Newsroom Pro's 8 things: Ardern sees migration slowing by itself...for now; Contractors now wary of big Govt projects

1. Will Labour wait for a natural migration fall?

Prime Minister Jacinda Ardern said yesterday she was happy to wait until next year before coming up with detailed plans to tighten migration settings.

Waiting may soften the political and economic pain of tough migration cuts, and is more in tune with Ardern's natural instincts on the issue, given she inherited a tough policy driven by Andrew Little.

The net migration cycle appears to be moving in the right direction to help any strategy of waiting rather than cutting.

Migration figures published yesterday by Statistics New Zealand appear to show migration coming off its highs naturally. That would allow the Government to loosen its plans to restrict migration of international students and lower-skilled temporary migrants and still see net migration fall by the 20,000 to 30,000 per year it indicated before the election and agreed in coalition talks with New Zealand First.

Seasonally adjusted net migration in the month of October was 5,580, which is down from a record high 6,330 in January. The trend measure has fallen from a high of 6,130 in November to 5,400 in October. Net migration in the year to October was 70,694, which was down from a peak of 72,400 in July. Auckland saw net migration of 36,357 in the year to October and has experienced net migration of 98,597 over the last three years.

Non-New Zealand citizens on work visas continue to drive the vast majority of the net migration, rather than moves to and from Australia by citizens of both countries (as the chart above shows). Student migration is dropping after fraud crackdowns.

Student visa arrivals in the year to October were 24,021, down from 27,480 two years earlier after a crackdown on fraud in the Indian market, a re-toughening of English language rules and a clean out of poor quality providers by NZQA. Indian student visa arrivals have almost halved to 5,831 in the year to October.

However, growth in work visas continued to almost completely offset the fall in international students. Work visa numbers were up to 46,013 in the year to October from 36,670 two years earlier.

Ardern was asked about the Government's migration plans yesterday at brief stand-up news conference in Wellington after dishing out strawberries and cream to pedestrians for the Mary Potter Hospice.

Ardern downplayed the prospect of any immediate action, which tallied with comments from Immigration Minister Iain Lees Galloway in recent days about consulting with employers and education exporters before any changes. Galloway also described the 20,000 to 30,000 figures as "not a target" and that that Government was not fixated on the numbers.

"Obviously we are focused on our first 100 day plan which has made sure that we are extremely busy getting those agenda items underway. But at the same time our Minister for Immigration of course is focused on getting in place that change in settings that we campaigned on," Ardern said.

Asked when the Government would start, she said: "It wasn't part of our hundred day plan, but look it hasn't stopped us of course making sure we are getting work underway on all of those areas of focus for us as a government. For us, it was about making sure that those who chose to call New Zealand home are getting the best opportunity possible - that means making sure that the work that they have had an undertaking is available, is available and that our students, in particular, aren't being exploited."

"The goal for us is just about getting the settings right. The flow on effects we will probably see over time. But, for us, the settings was the most important discussion."

Finance Minister Grant Robertson was also at the event and commented when asked about Westpac Economist Dominick Stephens' estimate of a drop to a net gain of 10,000 peer year.

"That goes further than either the Reserve Bank or Treasury have projected in the recent past, so that seems a bit larger than what I have seen in terms of estimates but, as the Prime Minister has been saying, we want to change the settings to reflect the values and principles that we are bringing to the table – the exact numbers that then flow from those change in settings we will see over time," Robertson said.

Asked why the Government did not seem in a hurry to cut migration, Ardern said: "We are only three weeks in and you see from the agenda, on the one hand we are being told that we are moving too quickly. We've got to make sure we prioritise those things that we gave a commitment to delivering in 100 days, and that is exactly what we are doing."

National Immigration Spokesman Simon Bridges described the comments as a "backslide" and a "backflip."

"It’s great to see them starting to acknowledge and adopt the previous Government’s immigration policy, however how serious are they? And does the anti-immigrant party New Zealand First support this change?" Bridges said.

“This flip flop has been coming over recent days and weeks as Labour has belatedly realised New Zealand’s high rate of employment and shortage of skilled labour."

2. The problem with novated contracts

Newsroom's David Williams has followed up the blowout in the projected cost of the Christchurch sports stadium and dug deeper into how contractors are feeling about all the cost blowouts on big Government contracts.

One reason many contractors are wary is the increasing use of novated contracts by the Government that put the risk of blowouts on the contractor, rather than the Government. That's what caught Fletcher Building out in delivering the Justice Precinct. Now contractors are being a lot more cautious.

David reports for Newsroom that could present big issues for a Government wanting to ramp up infrastructure spending with massive new housing and light rail projects.

The Government has being warned it can no longer shift the financial risk for multi-million dollar projects onto design and construction companies without paying a premium.

Two construction industry heavyweights told David novated contracts had inflicted large losses on firms over several years and a fairer approach is needed.

That could pose problems for the Government, as it reviews several delayed Christchurch anchor projects and prepared to embark on what could be the largest construction project in New Zealand’s history – KiwiBuild.

On Tuesday, the Government pulled the carpet from under its preferred contractor for the metro sports facility, Leighs Cockram Joint Venture, after a “cost blowout” of $75 million.

Christchurch Rebuild Minister Megan Woods’ office has confirmed it was a novated contract – although the agreement torn up by Crown rebuild company Otakaro was for early contractor involvement.

Construction Strategy Group chairman Geoff Hunt said the pendulum had swung too far in favour of project procurers and the industry is starting to push back.

“Contractors I know are already walking away from certain projects because the risks are too high.”

He adds: “I think there’s been enough damage to the design companies and the construction companies that they’re going to be much smarter in what they sign up to.”

Construction Industry Council chair David Kelly, the chief executive of Registered Master Builders, said to take on the risk of a novated contract, a contractor would charge a premium – “which is only fair”.

“So you can get some cost-blowouts because of the process the Crown’s chosen to use.”

The highest-profile case is Fletcher Building’s losses from Christchurch’s justice and emergency precinct and convention centre, which are central city anchor projects. Last month the company said it had clocked up losses of almost $200 million on those projects. Fletcher's share price has plunged from near $11 a year ago to around $7 today, wiping more than $2 billion from the listed company's market capitalisation.

Hunt said the Fletcher lesson could mean fewer bids for large, complex projects in future or companies walking away if they’re not comfortable with the risk.

“I’m sure many of the construction companies have read the Fletcher story in the newspaper and their owners and boards will be saying to their managers, be conservative, be real and don’t under-price these jobs.”

Kelly added: “That’s the real concern here and the construction industry has for some time now been saying – and particularly talking about the Government – you can’t just pass on all your risk to everyone else and not pay a reasonable premium and just want to get the cheapest price all the time.”

After the global financial crisis, construction companies were desperate for work and many, unwisely, signed up to contract conditions they wouldn’t normally. But the advantage is now swinging back the way of the construction firms, which have a plethora of projects to bid for.

Add to the mix the Government’s KiwiBuild project, which aims to build 100,000 houses over 10 years. Hunt said that would probably cost $40 billion, making it possibly the largest construction project in New Zealand’s history.

The Government has to be “smart and quite balanced” about the way it goes in procuring that size of construction project, he says. That’s because no construction company worth its salt would touch a novated contract associated with KiwiBuild.

“There are better ways of tackling projects that will still bring very, very good results for the Government.”

3. 'Social Investment here to stay'

Newsroom's Shane Cowlishaw has interviewed new Social Development Minister Carmel Sepuloni about her plans on benefit and whether she supports former Prime Minister Bill English's big new idea of the 'social investment approach'.

It turned out she didn't like the direction English was taking social investment, but liked the idea itself.

Sepuloni told Shane she was in favour of the concept of social investment and said the new Social Investment Agency would continue under Labour.

“It has a future. They have real potential and I’m not the only Minister that thinks that," she said.

“I support the (social investment) concept, I don’t support the direction the National Government were taking the concept. Their version of social investment was primarily driven by fiscal implications to the State, so how much is someone going to potentially cost us long term and how we work with them to mitigate those costs moving forward. The Labour Party doesn’t like to view New Zealand citizens as fiscal liabilities.”

She had asked officials to look at how other countries had approached the concept, particularly in Europe where the focus was investing in a person, not on how much they could save the country.

In a recent briefing issued by the New Zealand Institute of Economic Research, senior economist Sarah Hogan said Labour’s early intervention approach, such as the Best Start policy, would greatly influence the path social investment took.

See Shane's full report from the interview here, where it was first published by Newsroom Pro yesterday.

4. A crisis unfolding on Myanmar's border

Newsroom's Foreign Affairs and Trade Editor Sam Sachdeva has talked to a Wellington nurse about the conditions facing the refugees fleeing Myanmar.

While most of the recent discussion in New Zealand about refugees has focused on Manus Island, a far more dire crisis is unfolding thousands of kilometres away, Sam reports.

Guru Dev Singh (left in the photo above), who has just arrived back in New Zealand after more than a month working in Bangladesh, is among those to have seen the suffering first-hand.

Singh, whose work with the Red Cross over nearly a decade has taken her from Africa to the Middle East, says the situation in Bangladesh is a different kind of crisis from those she has encountered previously.

“It is about people fleeing violence, these are the people who do not have any status in their own country and then they’re leaving their country to arrive in a country where they’re taking shelter...they’re relying on the local community, the local government and the international community as well at the same time.”

Most refugees want to go back to Myanmar but feel it’s too unsafe to return, and they arrive in a condition that reflects the toll their travels have taken on them.
“They are very badly malnourished, they are sick, they are injured, they are traumatised, and they’ve faced quite a lot of atrocities which they’ve told us about…

“Their houses have been burnt, their families killed in front of them. When you think about the psychological effects, it’s no different from war.”

5. Student support cost less than expected

Moves to increase the amounts students can access and borrow to support their studies will cost less than estimated, according to the Government, Newsroom's Shane Cowlishaw reports.

The student allowance will be boosted by $50 a week next year to $227.03, while the amount students can borrow towards living costs will also rise by $50 to $228.81. But there was criticism from some, including National’s Steven Joyce, that the policy was being announced without the cost being made public.

Prime Minister Jacinda Ardern faced questions from media on the topic during her stand-up at lunchtime and soon after a Government staffer dropped around the official costings to the Press Gallery.

It showed the estimated cost to be $94 million in the first financial year, rising to $200m, $202m, and $205m in the subsequent years. Labour’s pre-election estimate was for $270m a year.

It is understood the difference was due to Labour not realising that tertiary student numbers were forecast to decline in the next four years (not taking into account any impact from their free-fees policy) and a “lack of resources” available to opposition parties when preparing financial estimates.

6. Briefly in the political economy...

Not so early start - Education Minister Chris Hipkins said the Government planned to reverse a policy allowing children to start school in the term they turned five, even if it means they are only four for much of the term. Hipkins told Stuff the new policy would mean children would have to turn five before starting school.

'Not just us' - Jacinda Ardern admitted the Government's plan to plant one billion trees included the trees already being planted by the private sector.

Now they tell us - Uber revealed that hackers obtained the personal information of 57 million customers and drivers last year and that it paid the hackers US$100,000 to delete the data and not tell anyone. (Guardian)

First home buyer help - Britain unveiled its Budget overnight, including the removal of stamp duty for first home buyers.

7. Coming up...

Statistics New Zealand is scheduled to report retail trade volumes for the September quarter later this morning. They are expected to show flat retail spending.

Finance Minister Grant Robertson is expected to announce details about the Tax Working Group later this morning.

The Labour caucus is scheduled to hold a half day special meeting on Friday in Wellington to prepare for a four-week legislative and executive sprint to Christmas to achieve the bulk of the new Government's 100 day plan.

8. One fun thing

I quite liked this piece of advice today from Rowan Simpson (an alumni of the Trade Me/Xero/Vend/Timely success stories):

"I propose the following rule of thumb for Boards of Directors: if you’re all older than the Prime Minister then you have a problem."