News and views from New Zealand

Opportunities missed
Dennis Dorney

The comprehensive victory of the NZ National Party in the recent (Sept 20th) election has (a) confirmed that the Left is in disarray and the Labour Party in particular has reached a point where a clean split into its pro- and anti- neoliberal components is probably its best move and (b) proven that the reason why politicians habitually use dirty trick campaigns is because they work.

The saddest factor in this victory is that the issues which might have produced a victory for the left, because of their effects on economics, social history and the environment, simply didn’t rate. Everything boiled down to personality politics in campaigns that are looking increasingly presidential-style. Given that the new Government has a clear majority, it will be able to pursue its neo-liberal agenda unimpeded. Indeed, since this is its third term in office, this will be its best chance to do so. Mean- while the voting public has missed its chance of making the radical shift in political direction which must surely have to happen soon.

I was wrong in my often-stated belief that housing would be the main issue of the election, because the government had failed to build the houses which would rein in rampant house prices, or to control speculation or to rein in the banks’ desire to pump up yet another housing bubble. That the Government could have given the economy an authentic boost by building thousands of state houses, but failed to do so, was hardly mentioned in the media.

This leaves the nation with a housing policy where first home buyers can borrow against their KiwiSaver Superannuation contributions and also get a subsidy on their home deposits from the Government. This was a desperate ploy late in the campaign, and it shows. If there are not enough houses then the alternatives are to increase supply (not possible in the short term) or to reduce demand. The Government has already had one attempt at this, by raising the minimum deposit that is needed to buy a house. Predictably the net effect was to push first home buyers out of the market and increase the speculative and rental market. Fewer than 50% of Kiwis now own the home they live in.

And NZ home prices are now the most unaffordable in the OECD.

Having reversed that policy and made it easier for first-home buyers to get a deposit and by adding a government subsidy, it can now be predicted that the effect will be to push up the price of houses again, since the supply is unchanged. This ignores what will happen to the KiwiSaver Superannuation Fund.

These resources are privately run and so are prone to some risk. The money spent on a home, made more expensive by the scheme itself, must be offset by a need to replace those superannuation funds in the future, which will not be possible until the mortgage is paid out. If it cannot be achieved in the remaining years of income earning, the home owners will face a more uncertain future. This simply means that their mortgage debt is extended for a longer period, whereas the presumed intention was to reduce debt.

So having missed an opportunity to score on housing, the opposition also missed what ought to have been an easy debating point on capital gains tax on housing. Despite the fact that the OECD supports capital gains (CG) tax in principle and most of their constituent countries apply it in practice, there is no CG tax in NZ. Since it would deter speculators from the housing market and reduce demand, prices would fall, which is the whole point, yet David Cunliffe the opposition leader allowed prime minister John Key to lead him off on a wild goose chase over the effect on relatively few family trusts …. and promptly lost.

An issue which has become a serious problem for most of the government’s tenure of office is the high value of the NZ dollar. This can be regarded as either good or bad, since it lowers the price of imports but increases the price of exports. And since a favourable or neutral balance of payments is regard- ed as desirable, and ours is not, the consensus is that the NZ$ should be lower. This ought to have been a major issue because it affects unemployment, which in NZ is high (though the figures are fudged). But the topic was hardly raised, probably because the Greens got into difficulties some time ago with one of their rare forays into economic debate by declaring that NZ needed quantitative easing because it would lower the exchange rate. I’m not sure why this should be so, but QE was already losing its shine when they suggested adopting it and soon after they went very quiet on the issue.

However the issue won’t go away. In today’s paper a Dunedin firm has just retrenched 30 workers. The reason given (which we hear time and again) was that the high dollar makes NZ labour uncompetitive. Now that the election is out of the way the Reserve Bank is trying to lower the NZ$ by selling off large quantities of them and, yes, the dollar is falling somewhat against other currencies. It seems to me to be a risky venture because I suspect that one reason why the dollar is high is that ‘investors’ do like our neo-liberal policies, and if they liked term 2 then they will just love term 3.

Dennis Dorney is a NZ member of ERA