John Key and Todd McClay have been busy at the APEC meeting in Lima over the weekend, talking with leaders about trade deals in a post-Trump and post-TPP world.
Key jokingly suggested the Trans-Pacific Partnership could be named the Trump Pacific Partnership to get Donald Trump to adopt it, but there were various suggestions for its adoption in cut-down versions, including adopting a TPP without the United States.
Key told reporters in Lima that a deal that included Japan but not the United States would still be worth it for New Zealand, although its not clear how such a deal would be acceptable to those who only signed up to get better access to US markets, including its auto markets.
"It might be, in the end, the way we go forward without the United States -- that's not an impossible scenario," Key said.
He said he was still hopeful that Trump could agree to a tweaked or slightly renegotiated deal, and he warned the United States that it needed to stay engaged in the region and other countries would not wait forever.
"There needs to be a realisation [in Washington]. The reason that President Obama pursued the TPP was all about the United States showing leadership in the Asia-Pacific region. We like the US being in the region. But if the US is not there that void needs to be filled, and it will be filled by China," Key was reported as saying by the FT's Shawn Donnan.
To emphasise the point, China's President Xi Jingping used the APEC meeting to promote China's own version of a TPP-like deal called RCEP (Regional Comprehensive Economic Partnership).
RCEP is less of an issue for New Zealand because it already has an FTA with China, but countries such as Peru have expressed interest in joining.
NZ and China launch FTA upgrade talks
However, there was some news on the China trade issue.
John Key formally announced the launch of negotiations to upgrade New Zealand's FTA with China after Todd McClay met Chinese Commerce Minister Gao Hucheng at the summit in Lima. Key said the first round of negotiations would begin in the first half of 2017.
The negotiations would look to improve areas already covered by the FTA and allow both New Zealand and China to raise areas such as technical barriers to trade, customs procedures, cooperation and trade facilitation, rules of origin, services, and environmental cooperation. It would also address new areas such as competition policy and e-commerce, Key said.
'Tax cuts still on the agenda'
Key was also asked in Lima whether the Kaikoura rebuild costs meant the Government would change its thinking on tax cuts to be announced before the next election.
His answer could be read either way, but he certainly left the Government's options open, and he also talked for the first time about the potential for a package of spending on families in addition to, or instead of, tax cuts.
He said surpluses were forecast to be NZ$8-9 billion by 2019/20 and quake recovery costs of around NZ$2 billion were not material, he was reported as saying by Claire Trevett and RNZ.
The surplus number for 2019/20 cited by Key is different to the NZ$6.7 billion forecast by Treasury in May, suggesting he may have seen some early forecasts ahead of the Half Yearly Economic and Fiscal Update, which Vernon Small reported him as saying may need to be delayed for a week from December 8 to December 15. RNZ also reported the potential delay.
A Treasury spokesman told me options for dates other than the scheduled December 8 date were being considered, but no decisions had been made.
Key was cagey on what the quake meant for the long-mooted tax cuts, as fuller quotes in this RNZ piece show.
"We're trying to plan over a three to five-year horizons, and we just don't have that feel for that yet, but I don't think the earthquakes as they currently stand will, over the medium term, stop us from wanting to do other things," Key said.
"It's a factor (the quakes) that could have some impact on the decisions we make and we can't say that it wouldn't," he said.
He referred for the first time to a possible "tax or family" package.
"We've identified from our own perspective if there was more money, where would be the kinds of areas we want to go, not what is the make up say, for instance, of a tax or family package, what is the make up of other expenditure we want," he said.
"But nor would it completely render us not to be a position to consider a range of things we would want to campaign on or carry out if we got a fourth term."
Cameron Bagrie questioned whether the Government would now go ahead with tax cuts in this note last week.
"Certainly the mooted tax cuts for 2017 look unlikely to be delivered and the Government will now have less headroom for a pre-election lolly scramble in the 2017 Budget," Bagrie said.
Key tells Zuckerberg to fix tax PR
Elsewhere at the Lima meetings, Facebook founder Mark Zuckerberg spoke to various leaders, including Key.
"I was reasonably blunt. I said I thought Facebook did have an issue in terms of its global tax, with the perception of its tax policy. And I thought he needed to change that," Key said, adding he thought Zuckerberg was surprised by his comments.
"I don't think I'm doing him any favours not telling him that because if you think about what's happening with Facebook, everywhere you go when there's a discussion about multinationals not paying their tax, people say 'Facebook'," he said.
"It wasn't so much about whether they pay their fair share of tax in New Zealand or didn't - maybe they do and maybe they don't. But I think when the shorthand for a problem around multi-nationals not paying their tax is 'Facebook' then I can't see how that's a good thing for Facebook. I think as a company they've got a PR issue."
"I do know you've now got the OECD asking all these countries to hold hands together at major tax reforms when it comes to global multinationals, and at the forefront of that, one of those ... is Facebook. There's a bit of a feeling - that would have got Donald Trump elected - that somehow the world wasn't fair."
Key said he had told Zuckerberg "should at least demonstrate to the world that they do pay their fair share of tax in every location."
"I think if they don't, the same people who are its users will wake up one day and say 'why do I have to pay my tax if this company is not going to'," he said.
IRD increases multi-national target list
Further to the multi-national tax debate, IRD Commissioner Naomi Ferguson told multi-national firms to be more transparent and rebuild trust with the public in a speech to the Chartered Accountants Australia and New Zealand tax conference in Auckland on Friday.
She also announced IRD would increase its target list for large companies to 900 from 600, including all multi-nationals with turnover of over NZ$30 million.
“Corporate tax compliance is high in New Zealand and corporates have no need to be shy about telling the wider public about how much they contribute to our country," she said.
“By being more transparent, we can help change the conversation on international tax affairs and rebuild the trust of the New Zealand public in our biggest corporates, especially the multinationals."
Ferguson released a 25 page multi-national enterprises compliance document, which included an update on New Zealand’s progress against the OECD’s base erosion and profit shifting (BEPS) Action Plan.
“The compliance document shows what we’re doing to ensure corporates pay their fair share of tax. Now it’s the turn of the big companies, both locally and foreign-owned, to make sure they’re being transparent too."
In other political news...
In one of the first signs of policy coordination between Labour and the Greens, The Green Party updated its housing policy over the weekend.
It announced a Green-Labour Government would build 10,000 homes over 10 years for sale through a rent-to-buy scheme to people who couldn't afford a deposit or a commercial mortgage. It would also issue low-interest loans to Community Housing Providers to build up to 5,000 new homes, and would fund the plan by issuing long-term partially-guaranteed housing bonds to investors.
"It fits alongside any government plan to build affordable homes, such as Labour’s KiwiBuild plan that would see 100,000 new homes built in ten years," the Greens said in the policy document.
Andrew Little subsequently welcomed the Green proposal, saying: "The Greens’ rent to buy scheme complements Labour’s KiwiBuild policy to build 100,000 affordable homes for families to buy. Community housing bonds, like Labour’s plan for infrastructure bonds, give mum and dad investors a positive alternative for saving instead of housing speculation."
Treasury is due to publish its Long Term Fiscal Position report on Tuesday afternoon. Treasury is required to update its long-term forecasts at least once every four years.
Parliament is not sitting this week. There are no major statistics scheduled.
Number of the day:
64 - The number of cranes operational in Auckland at the end of September, as measured by the RLB Crane Index for NZ. . This compares with 305 in Sydney, 128 in Melbourne and 95 in Brisbane, as measured in RLB's Australian report.
Quotes of the day:
Barack Obama talking about Globalisation late last week in Greece.
“Globalisation combined with technology combined with social media and constant information have disrupted peoples lives in very concrete ways — a manufacturing plant closes and suddenly an entire town no longer has what was the primary source of employment — and people are less certain of their national identities or their place in the world. There is no doubt [this] has produced populist movements both from the left and the right in many countries in Europe. When you see a Donald Trump and a Bernie Sanders — very unconventional candidates who had considerable success — then obviously there is something there that is being tapped into: a suspicion of globalisation, a desire to rein in its excesses, a suspicion of elites and governing institutions that people feel may not be responsive to their immediate needs.”
Barack Obama on the issue of fake news, as reported in this excellent David Remnick profile in The New Yorker ...
"An explanation of climate change from a Nobel Prize-winning physicist looks exactly the same on your Facebook page as the denial of climate change by somebody on the Koch brothers’ payroll. And the capacity to disseminate misinformation, wild conspiracy theories, to paint the opposition in wildly negative light without any rebuttal—that has accelerated in ways that much more sharply polarize the electorate and make it very difficult to have a common conversation. Ideally, in a democracy, everybody would agree that climate change is the consequence of man-made behavior, because that’s what ninety-nine per cent of scientists tell us,” he said. “And then we would have a debate about how to fix it. That’s how, in the seventies, eighties, and nineties, you had Republicans supporting the Clean Air Act and you had a market-based fix for acid rain rather than a command-and-control approach. So you’d argue about means, but there was a baseline of facts that we could all work off of. And now we just don’t have that."
Have a great week. Just a quick correction to our Friday email. Terry Jordan is the Operations Manager of the Insurance Council, not the Chairman.
And look out below for my weekend column on the sharp rise in long-term interest rates since the election of Donald Trump.