world. There are opportunities to increase this productivity but only if supply constraints, especially transport and housing, are resolved.
That key middle sentence – no hint of which appears in the main Treasury BIM – could easily have been lifted from one of my various posts on similar lines. They could have illustrated the point with a chart like this.
Appearing in the standalone Infrastructure BIM, Treasury appear to want to blame these poor outcomes largely on infrastructure gaps – a conclusion which I think is flawed – but I’m encouraged to see a recognition of the problem in official advice to the Minister of Finance. It is all a far cry from the rather lightweight celebratory speech Gabs Makhlouf was giving about Auckland’s economy only 18 months ago, which I summed up this way
[it] might all sound fine, until one starts to look for the evidence. And there simply isn’t any. Perhaps 25 years ago it was a plausible hypothesis for how things might work out if only we adopted the sort of policies that have been pursued. But after 25 years surely the Secretary to the Treasury can’t get away with simply repeating the rhetoric, offering no evidence, confronting no contrary indicators, all simply with the caveat that in “the long run” things will be fine and prosperous. How many more generations does Makhouf think we should wait to see his preferred policies producing this “more prosperous New Zealand in the long run”?
If the Secretary to the Treasury was going to address the economic issues around Auckland, one might have hoped there would be at least passing reference to:
- New Zealand’s continuing relative economic decline, despite the rapid growth in our largest city,
- Auckland’s 15 year long relative decline (in GDP per capita), relative to the rest of New Zealand,
- The contrast between that experience, and the typical experience abroad in which big city GDP per capita has been rising relative to that in the rest of the respective countries,
- The failure of exports to increase as a share of GDP for 25 years,
- The fact that few or any major export industries I’m aware of our centred in Auckland (the exception is probably the subsidized export education sector) – and by “centred” I don’t mean where the corporate head office is, but where the centre of relevant economic activity is.
There is nothing of economic substance on immigration in the main Treasury BIM this year, but perhaps over the next few years Treasury could start thinking harder about whether it really makes sense to be using policy to bring ever more people to one of the most remote corners on earth, even as personal connections and supply chains seem to be becoming ever more important, at least in industries that aren’t simply based on natural resources.
The one other thing that did catch my eye in the Treasury BIM was this paragraph
The Treasury Board. This external advisory group supports the Treasury’s Secretary and ELT to ensure that its organisational strategy, capability and performance make the best possible contribution to the achievement of its goals. Current members of the Board are the Secretary to the Treasury (Gabriel Makhlouf), the Chief Operating Officer (Fiona Ross), Sir Ralph Norris, Whaimutu Dewes, Cathy Quinn, Mark Verbiest, Harlene Hayne and John Fraser (Secretary to the Australian Treasury).
Now, to be fair, the “Treasury Board” has no statutory existence, and no statutory powers. It isn’t even clear why it exists at all – Boards are typically supposed to represent shareholders, and as regards Treasury, the Minister of Finance, Parliament, and the SSC are supposed to do that on our behalf. But given that there is an advisory Board, what is a senior public servant from another country – the Secretary to the Australian federal Treasury – doing on it? New Zealand and Australia might be two of the closer countries in the world, but we don’t always have the same interests, and at times those interests – and perspectives – clash rather sharply. I gather John Fraser is quite highly regarded, but who does he owe allegiance to, and whose interests is he advancing in his work on the New Zealand “Treasury Board”? I might not worry if he were a retired former Treasury Secretary from Australia, but he is a serving official of the Australian government. It seems extraordinary, and quite inappropriate. Did he, for example, have any involvement in the recent, superficially questionable, appointment of a former senior Queensland public servant to a top position in our Treasury? Again, close working relationships between the two Treasurys – each as servants of their own governments – might be reasonably expected, and perhaps mutually beneficial. But providing a senior official of another government with inside access to the senior-level workings of one of our premier government departments seems questionable at best. GIven Makhlouf’s past enthusiasm for China, perhaps the appeasers at the New Zealand China Council will soon be suggesting he appoint someone from China’s Ministry of Finance could join Fraser on the “Board”?
And finally, some kudos for a bureaucrat. As various people have noted, Graeme Wheeler went for five years as Governor – as the most powerful unelected person in New Zealand – without ever exposing himself to a searching interview, or making himself available for an interview on either main TV channel’s weekend current affairs shows. His appointment might be highly legally questionable, he might be only minding the store for a few months, but yesterday Grant Spencer went one better than Wheeler and sat down for interview on Q&A with Corin Dann. I thought he did well, but what really counted was just showing up, and being open to questions.
Since much of the interview was about Spencer’s speech last week, which I’ve already written about, there was much in it that I disagreed with. But I’m not going over that ground again. Perhaps the one new thing that caught my attention was when Spencer claimed that the Bank is independent for monetary policy, but not around things like LVRs. That is simply factually untrue. The Act makes it very clear that any decisions to impose or lift LVR restrictions are solely a matter for the Governor (also a point that the Prime Minister, the Minister of Finance and their predecessors have recognised). Spencer went on to say that if the then government had not wanted the Bank to impose LVR restrictions they wouldn’t have done so. That might be fine, but I hope they never apply that standard to monetary policy decisions. And if LVR decisions really are more political and redistributive in nature, perhaps as part of the forthcoming review, the Reserve Bank Act should be changed so that the Reserve Bank offers technical professional advice, but the Minister of Finance makes the decision?. We can, after all, toss out elected governments.
12 thoughts on “Two BIMs and a bureaucrat”
The increase to the LVR to 40% equity did come across as an afterthought rather than after serious and researched consideration by the RBNZ. It was sort of being bandied around in public forums and then it took John Key to say to Wheeler and once again in the public press, “Just get it done if you want to raise the LVR to 40% equity”, which prompted Wheeler to rush it in play.
The lack of studies and research into the entire LVR issue is still starkly absent, ie when to use it, when not to use it and when to lift it and what the criteria is and what the impact to various aspects of the economy it has been, positives, negatives etc
Michael, I see Grant Robertson has given a comprehensive speech to the Auckland Chamber of Commerce covering the full gambit of his portfolio. He mentions low levels of labour productivity but there is no sign of a remedy. You may like to review his speech.
Thanks. I’ll have a more careful read later, but on a quick skim through it still looks (much) more focused on sharing the gains, than on actually increasing the (average per capita) size of the pie.
Gains? What gains?
Dividing the same fixed sized pie into smaller slices to feed more mouths looks more like pains
Grant Robertson is rather irresponsible if he wants to continue to target property investors by targetting the removal of negative gearing. Rental Stock availability have already dropped by 35%. Removal of negative gearing will only exacerbate this problem of rental stock availability.
“Head of Trade Me Property Nigel Jeffries says the number of available rentals in Auckland has dropped by 35% since last October and that is now starting to have an effect on prices. But if this shortage of rental properties continues we can expect to see new record rental prices in the City of Sails.”
The day New Zealand dodged a bullet
2 June 2011, the month he was appointed to the top job, Makhlouf delivered a speech to NZ Institute of International Affairs saying that lowering foreign investment would be counter-productive to growth ambitions. He further went on to use the example of IKEA’s attempts to set up in NZ that were stymied every step of the way by every level of bureaucracy
Well, NZ dodged a huge bullet the day IKEA walked away. Check the experience in Australia. Has not been net positive to the country. Imports everything, Made lots of profits, pays no tax. Just another Starbucks, Google, Facebook, Exxon
The same speech was covered more comprehensively by Interest.co.nz wherein he says
It was clear that considerable benefits flowed from the foreign investment New Zealand attracted, Makhlouf said. A recent study by Treasury estimated that, between 1995 and 2005, foreign investment lifted national income by NZ$5.9 billion.
“That is a formidable amount of money to an economy of this size – equating to a lift in income over that period of around NZ$2,600 per worker,” Makhlouf said. It had become fashionable in some quarters to question the wisdom of liberalising New Zealand’s foreign direct investment (FDI) regime, with the most popular counter-arguments relating to the loss of control of land assets and the “exporting” of profits.
Makhlouf only arrived in NZ in 2010 – how he can front this sort of stuff so soon is questionable. One of his very early public addresses (2012?) was full of platitudinous twaddle I found his credibility wanting. Just prior to the 2017 election he was interviewed on TVNZ and the motherhood humbug hasnt improved.
Prior to the introductions of the 20% LVR followed by the 40% LVR’s Wheeler was publicly demanding Government to implement fiscal measures to cool down the housing market. It was at that point Key told wheeler to get on with the LVR program because he, Key wasn’t doing anything soon.
With the benefit of hindsight where was Makhlouf in all this
It is indeed rather strange that an importer like IKEA would be touted as a key investor when all they contribute to the skills sector would be low skilled sales personnel, administrators and managers. There is tax being paid through PAYE though. There is a flow through to the domestic economy but it comes through the office premises that they occupy and the rent that they would pay to a Kiwi landlord, also the renovations budget to get the premises to IKEA global presentation standards and the wages that they pay. But it is a low productivity and low skilled industry. If this is what Treasury economists is focused on then no wonder we have a low productivity and low skilled economy.
If you compare that with Michael’s view, and that suggests what the RBNZ focus is on, ie the importance of the Primary sector then it is no wonder we get a low skilled economy and a very doubtful higher productivity sector because 10 million cows are not counted as part of the productivity denominator.
Hi Michael I have re-published an article about law, economics and mobility restrictions, written by a Prof of Law from Yale University. It is very good -you might like to have a look at it (the original article). It looks, in part, at the issue of cities with higher incomes no longer being attractive to low and middle income earners due to high housing costs.
I know you have discussed this before and in today’s article wrt Auckland. Showing that Auckland’s recent economic performance hasn’t been that good and in reality it is not attractive. I think there is a cargo-cult aspect to this. If Auckland had lower housing/living costs -like some US cities -it would be attractive. Alternatively if it was a centre of an economic boom it would be attractive. But to simply artificially boost immigration -because that is what attractive cities have -seems to be missing the point.
Anyway here is the article.
View at Medium.com
presents opportunities for New Zealand to seize, in particular with Asia’s ongoing growth.
“Will snap up anything from Arrowtown to Cromwell”
The big problem in our democracy is the way some ideas are protected from scrutiny.
Will Kymlika the father of the “successfull” model of Canadian multiculturalism adopted to NZ
Typically these people are social constructionists. What if the evolutionary psychologists are right? What effect might that have on underlying assumptions?
Of topic but Orr has the job.
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Your comment regarding ” the influence activities in New Zealand of foreign governments – something neither the current Prime Minister nor her predecessor have been willing to take seriously or address openly”
Don’t stop there – We are being taken for suckers
An article in the NBR regarding IRD auditing 16 multi-nationals re tax-avoidance
Meanwhile in the Guardian there is some hot-and-bother regarding 13 companies in Australia that paid no tax, donated $1.7 million to the two main parties, while revenue of $33 billion