Newsrooms 8 things: Foreign home builders will have to sell; Naval upgrade cost blowout; SSC's pay crack-down plea; MPI survives as one ministry

In today's email we looked at the detail of the proposed legislation to ban foreign buyers, and detail what Defence Minister Ron Mark claims is "the biggest blowout" yet found by the new Government.

1. Forcing foreigners to build and flick

Hopes that foreign investors will be able to help build tens of thousands of new homes and apartments have taken a blow. They are a major provider of capital for new apartments in Australia, but their incentives will be restricted here.

The Government is set to introduce legislation today to ban foreign buyers from buying existing homes and to force them to sell any new homes or apartments that they build.
Housing and Urban Development Minister Phil Twyford and Land Information Minister Eugenie Sage announced yesterday that legislation would be introduced into Parliament tomorrow to designate residential land as sensitive land under the Overseas Investment Act, effectively banning non residents who are also non-citizens from buying and holding homes.

The legislation is set to be debated in its first reading next Tuesday, with a select committee process early next year before being passed by the end of March.

"It will mean for practical purposes that foreign buyers will not be able to buy residential property unless they are either increasing the number of residences and then selling them or converting the land to another use," Sage said.

Anyone who is not a permanent resident will have their application screened by the Overseas Investment Office.

The time period over which foreign builders of homes or foreigners buying apartments off the plan must sell on the new dwelling has yet to be set. A spokeswoman for Twyford said there was an exemption for rest home operators and other long-term accommodation providers such as hotels.

Twyford said Singaporean buyers may join Australians as exempt from the rules if New Zealand cannot agree a new trade agreement. New Zealand's Trade Agreement with Singapore was the only one preventing such a foreign buyers' ban.

Foreigners will still be able to buy land less than five hectares and land bank it, although Twyford said the Government planned other measures to discourage land bankers.

The full text of the bill will be available later today. Treasury, which is managing the release of the HYEFU today, is expected to release advice on the bill later today or tomorrow.

2. Cost blowout or cheeky contractor?

Defence Minister Ron Mark grabbed centre-stage in Parliamentary Question Time yesterday to reveal what he said was the biggest cost blowout yet found by the new Government.

Mark revealed a $148 million cost over-run for the Anzac frigate systems upgrade project, but former Defence Minister Gerry Brownlee accused Mark of “grandstanding” and placing blame for the cost overruns at the feet of supplier Lockheed Martin.

Issues with the upgrade to the frigates’ surveillance, combat and self-defence capabilities were first revealed in the briefing to the incoming minister from the NZ Defence Force and the Ministry of Defence, which was released to the public last week and noted the project was “currently facing significant cost pressure”.

Mark told Parliament the project, which had a budget of $491m in 2014, had blown out to $639m.

He said there had been “a series of inaccurate estimates and project management errors” by the Ministry of Defence which had been compounded by previous ministers’ failure to act.

Mark said Cabinet had agreed to a revised contract with Lockheed Martin Canada and a “fiscally neutral transfer” with the Defence budget to fund the upgrade.

Money had been reallocated from funding for the littoral operations support capability project, with a commercial dive and hydrographic vessel purchased instead of a military-specific option.

Brownlee accused Mark of caving in Lockheed Martin.

“We’d given Lockheed Martin the opportunity to reprice, I don’t know they’ve done a lot about that - quite clearly they’ve managed to convince the new minister that they’re the only crowd in the world who can do this stuff.”

Brownlee said the previous government had been looking into whether another supplier could install the equipment, or whether it could be done locally.

Defence suppliers were “somewhat merciless” in the prices they applied to their services, he said.

Asked whether he saw the budget blowout as a sign of failure by the Ministry of Defence, Brownlee responded: “I’ll tell you what, I see this as a new minister coming in thinking he can grandstand over some past performance, but ending up costing the New Zealand taxpayer tens of millions of dollars by not being hard enough.”

It was “extraordinary” the new Government had moved so quickly to agree to Lockheed Martin’s price, given the frigates were due to be replaced within another decade or so, he said.

See the full story first published on Newsroom Pro here from Newsroom's Foreign Affairs, Trade and Defence Editor Sam Sachdeva.

3. MPI survives break-up drive

Fears about disruption to food exports because of a change in the MPI's status as New Zealand's sole food safety consenting authority appear to have saved the super-ministry from a break-up. Worries it would delay the start of the one-billion-tree planting plan were also a factor.

Agriculture, Food Safety and Biosecurity Minister Damien O'Connor announced yesterday the Government has decided to keep the Ministry of Primary Industries (MPI) intact as one ministry, but it will reorganise it into four branches.

Those entities are Fisheries New Zealand, Forestry New Zealand, Biosecurity New Zealand and New Zealand Food Safety.

There was discussion early in the Government's formation that MPI would be broken back up to its original constituent ministries of Agriculture, Fisheries and Forestry. The previous Government merged the three ministries into MPI in 2012, but it faced criticism in recent years about its performance around bio-security, which was just one part of the mega-ministry.

O'Connor said MPI's name would not change and it would remain the host agency for the new branches.

He said MPI had developed four options for changes, including the establishment of four separate agencies. MPI had also considered the potential effects on trade and market access of any changes to MPI's status as New Zealand's 'Competent Authority.' MPI had decided it was important to keep branding consistency and the assurances to overseas partners that New Zealand's products were fit to export, which would avoid potential for disruption to trade.

"The Government made the decision that four new, separately branded portfolio-based branches within MPI is the best option to minimise the cost and loss of productivity to MPI while also achieving the necessary refocusing of MPI."

"We had the unfortunate incident when MPI was formed that the competent authority was not recognised by our overseas trading partners. Meat sat on the wharves in China," O'Connor said.

"We believe that maintaining the Ministry for Primary Industries as the competent authority to deal with those certification issues will remove the risk of that occurring again," he said.

The change will take place in early 2018 and be complete by April 2018. It would cost $6.8 million to create the four business units, with extra ongoing operating costs of $2.3 million per year. The funds would come from reprioritised spending from the Primary growth Partnership Fund, O'Connor said.

MPI would build up its presence in Rotorua and O'Connor gave an assurance there would be no redundancies, saying MPI had been squeezed for funding since 2012 and had lost good staff because of it.

Forestry Minister Shane Jones said he was presented with a choice of a restructured new ministry that delayed new tree planting or being able to eventually plant one billion trees. He said he wanted to keep the Prime Minister happy, given she had promised the one billion trees at a climate change conference.

He also said he would also like to see the crown-owned Scion be renamed as the Forestry Research Institute.

Opposition spokesman Nathan Guy said millions would be wasted on a wasted and ill-conceived rebrand.

“The worst part of it is though, that the money is essentially being fleeced from the Primary Growth Partnership Fund – used for essential research and development - to pay for bureaucracy," Guy said.

4. Auckland vs Wellington on Cup plans

It's a big day for the political economy in both Wellington and Auckland today.

The Government will detail the costs of its 100 day plan and set the fiscal groundwork for the rest of its first term at the Half Yearly Fiscal Update due at 1pm today.

In Auckland, there is a big decision due from the Council on what option it will choose for locating the teams and activities for the America's Cup.

Newsroom Co Editor Tim Murphy reported this morning the Auckland Council and the Government are still deeply at odds over the waterfront options for America's Cup bases. The Council and Team NZ want the Wynyard Basin option above, while the Government led by David Parker want the Tank Farm used.

Councillors will be told today the Government option is too high a risk because of the presence of hazardous substance businesses nearby, the "prohibitively expensive" cost of moving them on for the period of the Cup, a lack of space for the eight teams likely to be in the event, and that it does not leave a legacy for Auckland.

Even a law passed by Parliament to make the Government option happen "could not address all these matters".

Both the Government and the Council would be expected to pay towards the waterfront facility to host the 36th America's Cup in Auckland.

At the same Council meeting today, Auckland Mayor Phil Goff will rule out paying for a multi-million dollar event hosting fee for the 2020-21 event which Team NZ requires.

After weeks of negotiations and investigation the parties are split on the best site in which to invest what could be at least $140 million of public money.

The Government will not let go of its preferred and, according to Council reports and Team New Zealand, highly flawed option on the old Tank Farm. It could be millions of dollars cheaper than the Council and TNZ's Cup village to build and it would not need new wharf construction that could encroach into the harbour.

See Tim's full report here on Newsroom.

5. A different Forestry Service?

Further to the news that the Forestry Service won't be its own Ministry, there is a debate brewing about what it should actually be once it is formed within MPI.

Dame Anne Salmond of Auckland University has published a detailed view on Newsroom this morning. She wants to see it more focused on native forests and reducing the environmental and other externalities currently borne by local communities and councils.

"It is vital that the new Forestry Service is not captured by lobbyists for the industry, and that it invests in forestry regimes that make positive contributions – financial, social and environmental – to the New Zealand economy and to the regions," she writes.

"This will require a new kind of accounting, one that weighs the costs and benefits for ratepayers and taxpayers, and not just corporate enterprises. Many costs are regarded as ‘externalities’ because they’ve been shifted from company balance sheets onto local communities and households. The benefits may also include subsidies from taxpayers (eg the Erosion Control Funding Programme) that are heavily weighed in favour of exotic forests.

"The benefits of permanent native forests – long-term carbon sequestration and erosion control, contributions to water quality, benefits to terrestrial, freshwater and marine ecosystems, and associated industries like manuka honey, bio-medical products and sustainable logging of high value native timbers – need much greater research and recognition. Over 50 million years of independent evolution, indigenous trees have learned to live in local landscapes, and we have a great deal to learn from them."

See her full view here on Newsroom.

6. 'Enough with the big pay hikes'

The new Government has called time on the escalation of pay for state sector chief executives, saying candidates should be more interested in the public service than the remuneration.

State Services Commissioner Peter Hughes, who has been in the job since July last year, took the unusual step yesterday of calling out three Crown entity boards who had paid higher salaries than the Commission recommended in the last financial year. They are the Guardians of NZ Superannuation, ACC and Telarc.

"The upward trajectory of chief executive salaries in the state sector, in particular some Crown Entities, is not sustainable and it’s time for change," Hughes said in releasing the Commission's Senior Pay Report for 2016/17.

"Crown entities have a strong element of public service, operating with public money for the public good and executives should reasonably expect to earn less than in a private sector company," he said.

“Crown entities who choose not to follow State Services Commission advice with respect to the chief executives’ remuneration are now identified in this report. This information can inform Ministers’ decisions about the tenure of board members."

Hughes said State Services Minister Chris Hipkins had asked him for advice on potential regulatory options or changes to the Crown Entities Act to provide tighter controls.

See my full report here on Newsroom

7. Briefly in the political economy...

A third hike - This morning the US Federal Reserve hiked its official interest rates by 25 basis points for a third time this year and forecast three more hikes in each of 2018 and 2019. The Fed Funds Rate was raised to a range of 1.25 percent to 1.50 percent, suggesting the baseline for global interest rates would rise by another 1.5 percentage points to around 3.0 percent by the end of 2019. The Fed raised its economic growth and lowered its unemployment forecasts, but inflation remained stubbornly below its two percent target for another year. Core US CPI inflation was just 0.2 percent in October and was 1.7 percent for the year. (Reuters)

A pipe probe - Energy Minister Megan Woods announced a wide-ranging and independent inquiry into the Refinery to Auckland pipe outage in September. She said the terms of reference and the inquiry's members would be finalised early next year.

Teacher shortage - Education Minister Chris Hipkins announced the Government would spend $9.5 million on a special package of measures to improve teacher numbers in Auckland and in subjects including science, te reo Māori, technology and maths .

8. Coming up...

Poverty reduction - Prime Minister Jacinda Ardern is set to release the details of Labour's families package and its legislation to target reductions in child poverty in Auckland early this afternoon.

100 days in one document - Finance Minister Grant Robertson is set to release the Half Yearly Economic and Financial Update (HYEFU) with a new Budget Policy Statement at 1pm today after a lockup for journalists and analysts. It will reflect the new Government's policies in its 100 day plan and Treasury's latest economic forecasts.

Cup day - The Auckland Council will decide later today where the America's Cup base will be located.

Woohoo - The Press Gallery's Christmas Party is on tonight. There will be an email tomorrow.

Sea change - Climate Change Minister James Shaw is set to release official advice on expected sea change levels for Councils tomorrow in Auckland.