Day: June 28, 2018

The PRC and New Zealand: an Australian perspective

Michael Reddell Australia, China, Uncategorized

In response to my post yesterday about the Asia NZ Foundation roundtable on foreign interference/influence in New Zealand, I received this comment, which I’m elevating into a post of its own because of its source, and because otherwise only a small number of readers would now see it.

When officials are assuring you everything is under control, that’s the moment you know that everything is not under control. As a long-term New Zealand watcher I am deeply disturbed to see how the political and bureaucratic establishment in Wellington wants the problem of Chinese interference in domestic politics to be swept under the carpet.

The idea that the Australian debate on this topic is ‘unhelpful’ is simply ridiculous. Successive Australian governments have ignored the problem but now it has become so painfully obvious that Canberra has had no choice other than to take a stand and set some limits on Chinese Communist Party interference. I believe that a substantial reason why Canberra acted was because of the public focus on the problem.

China will continue to suborn the NZ political system unless your Government is prepared to push back. If the problem is not addressed in time this will become a serious problem for the NZ-Australia bilateral relationship.

My suggestion is that the Australian and NZ Prime Ministers should meet with their intelligence agency heads and have a frank, closed-door discussion about the extent of the problem of Chinese interference in both our countries. We can actually help each other here.

Pretending there is no problem, or failing even to utter Beijing’s name isn’t sophisticated statecraft, its just a failure to come to grips with a major problem for both our countries.

The comment is from Peter Jennings, who has been Executive Director of the Australian Strategic Policy Institute since 2012.

Peter has worked at senior levels in the Australian Public Service on defence and national security. Career highlights include being Deputy Secretary for Strategy in the Defence Department (2009-12); Chief of Staff to the Minister for Defence (1996-98) and Senior Adviser for Strategic Policy to the Prime Minister (2002-03).

I’ll leave his much-more-informed comment as it stands, just observing of his suggestion of a meeting of our two Prime Ministers etc, that for such an event to occur there would have to be a willingness and desire among political leaders on this side of the Tasman to acknowledge and confront the issue.  In fact, what we see in public is a desire to minimise, or to deny that there are, any serious issues, and to refuse to deal even with issues in plain sight.

Regressivity, petrol taxes, and ministerial PR

Michael Reddell NZ politics, Taxation, Uncategorized

Someone around home mentioned this morning that there was a confused article on the Herald website about the progressivity (or otherwise) of the fuel tax increase.   I didn’t pay much attention until I read the paper over lunch, when I was a bit staggered by what I found.

This was the centrepiece chart

fuel tax

The line of argument from opponents has been that the fuel tax increase will fall more heavily on low income people.   But according to the Herald’s journalist, channelling Phil Twyford.

 in a startling revelation, the ministers claim that the wealthier a household is, the more it is likely to pay for petrol. They say the wealthiest 10 per cent of households will pay $7.71 per week more for petrol. Those with the lowest incomes will pay $3.64 a week more.

I still don’t understand what the journalist finds startling.  It is hardly surprising that higher income households spend more on petrol than lower income households do.  They spend more on most things.

But he goes on to claim

This is a complete reversal of the most common complaint about fuel taxes, which is that they are “regressive”. That means, the critics say, they affect poor people more than wealthy people.

The suggestion that these data are some sort of “complete reversal” of the claim the tax is regressive is itself just nonsense.  One would need to look at the impact of the fuel tax increase as a proportion of income.  And households in the top decile earn about ten times as much as households in the bottom decline, according to the same Household Expenditure Survey.

So I went and got the income by decline data for the June 2017 year from the Household Expenditure Survey.  The income data is presented in range form, so for each decile I used the average of the high and low incomes for that decile.  And then I took the Auckland fuel tax increases numbers in the right hand column of the table above, and calculated them as a annual percentage of annual household income by decline.  (The income numbers are for 2017, and the fuel tax increases phase in to 2020, so the absolute percentages will be different –  incomes will have risen – but what won’t change materially is that high income households earn a lot more than low income ones.)

fuel tax by decile

On the numbers the Herald themselves used, apparently supplied by the Ministry of Transport, the  direct burden of the fuel tax increase will fall much more heavily on low income people than on those further up the income scale.   The extremely high number for the lowest decile masks how significant these effects are even for other groups: the second and third deciles of household income will see an increase twice as large, as a percentage of income, as those in the 9th decile.

I’m driving to Auckland later this afternoon for a wedding, and planning to get out again on Sunday without having paid the increased Auckland fuel levy.

What the Bank tells you ten times, still isn’t true

Michael Reddell Monetary policy, Uncategorized

“Just the place for a Snark! I have said it twice:
That alone should encourage the crew.
Just the place for a Snark! I have said it thrice:
What I tell you three times is true.”

(Lewis Carroll, The Hunting of the Snark)

This was only the new Governor’s second OCR announcement, but the pattern seems to be getting quickly re-established.

This was the Governor in May

The emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2 percent annual target.

And this was the Governor today

inflation is expected to gradually rise to our 2 percent annual target, resulting from capacity pressures.

But this was the former (but unlawful) “acting Governor” in March

Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range

And this was Spencer in his first pronouncement last September

Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term.

And this was the former Governor a year ago

Non-tradables and wage inflation remain moderate but are expected to increase gradually.  This will bring future headline inflation to the midpoint of the target band over the medium term

In one form or another, in fact, it was the story he told throughout his five year term.

And yet it just hasn’t happened.  And, as I illustrated the other day, market prices still don’t suggest it is expected to happen.

In the real world, saying it over and over again doesn’t make it any more likely to happen.   It might happen nonetheless –  there is a great deal of uncertainty about macroeconomics – but the Reserve Bank still isn’t giving us a compelling story as to why, having been wrong for years, we should now believe they have it right.  As I noted at the time of the May MPS, those doubts were only increased by his enthusiastic endorsement of his predecessors’ record

Perhaps even more startling, was his response when asked a question in which it was noted that Graeme Wheeler had failed to hit the inflation target midpoint, and Orr was asked whether he would be happy to be judged on his performance against that metric.  That seemed to set the Governor off in defence of his predecessors, claiming that the economy was in near-ideal cyclical sweet spot, and that he could not imagine a better place to start from as Governor.  A bit later he chipped in that he thought the Bank had been doing a ‘remarkable” job in forecasting core inflation –  a variable that hasn’t been anywhere near the explicit 2 per cent target since that target was put in place by Bill English almost six years ago. 

One can’t expect a full story in a one page OCR announcement such as today’s, but there wasn’t anything much more compelling in the MPS either.  And three months into his term we have not had a single on-the-record speech from the Governor about monetary policy, which is still his prime statutory function.     Lots of chatty greetings, but not a great deal of substance.

And all in a global climate that seems to be getting much more hostile, and risky.

But it isn’t inconsistent with the Bank’s Statement of Intent the other day.  In it, we are told that

 we will promote a deeper understanding at the Bank of tikanga Māori and te Reo Māori.

with no obvious connection drawn, that I could see, with anything in the Bank’s statutory mandate.  It will no doubt win the Governor feel-good points with his political masters, as he fights turf battles in the months to come.  But there was still nothing at all on ensuring that the Bank, and New Zealand policymakers more generally, are ready when the next serious recesssion hits –  stuff at the heart of what we have a monetary policy and central bank for.

In his statement today, the Governor included this, largely meaningless, line

The Official Cash Rate (OCR) will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary.

Of course he can move the OCR up or down 50 basis points (to me, the data –  as distinct from the vapourware masquerading as economic forecasts – suggest down).  But the big problem is that if circumstances ever require him to cut the OCR more than say 250 basis points –  and something in excess of 500 basis points has been more normal in serious downturns, here and abroad –  he can’t do it.  He knows it, and the markets know it.       Failure to do anything meaningful to reduce or mitigate those risks, and to communicate those plans to the public and markets, risks accentuating any downturn when it comes.

(I’ll be away for the next few days, but will come back next week to write about the Bank’s speech earlier this week on digital currency, perhaps best summarised as “how best to serve the banks, rather than the public”.)