In today's email we discover the Finance Minister's outlook matches Wellington's sunny weather.
1. Sun shines on Robertson's books
I interviewed Finance Minister Grant Robertson last evening as the temperature nudged up towards 30 degrees around the Beehive.
He was just as sunny when talking about the current state of the economy and the Government's books, particularly in the wake of better-than-expected GST returns late last year.
Robertson is quietly encouraged by the economy's progress in the Government's first 100 days, noting buoyant consumer spending figures and the better than expected tax revenues in the final months of 2017.
He told me the Government's finances and the economy were both travelling well early in 2018, despite some concerns in the business community about a slump in wider business confidence.
He pointed to Treasury figures up until the end of November showing company tax receipts and GST receipts at $531 million ahead of forecasts from the Half Yearly Economic Update just before Christmas. The Government posted a surplus of $125 million for the five months to November when a deficit of $457 million had been forecast.
"It is encouraging," Robertson said of the Treasury figures, pointing to the high GST returns.
"That probably reflects that the end of the year was actually quite good in terms of consumer behaviour," he said.
"Overall, it's positive and tracking well and we hope to see the trend continue."
Robertson is due to start receiving fresh Treasury forecasts for the year ahead in coming weeks that will set the baselines for the 2018 Budget due in May.
He said he was confident the slump in business confidence about the wider economy was not turning into an economic downturn.
"Historically, we know the trend is much more related to business activity than it is about confidence about the Government or the economy generally," he said.
"The correlation is with their own activity. People are upbeat about their own activity and I suspect that's what we'll see in turn."
Confidence about the wider economy fell sharply in the ANZ and NZIER surveys of business confidence in the December quarter, but confidence by survey respondents in their own businesses fell to a much lesser extent. The correlation between 'own activity' measures and GDP growth is higher than for confidence about the economy in general.
"These are perception surveys at this point in the survey. Those ingrained perceptions about what a Labour Government means or a National Government means for business are pretty hard to shake," Robertson said.
"Of course, I'd love those business confidence numbers to look different to what they are at the moment. I think they will in time, but I think the underlying activity numbers are good."
He pointed to high employee confidence in a Westpac McDermott Miller survey and only a slight fall in consumer confidence in an ANZ survey.
"Overall what that shows is that people are confident about their own prospects, both employees and businesses, and that's a good basis to be going forward."
Robertson said the lower business confidence figures were not affecting how the Government was rolling out its policies. Instead, the Government was addressing any concerns about uncertainty by rolling out its policy details in the first 100 days, including details of its employment reforms last week, which were well received in the business community.
"Some of the feedback has been about uncertainty, so the more we can roll out the better," he said.
He acknowledged the one area of uncertainty for employers was around migration settings, as the Government develops its policy to tighten up visa rules for international students and temporary workers.
"We've just have to keep reassuring people that we've got some criteria changes we want to make. We're going to make those changes. The exact numerical result is not what we're aiming at. What we're aiming for is the change in criteria, and that will then drive a result in terms of numbers," he said.
He said migration levels were unlikely to drop back to the long-term averages of below 20,000 per year.
2. Elevated currency noted
Asked about the currency's near-four percent rise to as high as 74.5 USc since the New Year, he said it was dangerous for any Finance Minister to be stipulating levels for the currency.
"But I would point to the statements of both the current acting Governor and the previous Governor around their concerns they've had from time to time that the currency can be a bit elevated when it's up here at these levels," he said.
"We'll keep an eye on that, but in the medium term I'm satisfied we'll be back at the projections we thought."
Last week, after lower than expected December quarter inflation figures, market economists extended their forecasts for the first Reserve Bank interest rate hikes out into 2019.
Robertson agreed a 2019 start to rate hikes was now more likely than a 2018 start. The Reserve Bank itself forecast in November that rate hikes would not start until 2019.
"This probably makes it more likely to be 2019 doesn't it? I'm reading the same commentary you're reading."
Talking about the surprisingly weak inflation figures last week, Robertson said he trusted the medium term forecasts from the Treasury and the Reserve Bank, which indicated inflation would rise back to around two percent.
"The activity we're going to be stimulating in the economy by lifting wages, by more regional development spending, by Kiwibuild, that will still have the effect that we've seen forecast. It will lift growth and see a slight tick up in inflation," he said.
"In the medium term, we're still going to go where we thought. We're still about our part of the programme, which is about stimulating a bit more activity in the economy and putting more money in the pockets of people who will be spending it. We're optimistic there."
3. Gumming up Parliament's works?
Parliament resumes today for 2018 with Question Time at 2pm, but the real legislative work on the Government's 100 day plan will begin shortly after as the machinery of Parliament's select committees cranks into gear.
Newsroom's Sam Sachdeva has written this analysis of how the changed make-up of the select committees could be used to frustrate the Government's progress.
One of the potential procedural wrinkles for the Government comes from an early and embarrassing scrap.
After National claimed to have “assumed the majority” ahead of a vote to install Labour’s Trevor Mallard as Speaker, due to absent government MPs, Hipkins agreed to increase the number of select committee seats for the current term from 96 to 109 (he and Ardern claimed they knew they had a majority but wanted an uncontested vote).
National’s large bloc, coupled with a recommendation from the last term to make select committee composition more proportionate, means the Government controls only five of 13 committees, with the other eight tied.
That’s a sharp change from the last parliamentary term, when the National government controlled 11 committees and had only three tied.
That could present some issues when it comes to committees making recommendations: as the Office of the Clerk’s guide to effective select committee membership notes, tied votes are lost with no casting vote available to the chair.
That cuts both ways: while the Opposition can prevent the Government from recommending amendments to legislation, the Government will itself be able to stop the Opposition from “making too much mischief” through select committee inquiries.
National’s ability to block amendments does have some benefits. The Government will still be able to amend bills, but it would need to take place later, during the committee of the House stage - potentially gumming up the works and slowing down the passage of legislation.
National's Leader of the House Simon Bridges told Sam that National’s goal was to make select committees “relevant and robust” rather than engaging in US-style obstructionism.
See Sam's full analysis here on Newsroom Pro, where it was published first.
4. 'Hobbit Law' set for reform
One specific area of contention and concern for employers is around the 'Hobbit law', which the Government is set to reform -- albeit after extensive consultation.
The Government yesterday announced the make-up of its Hobbit Law reform working group yesterday. It will be led by former political journalist Linda Clark.
Newsroom's National Affairs Editor Shane Cowlishaw has taken a closer look at the battle lines being drawn between film industry workers and the studios. There are dire warnings from the studio bosses, while workers and the minister are playing down those concerns.
5. Briefly in the political economy...
Trump trouble - The FBI's deputy director, Andrew McCabe, signalled his retirement plans overnight. Donald Trump had openly called for his departure and the latest move sharpens the focus on his attempts to frustrate or stop the inquiry into Russian hacking of the election and the Trump campaign's connections to it. (New York Times)
Thinner honey - MPI announced last night it had cut its definition of multi-floral Manuka honey to one milligrams per kg of a chemical marker known as 2’-MAP' from greater than or equal to 5 mg/kg after an industry legal challenge to the definition on the grounds it would at one stroke redefine $100 million worth of honey exports as not Manuka honey. The Opposition accused Minister Damien O'Connor of being cavalier by announcing the original 5 mg standard after warnings of the economic and legal risks.
6. Coming up...
The Government is expected to announce details of its child poverty reduction targets today.
Prime Minister Jacinda Ardern is scheduled to give a speech tomorrow on the Government's agenda beyond the first 100 days, while Opposition Leader Bill English will also give his own 'State of the Nation' address tomorrow.
The Government is expected to announce the details of its state inquiry into abuse in state care on Thursday.
7. One fun thing...
For a dumb laugh or two, I follow Only in Russia on Twitter, but there's also Only in Ireland, which found a great sign this morning.
8. This morning's political links
This is available in the morning subscriber email.