Hive News Monday: English eyes higher structural levels of migration and welcomes targeted rates talk

Lunchtime in Newmarket. Copyright Lynn Grieveson / Hive News

John Key has returned from India and the machinery of Government will get back into full swing this week with Cabinet set to meet later today and Parliament resuming tomorrow.

Bill English has also returned back from last week's joint meeting of Australian and New Zealand ministers and the Australia-NZ Leadership Forum. He launched this useful Australia New Zealand Infrastructure Pipeline website, and I asked him about Trans-Tasman people flows and the potential for a structurally higher level of migration, particularly given last week's surprise record high migration figures of almost 70,000 for the year to September.

English agreed Treasury was looking at whether there had been a structural lift in Permanent Net Long Term (PLT) migration from its long-run average of 12,000. Treasury forecast a fall in the May Budget to that level of 12,000 by 2019.

He said it was puzzling that Australia's GDP growth rates of around 3% were not generating the usual employment growth in Australia that powered the usual outflow of New Zealanders to Australia. This change was important given the significant impact on New Zealand's economic growth and fiscal forecasts, he said.

English said there were growing signs that structural migration levels may have lifted to around 30,000 a year from 12,000.

"The normal pattern is for it to drop fairly sharply back towards the long run average for PLT of around 12,000. There seems to be accumulating evidence that the normal pattern isn't applying, but because we haven't been here before, no one knows quite what the pattern might be," English said.

"The possibilities range from a significant structural shift where you would expect that, in the next five or six years, to come back to some other number -- 20 or 30 thousand -- or even coming to 15,000 would be higher than the long-run average -- or there's some sort of structural shift in the way the world works and we're going to have 30 to 40 thousand levels for a while," he said.

Asked about what that would mean for the Government's infrastructure and growth plans, he said: "We've been thinking about that for a while -- that we've been building infrastructure for growth. It's just a matter of how much it is."

English pointed to recent investments in roading and education.

"It's just a question of how much that growth pressure is likely to be more than it has been in the past, and that's why the spend is picking up pretty quickly," he said.

English welcomes targeted rates discussion

Further to Auckland Council CEO Stephen Town's comments to me last week (see Hive News Wednesday) on the potential for Auckland Council to look at using targeted rates and selling a lease on Ports of Auckland land, English said he was encouraged by the discussion, and the Government was also looking at changing some of its settings to allow "growth to fund growth."

He referred in particular to the role of the NZ$1 billion Housing Infrastructure Fund, which Town said could be lifted to NZ$2-3 billion if its initial use was successful.

"It is going to be a catalyst for a shift in thinking around infrastructure," English said.

"We need to move to a position where growth can fund growth," he said.

"Whereas in the past people have said they can't fund growth, even if people turn up. It's good to see a developing discussion about a wider range of financing tools, including some that have been sitting in our legislation for a long time unused."

English said both central and local government had to contribute.

"I wouldn't put all the responsibility on Auckland. We've got to look through our policy settings and change them where it holds back the logic of investment going with growth and the growth paying for it," he said.

"Most people are thinking about that now, so that's why it's good to hear the Auckland City is looking at targeted rates and municipal bonds. These are all versions of the same thing. It's a sound principal that growth should fund growth."

The Government was looking hard at its own settings, he added.

"The Housing Infrastructure Fund will be a catalyst for deeper thinking and probably some sorts of change. There's a set of issues there around governance and pricing and who pays related to infrastructure that clearly need to shift given the population growth and economic growth."

In other economic and political news...

Andrew Little and Mt Roskill candidate Michael Wood announced on Sunday a Labour Government would pay NZ$680 million for half of the cost of a light rail line from central Auckland to Mt Roskill. Steven Joyce (who announced plans in March 2015 on the eve of the Northland by-election to replace 10 single lane bridges in Northland) described the announcement as desperate pork barrel politics. Phil Goff cautiously welcomed Labour's announcement, but said there was a case for Wellington to fund 100% of the project, which he compared to a Road of National Significance (RONS).

Fonterra announced on Friday it had cut its milk production forecast for the 2016/17 season by 63 million kgs (4.1%) or the equivalent of NZ$330 million at the current NZ$5.25/kg forecast because of a very wet spring that had reduced output by 14% in the Waikato in particular.

Coming up...

John Key is scheduled to hold his weekly post-cabinet news conference in Wellington this afternoon.

ANZ is due to publish its monthly Business Outlook survey of business opinion at 1 pm today.

Parliament resumes for a three-week session on Tuesday at 2pm.

Statistics New Zealand is scheduled to release its labour market statistics at 10.45 am on Wednesday. Economists are expecting September quarter jobs growth of around 0.5% and for unemployment to be unchanged at around 5.1%, with private sector wage growth unchanged at 0.4% for the quarter.

The Reserve Bank is scheduled to release its now closely watched survey of inflation expectations at 3pm on Wednesday. Both the jobs figures and the inflation expectations figures will be factors in the Reserve Bank's OCR decision that is being finalised this week and will be announced next Thursday.

Have a great week. Look out below for my column on the turning tide of globalisation. Since I wrote it, the Belgian Government has overcome the objections of the Walloon provincial Government, but the Canada-EU agreement remains far from certain.

31 October 2016