Day: January 17, 2019

Perhaps Councils could consider doing the basics right?

Michael Reddell Wellington

Wellington City Council is just one of the many local authorities whose staff and elected officeholders seek to use their office to pursue grand visions, that rarely stack up on any proper cost-benefit analysis.  In Wellington’s case there are big things like the airport runway extension, which fails on any decent analysis (notably the one that says no private sector owner would fund it) but only limps in through the planning process because councillors want to waste tens of millions of ratepayers’ money on it, or the convention centre, or the earthquake strengthening of the Town Hall (I quite like the building, but at what price?).  Or the smaller things like the Island Bay cycleway, supported by very few residents, costing ever more money, but……..part of the dream of Justin Lester and his team.

One might find their excesses slightly less annoying if the Council managed to get the basics right.  But they fail on that score too.  The housing and urban land market is only the most visible example –  a holiday climb to the top of Mt Kaukau is a reminder again of just how much land there is in Wellington City, and yet of how council restrictions mean house and land prices move to ever more unaffordable levels (a real estate agent’s letter yesterday suggested Wellington was the last significant rising market in Australasia).     Whose interests are they serving?  Certainly not those of the rising generation of Wellingtonians, but this is an ideology to pursue.

And then there are real basics like water.  Perhaps like many places, Wellington has watering restrictions in place over summer, whether or not there is much rain.  I don’t have too much problem with that, even if I can’t help thinking that using a price mechanism might be a better approach.  But it sticks in the craw when people are restricted in their ability to water their gardens while the Council does nothing about fixing leaks even when they’ve been reported (and WCC does have a user-friendly page for reporting such things).    This is a case in point.

leak

These leaks –  two side by side – have been going on for more than two weeks now.  I walk past them almost every day.  They were reported to the Wellington City Council more than two weeks ago: about two weeks ago I stopped and talked to someone who lived next to the water flows, who told me she had already reported it to the Council.

I watched it day after day, until finally yesterday I filled in the Council’s form and notified them again.  I even got a prompt response.   This is how it ran

We are aware of the leaks here and they are in progress with our Water Team to be repaired. There is a bit of a delay due to the location of the leak with it needing a traffic management plan in place for the crew to carry it out safety.

Talk about a jobsworth excuse.     This leak is at the very top of a dead end street.  To the left of where the leaks start there is a single private driveway, and just slightly closer to where I took the photo is the start of a pedestrian walkway.   It is true that there is a building site on the right (you can see one of the two entrances –  the other is on another street), but:

  • there is no through traffic at all,
  • the spot where the leak is could easily be fenced off with some cones, separating it from the traffic for the building site.

Perhaps more importantly, for several weeks the building site was closed for the Christmas holidays.  Work only resumed on Monday, and these leaks had been notified to the Council at least two weeks ago.  For several weeks there was almost no traffice anywhere near the leak –  and even now there is no through or passing traffic.

How do they ever manage when leaks occur on genuinely busy roads?  It is just waste.

But why would they care when there are ideological agendas to pursue?   I suppose voters keep electing these people, although between a Regional Council that stuffed up Wellington’s buses, and a city council that renders houses unaffordable, I’m firmly resolved not to vote for any incumbent (or anyone supported by incumbents) in this year’s local body elections.

Looking at some fiscal data

Michael Reddell Fiscal policy

With the US partial government shutdown dragging on, I was digging around in the OECD’s fiscal data, with a particular emphasis on the US.  Of course, the shutdown itself has nothing to do with disquiet at the US fiscal position, or competing visions of the pace of adjustment back to budget balance.  There were once US politicians –  probably on both sides of the aisle –  who cared about balancing the budget, but if there are any such people left they are either inconsequential or keeping very quiet.   To the extent that fiscal issues play any role in next year’s presidential election –  probably unlikely –  they seem set to be conflicting visions of recklessness.

Here is a chart from the OECD comparing the core fiscal balances of the United States and New Zealand.   This measure is cyclically-adjusted, covers all levels of government, and is for the primary balance (ie excluding servicing costs).    There are various reasons for focusing on the primary balance, including the fact that interest costs can be heavily influenced by the rate of inflation (high in the 80s, low now), without telling one very much about the sustainability of the overall position.

us and nz fiscal

It is a striking chart.  Over 30 years there have only been two years when the US primary balance was higher (more positive) than New Zealand’s.   All else equal, New Zealand cannot run primary deficits quite as large as those of the US, as our real interest rates are typically higher than those in the United States.

But what of public debt?  In the early 1990s, when this particular debt series starts, the net government debts (per cent of GDP) in New Zealand and the United States were very similar.  But not now.

us and nz debt

And the US situation is seriously understated in this chart, because of the large unfunded public service pension liabilities that aren’t included in the debt numbers.   There is nothing remotely similar (small GSF liabilities only) in New Zealand.

The US isn’t alone (and one could mount an argument that the US is better placed to cope with higher public debt than many advanced countries as it still has a faster population growth rate than most).  Here are some of the G7 countries for the same period

g7 debt

Germany is little changed (point to point) and Canada has managed a large reduction.

I don’t take much comfort from the current low level of interest rates –  either they are low for a reason (eg lower productivity growth, lower population growth) or they will eventually “return to normal”, resulting in a heavy servicing burden.

Perhaps the thing I found most interesting was this chart, using OECD data for net government liabilities as a per cent of GDP and the OECD cyclically-adjusted primary balances.  One might have hoped that there would be some relationship between the two –  countries with very high debts, now running decent primary surpluses, and perhaps countries with very low debts running modest deficits.

net debt and primary bal

But, in fact, on this simple bivariate chart there is no relationship at all  (the US is the dot at the very bottom of the chart, while Greece –  surpluses – and Japan –  deficits –  are the two countries furthest to the right).

I wouldn’t read too much into the relationship.   What is captured in the debt numbers does vary across countries (see, eg, the pension point I noted earlier), as do the demographics (eg Japan now has a falling population), and the external constraints (eg Greece), but I found it a little sobering nonetheless.   There is a sense that, at least in some countries, the old self-correcting disciplines appear to have weakened considerably.

But they probably haven’t disappeared altogether, which brings us to what should be the biggest area of concern in the next few years.   When the next serious recession comes, there is little conventional monetary policy leeway in most countries (even in the US, 300 basis points less than going into the last recession), and not one of those G7 countries in the chart above has made any significant progress in rebuilding the public sector balance sheet. In fact, the two largest OECD economies – the US and Japan –  not only have high debt, but are also running some of the largest structural deficits, at a time when in both countries the unemployment rate is near record lows.