Holding senior officials to high standards

I’ve been bothered for some time by how lightly the Director-General of Health, Ashley Bloomfield, was excused over his lapse of judgement in accepting hospitality from New Zealand Cricket at a time when preferential access to the Covid vaccine for the New Zealand cricket team was a matter of some concern to New Zealand Cricket, and when Bloomfield himself exercises considerable clout in such matters (having both formal statutory powers assigned to him ex officio, but also being (one of) the Covid minister’s chief advisers). It wasn’t even as if this was a single lapse, since Bloomfield acknowledged that he had last year several times accepted tickets to rugby games, and yet the Rugby Union had been negotiating with the government re the ability to host foreign teams in New Zealand.

New Zealand has tended to pride itself over many years about the incorruptibility of public life. Unfortunately, we have seen too many cases over the last few decades that suggest this is more folk myth than reality, although clearly there are many places worse than us. But “many places worse than us” is simply not an acceptable standard; rather it expresses a degree of complacency that allows standards to keep slipping a little more each time, with excuses being made (“not really that big a deal”), especially for those who happen to be in favour at the time. But those sorts of cases, those sorts of people, are precisely where a fuss should be made, where mistakes or rule breaches should not be treated lightly. Integrity – and perceived integrity and incorruptibility – really matter at the top, and if there is one set of accommodations for those at the top, and another (more demanding) standard for those at the bottom it simply feeds cynicism about the political system and about our society.

What I worry about was captured quite well in a recent article in the Financial Times headed “British politics is morphing from delusion into sleaze”. Britain used to be highly regarded on this score too, but (sadly) no longer. Things seems worse there than here, but “many places worse than us” isn’t the standard we should tolerate.

I really don’t understand the near-deification of Ashley Bloomfield in some circles. Perhaps it is because I have not watched a single one of those 1pm press conferences. The man is a highly-paid very powerful senior public servant who, in the course of his stewardship at the Ministry of Health. seems to have done some things well and quite a few things not that well. But my indifference to the “cult of St Ashley” is really neither here nor there. A senior public servant could have, so to speak, walked on water, and it would still have been a staggering misjudgement to have been accepting hospitality from an organisation that wanted to lobby him/her. Even more so, when it was not just a single lapse.

When the story first broke, I lodged OIA requests with both the Ministry of Health and the Public Service Commission (former SSC) asking for copies of their policies on acceptance of gifts and hospitality. The Ministry of Health responded quite quickly and I wrote about their response in a thread of Twitter. Rather than go through all the material again, here is a copy of the thread I posted.

bloomfield 4

bloomfield 5

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Good policy, simply ignored by the chief executive (Bloomfield). It wasn’t as if this was the sort of decision he’d had to make under extreme pressure or on the spur of the moment. If he wasn’t aware of his own agency’s policy – which would be pretty extraordinary – no doubt he has not just an EA but a whole office, any one of whom could have been asked to check the policy and get back to Bloomfield. He could have checked with his senior colleagues whether taking this hospitality was likely to pass the smell test. If he was still in doubt, he could have checked with his employer, Peter Hughes, the Public Service Commissioner. It appears he did none of this things, until after the story broke. From someone who has huge powers vested in them, it is not just a lapse of propriety but a stunning lack of judgement. If this is how things we come to hear about are dealt with, how much confidence can we have re other matters the Director-General is responsible for.

One hears suggestions that, Bloomfield having eventually realised it hadn’t been appropriate, all was made good by the fact that Bloomfield wrote a cheque for the equivalent of the cost of the tickets and donated it to the City Mission or some other worthy charity. In fact, that is almost pure distraction, since the money was never the main issue – on his salary he’d not have had any problems going to the cricket or rugby at his own expense if he’d wanted it (as many thousands of others did). Writing a small cheque simply doesn’t adequately deal with the inappropriate behaviour in the first place – any more than it likely would have were it to have been someone well down the public sector food chain.

Anyway, that was the Ministry of Health response. Yesterday, the Public Service Commission finally responded to my request. They provided me with the PSC’s own policies, for their staff and management, and a link to the guidance the PSC provides to public sector chief executives on such matters. I thought they were both pretty good documents.

The guidance to chief executives (of whom Bloomfield is one) is most relevant. This from the first page was just the sort of thing one would hope to see.

hughes 1

And this was pretty good to.

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Did Bloomfield never read it?

And, slightly off topic, I was quite impressed with the austerity of this section of the guidance.

hughes 3

In some respects, the PSC’s own policies for their staff – not binding on Bloomfield – are even better.

hughes 4

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Good stuff. The SSC policy even extends to immediate family.

hughes 6

Stringent rules, and aptly so.

So the Ministry of Health has stringent policies, the SSC has stringent policies, and the SSC guidance to chief executives is also stringent. Not one of those sets of policies should have led any employee – no matter how junior, or senior – to think that accepting sporting hospitality from entities trying to influence (“persuade, convince, explain”) the public servant would be anything close to appropriate. Such offers should have been declined immediately and repeatedly. And not necessarily because Bloomfield’s advice or decisions would have been influenced by hospitality – though as he is human too, who (including himself) can really know – but because it is simply a dreadful look, that corrodes reasonable public expectations around the integrity of the public service, all the more so in this time of Covid when the state has been wielding more extensive than usual powers, and then (somewhat inevitably) exercising discretion around exceptions to the rules.

But what actually happened? We might deduce from Bloomfield’s later comments that the Public Service Commissioner had told him his conduct in these matters had not been acceptable. But we are left to guess even at that. Perhaps defenders of Bloomfield might cite personal privacy, but when you are a very high official and you overstep the bounds in public, any rebuke also needs to be clearly visible to the public. Otherwise, we might reasonably think one of the public sector elite was looking after another of that same elite, perhaps even playing politics.

Because the political “leadership” was far worse. We – the public can’t do anything about Peter Hughes or Bloomfield – but we rely on the politicians we elect to demand high standards from the public service. And what happened in this case? Both the Prime Minister and the Covid minister did little more than laugh off these breaches, suggesting that no one begrudged Bloomfield an afternoon at the cricket after all his work. Pure distraction, pure minimisation, when the issue was never about him having a Sunday afternoon off at the cricket, but about who hosted him, and what interests his host had in influencing him.

I don’t think accepting one invitation to a sports event should be a firing offence – even for someone as powerful and prominent as the Director-General of Health. Repeat offences, as we saw in this case, do raise the ante somewhat, because they create doubts about the man’s judgement, and even about a possible sense of entitlement. David Clark lost his position as Minister of Health for offences that, in the scheme of things, were less serious, albeit embarrassing to the government.

But we should have been able to expect the Public Service Commissioner, the Prime Minister, and the Covid minister (for that matter the Minister of Health) to all have made it crystal clear, in public, that Bloomfield’s behaviour represented a serious and repeated lapse of judgement, a breach of the clear standards expected of MoH staff and public service chief executives, and that any repetition of this sort of lapse would be utterly unacceptable.

Or are the rules only for (a) show, and (b) little people?

Messing around with housing

And so yesterday we got the long-awaited government package in response to the latest surge in house prices. As a reminder, it is just the latest surge in the more than trebling in real New Zealand house prices over the last 30 years.

BIS real house prices

We know it wasn’t really a serious policy designed to fix the housing market, not just because it didn’t even address the core issue (land use regulation etc) but because the Prime Minister still can’t bring herself to say that she would like to see lower house prices – not even just reversing the rise of the last few months – and the Treasury’s Regulatory Impact Statement is headed “Tax measures to moderate house-price growth”. Add to that I’ve seen reported that Treasury expects the extension of the so-called “brightline test” to boost government revenue, when a package that actually did something about fixing the market would see that specific revenue line almost evaporate for many years to come.

There is a lot that is odd about yesterday’s announcement, including the Treasury claim (in the RIS they published) that they opposed the deductibility rule change because they hadn’t had time to properly analyse it. Even if this was a last minute idea dreamed up by someone in the Beehive – and Richard Harman’s newsletter this morning suggests not, that the idea had been under consideration at least since November – what does it say about the loss of accumulated expertise in The Treasury that they could not offer robust analysis at short notice on almost any of the myriad possible housing tax changes that have been proposed and analysed at various times over the last 20 years? Surely (a) this is core capability (especially in a New Zealand with longrunning housing policy dysfunction), and (b) the analysis involved would have been qualitatively similar to whatever advice and analysis Treasury provided on ring-fencing rental income losses only a couple of years ago?

There are two tax components to the package; the extension of the brightline test to 10 years, and the removal of the deductibility of interest expenses for residential rental landlords. The latter is the more significant measure, but I’ll come back to that.

The only good case, ever, for the brightline test was what the name implied. Using time rather than intent (hard to prove) to determine which sales of investment property were subject to tax was easier, clear and simple. If, instead, you want to tax investment asset appreciation more generally, you’d introduce a capital gains tax. Such a tax would capture all investment assets (not just a particular class the government of the day doesn’t like), and it would provide for loss-offsetting arrangements. A proper CGT is somewhat akin to the government becoming an equity partner in your assets; ups and downs (although not generally in a fully symmetrical way). You might or might not agree with a CGT, but (a) no serious person/government ever thought one was the answer to house prices (and if any did experience should have long since disillusioned them), and (b) there is no sign in New Zealand house prices (and unsurprisingly) that the initial introduction of the brightline test, or its more recent extension, made any material difference to New Zealand house prices. So there is little reason to suppose this change will either (contrary to Treasury who claim to believe it will make a difference even in the “medium term”, albeit perhaps not the long term). It will, of course, change some transactional behaviour, reinforcing a lock-in effect for some investors (and thus reducing the efficiency of the housing market), but that is a different matter than any sustained impact on prices.

One aspect of the brightline test extension I haven’t seen referred to – and is not mentioned at all in the RIS – is the interaction with inflation. Over a 10 year horizon – let alone the 20 years Treasury favoured – a significant chunk of any house price increases will be general CPI inflation (if the Reserve Bank met its target the CPI would rise by 22 per cent over 10 years). There is little serious case anywhere for taxing general inflationary gains (as distinct from increases in real asset prices/values), and the issue is reinforced by the increases in the maximum marginal tax rate to 39 per cent. Suppose the government’s policies finally got on top of growth in real house prices and the only increase in house prices was from general CPI inflation. Someone selling just before the 10 years would be paying 8.5 per cent of the value of their asset in tax even though they had had no increase in real purchasing power at all. That would be a straight confiscatory tax, even more so at the horizons Treasury favoured (where it is harder to avoid by delaying sale). And yet Treasury regards a longer brightline test horizon, with full nominal gains taxed at a higher rate as both fairer and more efficient! A capital gains tax should tax either real gains or, much less desirably, tax nominal gains at a reduced rate. For the scapegoated sector we now have nominal gains taxed at a high (and rising) rate.

What of the deductibility policy? This is, as announced, a simply bizarre policy, not helped by the egregious spin – really bordering on lies – from the government suggesting that the ability to deduct interest from gross income in calculating the owner’s tax liability is a “loophole”. It is simply standard practice, a deduction open to any business. Except, very soon, operators of residential rental businesses. In many firms, in a wide variety of sectors, interest is a cost of doing business.

I can think of three bases on which a policy change around deductibility might have made sense. There is a decent argument that, for tax purposes, no interest paid should be deductible and no interest earned should be assessible. But that would involve universal application. There was an argument that some (from memory including Don Brash) used to advance that with no tax on capital gains, perhaps interest on investment property should not be deductible. But extending the brightline test to 10 years substantially undermines that argument for houses…..leaving it more potent for other assets (eg farm land) to which deductibility has not been limited. And that argument that I find most appealing – and which from memory the Reserve Bank used to favour – was that some proportion of interest deductions were really just inflation compensation, and didn’t really amount to a real expense (just maintaining the real value of capital). But that would argue for a symmetrical treatment of interest income and interest outgoings, and for a comprehensive approach, not just one picking on a current government scapegoat. Had the government been serious about rigorous reform that improved, not worsened, the tax system they could have foreshadowed that sort of change. At present, with interest rates so low, it probably would have reduced by about half the extent of interest that could be deducted.

(The “loophole” argument appears to be based on the fact that owner-occupiers cannot deduct interest. It should barely need saying that owner-occupiers are also not assessed for tax on the imputed rental value of living in their home – nor, of course, (generally) are they subject to the “brightline test”. Whenever there have been serious suggestions of taxing imputed rentals it has been recognised that interest deductibility would need to be introduced as part of any such mix. )

There seems to be a range of views around about what impact the deductibility change will have, especially on house prices. Westpac appears to mark out one end of the range, suggesting in a bulletin yesterday that house prices could settle 10 per cent lower over the longer-term with the potential for “much greater effects” in the shorter-term.

As they note, the Westpac economics team – their chief economist is currently on secondment to The Treasury – have long been advocating a model of house prices in New Zealand that emphasises the power of tax policy and tax policy changes to affect house prices. I’ve long been sceptical of that sort of story (and to refresh my memory dug out notes I’d written on the specific role of tax while at both the Reserve Bank and the Treasury). A paper with a very similar approach to the Westpac one was published as a Reserve Bank discussion paper some years ago, and it has a useful table (page 14) looking at the way in which various variables, including tax ones, affect the price various classes of potential purchasers (leveraged, unleveraged, investors, owner-occupiers) will be willing to pay for a house.

I’m no more convinced this time that tax (or regulatory) changes will have a large effect on prices (and a 10 per cent longer-term effect is quite large) than on previous occasions. One might expect some difference in what type of entity owns the property, but even then it is as well to be cautious. Just a couple of years ago, the ability to offset rental losses against other income was removed, and I’ve seen little in the way of analysis or argument suggesting that had very much effect at all, in prospect or in realisation. But if we go back further, there was little sign that the increase in the maximum marginal tax rate in 2000, foreshadowed with certainty for at least a year, gave a big boost to house prices (as the model predicts, because interest deduction is more valuable) or that the reversal of that increase a decade later cut house prices. The arbitrary removal in 2005 of the ability to deduct depreciation – on houses (as distinct from land) – didn’t seem to have a discernible sustained effect. The PIE regime, which worked against individual landlords, had little obvious effect. And going back further there is even less sign of such effects as decades earlier maximum marginal tax rates rose to 66 per cent, and then fell again, when inflation raised nominal interest rates (increasing the value of the interest deduction) or when ring-fencing was abolished in the early 80s and reinstated in the early 1990s. I’m also sceptical because we can see the huge divergence in house price outcomes in US cities, with fairly similar tax codes and banking practices across them, in ways that point to land use restrictions – and the long-run supply price of new houses – as the more important explanatory factor.

Perhaps this time will be different (although, almost inevitably, we will struggle to know, trying to unpick all the competing influences. Presumably some holders of investment properties will take the opportunity to sell now. Quite probably yesterday’s changes will help bring forward the temporary pause, or perhaps even pullback, that was always likely before too long (with no population growth, much tighter LVRs, perhaps a (irrational) ban on interest-only lending, perhaps even some lift in term mortgage rates etc). We’ve seen such pauses before and will no doubt see them again. But the supply/land issues have not been tackled.

It is worth noting that under the sort of model Westpac (and the Reserve Bank, see above) used, the purchaser willing to pay the highest price for a house was………..not the highly-leveraged investor but the unleveraged owner-occupier. That was so back in 2008 (when the RB analysis was done), reflecting the fact the imputed rental income is not taxed (and such purchasers have no interest payments). The difference is greater now – even prior to yesterday’s announcement – because owner-occupiers don’t have to worry about the brightline tax, while any investor – even if iniitally intending to hold for more than five years, rationally has to factor in a probability of seeling earlier.

Perhaps a little surprisingly (my notes record that it was so to me) is that the group next most willing to pay is the unleveraged investors. They do pay tax on their rental income, but – like the owner-occupiers – they have to think about the opportunity cost of their money, which has to be invested somewhere. Deposit rates are typically a lot lower than mortgage rates, and one will pay a price to avoid being stuck in deposits. Heavily-geared landlords (and remember, they can now borrow only 60 per cent from banks) come in only third. Of course, there may be times when highly-leveraged landlords are key marginal players – quite plausibly the last few months, especially when dealing with a temporary lifting of financial repression targeted at such people – but it wasn’t the general case, even pre-brightline.

One of the uncertainties, of course, is to what extent rents rise in the wake of this change. There is a lot of headline coverage of that, but the honest answer is that we don’t really know (although, again, the nature of the effect should be similar to that for ringfencing, albeit potentially on a larger scale). I’m a little sceptical as to how large the effect will be – notwithstanding the buffering the Accommodation Supplement provides – because if leveraged landlords were able to recoup all/most of their increased costs, that would leave excess expected returns on offer for unleveraged landlords (who are not directly affected by the loss of deductibility). Owner-occupation certainly hasn’t got easer – relative to six months ago LVR controls are back and prices/deposit requirements are higher (or even on Westpac’s take no lower) so I’d expect the biggest difference to be a shift over time from more heavily leveraged landlords to less-leveraged or unleveraged landlords, perhaps with a relatively modest (sustained) rise in rents.

This is, of course, then a policy that skews opportunities away from those needing debt finance (it explicitly no longer treats debt and equity similarly, previously one of the strengths of the NZ tax system) and they tend to be….the new entrants and more-marginal players. In favour of old money, institutional investors etc – who have pools of money that need investing. Now if you are a central banker you might think less leverage was “a good thing” (although that is what capital requirements are for) but it isn’t obvious that is so more generally, given the rigged land market. As Adrian Orr used to say – back when we were analysing housing options at the Bank 15 years ago – many of the leveraged investors are people like (his example) firemen, with a modest salary and using leverage – where it is available with good collateral – to get into an investment property, doing maintenance etc on their days off, getting a foot on the ladder (and some “forced savings” too). It was like that for a long time, whether or not real house prices were rising strongly.

Officials and ministers – especially Labour ministers – really don’t seem to like those sorts of people, and the sort of housing supply that results. Over a couple of decades now policy seems to have been set increasingly in ways that will have the effect of driving these small, initially quite leveraged, players from the housing field. In some cases that has seemed deliberate – including from some who really think home ownership isn’t something people should reasonably aspire to, and that long-term renting is some sort of Germanic ideal – in others just a side effect, but the direction is pretty clear: they favour institutional savings, not individual, and institutional (or large scale) rental providers not individual ones. And so the policy system – which 30 years ago treated these groups neutrally – no longer does. PIEs are taxed less heavily than individuals. Increased regulatory burdens (as ever) favour large players not small. Taxes based on realisations favour large unleveraged players, since they are less likely to be forced to sell, and have future gains to carry forward losses against). And now this egregious new distortion favouring equity over debt in rental housing. I don’t have any problem with institutional and corporate providers of rentals, but it should be an outcome of choice , enterprise, opportunity etc, not regulatory and tax distortions secured in their favour. Worse still, of course, is that if this latest package really does impair the availability of private rentals it will just strengthen the argument on the left that the state should be a much larger rental provider. There is a role for state rental dwellings, for a very small minority of troubled people, but in a functioning land and housing market there would simply be no market failure justifying such an intervention.

And a functioning land market – where there is aggressive competition among land providers/owners and genuine choice for potential purchasers between options on the periphery and options at greater density – is how unimproved outer-urban land prices should once again be somewhere near the price at the best alterative use (mostly farming presumably), not driven higher by artificial regulatorily-supported interventions. But such a market is what the government seems utterly uninterested in providing. The alternative – increasingly messy interventionist version of the status quo – appeals to the Greens and the statists, but it shouldn’t appeal to New Zealanders who care about their children becoming self-sufficient and able to meet the simple aspiration – readily achievable in a land-abundant country – of being able to purchase a basic house in their 20s.

Sadly, whatever was going to happen to house prices over the next three to five years anyway, it is hard to think that after some initial disruption, yesterday’s package will make very much sustained difference to prices at all. But I guess it will buy some political time and ease the headlines; today’s substitute for serious courageous leadership. Fixing the land market (and indexing the tax system) is still an option for some real leader, some day. If only.

Free up the land

I suggested on Twitter yesterday that the Green Party’s new housing policy – as articulated on BusinessDesk here by Julie Anne Genter – was absolutely right about the urgency of the issue (actually reform has been overdue for the best part of 30 years) and the need for boldness, but quite wrong about proposed policy responses, which seemed to tackle symptoms while failing to get to the heart of the matter. BusinessDesk invited me to submit a piece offering my solutions. That column came out this afternoon, and is here (not behind the paywall).

Since people tend not to click on links, and I haven’t given the copyright to BusinessDesk who published it a couple of hours ago, I’ve set out my full text below.

Bear in mind that I had only 800 words. That meant I had no chance to do anything much more than set out the key points of my own proposal – even then briefly – and in particular could not defend claims like “Banks aren’t the problem, and the tax system isn’t the problem either.   Nor are those popular scapegoats, “landlords” and “speculators” “, or elaborate on a whole variety of points, and qualifications, that a fuller treatment of the issue would warrant. I’ve dealt with many/most of those points here over the years, often at length, but might take the opportunity next week to do a further post, with commentary on each paragraph elaborating (or where necessary qualifying) various points and arguments.

In a way, my bottom line is in the second to last paragraph. With structurally record low real and nominal interest rates, houses and housing (two different things) really should be cheaper than ever in real terms. That they aren’t is the choice – active and passive – of successive waves of central and local government politicians. The current wave is currently responsible, and sadly they – especially the Prime Minister, who has the most say (and an absolute majority) – show no serious interest in the sort of better, much cheaper, outcomes – sustained over the longer-term – that are quite possible.

Free up the land

Real house prices have more than trebled in the last 30 years.  The most recent surge is just the latest in a series that result directly from the choices of successive central and local governments.   And what choices mattered most?   Land use restrictions, in a country with so much land that our urban areas cover only 1 per cent of it.    When people talk about real house prices having skyrocketed, mostly what they really mean is that the price of the land under the house has gone crazy.

Unfortunately, all indications are that the sorts of the things the government and the Reserve Bank  are considering will just paper over a few more of the cracks and not address the real issues.  Banks aren’t the problem, and the tax system isn’t the problem either.   Nor are those popular scapegoats, “landlords” and “speculators”.

One way of seeing this is to look at the United States, where the regions all have much the same banking and tax systems, but often quite different land-use regulatory regimes.   Some big growing cities there are among the most expensive places on earth – like Auckland and Wellington – while others have price to income ratios that are low and haven’t changed much over several decades.  They also tend to be the places with the highest rates of owner-occupied housing.

 So, what urgent steps should the government be taking?

First, legislate now to establish a presumptive right for any landowner to build as many single or two storey dwellings on any land they own, anywhere.    Aggressive competition among landowners on the fringes of our cities and towns, scared that they will miss out and that development will happen elsewhere, is what would underpin much lower urban land (and house) prices.

Second, empower groups of existing landowners in built-up areas (perhaps at a block or individual part of a suburb level) to determine – by super-majority vote (perhaps 75 per cent) – how much, if any, additional density they want to permit on their land.  Vote for greater density and they can capture any gains from land made more valuable as a result (which might not be large outside central city areas if new land can easily be brought into development). If not, respect those groups of landowners’ preferences.  

Third, the Prime Minister needs make it a personal priority – featuring prominently in all her communications – that house and urban land prices should fall very substantially and stay down. Serious reforms happen, and are followed through on, when Prime Ministers believe in them and commit their skills and political capital to making them happen.  We can’t have any more of senior political figures (both sides of politics) feeding a narrative that house prices should always trend up.  They shouldn’t. 

Asset markets trade on expectations, and no smart purchaser one is going to be keen to pay ever higher prices today when there is a serious chance, by actual reform now and evident political commitment, that the asset will be much cheaper a year from now.   

Fourth, as too many ordinary families – just wanting a place to call their own – have been caught in this government-facilitated mess, establish a partial compensation scheme for owner-occupiers (only) who have bought in the last decade and who sell in the next decade.  It won’t be cheap, but neither are the economic and social costs of the mess governments have got us into, that among other things has young people convinced that what should be a normal aspiration – buying a first house in your 20s – is now some unattainable aspiration, reserved for the offspring of the rich.  Stabilising prices now and hoping low inflation does the job over decades is no adequate substitute for proper reform.  Our young people deserve much better.

Real interest rates having been falling for decades, and are now at lows not seen persistently in a very long time, if ever.  If we had functioning markets in land and housing, that should mean houses and housing that are cheaper, in real terms, than ever.  It takes time (and a lot of money) to develop subdivisions, it takes time to build houses, and the interest costs of doing so are lower than ever.  Rents are the cost of using a long-lived asset for a period of time, and the alternative investments (bonds, term deposits) now yield less than ever. And yet because governments make land artificially scarce, house/land prices continue to push ever higher, and rents themselves are unconscionably – utterly unnecessarily – high.    

Reform should be about getting housing/land markets functional again, partly compensating some of the losers, and making housing once again something that young people don’t need to worry much about, all without messing up access to finance.  It is about fixing injustice now, and rooting out the systematic disadvantage, working against the young and the poor, that governments themselves created.

Not really

Late on Friday afternoon I saw a tweet from Stuff politics and economics journalist Thomas Coughlan linking to a new and substantive article he’d written under the headline “Reserve Bank repeatedly warned Government money printing would lead to house price inflation”. Several other journalists who’ve each had a bee in their bonnet about the Reserve Bank’s asset purchase programme weighed in in support. None of them is too keen on Grant Robertson, and so it was presented as if they’d found evidence that the Minister of Finance had spent the year ignoring things that were not only totally predictable, but of which he had been advised by his officials. The Bank knew (we are told), as did The Treasury, but Robertson fiddled while Rome burned. Or so the story goes.

Now I yield to no one in my distaste for this government’s 3.5 years of appalling indifference to the unnatural disaster that is New Zealand house prices. But on a first glance the Stuff story didn’t seem very plausible – even noting that Coughlan was drawing on papers he seems to have obtained from The Treasury (and which, to his credit, he provided links to). However, it was Friday afternoon and my appetite for chasing these things down isn’t what it once was. So it wasn’t until yesterday that I read carefully the article, and the official papers Coughlan cited.

Coughlan links to three official papers. The first of these is a joint paper from the Reserve Bank and The Treasury dated 29 January 2020 addressed to the Minister of Finance on “Institutional Arrangements for Unconventional Monetary Policy”. I’d be surprised if the Minister paid much attention to it at all, for several reasons:

  • it was more than 20 pages long,
  • it was signed out by two fairly junior people (one on each side of the street), and
  • all it asked was for the Minister to agree that officials keep working on the issues (not the substance of so-called unconventional monetary policy, but “institutional arrangements” for something officials explicitly say is a low probability event any time in the following two years).   The intention at the time was a report back by the end of July.

But even if the Minister had read, marked, and inwardly digested the full report, what else would he have found?

Coughlan notes that the report says that “as these tools have never been used in New Zealand before, the magnitude of the macroeconomic stabilisation benefits is highly uncertain”.  Well, indeed.  But what of it?  In fact, at least one of the tools on the list has never been used anywhere, so it is hardly surprising no one could be confident what effect it might have.   It is the sort of boilerplate statement that, in a report of this sort, any reader will quickly pass over.

Then we learn that “although UMP tools entail many of the same trade-offs as conventional monetary policy, the scale of the tradeoffs can be larger with UMP.  The trade-offs include fiscal risks, financial stability risks, distributional impacts, and the impact on financial market functioning”.  Not that the operative word is “can”, and the list of “tradeoffs” is still very generic.  However, officials refer to a Figure A.  In this table the orange-coloured items are “the more significant trade-offs”, and this box (below) is about the class of tools labelled “Large scale asset purchases, including domestic government bonds, foreign currency or foreign government bonds, and corporate bonds.

 

Note that

  • there is no mention of house prices at all
  • the observation is about what “may” happen, not what will happen
  • a reasonable reader might reasonably suppose that officials were talking mainly about bidding up the price of assets the central bank was purchasing in such operations –  the most obvious “more directly” effect, since conventional monetary policy doesn’t work by buying assets outright but by setting an overnight deposit rate.

And that is about it in the body of a 20+ page document.  There is, however, an Annex about specific possible tools.  Do Ministers read Annexes at the end of 20 page documents?  Not often is my guess, especially when all this is about hypotheticals (so officials were telling the Minister), and when the paper is about institutional arrangements not details of tools.    But had he got that far here is what the Minister would have learned from his officials about asset purchase programmes.

Not only is there is no reference to house prices at all, but officials explicitly tell the Minister that in a New Zealand context a lower exchange rate is likely to be the main transmission channel.

So that was the 29 January paper. One might reasonably criticise both officials and the Minister for the lack of urgency by then (Wuhan was in lockdown, the Ministry of Health had deemed the coronavirus a serious issue, and the NZ government was days away from stopping arrivals from China…….oh, and the Bank/Treasury had had 10 years to prepare for a crisis in which the OCR hit zero) but one could hardly say Grant Robertson was now fixed with knowledge that if monetary policy was eased in the next downturn house prices would go crazy. No one was proposing the Reserve Bank buy houses, and house prices weren’t even mentioned.

The next document Coughlan cites is a short aide memoire from The Treasury dated 9 March 2020, prompted by the speech the Governor was to give the next day on unconventional monetary policy. It is titled “Update on work on institutional arrangements for unconventional monetary policy”. There is no analytical substance in the note at all (nor would one expect there to be). It does note that the risks of needing unconventional tools at some point had increased due to Covid-19, but there was no sense of urgency, and officials simply noted that they were bringing forward the report-back date for some bits of the institutional arrangements work to the end of May. I count that as pretty damning – this was, after all, only a week before the MPC (with the Secretary to the Treasury sitting on it) finally confronted reality and cut the OCR sharply, and instituted a floor (OCR at 25 basis points) that not even Treasury seems to have envisaged, but none of this has anything to do with house prices, distributional effects, or the like.

The third paper is dated 16 March and is an aide memoire from The Treasury on large scale asset purchases, the MPC having announced that morning that the LSAP would be next cab off the rank if the Bank considered more policy support was needed (note that the Minister’s own Covid-response package was to be announced on 17 March). Unsurprisingly perhaps, there isn’t anything new in this note either. House prices, for example, are not mentioned at all. There is something similar to the bit from the January paper about how the portfolio rebalancing channel might “push up the price of a range of assets, helping to flatten yield curves” – a phrasing that clearly has in mind simply bidding up long-term bond prices – and a repeat of the point that the exchange rate effect might be particularly strong in New Zealand. (At this point, Treasury still doesn’t seem to have envisaged that the government would be issuing so many new bonds that total private holdings might not drop much, if at all.)

And a little later there is the repeat of the distribution line: “LSAPs have many of the same distributional impacts as conventional monetary policy, but can raise asset prices more directly than conventional monetary policy, creating wealth inequality. However, they can also mitigate inequality by supporting employment.”. One might challenge some of the Treasury’s economics, but there is no reason in any of this to think (or for the Minister to think) that they were referring to anything other than the direct effects on prices of assets the Bank itself might purchase. And no one was suggesting houses for that list.

And that is it. That is the set of documents Coughlan claims show that the Minister of Finance was repeatedly warned that asset purchases would send house prices further into the stratosphere. It seems like very slim pickings to me.

Of course, we don’t know what the Secretary to the Treasury and the Governor may have said to the Minister in their private conversations with him. But we do know quite a lot about the Bank was saying in public.

For example, there was that long speech (19 pages) that the Governor delivered on 10 March – when he was also doing everything possible to play down any sense that monetary policy might need to do anything soon. It was sold as some sort of framework for thinking about monetary policy issues and options when the OCR had got to, or very near, zero.

The Governor tells us about a BIS assessment of other countries’ asset purchase programmes

and something of the Bank’s own thinking (emphasis added)

and then something that looks a bit more directly relevant

But note that (a) here he refers to both low global interest rates and unconventional monetary policy, not just the latter, and (b) Figure 5 actually shows that house prices (and share prices) in New Zealand had increased more in New Zealand over the last decade than in advanced countries as a group (many of which had used asset purchase programmes).

The very next paragraph reads as follows

Not exactly some sort of smoking gun, and certainly no sense that the Bank thought that launching an LSAP early in a severe downturn would send house prices further into the stratosphere.

In fact, the Governor helpfully included this chart showing how the Bank thought the transmission mechanism would work

It is quite a complicated chart but note that (a) there is no channel to house prices that is different from the way they thought normal monetary policy works (ie through lower interest rates) and (b) the only separate channel they highlight in regard to an LSAP tool is the exchange rate.

On the final page of his long speech the Governor wraps up this way (again, emphasis added)

The Governor had his bases covered with a long list of issues, but note that even that final warning is (a) not specific to an LSAP tool, (b) never – as with the rest of the speech – mentions house prices, and (c) seems to be talking about prolonged period effects, not those in the first few months after an intervention.

Quite possibly the Minister of Finance didn’t read this speech either, but had he done so he’d still not have been fixed with the sort of knowledge, and implied guilt, Coughlan claims.

One could go on. One could look back to the Bank’s significant Bulletin article in 2018 on monetary policy options. It was a careful survey of some of the issues and overseas experience, but on skimming through it again I didn’t see references to house prices. Or the Governor’s substantial Newsroom interview in late 2019 – the one in which he expressed a distinct preference for a negative OCR over LSAP-type tools – where there was also no reference to house prices.

Or, since Coughlan claims the Minister was fixed with knowledge and that the Bank had clearly advised him, we could look at the Bank’s own Monetary Policy Statements last year. In May, for example. when it was still early days, but when the LSAP had been deployed and the OCR been cut, the Bank’s baseline scenario was that house prices would fall by 9 per cent over the rest of 2020. In August, several months on, they noted that “accommodative monetary policy is supporting household spending by limiting house price declines”. They weren’t telling the Minister of Finance the LSAP would cause house prices to explode because…..that wasn’t their view, and at most they thought all their interventions were limiting house price falls (as one would expect – see transmission mechanism chart above – with conventional stabilisation monetary policy).

One could go on. There are other telling quotes from the Governor and other senior officials – although of course never from external MPC members who exist, if at all, in some sort of purdah – and the actions of the Bank (eg suspending LVR restrictions) or the rolling out of stress test guesstimates based on falling house prices.

There is simply nothing in the paper trail to suggest that the Bank (in particular, but probably Treasury too) was vigorously highlighting to the Minister of Finance that if they were let loose with the LSAP tool house prices would starting rocketing upwards again. They just weren’t. (And for what it is worth, the Bank’s survey of expectations – mostly of economists – through last year consistently had house price inflation expectations at or below the expectations that existed at the start of last year.)

Now it is of course true that house prices have gone crazy again (yesterday a real estate agent put a brochure in our letterbox telling us of this little Island Bay house – 112 square metres of house, 259 square metres of section, no view – that just sold for $1.4 million). In a better world – more knowledge, more good analysis – our officials and economists would have anticipated such an outcome. But they (well, we) didn’t. Speaking only for myself, I expected that as in most recessions we would see a fall in house prices that wouldn’t last that long, or be that deep, but might take a few years to reverse. After all, in typical recessions (a) interest rates fall, often more than they did in 2020), (b) bank lending standards often tighten (as the survey suggested they did last year), and in this downturn the net inflow of migrants was also likely to be disrupted.

There are people – on both the left (including the journalists I mentioned earlier) and on the right – who want ascribe a lot of the blame (the different than normal outcome) to the LSAP. There is much use of the loose, and not very accurate, term “money printing”. In this lecture late last year I told my story on why I’m convinced that what is little more than a large scale asset swap (two very similar assets, differing only by maturity date) is not having much macro effect at all. And I echo the Reserve Bank’s own repeated view that to the extent the LSAP works it does so by lowering interest rates, and the fall in interest rates in not unduly large, or larger than the Bank’s own published forecasts repeatedly suggested was needed for macro-stabilisation purposes.

I’m not that confident of my own story, but for now it would emphasise macroeconomic forecasting errors. To date, and for reasons that still aren’t clear, the economic rebound has been much sharper than any forecaster – but notably the RB and the Treasury – expected. Perhaps that will last, or perhaps not, but for as long as it does, in an environment where governments keep land artificially scarce, people are more likely to be willing to bid house prices to even more outlandish levels than would have seem plausible when the Bank and Treasury were advising the Minister in the first half of last year of the likelihood that the Covid downturn would be quite deep and quite enduring.

(Of course, adding further distortions to the once-functional market for housing finance, pursuing political agendas more than hardheaded assessments of risk as with the RB’s new LVR controls announced today, can dampen some of those house price pressures for a time. But the solution to the house price debacle still lies where it always did, with the central and local governments that continue to make land for development artificially scarce in a land-abundant country. Blaming the Reserve Bank, blaming the banks, blaming the tax system, or blaming anything else is really just distraction.)

Not doing their core job

This isn’t going to be one of my usual lengthy post-MPS posts. I really just wanted to make one point about the disconnect yesterday between the words and the actions of the Governor and the MPC.

There were more than a few good words and phrases from the Governor, and even a few in the document itself. There was, for example, the reiteration of the MPC’s so-called “least regrets” framework, under which for now they say they’d rather run the risk of inflation being a bit high than run the risk that they (continue to) undershoot the target the government has laid down for them. And there was the Governor’s response to Stuff’s Thomas Coughlan about whether the Bank’s new mandate – the employment bits – had made any difference to monetary policy decisionmaking this year: he said not, since both unemployment and inflation indicators/outlooks had pointed to the need for much easier monetary policy, even highlighting the risks of inflation expectations settling below target. On Radio New Zealand this morning, Orr even allowed himself to say yes when asked if monetary policy would do “whatever it takes” to lean against a cyclical economic slump.

All of which sounded great. It was pretty much standard inflation-targeting cyclical stabilisation stuff, especially when overlaid on a background of the last decade when – as the Governor put it – central banks hadn’t demonstrated such a good track record in getting inflation back up to the target (recall that in our case in particular that target is set by elected governments, and that set by the current government is much the same as that of their predecessors.

But what do the MPC’s forecasts show? Recall that these published forecasts include all the expected effects of the monetary policy stance announced yesterday (although perhaps not the proposed new LVR controls), including the new Funding for Lending scheme (which, as the Governor noted, the Bank thinks market pricing for retail deposits has already anticipated).

Here are their CPI projections.

RB forecasts CPI

Inflation does not get back above 1 per cent – the very bottom of the target range – for two more years, at which point it will have been more than 2.5 years since the Covid-related severe downturn got underway. It is three years from now until inflation is forecast to get back to 2 per cent.

What about the unemployment rate, still probably the best indicator of excess capacity (at least in a forward-looking context)? They expect that the unemployment rate will keep rising and will be still 6.3 per cent by the end of next year. And at the end of 2023 – more than 3 years away – they still think the unemployment rate will be 5.2 per cent, barely lower than the current 5.3 per cent. Their output gap estimates for the year to March 2022 are slightly larger (negative) than their – inevitably wildly imprecise – estimate for the latest quarter.

And then there are inflation expectations. In a distinct step forward yesterday there was quite a bit of discussion of inflation expectations in yesterday’s MPS, including in the minutes of the MPC meeting. At least some members must be getting quite worried, even if staff gallantly try to play down the issue by refusing to engage with direct estimates of breakeven inflation from the government (indexed and conventional) bond market.

They included this chart in the document

RB inflation expecs nov 2020

On this measure – which deliberately excludes all market-based measures – inflation expectations are below target for the next several years and well below the target midpoint. The longer those low expectations persist the harder it will be for monetary policy to do its job. (Note that the latest of the RB’s own expectations surveys still has medium-term inflation expectations well below target, even though respondents now believe the OCR will be taken negative next year, and presumably included that expectation in their in responses about inflation too.)

And yet what did they do in response to this outlook? Nothing. Simply nothing. And in the process pushed the exchange rate – usually a key adjustment mechanism in New Zealand downturns – even further above the level it was, whether yesterday morning or at the start of the year.

There is simply no sign that they take their own rhetoric seriously. There is no sign of a central bank acting as if it really believes it would be better to run the risk of a temporary overshoot of the inflation target. There is no sign of a central bank that acts as if it thinks cyclical unemployment is a scourge that should be countered aggressively, at least while the inflation outlook allows it. And there is no sign of a central bank acting as if it takes the slump in inflation expectations as something it needs to take seriously.

Instead they are content with rhetoric (sometimes quite good rhetoric) and handwaving, and throwing around big dollops of money in ways that make little useful difference (and whatever good effects the Bank thinks those tools are having are already baked into the forecasts). Oh, and of course no serious accountability either: it is now 19 months into the new MPC and not one of the external members – the ones who don’t work directly for the Governor – has given a speech or a serious interview.

Oh, and remaining wedded to that bizarre commitment made in March – before the severity of the crisis was apparent to them – not to touch the OCR for a year, come what may.

(Of course, some readers may want to defend the RB on the basis that they – readers – don’t believe a negative OCR could help. There is an argument to that effect – I’m among those who resolutely disagree – but the point here is that it is not an argument the Bank itself is relying on. They claim monetary policy is still capable of doing useful and important stabilising stuff….and yet won’t even cut the OCR to zero, let alone negative, despite (a) such weak foerecasts, and (b) averring that a lower OCR would do good stuff.)

Bleak passivity

Reading last week’s statement from the not-very-transparent, not-very-accountable, Reserve Bank Monetary Policy Committee I was struck by both the bleakness of the statement and the do-little-or-nothing passivity of the monetary policymakers.

I guess you could argue it wasn’t much different than the previous month’s statement – which wouldn’t be much consolation, since that statement itself was pretty downbeat – but the relentlessness struck me. There was almost nothing positive in the commentary, even six months on from when the Committee belatedly recognised the Covid economic risks and started adjusting policy. The risks, both globally and domestically, are deemed to be to the downside – which seems right to me – and this around a base scenario in which the “the Committee expects a rise in unemployment and an increase in firm closures”. There is, again rightly, an emphasis on the susbstantial uncertainty firms and households face, again here and abroad, as the future course of the virus is really little more than anyone’s guess. We are told – in, I think, materially stronger words than they’ve used before – that “monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit”.

And yet what did they actually do? Nothing.

Seven months on from when they should have been first easing monetary policy, we still have an OCR that is only 75 basis points lower than it was at the start of the year. The Committee continues to cling to their bizarre March pledge – made in a climate of extreme uncertainty – not to change he OCR for a year, a pledge that has/had no solid economic foundations to it. They would prefer people to believe that in some sense they “can’t” move, but all it takes to know that is simply false is a look across the Tasman to Australia where, with a higher inflation target, and higher inflation expectations, short-term wholesale interest rates are 20 basis points lower than those here. Even if you buy the Bank’s claim that the OCR can’t be taken negative yet, there is no obstacle at all to them cutting the OCR to zero now. It should have been done months ago. It should be done now – their own outlook (all that downside talk) tells you as much. (20-25 basis points is, of course, not that much, and not a macro game-changer in and of itself, but in an all-hands-to-the-pump scenario, every little helps – and it would be a third more OCR easing than we’ve had to date.)

And, of course, the claim that the OCR can’t be taken negative now should itself be taken with a considerable pinch of salt. If true, it should of course lead to serious questions of the Bank’s competence and basic preparedness, which don’t yet seem to have been asked (although the Board’s Annual Report must be due out in the next few days, so perhaps…..unlikely as it is …..there will some sign of holding management to account). But it was never very convincing. For a start, had the Reserve Bank simply taken the OCR negative a few months ago it would have (a) rewarded the institutions that had read the – all too visible – international signs and got ready, and (b) encouraged the others to adapt very quickly. Even if the argument was partially defensible in February/March, it is now September….they’ve had months to get it right, and (on the MPC’s own reckoning) the economy could have done with more stimulus over that period. More generally still, a significant part of the way monetary policy works in an open economy is through (a) signalling and (b) the exchange rate: had the MPC moved aggressively months ago, or even now – not next March/April – it would likely have generated a lower exchange rate, supporting the New Zealand economy, and underpinned inflation expectations.

(As a reminder, the exchange rate has barely changed from where it was at the end of last year, real (1 and 2 year fixed) mortgage rates seem to be down perhaps 20-30 basis points since the end of last year, and the inflation expectations – whether survey measures or market measures – seem to be down about 50-60 basis points. Oh, and in case people hadn’t noticed, the unemployment rate has risen and the MPC expects it to rise further. Their August inflation projections – including all that fiscal policy – was also well below target. It is hard to imagine in any other circumstances a central bank doing nothing.)

Now defenders of the Reserve Bank will, of course, point out that the MPC is talking up some sort of “Funding for lending” scheme that it now says “would be ready before the end of this calendar year” (while also noting that “the design of the programme would be agreed and published ahead of deployment” – but there is only one more scheduled MPC meeting before the end of the year). The idea of this scheme is to lend to banks directly at a rate close to the (unnecessarily high) OCR, with the aim to “lower the financial system’s funding costs, and therefore borrowing costs for firms and households, and support the availability of credit to the economy”.

I don’t greatly like these sorts of schemes – although the details, which apparently won’t be consulted on, may matter. By contrast to the OCR, which is an instrument that works pervasively and unconditionally, FFL-type schemes are often available to some market participants but not others (undermining a core principle of efficient policy design, around competitive neutrality), and are often tied to some officials’ preferences around increases in lending to the private sector, whether or not such lending makes much sense in the prevailing economic climate (hint: in an environment of extreme uncertainty, of the sort the MPC talks of, not many firms are going to be voluntarily taking on much debt, and banks would generally be rightly cautious – even if not with the added uncertainty about the Bank’s new capital requirements next year). And an FFL is no substitute for an OCR adjustment when it comes to influencing the exchange rate, typically a really important part of the New Zealand transmission mechanism.

But here’s the thing. They’ve had a scheme like this in Australia since March. Term deposits rates in Australia have for a long time been closer to wholesale rates than has been the case in New Zealand, but – on checking this morning – are still materially higher than Australian wholesale rates. And although our Reserve Bank has been talking up an FFL scheme for some time now there is no hint in the schedule of retail rates banks are offering that, for example, 3-6 months are holding up but that longer-term rates (relevant to the period when an FFL will be deployed) have fallen away sharply, or at all. Big banks seem to be offering much the same rates for six month retail term deposits as they are for 1 to 5 year term deposits, just as they were at the start of this year. It just isn’t obvious that a realistic FFL is likely to make much difference to retail rates – and actual term rates suggest banks rather share that perception. It would be good to be wrong on this – all the evidence and the MPC comments suggest the economy needs the additional support – but nothing at present suggests it is likely.

Meanwhile, of course, months and months into this severe recession, there is no sign that the MPC or the Bank is doing anything about removing the real effective floor on the OCR (at perhaps -0.5 or -0.75), that results from the official provisions – regulatory interventions – that mean deposits are convertible to cash at par in unlimited quantities, with cash paying a zero interest rate. We have interminable debates and commentary on what macro difference a small further cut to the OCR – to just slightly negative – might make, but nothing on making feasible and useful the sort of deeply negative interest rates the economy might actually need. It is a cavalier indifference to the state of the economy and the plight of the unemployed – and to the health of the public finances – that seems to be shared by most central banks – which makes it no more excusable. One can, reasonably, haggle about whether threshold effects mean that,say, a -0.25% OCR would make much difference – although (a) the ECB seems persuaded, and (b) retail deposit rates in NZ would still be well above zero in such an environment. There should be much less room for doubt about the gains from a deeply negative OCR, including for the exchange rate and inflation expectations.

Of course, those on the left are often keen on fiscal policy substituting for monetary policy – especially while they are in power and get to choose the goodies being handed out – but that isn’t a path to an efficient allocation of resources, a wise evaluation of investment options (what do politicians have on the line?) and does nothing at all for promoting the health and growth of the tradables sector of the New Zealand economy. Whatever the merits of something like the wage subsidy scheme initially, fiscal policy initiatives seem to have become over recent months increasingly dependent on who you know, who is in favour, which project rings political bells, and not on a pervasive, fairly neutral, support framework in which politicians aren’t using your resources and mine to pick winners (unlikely to be so in actuality), rewards favourites and so on. Monetary policy operates much better as a countercyclical stabilisation tool for many reasons, if only central bankers would use it aggressively, or their political masters simply insist they do. It is fit for purpose, and respects the proposition that private firms and households are generally better at spending wisely than governments, in a way that handouts to Green schools, Pacific churches, this or that council, or whatever do not.

Technology

Politicians of whatever stripe seem to want to associate themselves with “technology”. It was then British Labour Party leader – and Opposition leader – Harold Wilson who 57 years ago gave the speech where he talked of the new economy he looked to, referring to the “white heat of technology”. Perhaps it was the same in the 19th century too, but we certainly see and hear a lot about it in 21st century New Zealand. The economy continues to underperform, while same strange alliance of industry lobbyists and politicians want to talk up “technology” and so-called technology industries. I don’t think there is much difference between National and Labour on this one, but National is in Opposition, and yesterday Judith Collins was at it again.

As reported here, she wants to “double New Zealand’s technology sector in a decade, and specifically to double “New Zealand’s technology exports” to “$16 billion by 2030”, complete with talk of the sector being bigger than dairy 10-15 years hence.. Oh, and there was lots of money being flung around, and to top it all off National is promising a Minister for Technology. Presumably, that will be just one more title some other Minister would add to his or her list and – for better or worse – MBIE would carry on providing policy advice much as it does now.

Much of the political rhetoric in this area is fuelled by the annual TIN (“Technology Investment Network) report, a collaboration between MBIE and some private sector groups with an interest in talking up the sector. I took a sceptical look at this report in a post back in 2017. They seem to be the source of the idea that “technology exports” are currently around $8 billion per annum – the sort of line that led former minister in the current government, Clare Curran, to suggest a year or two back that technology was now our third largest export.

But the $8 billion (or thereabouts) is not a measure of exports from New Zealand – and certainly not in the sense that any serious economic analyst or national accounts statistician would recognise. Rather, it is the total foreign sales of the group of companies the TIN report put on their list. Exports, by contrast, are things produced the country concerned. ANZ is an Australian-owned and controlled bank, with significant operations in New Zealand. Last year its total revenue in New Zealand was about $7 billion, but no one thinks of that – or counts it as – an Australian export. But that is the sort of thing the TIN people lead people to do – TIN themselves tend to draft a little more carefully, but in ways that they know will lead people to talk of this revenue as somehow New Zealand exports. Last time I looked, for example, both Fisher and Paykel Appliances and Fisher and Paykel Healthcare were on the list. The former is not even New Zealand owned any more and both companies have substantial overseas operations – Healthcare, for example, does much of its manufacturing in Mexico, selling into the US. That makes it a successful New Zealand business, but those sales from Mexico to the US are Mexican exports not New Zealand ones.

It is difficult to get any sort of precise sense of the scale of (what one might reasonably think of us) “technology” exports from New Zealand, not least because technology is embedded, to a greater or less extent, in so much that is sold, whether locally or internationally.

But in my earlier post, I took a couple of proxies to try and get a sense of trends. I’ve updated some of those.

In the TIN report, for example, many of the companies are in “high-tech manufacturing”. But here is a “elaborately transformed manufactures” have done as a share of New Zealand merchandise exports.

ETM

And from services exports I worked out the share of the total made up of

Services; Exports; Charges for the use of intellectual property nei
Services; Exports; Telecommunications, computer, and information services
Services; Exports; Other business services
Services; Exports; Personal, cultural, and recreational services

The latter because the largest component of it appears to be film and TV exports (Weta workshops, Peter Jackson etc). “Other business services” is going to be quite a grab-bag, but it does include (for example) research and development services.

Here is how those services have done as a share of total services exports

tech exports

That series seemed to be doing quite well for a while, but unfortunately the last few years have not been very impressive and the latest observations are lower than those for, say, 2009. (Of course, there was a surge in education and tourism exports for a while, boosting the denominator.)

So what if we combine these two series and look at them as a share of New Zealand’s GDP?

tech exports 2020

Perhaps I’m missing some important series. But I went looking and I couldn’t spot anything obvious. Perhaps you are thinking of Xero for example, but wherever any of its export revenues from New Zealand might have been, the category of services of exports that mentions “accounting services” has shrunk hugely in real terms over the last 15-20 years. I’m sure there must be some other items some would reasonably label “technology exports” but if they were game-changing they should be easy enough to find.

We can all name various individual successful technology-based companies founded by New Zealanders. Some are even still owned, controlled, and/or based in New Zealand. And there is plenty of technology embedded in many of other exports – including dairy, the one they all seem to hope to rival.

But the overall picture really isn’t very encouraging at all. That is most unlikely to be “fixed” by flinging more scarce public money at the industry, or more visas. And we can be pretty confident that appointing a Minister of Technology would make no difference at all. In fact, if we keep on with the economic policies with run for the last 20 years, perhaps the main role for a Minister of Technology might be to front up to Parliament to explain why transformational change still hasn’t happened, hand in hand with the then Minister of Finance explaining why no progress has yet been made – perhaps another decade on – in reversing New Zealand’s longrunning relative productivity decline.

Of course, there is something of hint that the political parties aren’t really serious in the scale of the promise. National talked of doubling “technology exports” in a decade, which is akin to an average annual growth rate of about 7 per cent. For any really serious technology success story that would be a derisorily low rate of growth. Who knows: perhaps those worldwide sales of the TIN companies will grow 7 per cent per annum over the next decade – when nominal GDP is probably forecast to grow 4-5 per cent per annum – but even if that happens, it is unlikely to be the makings of a seriously stronger New Zealand economy.

Thinking Big still

Just before I went on holiday I wrote sceptically about the “five point economic plan” speech given by the then National leader Todd Muller.

We were promised then a series of major speeches fleshing out the framework Muller enunciated.  Among the five points was this

Delivering infrastructure had this promise

Before the end of this month, I will announce the biggest infrastructure package in this country’s history. It will include roads, rail, public transport, hospitals, schools and water.

My heart sank somewhat.  A new and different Think Big? But lets see the specifics.

Of the five points Muller had outlined, this seemed to be one where they were investing any hopes they might have of lifting New Zealand’s medium-term economic performance.

New leader Judith Collins started on the details with a speech given on Friday and some supporting documents.    This announcement had (a) some big headline numbers for spending over the next decade, (b) the “roads, rail, public transport” components for the North Island north of Tauranga, several of which are mainly about periods well beyond the next decade, and (c) some material on how they propose to replace the RMA, and to fast-track some of these projects in the meantime.  I think there had already also been a promise to build an expressway between Christchurch and Ashburton.

I don’t have any particular problem with building more and better roads where they make sense.  Same goes for rail within cities, again where such proposals make robust economic sense.  (I’m much more sceptical of things like cycleways, whether across the Waitemata Harbour or locally.)  And clearly congestion is a major issue in Auckland and –  for what is really a pretty-tiny city by international standards – to some extent in Wellington too.  Congestion has real economic and welfare costs.  National’s leader referred to one estimate of those costs in Auckland (presumably this one) at around $1 billion a year –  and since the study was done a few years ago, perhaps it would be reasonable to use a higher estimate now.

But we have tools that can deal with congestion.  Pricing.  It is a tool that seem to work when tried in other countries/cities.    Of course, simply pricing congestion doesn’t mean building no more roads ever, but it (among other things) helps give a better steer as to what the real price of congestion – and the value people put on avoiding it – and it deals with the congestion directly in the meantime.    Even the current government’s Minister of Transport has been on record suggesting that congestion pricing is “inevitable” at some point, just not now.

And what is National’s stance, to address what Collins calls a “congestion crisis”?

Looking further ahead, if we and Auckland Council ever look at congestion charges in the future, my Government will insist they are only ever revenue neutral, with other fuel taxes reduced to compensate.

“If we ever”….Not exactly a ringing endorsement, looking to shift the ground in the debate.  Perhaps congestion pricing isn’t easy electoral politics, but it is the direction we need to be heading.  It might actually make a material difference within five years, unlike (as far as I can see) most other things in the National plan.

Instead the focus seems to be a flinging around some big numbers, not being too bothered about how robust any analysis supporting the mooted projects is, and all with little or no sense of decent mental model of what has gone wrong with New Zealand’s economic performance,   And yet it is, supposedly, “the Plan that New Zealanders –  including Aucklanders –  have been waiting for, for generations”.

Pretty sure that last sentence isn’t true.  Collins, for example, talks up the “if onlys”, in her case around Sir Dove-Myer Robinson’s “rapid rail” proposal, that got lots of attention in Auckland in the early 70s.  We moved to Auckland about that time, but I was 10 and can’t claim to have given it huge attention.  But here’s the thing: the population of the Auckland urban area then was about 650000, the birth rate had been dropping for a decade, and the new government was just about to markedly tighten up on immigration access, a policy that carried through for the following 15+ years.  And even with all the New Zealand tendencies to boosterism, neither central nor local government was persuaded that Robinson’s scheme made economic sense.  Nor, most likely, did it.  Collins also talks up the City Rail Link project, the costs of which have escalated greatly since the government she was a part of first signed off on the project, which didn’t look very economic even then.

The promise seems to that this big infrastructure spend-up is going be pretty transformative in economic terms.  There are these quotes

This city is broken by congestion. Every Aucklander and every visitor to Auckland knows it. Congestion costs Aucklanders over $1 billion per year. That’s the strict economic loss. It represents lost production, lost productivity, lost opportunity.

But congestion is far worse than that. Congestion means unreliable journey times. It means frustration at sitting idle on the motorway. It means goods being delivered late to our ports. It means Mum being late to pick up the kids from rugby practice. It means a tradie only doing two, rather than four, cross-town trips per day. That’s fewer jobs for him; less income, and less economic activity.

I guess $1 billion per annum is supposed to sound like a big number.  In fact, it is about 1 per cent of Auckland’s GDP.   Fixing the problems is probably worth doing, but 1 per cent of GDP is tiny in the context of either Auckland’s gaping economic underperformance, let alone that of New Zealand as a whole (recall that the productivity leaders are more than 60 per cent ahead of us).

And yet, according to Collins, there are really huge gains on offer.

National’s approach to infrastructure is simple: Make decisions, get projects funded and commissioned, and then get them delivered, at least a couple of years before they are expected to be needed. That is the approach that transformed the economies of Asia from the 1960s.

Quite possibly, some east Asian cities/countries did infrastructure better than New Zealand has, but I’d be surprised if National can cite any authoritative development studies suggesting that the catch-up of that handful of successful east Asian economies was primarily about moving things/people more easily around their own countries.  They are typically regarded as outward-oriented, tradables-sector led, growth stories, perhaps with improving infrastructure going hand in glove with those flourishing outward-oriented opportunities.

But, as least as far as we can tell from this speech, or the framework one Muller gave, National’s policy approach is now primarily inward-looking?  That has long been the practical effect of the policy approach they (and Labour) have adopted over 25+ years, but it isn’t usually so blatantly put.

Collins went on.  Build these roads, rail etc and

Half of New Zealand lives in the Upper North Island region. We want a genuinely integrated region of 2.5 million New Zealanders. Our vision is to transform the four cities to be one economic powerhouse. We will unlock their potential so that the upper North Island becomes Australasia’s most dynamic region.

Recall that the expressway to Whangarei, complete with possible tunnel under the Brynderwyns, is –  even on this plan –  well over a decade away.  And recall that in the regional GDP per capita data, Northland has the lowest per capita GDP in the entire country, suggesting that if Whangarei has any part in some future “Australasia’s most dynamic region” it has a very very long way to come.      But even forget about the Whangarei bit of the fairytale for now, do the National caucus have any serious idea how far behind key bits of Australia productivity levels in New Zealand actually are (and Australia is no great OECD productivity success story)?   As a hint, that 1 per cent of GDP Collins talked about fixing won’t even begin to make a visible dent in the productivity gap –  a gap only likely to continue to widen for the next few years, even if Collins plan did eventually make some small helpful difference.

National –  like Labour really –  seems to have no idea at all what has gone wrong with the New Zealand economy, what has taken us from among the very richest and most productive countries on earth to be some slightly embarrassing laggard, increasingly unable to offer the best to our own people.   But they’ll just fling some more cash at things –  as Labour does, just a slightly different make-up – in the hope of getting elected, and the vague sense then the something must be done, and anything is something.

Here is the Collins approach to project evaluation

The economists will tell you we should build projects only when they’re needed. My sense from my time in politics is that you just want the government to get infrastructure projects built. You just want them done. And you want them done ahead of time.

My Government will be informed by processes like NZTA’s Benefit-Cost Ratio analysis, and by advice from the Infrastructure Commission. But we will not consider that analysis or that advice to be holy writ when making decisions about major transformational projects. Think about all of the Roads of National Significance the National Government built.

I don’t think Transmission Gully passed a decent cost-benefit test, even when it was going to be operational by now.

Now I’m not about to suggest that officials and appointees to government boards should be making the decisions, but any well-done cost-benefit analysis should be a key hurdle in any proposed commitment of large amounts of public money.  Perhaps there are reasonable arguments about methodology or about specific assumptions used in the calculations.  All that can and should be debated, but a project that cannot return a decently positive benefit-cost ratio is one the public should be very sceptical of.  Simply waving your hands and talking about “major transformational projects” should be no more acceptable now than ever.     And having projects in place “ahead of time” –  when few projections about the future, including about population, are that robust –  also has significant economic costs, even at today’s lower public sector discount rates.

One other questionable aspect of National’s plan is what they call “intergenerational funding”.  This is fancy language for borrowing, in this case off the core Crown accounts and having NZTA borrow instead.  As far as I can see there is almost nothing going for this particular approach –  one already indulged in by Labour, with Housing New Zealand now borrowing on-market.  It will be a (a bit) more costly than the central government borrowing itself, with no more likelihood the debt will be defaulted on, it is less transparent,  and unless the government is proposing to delegate all final decisions on projects to officials (which they –  rightly in my view –  show no sign of) there is no reason to think it will either tap new sources of capital (the NZ government not being debt-constrained) or introduce new disciplines on Crown capital spending.  There is, or can be, a place for government borrowing, but decisions on that are better taken, and managed, centrally.

So there were big numbers in the announcement, some big projects (which may or not be economic, may or may not ever happen even if National winds), but little or no sense of a credible economic model lying behind it, grounded in the specifics of New Zealand’s underperformance.  And if there is such a model at all, it just seems to be more of the same –  rapidly growing, but quite volatile, population – the strategy that has so comprehensively failed for the last few decades.      More and better roads aren’t going to materially change that.  Nor –  although it should be done as a matter of priority –  are the sorts of land use reforms that might make house prices more affordable. The new Leader of Opposition suggests a National government might do something there.  But we’ve heard that story before – whether from National in Opposition in 2008 or from Phil Twyford in Opposition in 2017.  Perhaps this time really would be different, but I’m certainly not counting on it.

Little changes

The good news of the morning was that Jian Yang will be leaving Parliament at the election.  Perhaps the only disappointing aspect is that he didn’t stick around to be voted out, but at least he will be gone, and our Parliament will no longer have a CCP member, former part of the PRC military foreign intelligence system, champion of the evil Party/state in its ranks.   Oh, and someone who acknowledged that he had actively misrepresented his past –  on instructions from his PRC bosses –  to get residency and citizenship here in the first place.  In any decent country he’d not have been in Parliament in for long in the first place –  a decent party wouldn’t have selected him, decent opposition parties would have made his political position untenable, and once alerted to his acknowledged lies about his past the relevant authorities would have acted to prosecute him, perhaps even deport him.  But this is New Zealand.

A party with a modicum of decency, prioritising some values higher than soliciting donations and doing trade deals with a barbaric repressive regime, might even have insisted that Jian Yang step aside when he past become very public.  But this was the New Zealand National Party.

And although Jian Yang is finally going, it appears to have been his own doing.  Perhaps the unease about his past has become such that (a) he could not really hope to go any higher in politics, and (b) his presence was only going to be lightning rod for discontent.   And no serious person was likely to say anything much sensitive in his presence, given his known close ties to the PRC Embassy.  It can’t be that the grind of endless interviews with the critical media wore him out: he’s not given any.   Perhaps he can be more use to National now, bringing in the donations, away from the spotlight of Parliament?

Whatever his reasons, there is not a thing to suggest that it was National that had finally done the decent thing.  After all, recall that a few months ago he was promised one of the list places specially designated by the party’s Board  (recall that he announced that only to the Chinese language media).  Recall too that when Todd Muller took over Jian Yang was pushed a few more places up the caucus rankings, and left in place as chair of a select committee.   And perhaps more telling still, it was only a few days ago that Todd Muller was defending Jian Yang, with arguments so thin they can only have been the words of someone determined to follow in the unworthy tradition of Bill English and Simon Bridges, championing the presence of Jian Yang in Parliament.  There was no sign the party was about to turn him out –  and, of course, Jian Yang has had close ties to the party president Peter Goodfellow, himself as shamefully obsequious to the PRC/CCP as they come.

Here were some of Muller’s remarks reported by Newshub earlier this week.  Asked about Jian Yang’s refusal to answer questions from the English-language media, Muller apparently responded this way

Muller says it’s not true that Dr Yang is avoiding the media because he has fronted on issues to do with statistics.

“He’s done close to 10 in the last 18 months in his role as spokesperson for statistics across all the various media outlets,” Muller told Magic Talk on Monday. “This view that he’s somehow not fronting for media isn’t correct.”

The last time Dr Yang released an English media statement was almost a year ago when Stats NZ’s Chief Statistician Liz MacPherson resigned over the handling of the 2018 Census.

“He’s made very clear statements to the media in the past… He’s statistics spokesperson so I would think that’s fair that when he talks to the media it’s in that context,” Muller said.

Talk about deliberately obtuse.  As Muller knows very well, the legitimate media interest in Jian Yang has nothing to do with Statistics New Zealand (not that he had done that well in that minor role –  has anyone heard anything from him in recent months on the inadequacies of our official statistics?).

Then there was this

Muller said Dr Yang has been transparent about his past.

“He’s been very clear in the past in terms of his history and the length of time he’s been in New Zealand. Obviously one of the key points is when he left the Communist Party, he left 26 years ago. These things tend to want to be trawled over again.”

As Muller knows very well, you don’t just leave the CCP –  especially having worked in the military intelligence system –  by failing to pay the annual membership fee.  And as for the preposterous claim that he had been transparent about his past…….it was only after six years in Parliament and sustained journalistic investigative work that that past was finally revealed to the public.  Since then, Jian Yang has avoided any serious questioning, but simply refusing to engage.  Some transparency.

The article reminds us of Jian Yang’s close ties to Beijing

In October 2019 Dr Yang was one of 50 New Zealanders who were invited to attend the CCP’s 70th anniversary celebrations in the Chinese capital.

He also accompanied former National leader Simon Bridges on a trip to China where a meeting was set up with Guo Shengkun, described as head of China’s ‘secret police’.

Playing down that latter point somewhat; Jian Yang was apparently instrumental in arranging the meeting, such are his ties to the evil regime.

And then Muller’s values-free approach is put fully on display

Muller pushed back against criticism of Dr Yang’s ties to the CCP.

“It’s a massive country for us in terms of trade and relationships and my experience in the context of all the corporate export roles I’ve had is that as you build relationships with people in China, they are members of the Communist Party – that’s sort of how it works, right?

“You end up having conversations and building deep relationships with people who have roles in the Communist Party and China because that’s their system.”

Well, perhaps….but this isn’t Beijing, this isn’t where the writ of the CCP is supposed to run, this is the New Zealand Parliament.

In a way though it is almost a little unfortunate that Jian Yang will soon be gone.  He was the visible and particularly stark tip of the iceberg, but almost beside the point as this late stage.  The real issue is the wider National Party deeply deferential approach to Beijing, and its refusal to make a stand on any issue of the excesses of that regime.   This is the way I put it last week.

The real issue now isn’t about Jian Yang’s own choices, but about the rest of our political system (and much of our media for that matter).   It clearly suits Jian Yang to avoid any English-language media –  he is, after all, elected by all National Party voters, not just a few CCP-aligned ethnic Chinese one – but if the leadership of the National Party had even an ounce of decency on these issues it really wouldn’t be Jian Yang’s choice at all.  It would be as simple as “front up, honestly and fully, pretty whenever you are asked, and if not well forget about any caucus seniority, in fact forget about a list place at all at the next election”.   No one  doubts that if  any of that succession of leaders had wanted Jian Yang to be accountable to the public and to voters he’d do so, or he’d be gone.  So his silence is the silence of Bill English, Simon Bridges and now Todd Muller.   The same “leaders” who’ve been, for example, utterly unbothered by Todd McClay’s defence of the Uighur concentration camps, and who utter not a word about the activities of the PRC/CCP at home, abroad, or here.   Totally sold-out.

Jian Yang might soon be gone, but Todd Muller, Simon Bridges, Gerry Brownlee, Todd McClay and Peter Goodfellow are still very much in place.  There is no sign that the mindset has shifted even slightly.   Quite probably with Jian Yang having gone, National will wheel up another ethnic Chinese candidate whose acceptability will be based on his ties to the PRC embassy and his ability to work the rooms of the various United Front bodies here for party funding, but whose CV will presumably look a bit less obviously egregious than Jian Yang’s came to be.   This is, after all, the party that went soliciting donations for CCP affiliate Yikun Zhang and his mates, and had one of his CCP associates as part of their candidates college, preparing the ground for a bid for a place on National’s list.

It is one of those times when the excesses of the CCP/PRC are becoming ever more obvious to anyone not determined to keep their eyes wide shut.  But there is no sign of any shift in stance from National, no sign of any moral leadership –  in fact, over the last couple of years they’d be the first to complain if the current government, itself not great over the PRC, showed any slight hints of backbone.    This is the disgraceful party that has a senior MP on record suggesting the Uighur concentration camps are no one’s affair but China’s.   These people, and their business/university allies, seem to have no moral core.  Even around Hong Kong we’ve heard only the feeblest, most reluctant, of comments from Muller.

Is there some hope in the fact that Tamaki MP Simon O’Connor is now part of the interparliamentary alliance on China (together with Labour Louisa’s Wall)?  I guess it is better than nothing, but there is nothing anywhere to suggest that the National leadership group is at all happy about such modest independence of thought.   Then again, I’m not aware that any of the media have asked Muller or Foreign Affairs spokesman Bridges what they make of the IPAC and of O’Connor’s membership and calls.  Given that O’Connor is Bridges’ brother-in-law I guess that might be a little awkward.   But it would seem to be a fair question just a few weeks out from an election, as the PRC becomes more aggressive, more threatening (including in their attempts to criminalise anyone anywhere in the world criticising the regime).

It is good that Jian Yang will soon have gone. But the deeper issues around the corruption of New Zealand politics –  National and Labour particularly on this score –  haven’t changed a jot.  Neither party has done anything to fix the electoral donations from CCP affiliates scandal, and both seem more intent on donations flowing than on the sort of values most New Zealanders hold, including the many ethnic Chinese New Zealanders who deplore almost everything to do with the CCP.  And if they are dragged occasionally to utter a mild word of criticism for the latest PRC abuse, you always get the sense it is reluctant, not born of any conviction whatever.

(After 5-6 weeks of ill-health my troublesome bug is finally abating.  However, we’ll be on holiday next week so no more posts until Monday week.)

 

Two charts

The two have nothing to do with each other, except that both were things I happened to see over the weekend.

First, motorways.   Someone yesterday sent me a table of motorway length per capita by country.   From it I generated this chart for the group of (loosely) advanced countries (EU members, OECD members, and Singapore and Taiwan) –  plus I seem to have accidentally left Georgia on.

motorways

One always has to be careful with these sorts of cross-country comparisons.  The data were taken from a Wikipedia page, but there are footnotes which appear to link to a range of national sources (and the NZ numbers coincide with the definition/number NZTA reports on its website).   I found one other such listing, and while the precise numbers differ (sometimes probably because of different dates) the broad patterns looked similar.    That said, I suspect one still needs to be cautious, including about what roads do and don’t get classed as “motorways”.

The person who sent the data to me is frustrated and believes that New Zealand has too few motorways.  I don’t have a strong view on that.  I’m not in any sense anti-car,  I staunchly oppose government/Council efforts to coerce people to live more densely, and if I have the advantage of no longer commuting, the trip north out of Wellington or bits of state highway 1 in the central North Island are a reminder of some of the limitations of our roading network.  On the other hand, there have been plenty of individual roading projects where the economic case has often been questionable/marginal, to say the very least.  My correspondent argues that in part that reflects a tendency for New Zealand roading projects (expressways etc) to be over-specified, and perhaps there is something to that.  But it isn’t obvious (perhaps I’ve missed them?) that there are lots of projects with really high benefit/cost ratios.

In some ways, the interesting thing about the chart was how diverse the experience was.  Yes, even the Latin American OECD countries –  who often seem included to help make New Zealand seem less bad –  all have more motorways per capita than New Zealand, but richer Taiwan and much richer Singapore are both down our end of the chart (of course, Singapore strongly disincentivises private car ownerships, and is extremely dense).   And if the US is towards the high end of the chart, so are fairly small, not very rich, places like Slovenia, Croatia, and Portugal.

At the far left of table, Canada is interesting.  In a way it seems surprising: after all, Canada has extremely low population density.  But then one remembers that most of Canada’s population (two-thirds) lives in the 4 per cent of Canada’s land within 100 kilometres of the US border.

I guess one would need a proper multi-variate analysis to really unpick the cross-country data, but if I was looking around for countries with some relevant similarities to New Zealand (modest population, low population density) perhaps Finland, Sweden and Norway might be relevant comparators.  Of course, they are each richer/more productive than us –  and at least in part motorway networks will be consumption goods rather investment ones.  A little further up the population listings, but also with low population density are Australia and Chile.   All five have, on these numbers, more motorways per million people than New Zealand does.

The other chart was prompted by this tweet from someone who appears to be a New Zealand diplomat.

Those looked like large net outflows from the last few months. A later tweet confirmed that Appleton was using daily Customs data on air passenger movements (which will be the overwhelming bulk of the net flow).

But my initial reaction was utterly and completely wrong.  In this chart, I’ve used the SNZ monthly total arrivals and departures data, which are only available on Infoshare to April, and added the Customs data for the last two months (the two measures are pretty similar for the first four months of the year).   This is how the net flow out of New Zealand has compared this year to each of the first half years for the last decade.

net outflow

I was quite surprised, and am still a little puzzled.  Up to the end of April, SNZ estimates of the numbers of visitors in New Zealand and of New Zealanders temporarily abroad suggested a significant reduction, compared to the same period last year, in foreign visitors here and only a small drop in the number of New Zealanders temporarily abroad.

But the unseasonally adjusted total data is what it is.  In the first half of the year, we typically see a net outflow of 100000 people (foreigners and New Zealanders), and this year hardly much of a net outflow at all.    Presumably for the last two months, for which we only seem to have the highly aggregated data, the picture is being more influenced by a drop in New Zealanders heading to warmer climes.  But it was still a little surprising; we seem, on these numbers, to currently have 100000 more people in New Zealand –  in many cases in their own homes –  than might have been expected just six months ago.