Sticky inflation and expensive policies give new government a fiscal headache
The PM says deep spending cuts are needed to fix the ‘economic vandalism’ of the previous government. But Luxon and Willis are already running up some big bills of their own.
Mōrena, and welcome to The Bulletin for Friday, December 1, by Catherine McGregor. Presented in partnership with Z Energy.
In today’s edition: Leaner Labour frontbench sees return of familiar faces; Fortnightly rubbish collections on the cards for Auckland; new allegations over Tory Whanau’s drinking. But first, an OECD report warns interest rates will need to stay higher for longer.
OECD outlook muted as business confidence skyrockets
On Wednesday, the Reserve Bank combined an announcement that the official cash rate was staying at 5.5% with a warning that rates will need to stay higher for longer in order to properly quell inflation. Those higher rates are hitting many homeowners hard: almost 20,000 home loan accounts are now past due – 25% more than a year ago – according to credit bureau Centrix. The OECD’s latest economic outlook for New Zealand offers little hope for stretched mortgage-holders, either. The RBNZ will need to “maintain tight monetary policy” next year to keep a handle on inflation, it said. The inflation rate is currently sitting at 5.6% – well off last year’s peak of 7.3%, but still a long way from the central bank’s target of 2-3%. The OECD is forecasting growth to slow to 1.3% next year before ticking up to 1.9% in 2025, RNZ’s Gyles Beckford reports. While the economy will be soft for a while, business confidence is sky high post-election. A net 31% of respondents to the latest ANZ business confidence survey expect the overall economy to improve over the next 12 months – the highest proportion since 2015.
Coalition concessions challenge National’s ‘fiscally neutral’ tax cut package
Economic indicators are slowly moving in the right direction, but tax cuts could put that progress in jeopardy by raising inflation, the OECD warned. National has promised its tax cut programme will be fiscally neutral, however as Thomas Coughlan notes, that promise will be harder to keep in light of some expensive concessions made during coalition talks, such as scrapping the foreign buyers tax and accelerating the reinstatement of mortgage interest deductibility. On the other hand, some new policies will boost the government’s bottom line, including overturning the Smokefree Aotearoa policy and scrapping the plan to increase the Working for Families abatement threshold. As a result of the latter u-turn, families on the lowest incomes will see just $30 a week extra rather than the $67 they were promised, writes Marc Daalder at Newsroom. Prime minister Chris Luxon has blamed the RBNZ’s tighter-than-expected fiscal outlook on the previous government’s “economic vandalism” and said his government would do its part to drive down inflation by cutting wasteful spending across the public service.
Faster interest deductions for landlords mean higher costs for government
Here, courtesy of the Council of Trade Union’s Craig Renney, is a closer look at that mortgage interest deduction policy, and what it means for both rental property owners and the government’s coffers. When National campaigned on reinstating the tax deduction for landlords, its plan was for deductibility to be at 50% for the 2025 tax year, then gradually increased to 100% by 2027. Now, under pressure from Act, the government will move faster, allowing a 60% interest deduction in the 2024 tax year, and 100% by 2026. By Renney’s calculations, the sped-up implementation will cost the government $900m on top of the $2.1b already set aside to fund the change. The deduction would be retrospective, meaning some investors may be refunded for tax paid earlier this year. “That’s hugely unfair and simply rewards landlords for nothing,” says Renney.
Residential construction may be turning a corner
Not surprisingly, the faster phase-in of interest deductions has delighted property investors. Mega-landlord Matt Ryan – owner of more than 100 Wellington properties – calls it a “game-changer” for investors and says he’s already seeing a “dramatic shift” in property sales partly as a result. The housing market doldrums have been particularly tough on developers, who have been hit by a double whammy of high costs and lower prices. New Stats NZ figures show that the number of new-build homes dropped more than 20% in the past year, compared to the year before. But the cost of construction appears to have stabilised, reports interest.co.nz’s Greg Ninnness. The average cost of building a three-bedroom home rose 4.9% this year, down from 11.3% in 2022. With dropping costs and a hotter property market, the new-build sector could be set for a turnaround in 2024.
A food writer on why food-focused journalism matters
Talking about food means talking about everything from the workaday meals we whip up in our kitchens to some of the most pressing political and social issues we face. Because I spend so much of my time dwelling on all this, I’m so proud that The Spinoff is launching What’s Eating Aotearoa, a multimedia journalism project that recognises just how vital the food landscape is. Even more, I’m grateful that our readers are already throwing their support behind this project.
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- Charlotte Muru-Lanning, editor of The Boil Up
Leaner Labour frontbench sees return of familiar faces
Labour has unveiled its shadow cabinet and few of Chris Hipkins’ appointments come as a surprise. Most reflect MPs’ portfolios while in government, though the departure of Nanaia Mahuta and Andrew Little has led to a reshuffle of their roles. Announcing the line-up, Hipkins boasted that his first 20 MPs have about three times more ministerial experience than National, New Zealand First and ACT combined. The Post (paywalled) has a look at the head-to-head battlegrounds to watch. Among the most exciting is TV political panel duo Chris Bishop and Kieran McAnulty – the pair whose Breakfast appearance with Matty McLean yesterday went semi-viral on Twitter – who will be duking it out on housing policy in parliament next year.
Fortnightly rubbish collections on the cards for Auckland
Auckland is considering a move that would reduce kerbside rubbish collections to once a fortnight. It’s part of a council plan to drastically reduce the amount of rubbish produced by households, supported by the recent city-wide rollout of food scrap bins expected to reduce up to 41% of bin contents by weight. The change will only occur once the food scrap collection service is well established, the council says, likely in 2026. Councillor Daniel Newman says it will be “one of the most inconvenient and unproven changes that council officers have ever proposed” and will prove deeply unpopular with many Aucklanders. Fortnightly rubbish collections are common both internationally and in other New Zealand centres.
The RBNZ’s wet blanket for summer
The Reserve Bank surprised everyone this week by warning it may have to raise interest rates again to force inflation down, effectively eliminating the prospect of major mortgage rate cuts over the coming summer. In this week’s episode of When the Facts Change, Kiwibank chief economist Jarrod Kerr joins Bernard Hickey to dig in to the RBNZ’s unexpectedly hawkish outlook heading into 2024.
Click and Collect
Reviving oil and gas exploration will make NZ a ‘pariah’ state, says WWFNZ head.
A campaign volunteer has talked to the Post (paywalled) about Wellington mayor Tory Whanau’s drinking, claiming the then-candidate missed meetings after nights out drinking and that volunteers had to police her alcohol intake.
The Pogues’s famously hard-drinking lead singer Shane MacGowan has died, aged 65.
The ceasefire in the Israel-Hamas conflict has been extended for another day, but Hamas says it is running out of hostages to offer up, making further extensions a challenge.
Feeling clever? Click here to play 1Q, Aotearoa’s newest, shortest daily quiz.
A group of caffeine-crazed Spinoffers rank the canned iced coffees of New Zealand. Counsellor Ross Palethorpe argues in favour of turning off the news when it all gets too much. Joel MacManus looks at how rumour and innuendo overtook the Tory Whanau story. Sam Brooks previews the acts playing K’ Road music festival The Others Way tonight. Gabi Lardies attends a gathering where attendees make holiday cards for prisoners. Hera Lindsay Bird advises a reader trying to figure out dating app etiquette.
Wellington Phoenix vice-captain Chloe Knott has quit the A-League, saying it is no longer sustainable to work a fulltime job while pursuing a football career.
Auckland Council’s draft budget lacks any provisions for improvements to Eden Park or Mt Smart Stadium, and any enhancements would have to be paid for by selling all or part of the land at North Harbour Stadium, the Herald reports (paywalled).
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