I was away in Papua New Guinea last week when the HYEFU came out, and have only just gotten round to looking at the numbers. Quite possibly, what is in this post will be repeating ground others have covered, and if so the post will end up being mostly for my records (good to be able to look back and see what one said at the time).
It was this tweet from a non-partisan analyst that really caught my eye
Three sets of spending forecasts: those for Labour’s final Budget last year, those from last year’s PREFU (and available to political parties finalising their fiscal promises), and those from last week’s HYEFU. They run out only to the year to June 2027, because that is as far as the forecasts done in 2023 went.
Spending on core Crown expenses is as higher or a little higher than in Labour’s last Budget.
It isn’t because interest rates are higher (out of the government’s control); in fact, primary spending is also a touch higher over four years than was planned in last year’s Budget.
It isn’t because of the state of the business cycle: the output gap forecast now for 26/27 is almost identical to that forecast for 26/27 in last year’s Budget.
Overall, core Crown expenses are forecast to be 32.2 per cent of GDP in 26/27, up from 31.5% for 26/27 in last year’s Budget.
And net debt (excluding the – quite variable – NZSF assets) is forecast to be $42 billion higher in 26/27 than was forecast just 18 months ago.
Of course, defenders of the government will note that revenue forecasts are a lot lower. That is partly a matter of pure political choice – tax cuts – and partly a changed view on the potential rate of growth of GDP (not about the business cycle). But when the family’s income estimate are revised quite a bit lower over the medium term it would be usual to adjust future spending plans. But not, it appears, this government.
For all the pre-election rhetoric, the current coalition government seems to be keeping right on with the path adopted by the previous Labour government, which had more or less abandoned (for practical purposes) any serious interest in running budgets in which the revenue raised paid for the groceries. National wasn’t very ambitious in its election campaign fiscal plans, but its numbers now represent deep underperformance even relative to those modest electoral ambitions. Will we see a balanced budget ever under Luxon/Willis. Unless something positive just happens to turn up it seems very unlikely – and with each passing year the ageing population fiscal pressures just keep mounting. If the failure is first and foremost the responsibility of the Minister of Finance, no Prime Minister can ever escape shared responsibility for this kick-the-can down the road approach to fiscal management.
As a reminder of the broader fiscal position, here is Treasury’s chart showing the estimated cyclically-adjusted and structural deficits.
Not only is no progress at all being made at present, but the imbalances are a bit larger than those Treasury was estimating at the time of the 2023 Budget. People rightly criticised Labour’s fiscal excess, and the structural deficits they chose to incur. The coalition’s structural deficits are also pure choice – bad ones. And we can’t have much confidence in the eventual sluggish return towards balance after the next election – as for any government, forward operating allowances are no more than lines on a graph at this point, and the government has shown little inclination or ability to make and sell sustained hard fiscal choices consistent with those operating allowances.
My post this morning was based on Adrian Orr’s Q&A interview as found on TVNZ+. However, it turns out that that wasn’t the full interview which (thanks to the kind people at Q&A for pointing me to it) is now available on Q&A’s Youtube account here. The full interview is almost half an hour, and is probably worth watching if you haven’t already watched the selections on TVNZ+ – it is a more rounded presentation and chance for Orr to tell his story.
As in the previous post, there was something in this bit of the interview where I welcomed the Governor’s comments. He lamented the underinvestment in official economic statistics, that has gone on for decades now, and suggested governments really should do better. And while he noted (fairly) that there is a lot more other data than there used to be, it remains something of an open question (would be interesting to see RB analysis of it) as to whether the Bank and other forecasters have gotten any better at recognising early quite what is going on in the economy and inflation. Perhaps 2020/21 was an unfair test, but we’ve seen a lot of lurches even this year from the MPC. But if the Governor is championing full monthly CPI and HLFS data and more timely GDP data, I can only agree with him.
But if that was the positive, there were plenty of things to lament in the Governor’s comments in the extended interview.
There were, for example, outright falsehoods. Thus, he talked of his European peers having struggled with inflation in excess of 20 per cent per annum. As far I can see, the only OECD European central bank that faced an inflation rate that high was Hungary (briefly) although a couple of others were in the high teens for a while. Gas prices severely affected headline – but not core – inflation, and New Zealand (and Australia) weren’t exposed to that post-Ukraine shock. In the euro-area (most of Europe) headline inflation peaked – gas shock – at 10.6 per cent. The Governor then claimed that the UK had had 15 per cent inflation. That didn’t sound right either.
11.1 per cent isn’t even close to 15 per cent. Why does he just make these things up?
(And a reminder of the graph in this morning’s post: on core inflation (the bit central banks do much about) we were simply middle of the pack in the OECD.
I noted this morning that the LSAP hadn’t come up in that bit of the interview. It did in the fuller interview, and sure enough we get the repeated Orr make-believe blustery arguments. Not only had the Bank’s interventions saved the economy from a “deep recession” (quite how when as the Governor correctly notes the lags in monetary policy are long, and GDP here quickly rebounded after the first lockdown), but the costs (the $11bn or so of losses to the taxpayer) were “more than overwhelmed” by the “net benefits”. The net benefits have never been successfully identified, and the absurd claim needs to be read against the fact that overall Reserve Bank monetary policy calls led to the economy massively overheating, a severe outbreak of core inflation, big redistributions, and then a protracted – if not overly deep – recession to get things back to balance. Whatever the good intentions, there simply were no “net benefits” (probably few gross ones either) and large losses to the taxpayer. But Orr never engages straightforwardly on such issues. (For anyone who listens he cited some IMF work – I picked apart an earlier piece from the IMF on this issue here : the IMF had simply imagined a world (and economy) quite different from what New Zealand actually experienced.)
There were two other interesting lines from Orr.
The first was a bold statement that banks had been making “excessive profits”. Not high, but “excessive”. Quite what basis he as prudential regulator had for that claim isn’t clear, but he has long had it in for the Australian banks. He seems to consider it somehow unfair that the Australian banks are efficient low-cost operators.
And the second was the claim that we are seeing unusual (greater than previously) changes in relative prices globally. Since oil prices were one of those he mentioned, here is a long-term chart
The alleged greater volatility isn’t apparent there. Perhaps there is something to the claim more generally (would be interesting to see the analysis and data), but it seems unlikely, and perhaps particularly in the New Zealand context, where one of our most important relative prices is the exchange rate, which has displayed remarkably greater stability in the last decade or more than in the first 25 years after it was floated.
Orr also claimed that inflation itself was going to be more variable, but again it isn’t obvious. There has been a bad outbreak of inflation a few years ago, now brought back under control, but is there really any evidence (beyond the Governor’s desperate desire to talk about climate change) for the proposition, or that it would matter if it were true (headline vs core considerations again)?
Towards the end, Orr was talking up the strength of the Bank, notably the Board (signally underskilled in fact, with a chair reappointed who did/said nothing about the mistakes of recent years) and the MPC (most of whom we never or very rarely hear from, at least one of whom has no relevant qualifications at all). As for the rest of the senior management, those I have anything to do with (several) simply aren’t very impressive (in two cases “not very impressive” is to flatter). Perhaps when standards are that low Orr gets away with the sort of loose language, bluster, and Trumpian-style false claims internally (as well as the intolerance of dissent etc that he is known for). But it shouldn’t be acceptable in such a powerful figure, and if central bank Governors are never going to be some sort of single source of truth, at very least they should (a) prompt one to think, and b) not prompt one to worry that yet another claim just bore little or no relation to reality.
The Reserve Bank Governor has given an interview to TVNZ’s Katie Bradford, apparently done under the aegis of the Q&A show but too late in the year to actually be broadcast on Q&A itself or to be done by Jack Tame, Q&A’s regular and most demanding interviewer.
There is a TVNZ article reporting the interview here, and you can find the full thing (only about 13 minutes) somewhere on TVNZ+ (my son found it for me). [UPDATE: Apparently that was only half the interview and the full 26 minutes is on the Q&A Youtube account.]
What is reported in the article is pretty breathtaking, with Orr reported as standing by his (or, presumably, the MPC’s) decisions during and since Covid with no apparent regrets, and then moving on to attack the public and the media for being focused on housing and house prices. We – and he – might regret the fact that we do not have a well-functioning land supply/use policy regime, but we don’t, and haven’t done so for decades, so it should hardly be a surprise (or a cause for attack/lament) that when interest rates are cut in what proves to be an overheating economy house prices go up.
But it got a whole lot worse when I listened to the full interview itself, where Orr seemed to just play on the fact that his interviewer wasn’t a specialist (with all the facts at her finger tips) to simply run claims that he knows not to be true. It was a reprise of his form earlier in this cycle when he repeatedly and deliberately misled Parliament’s FEC (but so supine are our democratic institutions that there were no consequences for what Parliament’s website solemnly assures us is a serious offence).
Orr was asked whether the Bank had been too slow to raise rates (of course it was, as the Bank has even grudgingly acknowledged in the past). His response was to claim that the Reserve Bank of New Zealand was the 2nd or 3rd central bank to raise rates in 2021. It simply wasn’t so. Even among OECD economies – and there are only about 20 separate monetary policy areas in it (much of the OECD having just the euro) – the Reserve Bank was the 8th (equal) to move (those moving ahead of us were Iceland, Norway, South Korea, Mexico, Chile, Czech Republic, Hungary). Perhaps as importantly, the issue should never be about who went first or second, but whether a particular national authority moved sufficiently early and aggressively for the circumstances their own economy faced. On IMF estimates, New Zealand had the most overheated economy of any of the advanced country monetary areas it does the numbers for (a group which doesn’t include all those in the list above, but does include the US, UK, Canada, Australia, Japan).
Orr then went to the claim that the Bank had been “lauded internationally – although not domestically” for being one of the most responsive central banks. It is certainly true that some market commentators have run such a line, but almost all of them seem to have had in mind the big countries and the Anglo countries, not the wider group of OECD economies. The Reserve Bank certainly wasn’t the slowest to move, but then it was dealing with a really badly overheated economy and should have moved a lot earlier. Their mistakes weren’t unique – misreading economies and pandemic macroeconomics was a common mistake, among central banks and private commentators – but they voluntarily took on the power and responsibility in New Zealand, and they actually made the bad policy calls, including increasing rates too late and initially far too sluggishly. Other people can hold their central banks to account.
(And, of course, the MPC also lost $11 billion or so or taxpayers’ money punting in the bond market. TVNZ didn’t ask about that particular bad call so we were spared a repeat of Orr’s blustering attempts to defend that. Puts the cost of running an RNZN vessel straight onto a reef not realising the autopilot was still on in some perspective….)
And then Orr claimed that the Reserve Bank was one of the few central banks confidently reducing policy rates. Which was a bit odd when most advanced country central banks have been reducing policy rates in recent months (obvious exceptions being Australia and Japan). But don’t let the facts get in the way of the Governor’s spin.
He had the gall to round off that section of the interview by suggesting, rather patronisingly, to Bradford that “your potted history is kind of incorrect”. Dear, oh dear. This from a very senior and powerful public official. Is this the sort of thing the Minister of Finance expects/tolerates? (Well, on the evidence so far anything goes.)
Bradford moved on. As was accepted, had it not been for the Covid outbreak in Auckland, the Bank would have started tightening at the August 2021 MPS (they actually started at the next review). So Bradford took a look at the projections in that Monetary Policy Statement. She pointed out (correctly) that in those projections, annual inflation was expected to be back down to 2.2 per cent by the year to September 2022 (with, as it happens, very little monetary policy help at all: as everyone agrees, there are long lags, and by the end of 2021 the OCR was expected to be only 0.75 per cent). I guess her point (obviously correct) is that the Bank was still badly misreading things by that point (and of course even now annual core inflation is still somewhere between 2.5 and 3 per cent, having required an OCR at 5.5 per cent to bring that about).
But Orr wasn’t going to be bothered engaging with facts. Instead, we got the same old outrageous claims he used to try to fob Parliament off with. “Do you know what happened after that [August 2021]”, he asked. “We had the Ukraine invasion, rising food prices”, going on to add in cyclone effects and so on. He even had the gall to suggest that we had among the lowest inflation rate peaks in the OECD and that European countries had been dealing with 20 per cent inflation. It is an outrageous attempt to mislead and distract, simply breathtakingly dishonest, and especially so when set against any discussion of core inflation or the economic overheating. Take the New Zealand labour market for example: the unemployment reached its lowest level (extremely overheated) in the December quarter of 2021 (ie before the invasion), oil price pressures from the invasion never lasted long, and…..as importantly….both food and energy prices are typically “looked through” by central bank policymakers focusing on core inflation. On CPI ex food and energy measures, New Zealand’s peak was about middle of the pack among OECD countries (and the extreme headline numbers in a few countries were largely the result of the gas price shock to which New Zealand – no pipeline or LNG trade – was not exposed).
Orr then moved on to an interesting claim (that I have not heard him make before, and which has not been documented in any published papers or material in MPSs) claiming a) that to have kept core inflation in the 1-3 per cent range the OCR would have to have been raised to 7 per cent on the first day of the pandemic, and b) that even if that had been done we’d still have had 6 per cent headline inflation. Neither result seems very likely, and given Orr’s record of just making stuff up should be heavily discounted unless/until they produce some robust formal estimates. On Orr’s telling it would have taken more monetary restraint to stop inflation getting away than it actually took to bring it down again once it had gotten away. That doesn’t seem very likely, and perhaps a useful counterpoint is the experience of Japan and Switzerland which didn’t cut policy rates into the pandemic, and didn’t see a particularly severe later inflation experience. As for the 6 per cent claim, that seems simply preposterous, since there has been no time in the last few years when the gap between headline and core inflation has been anything like as large as 3 percentage points.
Later in the interview, questioning moved on to fiscal policy. Here I will give Orr credit on one point: he explicitly corrected the journalist to note that the current goverment had certainly cut spending, but that it had also cut taxes, and that the two effects were roughly even. This is exactly consistent with the estimates in Treasury’s cyclically-adjusted balance series (chart in Monday’s post), in which this year’s deficit is just a touch larger than last year’s. Of course, it would have been nice had the Bank made this point in its MPSs, instead of spending the last 18 months – both governments – avoiding the issue and focusing on largely irrelevant series of government consumption and investment spending (rather than the cylically-relevant) fiscal balance and fiscal impulse measures.
For the rest of it, Orr was back in his preferred space, playing politician and advancing personal political and ideological agendas that are simply out his bailiwick. It was, we were told, critical for governments around the world to close infrastructure deficits and New Zealand’s was “one of the worst”. He appeared to attack a focus on reducing deficits and keep government debt in check, suggesting that the government needed to spend “a lot more” on infrastructure, suggesting that New Zealand had been failing in this area since World War Two (a claim that of course went unexamined – in fairness no time – but presumably includes overbuilt hydro power capacity, sealed roads in the middle of nowhere etc). Now, in fairness, he did also talk about enabling private capital – this the same Governor who only a few months ago was bagging foreign investment – but the overwhelming tone was to welcome more public debt. Waxing eloquent he launched into Labour Party and left wing themes about how great it would be if governments were investing and delivering more “social cohesion” (around whose values Governor?), an “inclusive economy” and so on.
In any sane environment it would have been to have significantly overstepped the mark, but Orr has done that so often – and worse, with all the misrepresentations and denials – with no consequences (no rebuke from the Board or minister(s), reappointment for a final term comfortably secured, tame board chair reappointed etc) that no doubt it will again pass with little notice.
It really was a pretty disgraceful, if again revealing, performance. But then the fact that Orr still holds office, and the incoming government – that used to rail against him and his style and the corporate bloat – has been content to see things just run on as usual, is just another sad reflection of the debased state of New Zealand public life and standards. One of many to be sure, but no less acceptable for that.
Back in early October I wrote a post “Public policy just keeps on worsening”, on the then newly-announced Residential Development Underwrite scheme, under which the government will provide free downside price/liquidity insurance to big residential property developers, for a period that was said not to be forever but with no specific time limit, and instead with confident assurances from the minister (Bishop) that the government (Cabinet) would judge when to turn this subsidy off and on. It seemed like a classic example of bad policy, playing favourites at the big end of town, offering subsidies with no rigorous analysis of any sort of market failure, handing unconstrained discretion to ministers, and so on.
All this was stated to be being done with the primary objective of “maximising overall housing supply, while minimising the risk and cost to the Crown”. On which I noted in the earlier post
You minimise the cost and risk to the Crown by simply not offering free insurance, and if you must offer such insurance you should do so with a disciplined and transparent model (to, for example, estimate the economic price of the option). But there is nothing of that sort in any of the MHUD material, just a lot of mention of the (extensive) discretion afforded to officials, of whom we may be left wondering both what their expertise is and what their incentives are. Why would we back them to make better choices than financial market participants? And as for “maximising housing supply”, there seems to be no analytical framework there either, including around incentives on developers (who will, of course, prefer free insurance and can be expected to try to game the rules). Will there be any material impact on supply, will any impact be any more than timing, and how will MHUD rigorously evaluate claims put to them by developers? Oh, and isn’t developers finding themselves with overhangs of houses and land part of the way that much lower house prices actually come about?
I ended that post this way
It is a rather sad reflection of how the quality of New Zealand policymaking has fallen. Perhaps we should be grateful that exchange rate cycles aren’t what they were – and that past governments were less prone to scheme like this – or who knows what sort of free insurance the government would be dreaming up for exporters.
Who knows what the relevant government agencies thought of this scheme. I’ve lodged OIA requests and am particularly interested in any analysis and advice from The Treasury and the Ministry for Regulation.
You might have thought an arbitrary and apparently inefficient intervention like this would be grist to the mill for that new “central agency” the Ministry for Regulation, an opportunity to show any microeconomic chops they had. Instead, like true bureaucrats, they took a full 20 working days to reply to my OIA request to tell me that the new ministry had undertaken no analysis and offered no advice related to the Residential Development Underwrite scheme.
But I suppose I should be grateful they only took 20 working days (note that the law does not automatically give agencies 20 working days: the standard is “as soon as reasonably practicable). The Treasury, by contrast, took 40 days, insisting that they needed time for “consultations”.
There were only five papers. Two were from after the scheme was announced (operationalising the required ministerial delegations). The first two aide memoires were from January and February respectively in response it appears to advice from the Ministry of Housing and Urban Development, concerned about a possible “hard landing” in the housing construction market, and picking up on discussion of underwrite schemes that had been put in place as part of the ill-fated Kiwibuild scheme.
This is from the first of those aide memoires, dated 17 January
That is a pretty astonishing paragraph. Neither here, nor anywhere else in the papers, is there any attempt to justify a claim of “market failure”, and while we can all agree that government land-use restrictions have created and exacerbated many problems in the housing and urban land market they aren’t in any meaningful sense “government failures” either, but rather choices which governments could undo if they chose. And nothing in the first two sentences provides any serious or analytical support for the third sentence, apparently supporting fresh interventions. (There is of course little doubt that government interventions can affect the level of activity in particular markets, but the question is the robustness of the case for any such interventions.) That last sentence is also perhaps a bit puzzling: isn’t a subsidy to private developers going to add to private construction activity (not crowd it out?) and how are the efficiency and value-for- money tests even plausibly met when guarantees are handed out for free?
Carrying on through the papers we find this snippet
Really? Our Treasury thinks a mitigant is that bad underwrites can simply be stuck in the bottom drawer in the hope that one day something will turn up…. And here one thought a wider goal of a housing reform process was permanently lower real house prices.
And these from the 16 February aide memoire
But there is no robust analysis anywhere, including not scintilla of analysis leading us to believe that Treasury had thought hard and robustly about why judgements of officials and ministers were likely to be better than those of private financiers, including reflecting hard on the incentives facing the two groups. Perhaps this is more of an example of ‘government failure’.
But what is perhaps more surprising still is that those notes were written in January/February, and then there is nothing released (or withheld) until the next document, which is dated 3 October. The Residential Development Underwrite scheme was announced on 4 October.
There are several things interesting about this aide memoire
(rather trivially) Treasury has withheld, as out of scope, more than half of the title of the aide memoire, only to release the title in full in their letter to me
much more substantively, the paper is dated 3 October, and is described as being for a meeting with the Minister of Housing on 7 October. The paper goes on to note that, as far as Treasury understood things on 3 October, “the RDU will be announced before the end of October”. It was, of course, announced the following morning.
and perhaps most remarkably of all, the substance of the RDU section of the aide memoire is just slightly more than one page, and is really all process oriented, and answer one detail question from the Minister of Finance about scope for changing the parameters once the RDU was in place.
In other words, assuming (as we must) that the OIA has been answered honestly, there was no Treasury advice at all on the specific development of the RDU, or any of its parameters, and the scheme itself was rushed out far more quickly than The Treasury had understood just the day before the actual announcement.
It is a poor and unnecessary policy, underpinned it appears by a poor policy process, a central planners’ mentality (government knows best how many houses should be built etc) and a cast of mind from The Treasury that seems astonishingly more sympathetic to big-end-of-town corporate welfare handouts and ministerial discretion than would have seemed even remotely plausible in the heyday of The Treasury. And perhaps, as is the nature of so many of these sorts of interventions, many economists are suggesting that the residential building approvals cycle was already bottoming out even before ministers and bureaucrats rushed out their shiny new subsidy toy.
This post was prompted by watching the Prime Minister’s interview on Q&A yesterday (where I don’t think either the interviewer or the PM did particularly well). My interests here are only in the first (economic) half of the interview.
Minor things first. You had to wonder about the staff work when the PM professed to have no idea that on the IMF forecasts New Zealand’s annual real GDP growth is around the 10th worst of the 190 or so places the IMF does numbers for. It is a line Auckland professor Robert MacCulloch has been running for some time, and others have picked up and repeated his point (including me, more than a year ago). If you (or your staff) don’t read them, then Google’s AI Overview tells the same story for real per capita GDP.
That’s pretty bad (and, to be clear, it is not Luxon’s government’s fault).
Perhaps less importantly, asked which countries hadn’t had a bout of really high inflation, Luxon had no idea (Japan and Switzerland would have been reasonable answers). And he seemed to have no idea either when Jack Tame asked if he was aware of any forecasters who’d become more optimistic on New Zealand’s medium-term economic performance since the government had taken office.
At a political level, one might wonder why Luxon allowed himself to be caught up in the obscure question of whether people at the bottom had improved their relative position in the last year. I suspect most voters for the governing parties weren’t really motivated by wanting to see more redistribution to the bottom (I remain staggered at the fact that in the first pandemic handout package – in a shock that seem likely to make the whole country poorer – Labour permanently increased real welfare benefit levels).
But lets come back to inflation? Luxon (and his ministers, and predecessors) have been loudly proclaiming for some time that the reduction in inflation (headline inflation currently 2.2 per cent, core measures rather higher) and the associated reductions in the OCR have been due to the efforts of the new government sworn in on 27 November last year. It is such a preposterous claim, and yet there seems to have been very little pushback against it, whether from journalists and interviewers or from the political Opposition (the latter perhaps preferring to keep quiet, lest focus come on the fact that inflation got away on their watch and they still reappointed the culprits – notably the Reserve Bank Governor).
Why do I say that it is preposterous? The bottom line of course is that we have an operationally independent central bank and its Monetary Policy Committee. They may not be very good at their job – they let inflation get badly away, were late and slow to react even when they saw the inflation, and their communications and policy have lurched all over the place as recently as this year – but…..they control the OCR lever, they generated the recession we’ve been over last year and this, and they (belatedly) got inflation back down again. Serious economic observers know this. The Prime Minister knows this. But he just repeats what is little better than a lie.
And, as Jack Tame noted to the Prime Minister, inflation has been coming down in lot of (advanced) countries, reductions that were presumably not caused by the election of the current coalition in little old New Zealand. Central banks globally have belatedly done their jobs. If the system didn’t work fully as it was supposed to – such blowouts of core inflation were never supposed to happen again – at least the fallback worked and inflation generally now seems more or less back to around target(s).
So, at best, the Prime Minister’s claim (if it had any substance at all) must be that somehow things his government had done had meant inflation this year had come down faster than it would otherwise have done. Unfortunately, the Reserve Bank does not publish forecasts for core inflation measures (and current headline numbers get messed around by one-offs, whether oil prices changes or changes to government taxes and charges). But the Reserve Bank’s last projections done before this government took office (the Nov 2023 MPS) had headline inflation comfortably inside the target range by now, and – perhaps coincidentally – I see that the November 2023 projections for quarterly inflation in the Dec 2024 and Mar 2025 quarters are exactly the same (0.4 and 0.5 per cent respectively) as those in last week’s Monetary Policy Statement. It would be fair to note that the OCR projections/actuals are much lower, but it was always a mystery a year ago why the MPC then thought the OCR now would still be 5.7 per cent even with inflation comfortably inside the range. They were, eventually, mugged by reality.
But there are two problems with any suggestion from the Prime Minister that his government can take the credit for the inflation outcomes we’ve already seen.
The first is timing. As central bankers rarely fail to remind people, monetary policy works with lags. Changing policy today might not affect inflation very much at all in the first quarter or two, and won’t have its full effect for perhaps 18 months. That is why monetary policymakers put so much emphasis on projections. The government was sworn in on 27 November, and the September quarter CPI (the 2.2 per cent annual headline rate the government likes to talk up) was measured at mid-August. So there was basically eight months from when the government took office to when the CPI was measured. Even had fiscal policy been materially adjusted (actual money going out the door) in the first few weeks, there just wasn’t enough time to have had much of an effect on (core) inflation, or what monetary policy was required.
In principle, perhaps, the expectation of swingeing fiscal policy adjustments might just have done the trick – expectations do affect behaviour – but that wasn’t what the coalition, now in government, either promised or did. Any return to operating balance or surplus was going to be done pretty gradually, over multiple years.
And there was to be no adjustment at all in the first year. Don’t take it from me. This chart is taken from the recent speech by The Treasury’s Chief Economic Adviser and reports numbers published with this year’s Budget.
The blue line is the cyclically-adjusted balance, and you can see that the projected deficit for this (24/25) year is no smaller (in fact, a little larger) than the estimated cyclically-adjusted deficit for 23/24. Yes, there have been spending cuts (and some tax increases, notably the egregious removal of depreciation on buildings for company tax purposes), but this year they have all (and slightly more) gone to fund a range of new giveaways (tax cuts, childcare subsidies etc). It was pretty much what was promised, but it simply isn’t fiscal consolidation and it hasn’t put, and isn’t putting, downward pressure on demand or inflation. If you wanted to be particularly harsh you could contrast this year’s Budget with the 24/25 HYEFU numbers, but as they were largely on the previous government’s policy it is probably fair to set them aside as akin to vapourware.
So:
(core) inflation is coming down in a bunch of countries,
central banks have (belatedly) done their jobs,
New Zealand inflation was forecast to be well inside the target range by now, on RB projections from just prior to this government taking office,
anything but the most draconian fiscal adjustments simply wouldn’t have had time to have made a material difference to inflation by the time the Sept CPI was measured, and
in any case, there has been no aggregate fiscal consolidation yet (cyclically-adjusted deficit this year is estimated to be slightly bigger than that last year).
The rank dishonesty of the claims coming from the government hardly conduces to lift confidence and trust in governments more generally.
Oh, and if the government were really serious about much better performance on inflation, you might have thought that they’d have replaced the chair of the Reserve Bank Board (which is supposed to monitor MPC on our behalf) and not extended the term of an elderly non-executive member who has been in office right through the costly and enormously disruptive monetary policy mistakes of recent years.
What of fiscal policy itself? It doesn’t bode well when a new government does no aggregate fiscal adjustment in the first year of a three year term, having inherited – and known pre-election it would inherit – a structural deficit, in which not even the cost of the groceries was being covered by tax revenue even when the economy was fully employed. The government has already continued the drift evident in the last couple of years of Labour, with the crossover point for getting back to a balanced budget drifting relentlessly into the future.
Recent comments from The Treasury, from senior minister Chris Bishop (“we won’t be a slave to a surplus”) and the silence of the PM yesterday more or less assure us that when the HYEFU numbers come out in a few weeks, the return to balanced budget will have been delayed yet again. Pretty soon we’ll be on a track for decade of Robertson/Willis deficits, with the 14 straight years of balanced budgets or surplus under National and Labour governments in the 90s/00s just a dim memory for the economic historians. The Prime Minister seems unbothered, happy to mouth rhetoric about being ‘committed to getting to surplus” …..one day perhaps, but not now (and note that comments from Barbara Edmonds over the weekend suggest that Labour is no better). The fiscal pressures of an ageing population – especially pointed when no one will adjust the NZS age – get not a mention. Oh, and Luxon had the gall to suggest that there was a need to be “fiscal conservatives”. A balanced budget would be nice Prime Minister.
And then there is what should be the enormous elephant in the room: productivity. Luxon was happy to acknowledge it was an issue (even Labour ministers used to do that) but not much more.
Here is the path of New Zealand real GDP per hour worked since just prior to the start of the last major recession. It is a bit less bleak than one in the recent Treasury speech (I think because I’ve allowed for a 2016 break in the hours series) and I’ve added the orange line (stylised) to take account of the revisions to real GDP over the last couple of years – which will boost measured productivity – that SNZ announced the other day were coming later this month.)
If it isn’t as bleak as Dominick Stephens’ chart, it is still pretty bad. Since about 2012, productivity growth (allowing for the revisions) has averaged only about 0.5 per cent per annum, and although Covid disruptions mess up the picture there isn’t much basis for seeing things under the previous National government as much less bad than those under the recent Labour government. Now, people can fairly point out that productivity growth in recent years has been poor in a range of advanced countries (US excepted) but…..we start from so far behind many of those countries that it isn’t any sort of excuse. For 40 years, the goal of catching up with the OECD leaders has been talked about, but hardly ever has there been any progress in that direction. It would take a 60 per cent (or more) lift in average New Zealand economywide productivity – on top of whatever growth the leaders were achieving – to close those gaps. It was a shame that Tame didn’t take the opportunity to point this out (it isn’t exactly state secret data).
As for Luxon, there was brief mention of his mantra – his five point plan for productivity. The problem with his five point plan isn’t that there is necessarily much wrong with items in it, but that it simply isn’t equal to the scale of the challenge. You don’t get big game-changing results off a series of really rather small policy changes, even when they are eventually implemented (eg nothing necessarily wrong with trade agreements with the UAE, but it is pretty small beer, and successive governments have been signing such deals for years, even as the export share of our economy has been shrinking). There is no sign or sense of much urgency, or of ideas or policies equal to the task.
Tame did ask about the company tax rate, although he didn’t point out that ours is now one of the highest among OECD countries, or that the company tax rate is particularly important for foreign investors. Luxon, sadly, had no substantive response other than to briefly note that it wasn’t “a focus”. There has been money for giveaways, but not for either closing the deficit or for initiatives that might actually make some longer-term difference to the attractiveness of business investment in New Zealand.
Finally, Tame made the fairly effective point that if the government was really getting things back on track and improving economic performance, surely it should be showing through in economists’ medium-term economic forecasts. His researchers had found no evidence that any forecaster had in fact revised up their medium-term forecasts.
I’m not sure what measure he was using or how many forecasters he checked, but in that vein this table summarises the Reserve Bank’s projections for “trend productivity” growth from the Monetary Policy Statements going back to November last year (completed just before the government took office)
I wouldn’t necessarily put too much weight on those numbers. The Reserve Bank isn’t a productivity-focused agency, and these numbers probably won’t have had much, if any, MPC attention. But, equally, the Reserve Bank has no particular partisan axe to grind, and their numbers don’t seem inconsistent with the spirit of the sorts of comments coming out of The Treasury in recent months. It is all rather grim, and the Bank forecasts using government policies as put in place, not some idle wishlist of things that might – but probably won’t – be.
Apologies for nothing much recently on New Zealand macroeconomics and related topics. My spare time is pretty much consumed at present with my Bank of Papua New Guinea responsibilities and those associated with the troubled (and troubling) Reserve Bank of New Zealand Staff Superannuation and Provident Fund. Yes, it is Orr and Quigley again.
In my last post I wrote about the scheme being cooked up to transfer the pension liabilities of the Reserve Bank scheme to the Government Superannuation Fund by means that look highly likely to be ultra vires, and in any case are extremely risky for pensioners over coming decades. The basic goal, transferring the liabilities of a small scheme to a much larger scheme, in exchange for a full and final payment from the small scheme before it itself is wound up, isn’t in question (indeed, I’ve championed the search for such a solution). But pretty illegal foundations are a poor basis for anything, most especially when it involves the Minister of Finance, our prudential regulatory agency (concerned with standards of governance and conduct in its bit of the financial sector) the Reserve Bank, and the government’s key economic adviser, The Treasury. It is all the more extraordinary when there are simple, well-grounded, legislative solutions available, which would remove most of the legal and financial risks in what is planned. Such a solution might take a couple of months, but there is simply no urgency about this resolution (and no one involved seriously claims otherwise).
Here is the relevant bit of the Government Superannuation Fund Act, a provision added many decades ago, decades before that scheme was closed to new members.
That looks like a pretty objective test to me. The Governor-General can’t just make any old regulation (Order in Council), not even as regards to superannuation. The test isn’t even whether in the opinion of the Governor-General (or her ministers) a proposed OIC might be (say) in the best interests of some people. The test is that an OIC under this section can only be made if it is giving effect to an arrangement that is intended to provide “reciprocity in matters relating to superannuation”.
In a standard conception in decades past such a (hypothetical) arrangement could have involved government department employers and the Reserve Bank (and their respective pension schemes) agreeing to recognise service with the other employer for purposes of each other’s pension scheme. Spend 35 years at The Treasury and 5 years at the Reserve Bank (or vice versa) and your service at the Reserve Bank will count towards your GSF pension (or vice versa). The way defined benefit pension schemes operate that is valuable for employees and enables a bit more labour mobility among related entities that would otherwise occur. Both sets of pension funds, both sets of employers, continued to function.
(To be clear, this is a hypothetical – there was no such historical agreement)
The scheme the Minister of Finance got her Cabinet colleagues to agree to (presumably acting on Treasury advice, although Treasury refuses to release that advice) bears no resemblance to that sort of (genuinely) reciprocal arrangement at all.
Instead, the Reserve Bank scheme would, in effect, sell its liabilities to the GSF, pay the price GSF names to take on those multi-decade liabilities, and then be wound up. All very efficient (in principle) but there is nothing reciprocal about it. And as it happens, since to close the Reserve Bank scheme the trustees have to purchase contracts that replicate the pension etc benefits that would otherwise be payable, and since there are differences between the two schemes, what is actually proposed is not that Reserve Bank pensioners are simply added into GSF (its so-called New General Scheme, a set of clauses in the GSF Act) and paid per the GSF rules. For any aspect where the GSF rules are less generous than the Reserve Bank rules, GSF is agreeing by contract to provide better benefits in those areas than it provides to its own members. Which is fairly weird given that the GSF benefits themselves are explicitly outlined in the GSF Act itself, but somehow this contract (and authorising Order in Council) are going beyond statute for this group of pensioners. Which would work out nicely for us…….except that the legal foundations appear incredibly shaky, and thus highly vulnerable. And the nature of DB pension schemes is that they run for many decades – this isn’t simply an arrangement for a year or two.
It simply isn’t providing for reciprocity at all. It is just an outright sale and purchase agreement.
It appears that section 98 has never been used before (despite 75 years in the legislation) so there are no judicial rulings on what “reciprocity” means in this context. As far as I can gather there also isn’t any authoritative legal commentary on the use of the term in New Zealand legislation.
But I thought it might be worthwhile to check all the references, with a search on the legislation.govt.nz database for how “reciprocal” or “reciprocity” is used. Absent specific authorities on this particular section one might think a court would look not just to the dictionaries but to actual New Zealand usage, in both primary and secondary legislation. My exercise here is simply about interpreting from context (what arrangements are being described when the operative words were used by drafters, Parliament (acts), and ministers (regulations).
I did two levels of search. The first was to search by title, and the second by the full text of each instrument. (If you are happy to accept my word about the overwhelming weight of how those words are used, then feel free to skip ahead to the Summing Up section at the end of the post.)
Titles of Legislation
16 titles contain the word “reciprocal” and 13 “reciprocity”.
Of “reciprocal” 13 examples are regulations made under one piece of primary legislation, the Reciprocal Enforcement of Judgments Act 1934 (which incidentally was thus in place when reciprocal/reciprocity were first introduced to what became the GSF Act). Neither “reciprocal” nor “reciprocity” is defined in the Act, but the purpose is illustrated thus
The other examples, using “reciprocal” in the title, are regulations around child support (and spousal maintenance) payments, one giving effect to an agreement with Australia and another with Hague Convention countries. The core of these regulations is that orders in one country are “entitled to recognition and enforcement by operation of law in the territory of the other”.
What of the 13 with “reciprocity” in the title? 12 of them are health and social welfare provisions. It is quite clear that what they are describing is the parameters for arrangements under which foreigners can be treated the same as New Zealanders here (mirroring the other side of the agreement re the way NZers are treated abroad – eg as between NZ and the UK our public health service and their NHS).
The 13th is the Law Practitioners (Victoria Reciprocity) Order 1937, made pursuant to the Law Practitioners Act. The entire order is as follows
Mutual recognition and all that.
Use in the body of legislation
What of uses of “reciprocal” and “reciprocity” in the content of acts and regulations? There is overlap of course: legislation with one or other word in the title also tends to have it in the body. There are 79 examples of a use of “reciprocal” in the content of acts or regulation and 45 examples of “reciprocity”. I haven’t reproduced all these search results (easy enough to do yourself), but I have gone through and checked all examples not already covered by the review of the titles above.
Take the “reciprocal” list first:
The Trans-Tasman Proceedings Act 2010 seems to cover very similar ground to the Reciprocal Enforcements of Judgements law, replacing some orders (Australasian) under that law with this specific Australia-focused legislation
The High Court Rules also show up, but again in reference to the Reciprocal Enforcement of Judgements Act
Maritime Transport Act references all relate to reciprocal enforcement of judgements.
The Tax Administration Act has a specific provision, along the lines of mutual recognition
The Contracts and Commercial Law Act 2017 seems in a similar vein
Or the US-NZ double tax agreement 2014
Or the Sale and Supply of Alcohol Regulations
Those are the examples (all of them) from the first page of search results.
I have gone through all the others and have not been able to find a single of example of a usage that is other than something akin to “like for like” (there is perhaps a partial exception in some Treaty of Waitangi settlement legislation, but there the context seems to have been one of mutual obligations over long periods of time). Not one of the references has the sense of “one-off full and final payment of dollars for services”. I’ll include just one more in deference to the “creative” lawyers we seem to be dealing with (whether in/for Treasury, Crown Law, PCO, the Reserve Bank, or the Government Superannuation Fund Authority), from the Lawyers and Conveyancers Act
And then I turned to uses of “reciprocity” in the body of legislation (acts and regulations), again skipping over laws already covered above.
There is the UN Convention on Refugees 1951 (made part of our law as a schedule to the Immigration Act)
The District Court rules
The Valuers Act 1948
And the 1923 international treaty on arbitral awards, a schedule to our Arbitration Act 1996.
Again, there is not a hint or a single example of “reciprocity” used in ways that might encompass a one-off payment from one entity to another in exchange for the latter assuming a bunch of obligations from the former (let alone the former entity then winding itself up and disappearing).
It is, perhaps, telling that (as far as I can see) in not a single act or regulation are the words “reciprocal” or “reciprocity” defined, suggesting that something akin to dictionary definitions and common usage is envisaged. Here is the definition of reciprocity from my two-volume Shorter Oxford English Dictionary:
Summing Up
The last couple of sections have probably been a somewhat boring trawl through pieces of obscure legislation. But it becomes necessary when parties – the Minister of Finance, backed by a Cabinet committee, the Reserve Bank, and The Treasury – are content to rely on a “meaning” for the term “reciprocity” seemingly dreamed up by some lawyer or other from thin air. There is no dictionary precedent for such a usage and nor is there anything in 100 or so years of New Zealand legislation. It is very hard indeed to see how section 98 of the GSF Act could possibly encompass the sort of deal the Cabinet – led by the Minister – proposes to authorise their Crown entity (GSFA) to undertake. There is nothing in the dictionary to support it, nothing in a plain common reading, and nothing in the legislative history of this old previously-unused provision.
Three last points:
why does any of this matter?
is the proposed deal bad in intent? and
if not, is there are a better way.
It matters because lawmaking should be done properly. It certainly shouldn’t be done on a basis that happens to suit decisionmakers who themselves having nothing at stake if things later go wrong.
And what could go wrong? A court could find that the entire Order in Council was ultra vires. A future set of ministers could decide either that they don’t like one or more Reserve Bank pensioners, or just that the original OIC was bad law and probably ultra vires. Or Parliament can disallow the Order in Council (takes one member of the Regulations Review Committee and no other objection), perhaps recognising that it was bad (secondary) law. In each of which scenarios elderly pensioners could be left in limbo, uncertain as to whether they had any entitlement to a pension, but with the money (currently in the Reserve Bank pension scheme) now gone, and at best facing expensive legal action to attempt to assert any claim against someone/anyone (RB, GSFA, former trustees…..).
As I noted at the start of this post, the idea of a transfer (with full and final payment) of Reserve Bank scheme pension liabilities to the GSF isn’t a bad one (and I was, and remain, a champion of it in principle). There are genuine administration cost savings to be had (a gain to the Reserve Bank, which is thus keen on the scheme, facing no risks itself), and for anyone involved in governance of the scheme in the last 10 years also an opportunity for personal escape.
But it needs to be put on more secure legal foundations. Parliament is, of course, sovereign, and so can legislate anything it likes (for good and ill). A simple amendment to the GSF Act (rather than an Order in Council, resting on the tenuous provisions of section 98) would achieve that. Readers of my previous post may recall that the Minister of Finance told Cabinet that this wasn’t an option because it couldn’t be done until 2025. That is now a mere six weeks away (and at this point any transfer isn’t likely to be feasible before the second half of next year). Taking a punt that things will probably turn out okay simply isn’t good government, whether from ministers or officials (and not an approach they’d be likely to take if they themselves had anything at stake).
What about the trustees of the Reserve Bank superannuation scheme you might wonder (of whom I have the misfortune to be one)? All this material was presented to them as long ago as January, and they have simply refused to engage. Not only that but they have specifically and consciously chosen not to seek independent legal advice on whether there is a robust legal foundation for the transfer they propose to enter into. In doing so they appear to rely on a view that one does not need to look behind to check the bona fides of a party they are dealing with to see if they are able to enter into the proposed contract. That seems imprudent generally, but even if it were a model which might make some sense in a corporate context, when Party A can’t easily look into the private authorising documents of Party B, and might have to rely on warranties, it makes no sense at all when (a) the GSF Act is a public piece of legislation available for all to read, and b) all these issues have, more than once, been brought to their attention.
It is pretty reprehensible, but then it is what one might expect from two of Orr’s deputy chief executives (appointed to the super fund roles by Quigley’s board) and a Licensed Independent Trustee (a statutory position created a decade ago, notionally to help protect members) who has long been (a) keen to get out of the role, and b) in eight years has never displayed evidence of the slightest interest in the best interests of members and who is on record as suggesting, contrary to the statutory duties, that trustees also need to look out for the interests of the Bank.
As a bottom line, the law requires that any such OIC under the GSF Act be with a view to providing reciprocity in matters relating to superannuation. The proposed arrangement, which the GSFA cannot enter into without specific legislative authorisation (the Act prohibits new members), does no such thing, and there is thus no power for an OIC to authorise what is proposed. There is, by contrast, a better way.
Finally, note that these matters were raised, in a careful and considered manner, in a letter to the Minister of Finance months ago. I find it remarkable that the Minister has not even had the courtesy to respond, even as she and her department have blocked OIA requests on these matters. I have legal duties to our members. I would hope she senses a moral obligation, to them (former public employees) and to the cause of good, and certain, lawmaking itself.
The title of this post was, of course, a reference to the efforts of former Minister of Finance and National campaign manager Steven Joyce to defend the use by National of music inspired by or copied from some overseas band’s work. It was, he claimed, “pretty legal”. The courts disagreed.
Joyce himself developed form in this area, and as Minister of Finance in 2017 appointed an acting Governor of the Reserve Bank for six months, with no legal authority whatever. It was, in many respects, a pragmatic solution (a new permanent Governor could not, under our conventions, be appointed to take office very close to election day), but instead of passing a brief technical amendment to the Reserve Bank Act, to deal with what was perhaps an unforeseen oversight in the initial drafting, he simply went ahead and made the questionably legal appointment. At the time, this blog devoted a lot of time and space to the issue (having flagged the looming issue a couple of years in advance, while officials and ministers did nothing). Eventually, through the good offices of the Ombudsman, Crown Law – CEO, one Una Jagose, who has since developed something of a reputation – released a summary of their legal advice to Treasury on the issue (discussed, with other relevant links, here). Crown Law’s case seemed to boil down to no more than “well, Parliament must have intended to enable the appointment an acting Governor of this specific sort”. Had they intended it, it would have been a simple matter for a suitable clause to have been in the act. None was. (That particular gap has been fixed in the amendments to the Reserve Bank Act in recent years).
It mattered for a number of reasons.
First, because we are supposed to be governed under the rule of law, not ministerial whim, or the fancy of officials who happen to think a particular outcome would be convenient, but can’t be bothered asking Parliament to legislate. “Pretty legal” is no sort of acceptable standard, the more so when on a plain reading (detail and legislative context), something is actually pretty clearly illegal.
There are also real risks when officials and ministers play fast and loose with the law, for their own convenience, betting perhaps that no one will be bothered with the expense and delays in access to civil justice to attempt to challenge it formally. Fortunately, Grant Spencer – who compromised a worthy career by accepting this temporary but dubiously legal appointment – doesn’t seem to have been faced with particularly contentious choices in his few months occupying the office, but the lawyers might have been gathering if there had been a very costly or contentious decision going against one or other groups of interests. In those days, all power at the Reserve Bank rested with the Governor personally.
And, frankly, this was our central bank, supposed guardian of financial stability, and prudential regulator, including around ensuring that good standards of governance exist and are upheld in banks and financial institutions. Would this sort of – pretty legal/ evidently illegal but convenient – standard have been even close to acceptable to the Reserve Bank if a supervised institution had offered it up in the context of its own appointments? And while the appointment was made by Steven Joyce, there is not the slightest sign in the documents of any unease from the Bank. Its Board was, then as now, chaired by Neil Quigley. (You may recall that Quigley – in his day job – and Steven Joyce have an economic relationship recently called out and criticised by the Auditor-General no less. They probably thought that arrangement was pretty much okay. It wasn’t.)
All that said, and bad as that episode was, it was all over in six months. A permanent Governor, lawfully appointed, took office and things moved on. Not all such “pretty (il)legal” stuff done by governments is so time-limited.
All that in the post so far was really by way of scene-setting for another example of “pretty legal” sort of thinking. It doesn’t affect many people, but does involve the Reserve Bank (Quigley again, Orr, and their very senior appointees), The Treasury, the Minister of Finance and most of her ministerial colleagues on the one hand, and a fairly small group of mostly very elderly pensioners on the other. Officials and ministers are acting as if the law simply doesn’t matter, to achieve what might otherwise in many ways be a sensible outcome, and by refusing to make simple legislative amendments are doing so in a way that leaves those pensioners and their spouses highly exposed to what could, in the wrong circumstances decades hence, be catastrophic financial risk.
I will try to keep the explanation short and clear.
The Reserve Bank established a pension fund for employees back in 1935. The defined benefit (pension) bit of the scheme was closed to new members in 1991 (and the later defined contribution bit has also been closed for a long time) and all the members of that scheme are now retired. There aren’t many left (50 or so), and as schemes shrink cost burdens tend to increase, investment options diminish, and it gets harder to find member trustees.
The scheme’s rules allow for it to be wound up. But in that event, trustees have to be able to purchase replacement pensions. There are no private annuity providers now in the New Zealand market, but decades ago a provision was included allowing for the possibility of transferring pension liabilities to the Government Superannuation Fund (not coincidentally, the provisions of the two schemes are pretty similar).
I’m a trustee of the scheme – never quite imagining in 2008 when I filled in as someone’s alternate that I’d still be there 16 years later. A couple of years ago I championed exploring whether a transfer to the GSF was really a feasible option. If it could be done in ways that replicated members’ benefits, it would lead to measurable cost savings for the Bank, and get all the compliance etc rigmarole out of our lives. I suspect that no one who has served as a trustee of this scheme in the last decade has counted it a pleasant or satisfying experience.
Anyway, my colleagues agreed and we got the Reserve Bank Board (which has the final decision on a wind-up) to agree to us exploring the issue.
There were a couple of immediate questions. If the GSF Authority wasn’t interested, we couldn’t compel them. But even if they were interested did they have the legal powers, under their own legislation, to assume our liabilities (in exchange for payment)?
People, with various degrees of creativity, looked through the GSF Act and found two possible straws to cling to. One dropped away very quickly, as everyone accepted it didn’t help.
But then there was section 98 of the Government Superannuation Fund Act.
When it was first suggested as an avenue, I scoffed. And the more I reflected on those provisions, and their legislative context/history, the more implausible it became.
The legislation dates back many decades and what evidence there is suggests it was written mainly with university lecturers in mind – many of whom in those days came from the UK. It made sense to enable agreements that recognised service in (say) UK universities for NZ university pension purposes and vice versa. What was envisaged was a reciprocal relationship.
You’ll note that the provision isn’t restricted to overseas entities. Reciprocal arrangements can be enabled, by Order in Council, with other New Zealand entities. It would, for example, have been fully in order decades ago for (an Order in Council enabling) the Reserve Bank and the GSF to have entered a reciprocal agreement to mutually recognise service in the other (eg for Treasury staff moving to the Reserve Bank, Reserve Bank staff moving to Treasury). There was never an agreement of that sort (in fact such were the restrictive practices at the Reserve Bank even when I joined in the 1980s that it was all but impossible to join the Bank if you were aged over 26).
But the critical words in that statutory provision – which has apparently not been tested by the courts – is “reciprocity” (“providing reciprocity in matters relating to superannuation”).
A few months ago a Cabinet committee, attended by 19 ministers (including the PM) and an under-secretary, decided that it was fine and dandy. A bit later Treasury pro-actively released the relevant Cabinet minute. They also released, with significant redactions, the associated Cabinet paper, presumably prepared for the Minister of Finance by Treasury but with input from various other government agencies.
It is a shoddy paper from start to finish (starting with the repeated claim that the Reserve Bank scheme is a “government” scheme – it is a fully separate legal entity, on the same footing and regulatory basis as any other legacy superannuation scheme under the Financial Markets Conduct Act, with the Reserve Bank having no powers over it, and the government itself having no powers or liabilities different from those applying to any private scheme). It is perhaps no wonder that both the Minister and Treasury refused my OIA requests for advice received on this GSF option.
It is, however, usefully clear and explicit that the main reason for such a transfer, if it can be legally done, is to save money for the Reserve Bank. That is an entirely legitimate objective, provided members’ interests and rights are robustly protected. But there is no sign that the Minister provided any such assessment to her colleagues, who presumably nodded this through. A transfer to GSF could, in appropriate circumstances, be a mutually beneficial and tidy outcome. But it simply isn’t legal on the law as it stands, and precisely because it is proposed to be done using an Order in Council, which can simply be revoked by any future minister/government, or disallowed by Parliament itself under standard secondary legislation provisions, with no recourse for pensioners, it leaves those pensioners in an extremely vulnerable position. The risk of such revocation or disallowance might seem low today, but as even the Cabinet paper notes the liabilities probably have at least 40 years to run, and no sensible person concerned about their own finances is going to approach decades-long contracts saying “oh, never mind, explicit written statutory powers will probably never be used”. You look for protections, and what the Minister of Finance is proposing to do – pretty illegal in the first place – offers none at all.
“Reciprocity” simply does not mean what it has to mean for a simple sale and purchase agreement in which the trustees pay cash to GSF to take the liabilities off their hands to count. It doesn’t mean something like that in plain English usage, and it does not do so anywhere else in New Zealand statutes (and yes, I have worked my way through every single reference). When I buy my groceries from the supermarket it is a mutually beneficial exchange, but no one thinks of it as an agreement involving “reciprocity” (which in general and statutory usage, and things like Social Security Agreements involves something much more of a “like for like” nature.) Moreover, as even the Cabinet paper notes this (pretty illegal) wheeze involves trying to use an Order in Council to get round an explicit statutory prohibition of new entrants to the GSF scheme itself.
A couple of months ago, having become aware of the Cabinet minute (although not then of the redacted Cabinet paper itself) I wrote to the Minister of Finance outlining in some detail my concerns, and proposing instead a simple and uncontroversial legislative amendment to the GSF Act, which would provide trustees and members legal certainty, and markedly reduce future risks for members (since revocation of an authorising Order in Council or disallowance by Parliament would no longer be options). I have not had a reply from the Minister. When I approached her again, a private secretary suggested that I could expect a response shortly. Nothing has since been heard, suggesting that a conscious decision has been taken to simply ignore my concerns, as someone with legal duties to scheme members.
The full text of my letter to the Minister of Finance is here.
The Cabinet paper very briefly touches on the legislative option (having provided ministers with no information on the risks and legal doubts about the approach her officials would have them take).
I guess if there is no formal legal challenge, pretty illegal stuff can be done quickly. But this is a bizarre argument more generally. Nothing in the Cabinet paper suggests any urgency about an arrangement. The scheme functions, bills are paid, pensions are paid, and although pressures will build they have not done so yet. It would be good to tidy things up, but only if it can be done robustly, and not with ministers brushed off with lines about there being nothing to worry about and only minor implications for members). As it happens, it is now late October 2024 and if a transfer happens it certainly won’t be until 2025. Doing things properly, by the book, not indulging in quick “pretty illegal” fixes, unbothered about the future vulnerabilities created, should be the way our ministers and responsible officials operate.
But I guess this is New Zealand.
You might be wondering about the other trustees of the scheme. Well, three of them are appointed by Orr/Quigley – two are among Orr’s many DCEs – and openly take the view that it is no concern of theirs whether the current law actually allows a transfer of this sort. Of course, in many commercial deals it isn’t possible for one party to look fully behind the scenes and be sure of the other party’s processes and internal authorisations. One often has to rely on warranties etc. But…..the GSF Act is a public statute, has been on the books for decades, and simply does not contemplate or allow for a deal of this sort. Judging by the time spent, some might conclude that trustees have seemed much more concerned about their own future indemnity arrangements than about robustly protecting the best interests of members.
There are simple and much more robust fixes. It is beyond comprehension why the Minister and officials are not willing to take such a route. It speaks of indifference to law, and indifference to people. But it looked quick, and perhaps “pretty legal”
I had in mind another post for today, but this morning we had something rare: a speech about monetary policy from the Governor of the Reserve Bank, delivered in Washington at a think-tank which appears to have been hosting many speakers this week (in town for the IMF World Bank Annual Meetings). On their schedule, the Deputy Governor of the Banque de France was speaking earlier in the afternoon (some very interesting material in her presentation) and the Prime Minister of Liechtenstein a bit later.
The Governor’s wife writes fiction (several books published) and teaches creative writing. Entirely laudable and there are often powerful insights in great works of fiction. But when – as her husband does – fiction and sheer spin are dressed up as serious accounts of policy stewardship etc, the only possible insight is into the character of the chancer who tries it on. And perhaps those who enable him (one could think of Neil Quigley and Grant Robertson, but also now (sadly) of Nicola Willis).
But first a point to his credit. Climate change, for example, didn’t get mentioned even once in the speech. Or the treaty of Waitangi. It had the appearance of a straight up and down speech about monetary policy stewardship, as advertised (“Navigating monetary policy through the unknown”). And, if you recall how he used to tell people (well, Parliament actually) that the Russian invasion of Ukraine was to blame for the worst New Zealand inflation in decades that line has now been quietly minimised too.
Consistent with his revealed preference for fictional embellishments, Orr builds his speech around the navigational challenges faced by ancient mariners, in his case primarily Kupe. Orr claims to know that Kupe had a clear goal in mind, and whether he did or not, (I guess he could have used Captain Cook too) but – technology having moved on – he wasn’t reliant on the sea birds etc. It still seemed a rather strange analogy to use, in 2024, in an age of GPS. Then again, I guess it is only a couple of weeks since the HMNZS Manawanui ran onto the reef, so perhaps it isn’t such a bad analogy for New Zealand monetary policy after all. Perhaps the salvage will be done well, at considerable costs (perhaps lingering costs for the people of Samoa) but the ship never should have ended up on the reef in the first place. Those responsible for the loss of a ship face courts of inquiry, perhaps even a Court Martial.
But in Orr’s fictional world central bankers – New Zealand central bankers, since his speech does actually concentrate on New Zealand – are heroes, having delivered us to the least-bad possible outcomes through the storms, vicissitudes and other uncertainties of the last few years, where anything bad was no one’s responsibility, and anything good was to the credit of the wise and respected navigators, led by Orr himself. It was pretty breathtaking stuff really – although questionably persuasive even as fiction – as there is no longer even a hint that anything could have been done better, by our courageous central bank navigator, than it was. When the Bank reviewed its own performance a couple of years ago, they then thought it prudent to acknowledge the odd small error, even while claiming that none of it mattered much. But no longer apparently.
In his celebratory self-congratulatory mood – he claims to have saved us from two deep recessions – his overseas listeners would have had absolutely no idea that on the IMF forecasts that came out yesterday, New Zealand’s real per capita GDP growth in both 2024 and 2025 is estimated to be among the worst in the world, down there with places like Yemen and Haiti. Or that on those same IMF estimates, New Zealand will have been one of the very worst performers over the entire 2019 to 2025 period.
Now, to be fair to the Governor, one can’t blame underlying long-term productivity problems on the Reserve Bank, but equally no one really doubts that those 2024 and 2025 outcomes are mostly on monetary policy: the consequences of the Bank belatedly waking up to its past mistakes, and doing what it took to get inflation back down again. And, frankly (although the Governor won’t tell you this) anyone can get inflation back down: the trick (the reason we delegated the job to supposed experts) was never letting it get away on you (well, on us, the public) in the first place.
The spin, and utter avoidance of any responsibility, begins earlier, in fact with the Bank’s covering press release, which presumably captures the key lines Orr would like to see reported here.
First, there is this framing
Followed up in the speech with this extraordinary admission from someone charged with keeping inflation near 2 per cent.
Now, I don’t doubt that briefly in early 2020 perhaps the MPC really believed that the alternative to them acting as they did was economic disaster, but it was very quickly evident that that simply wasn’t the case. Economic indicators here rebounded quickly and early. And the MPC did nothing to start to pull back on the excessively loose monetary policy until late 2021 (it wasn’t until into 2022 that the nominal OCR was even lifted back to the immediate pre-Covid level by when inflation and inflation pressures were already running away on them): they now estimate the positive output gap was in excess of 3 per cent by late 2021. If we want to play with nautical analogies, Ulysses steered his way between Scylla and Charybdis. Orr and his team ran us onto the rocks (full blown inflation, fixed only at great cost). And he claims to have been now quite relaxed about those hugely and disruptive inflationary consequences, with all the attendant arbitrary redistributions.
And then, still with the press release, there is this
Inflation simply was not “caused by COVID-19”. With all their comms staff, this is very unlikely to be a slip of the pen, rather it is yet another in the endless series of attempts to avoid actual responsibility for doing the highly-paid job they took on so badly. No one doubts that Covid provided a context where many policymakers had to make difficult calls in conditions of great uncertainty. But it was the Reserve Bank MPC’s calls, faced with all that uncertainty and the decisions of others (since monetary policy moves last, by construction), that delivered the worst inflation in decades and the attendant cost and disruption to getting it down again. But Orr can’t or won’t admit that.
As the work fiction continues, there is no mention of the LSAP – just a couple of passing lines about how quantitative easing tools hadn’t been used in New Zealand before – or the $11 billion of losses the MPC’s choices imposed on the New Zealand taxpayer (as someone pointed out a couple of weeks ago, one could build three Dunedin hospitals for that price), and of course none of the way in which the Bank went on provided concessional lending to banks to the very end of 2022. No doubt, if challenged, Orr would bluster and repeat his utterly unsubstantiated claims that the LSAP made a big positive difference to New Zealanders, but on this occasion his fictional treatment just airbrushes it away.
I spluttered when I came to this paragraph
He chooses not to mention to his overseas audience (or to remind local readers) that his own reappointment was formally opposed by the two Opposition parties in Parliament at the time or that – as in many other countries – public discontent and inflation and the cost of living registered extremely high in opinion polls throughout, arguably playing a role in defeating the government here last year. It is hard to find anyone with any subject expertise who has any confidence in Orr (I’d mention Orr’s board, who seem to, but hardly any of them have any subject expertise).
(In case you are wondering quite what he meant, Orr’s idea of “mutiny” appears only to involve troublesome inflation expectations).
The creative writing continues as we move towards the end of the speech.
Has anyone ever associated Orr and his public communications with the word “humility”? Perhaps we might all take this as less like make-believe if it weren’t so well-documented just how many times Orr has actively misled Parliament’s Finance and Expenditure Committee (charged in part with holding him to account), or if he didn’t send out his chief economist to say “oh no, we didn’t really mean what the numbers say, and anyway it isn’t our fault but that of the tools”. Nothing, you see, is ever the fault of Orr and the MPC…..at least in this fairy tale.
It goes on.
I’m wondering how Martien Lubberink, Roger Partridge, Jenny Ruth or Nicola Willis (in her Opposition days) feel about their experiences of Orr as empathetic communicator? Disdainful bullying is probably a fairer characterisation of his style. And as for the rest of the MPC, all these supposedly-expert external members sat on the MPC right through this extreme period, and none of them ever said a word….no speeches, no serious interviews, no scrutiny by Parliament. Nothing.
Orr has the gall to then claim that it is really all in the minutes (the “Record of Meeting”) and that is only a shame that so few people, even “economic experts refer to or query” it. Which is, of course, nonsense on stilts, and just more active make believe. People read the Record of Meeting but they just don’t find much there. Despite all the uncertainties that Orr makes much of, there is never a serious sense of that in the Record of Meeting. Oh, they talk a good game, but when there is real uncertainty about important things, really able smart and engaged people will – with all goodwill – reach quite differing conclusions about where to next, and what the latest data probably mean. There is just none of that. The grapevine reports claim that there is in fact vigorous debate in the MPC, but there is not the slightest evidence of it shown to those us press-ganged into enduring the consequences of their bad calls. If the MPC really was unanimous on all but one call in the last five years, that is a very poor reflection indeed on the MPC members (some of whom are simply unfit for office, but from a couple one might have hoped for a bit more) and their chair. If not, the Record of Meeting is just comms spin.
I could go on, but will draw this to a close here. Somewhat remarkably – well, perhaps not in the fictional world Orr would prefer to draw for us – there is no mention of accountability. It was always supposed to be the price, the quid pro quo, for delegating a great deal of constrained power to central banks. Accountability was supposed to involve real consequences. And yet, through the biggest and most costly monetary policy misjudgements in decades, Orr would just prefer no one mentioned anything about accountability (or in fact about mistakes at all). I guess it is the New Zealand public sector way (as we seeing again now in the wake of revelations of obstruction and cover-ups in the context of decades of abuse of people in state care).
When captains of naval vessels made mistakes and ran their ship onto the rocks it was often considered fitting, and not inappropriate, for the captain to go down with his ship. But barefaced creative fiction, with not even a hint of contrition or regret to add nuance to the manuscript, seems to be Orr way.
For a long time I’ve been a strong supporter of central bank transparency about stuff a central bank actually knows something about, but a sceptic of the faux transparency of publishing stuff a central bank really knows very little about. In the former category, one might think of the background papers going to the MPC (by aiming deliberately low I once got them out of the Bank for a forecast round 10 years previously, but good luck if you asked now for the papers around the 2020 and 2021 decisionmaking, let alone those from six months ago). In the latter category I primarily had in mind medium-term macroeconomic forecasts, including endogenous forecasts for the OCR. Sure, the numbers are mostly put together fairly honestly, but in truth (and this isn’t a criticism, more a description of the limitations of human knowledge) central banks just don’t know very much about the future, especially a couple of years ahead. In principle, an OCR forecast now for the end of 2026 would be drawing on forecasts for inflation pressures well out into 2028. Forecasting 2024 or 2025 remains a considerable challenge.
But my criticisms there have typically been about the hubris or delusion involved in thinking one could add meaningful value re where things might be a couple of years hence. In fact, I was rereading this morning an old piece I used at a BIS conference years ago on such issues. But I tended to be relatively more relaxed about near-term forecasts, for (say) the next quarter or two, included the associated guidance on likely policy. If one might still be sceptical about just how good central banks might be at nowcasting or near-term forecasting (a) they do have more resource to throw at the issue than any other forecaster, and b) they should at very least know a little more than we otherwise do about their own reaction functions (ie how they might react to any given set of economic/inflation data). That might be so whether one had in mind explicit near-term OCR forecasts (to the second decimal place) as the Reserve Bank does, or just “bias statements” of the sort pretty much all central banks tend to engage in.
Here in New Zealand, even with some new and (apparently) improved external membership of the MPC, the last six months don’t score very well even on that count.
It was less than five months ago (22 May in fact) when the MPC released a Monetary Policy Statement indicating, in their forecast track, that there was a bit better than even chance that the next warranted move in the OCR would be an increase this year (to be consistent with this track, probably in August).
Their associated communications (which I’ve written about previously) was so at-sea that they tried to deny the implications of their own chosen track (the chief economist even tried to blame it on the tools, rather than the MPC of which he was a part).
Within six weeks, (without a new full set of forecasts, and in the absence on holiday of the chief economist), the MPC had flipped to a dovish stance. This was how I illustrated it at the time
And on this occasion they more or less did follow through. There wasn’t any huge inconsistency between their July and August statements (and the associated 25 basis point cut in the OCR).
But this was the forecast track in the August MPS, published only six weeks ago
That forecast track was exactly consistent (weight by days) with 25 basis point cuts in October and November, such that it was clearly intended by the MPC as specific forward guidance. It looks as if they envisaged another 25 basis point cut in February such that by then the OCR would have been lowered to 4.5 per cent.
And yet yesterday we saw a 50 basis point cut, and a fairly high degree of confidence among market economists that another 50 points will follow next month. One can argue that there wasn’t a clear direct signal of that from the MPC, although when you put a big headline in the “minutes”, and explicit statements that a) inflation is expected to “remain” around the target midpoint, and b) that an OCR of 4.75 per cent is still “restrictive”, it doesn’t take much guessing to see what they had in mind yesterday (especially with the three month MPC summer holiday coming up).
Now, as it happens, I think yesterday’s OCR cut was most likely to right call in substantive macroeconomic terms (and still think we are probably heading towards 2.5 per cent by the second half of next year). But that isn’t the issue for this post. Rather the point was nicely summed up by a journalist’s tweet yesterday
Which is a pretty damning indictment, of a committee whose claims to exercise such great discretionary power is that they are technically expert and have some reliable/predictable idea of what they are doing. And that simply isn’t obvious at present.
No one particularly minds when central banks change their mind when there is some significant exogenous shock, the size or timing of which they could not reasonably have anticipated. But it is far from clear that anything very much has changed about the economic backdrop since May (no really big data surprises on GDP or unemployment, and confidence measures seem to have bounced around a bit without leaving us in a lot different place than in early May, let alone August). Instead, the expert committee, drawing on its staff, seem simply to have gotten things very wrong, and to have seriously misread the extent of the disinflation that was already well in train (or at least so they assume, having anticipated yesterday the CPI numbers out next week). It doesn’t seem so different (though probably less severe) than the mistake they made in 2020/21 and even early 2022.
If the MPC really can’t do better than that there are two options. Either they aren’t the men and women for the job (in several cases that seems quite likely) or they should stop just injecting random noise purporting to be expert judgement by publishing forward tracks and indications of what might happen next. And, of course, there is no indication in any of the published sets of minutes from May to now of any robust debate or disagreement among MPC members, which is simply additionally damning: they all went along with each of the flip flops and inconsistencies through time, with no indication that any of them were applying the intellectual energy and analytical grunt to contest and challenge whatever view was coming from staff or management. I’ve long argued for much more personal accountability for MPC members – the risk has always just been that individuals (whether inexpert internals or the externals) would just free-ride, go along for the status, the fee, the addition to the CV, while adding little, and not bearing any consequences when the overall MPC does poorly. Management hates the idea of an open contest of ideas – has ever since reform models started being explored a decade ago – and one of their worries was of a “cacophony” of voices, in which truth would be obscured. It was never a compelling argument – other central banks manage, and it was a clearly an argument that reflected mostly management self-interest – but the experience of the last six months highlights again just how little “truth” or knowledge there is in anything much the MPC says beyond the specific OCR adjustment on a specific day. An open (but respectful) contest of ideas, exploration of alternative models, could hardly be worse than what’s been on offer again this year.
Not the usual stuff of this blog, but at lunchtime yesterday I went along to this well-attended event (St Andrew’s was full).
I had a few reactions and didn’t think I could do them justice in a few quick tweets.
Why did I go along? Well, several reasons really. Being semi-retired one has time, in principle the topic sounded interesting and important, I’d never heard Salmond speak before, and I have some time for Boston. I can’t say I necessarily expected to agree with the thrust of the promised “conversation”, but it is always good to hear people you disagree with make their best cases. Boston noted that it was a rare event at which he lowered the average age (and he is a few years older than me).
As it happened, Salmond did most of the talking, while Boston acted more as guide and host to the conversation (although he threw in some more comments in the Q&A session, including stating his preference to raise the NZS eligibility age to 70 – I clapped at that point). He sought to structure the discussion under 4 headings: treaty issues, environmental issues, the future of democracy, and “what on earth should we do now”.
Of course, I should have anticipated that the “conversation” wasn’t really going to be anything at all disinterested. If you were concerned about the way in which politics and society were going, and were interested in exploring common ground, rebuilding trust, engaging in efforts towards mutual understanding etc, you certainly wouldn’t have taken Salmond’s approach. From Salmond’s side in particular, it was mostly a series of sneers and laments about this government (David Seymour in particular, and Christopher Luxon who seemed to have fallen into the hands of bad people).
(As regular readers will know I am not myself a particular fan of this government, have little time for either Seymour or Luxon, and do not support Seymour’s Treaty Principles Bill.)
If inflammatory language is one of the problems of our day, Salmond contributed more than her fair share in just one session. Had anyone who strongly disagreed with her own politics been present they’d not have felt as if Salmond had any interest in them, except to sort them out and put them on the straight and narrow, or any recognition that there might be legitimately competing interests, world views, models for how policy should be done or New Zealand governed. Instead – particularly on treaty issues – we got sneers at how David Seymour couldn’t read Maori (which seemed particularly strange from someone of wholly European ancestry re someone of part Maori ancestry), claims that his approach was “impertinent”, that it was all “heartbreaking”, and that “it takes a lot of work to remain as ignorant as many of us have been”. It was, apparently, okay to have a discussion about the Treaty of Waitangi, “but not like this” – more, it seemed, a case of it was okay for the unwashed to ask questions of the experts and be put back on the right path, as if historical research (fascinating as it often is) was the answer, rather than one contribution to dialogue and debate as to how a modern New Zealand should best be governed, and what (if any) ongoing role an 1840 treaty might play in that.
The government was then accused – in the calm moderate language that fosters dialogue – of an “ambush of our democracy”, a claim which appeared to apply not just to treaty things but to the environment. This government, we were told, “is going in the opposite direction to our survival as a species”. Strangely – or perhaps not – the fact that the ETS continues in place, which caps emissions across the economy as a whole, was never mentioned. The fast track list seemed very unpopular……and yet of course there was no mention of projects fast-tracked under the previous government. Perhaps one line I might welcome was that there wasn’t much evidence of the coalition agreement commitment to evidence-based policymaking, if only it weren’t that successive governments – of both political stripes – have been so poor on that score.
And if the rhetoric hadn’t been amped up enough, we were then told that the government was “tossing whole categories of people on the rubbish heap”, while being invited to evaluate the government on how many New Zealanders were leaving, the suggestion being that it was because of this “ambush of democracy” – as if this hadn’t been a stark and sad feature of New Zealand, across governments except when the borders were closed, for too many decades.
I’m sure it was quite entertaining and emotionally satisfying for the much of the audience – and there were audible gasps of approval when she quoted Nobel economics winner Paul Romer to the effect that “we must stop apologising for regulation. It is the only thing that protects us from the abyss” – as if no one had noticed that David Seymour’s own new ministry is actually called the Ministry FOR Regulation.
I suspect that Boston was pretty sympathetic to a fair amount of Salmond’s commentary but he did inject a moment of realism, noting that the government (and its component parties) are about as popular now as they were in the election last year. If good Christopher Luxon (Salmond had been keen on him at Air NZ) really had fallen among the disreputable, “many of our fellow New Zealanders” seemed to quite like what he was doing.
(Now again to be fair, Boston seemed distinctly unimpressed with the Labour Party, and Salmond with the Green Party, so perhaps they might think it was all just the failures of the Opposition).
Salmond seemed dead keen on allowing New Zealand policy to be shaped by international “great and good” people: we got repeated references to various reports of Nobel Prize summits. It wasn’t quite clear how this was going to help her treaty concerns, but I guess she had in mind the environment. Quite why we’d want New Zealand policy to be guided by a bunch of people who are very expert in usually quite narrow technical areas, when most political hard choices are about values and distributional tradeoff, wasn’t ever made clear. Salmond seemed very keen on “citizens’ assemblies” and exercises in so-called “deliberative democracies” but presumably only so long as people like her got to guide the material these selected citizens were presented with. More money for journalism, and public broadcasting in particular, seemed to be a policy line both Boston and Salmond were championing, seemingly utterly oblivious to the declining public trust in journalism.
Perhaps weirdest of all was the way Salmond ended. Apparently oblivious to Boston’s reminder that the current government isn’t exactly unpopular (at least outside central Wellington) there was an impassioned plea that we should “let leaders lead”. Since I doubt she in mind Seymour, Shane Jones, or even the diminished Luxon, one can only assume it was only the right sort of approved leaders who should be allowed to lead. In a final flourish of no nuance whatever, we were told that we needed leaders who would look to the interests of their children and grandchildren, not to the interests of donors. A particular unconstructive approach to enhancing mutual respect etc to simply assert that everyone who disagrees with you is either ignorant or in the thrall of donors, and has no concern for next generations (even their own) at all. It really was quite breathtaking.
Perhaps if one went along to an ACT rally, or even a New Zealand Initiative members’ retreat, it might all be about as bad on the other side: the dismissive sneering and the automatic assumption of a single right pathway, if only the peasants could be cowed or brought to understand. Maybe (I genuinely don’t know). For myself, I’m sceptical of constant calls for “social cohesion” etc, since there are really big and important differences and values and world views and priorities, and there isn’t much point in assuming that one side or the other only needs to be enlightening (or perhaps silenced). But it really was astonishing that someone as able in her own field as Salmond evidently is, had no apparent interest in anyone else’s models or values or frameworks, or even a conception that there could be such things: the people of goodwill and intelligence might genuinely, deeply, and perhaps intractably disagree.
But it probably all played well to the elderly base present at the meeting. Just like so many gatherings – so much social media for that matter – do.
