In this morning's email we cover the careful reshuffling of the National caucus, a combination of bomb defusal and lolly scramble.
1. Bridges treads carefully
A new leader with a big caucus and a collection of defeated rivals and colleagues has to be careful. Simon Bridges was careful yesterday to reward his leadership rivals with high spots, but also to quietly demote some of the longest serving MPs.
Newsroom's Thomas Coughlan reports the real story was the decision to promote defeated leadership contenders Amy Adams and Judith Collins into his top four and Mark Mitchell to number seven, displacing longtime National frontbenchers like Gerry Brownlee.
Unlike other leaders who take the opportunity of a reshuffle to banish challengers to the back bench, Bridges has his former competitors forming a Praetorian Guard around himself and Paula Bennett.
Further down the list, the reshuffle was something of a lolly scramble. One of the challenges with a caucus this large is placating so many ambitious young MPs, while keeping powerful and popular senior MPs loyal. Bridges' solution was to reward nearly all 56 MPs in one way or another. He was quick to tell journalists that his opposition will be a 56-MP policy factory. Every MP down to Nicola Willis, who has not yet entered Parliament as she awaits Steven Joyce’s formal departure, has a responsibility.
Here's the full National list of MPs, ranked in order with their portfolios.
See Thomas' full story here, which was published first on Newsroom Pro.
2. Collins unleashed on Twyford
Housing is an area the Opposition wants to attack the Government on.
Labour has set an ambitious targets with Kiwibuild, but changes to the Overseas Investment Act and difficulties in recruiting tradespeople may hamper the policy. Bridges said that Collins asked for the portfolio.
“Phil Twyford is on notice, Judith is coming…,” said Bridges.
Twyford welcomed the fight.
"She's the epitome of an old-school hard-hearted Nat," Twyford told Henry Cooke.
"You need a builder not a crusher in the Housing portfolio. If there's one thing National should have learnt in the nine years it's that people want some compassion in housing," he said.
This will be a key battle. Twyford has the weight of huge expectations on his shoulders to fix Auckland's housing and transport crises. Collins can attack hard, but must be careful not to alienate the young urban voters who actually like trains and apartments.
Labour and the Greens sees these voters, who provided a chunk of the special voters that tipped the combined Labour and Green count of MPs as crucial in the battles of 2020 and 2023.
If they can turn the youth tremor in 2017 into a rolling quake through the next eight years then it can boost its hopes of retaining power. National risks reinforcing pre-conceptions about it being the party of the car, the motorway and impossibly high house prices.
See more in Thomas' full piece on the National reshuffle.
3. 'We were for it before we were against it'
Bridges and National didn't get off to a good start, highlighting a knee-jerk oppositional line on dealing with Auckland's infrastructure funding logjam.
The Auckland Council cannot raise its debt too much faster than it already is without alienating local voters (because of the higher rates needed to service higher interest costs) and ratings agencies (who would downgrade Auckland's AA credit rating).
The added complication is that a credit rating downgrade would increase the borrowing costs of all of New Zealand's councils, because Auckland's rating sets the baseline for the Local Government Funding Agency, which borrows on behalf of councils. Some think an Auckland downgrade would also cause a sovereign downgrade, which would increase the borrowing costs of all New Zealanders, including both business and households with mortgages.
That debt inflexibility is because the Council, along with the rest of local government in New Zealand, only has one major revenue raising tool. Rates are essentially a lagging way for economic growth to pay for infrastructure, and even then are limited. Council can only get revenue from the benefits of growth once the people and businesses are living and working in the city. But councils are mostly responsible for building the infrastructure needed to build those houses, offices, warehouses and shops. Councils also can't rely on the benefits of strong economic growth through GST and income tax receipts, unlike similar jurisdictions overseas.
It is the central flaw at the heart of New Zealand's economy. Growth happens in local council jurisdictions, but they don't get the full revenue benefits and can't fund the infrastructure on their own, particularly in high growth cities.
So governments of both the central and local variety have been trying to find a way through this logjam by inventing new ways to fund the infrastructure, without either the central Government borrowing more or councils borrowing more or increasing rates dramatically.
The previous central government looked favourably at the prospects for 'value uplift capture rates', whereby the increase in capital values in zones near new transport infrastructure are 'captured' by local government and used to fund the infrastructure. Land owners don't get the full windfall gains of being near a train route or motorway, but have to get some of those gains up to the funder of that infrastructure.
Both Bridges and Steven Joyce were positive about the idea when in government.
But now they're in opposition, they're painting the idea as an extra tax. Collins called it an 'envy tax'. Finance Minister Grant Robertson talked again about value uplift capture last Friday.
Adams and Collins both chastised Robertson on social media for the idea, labelling it an extra tax.
When asked about Adams’ and Collins’ comments, Bridges again seemed nervous and affirmed that now (as opposed to a few months ago) National was against the idea.
Bridges also refused to describe the housing situation as a crisis.
4. 'Disappointingly light' fund spending
Newsroom's Thomas Coughlan took a closer look on Friday at the first announcements from the Provincial Growth Fund. He spoke to BERL economists, who described the first few announcements as "disappointingly light."
The Provincial Growth Fund will spend $1 billion a year on projects in the regions and could provide serious growth to neglected parts of the country. But the process and speed at which the fund is moving could mean some of the most crucial projects miss out.
BERL deputy chief economist Hillmaré Schulze and Senior Economist Fiona Stokes said the fund presented an opportunity to tackle issues identified by New Zealand businesses in the latest Global Competitiveness Report. The top three barriers to business identified in that report were: inadequate supply of infrastructure; inefficient government bureaucracy; and insufficient capacity to innovate.
They argued that the fund will help to address some of these concerns and bring business to the regions. There are some concerns that the Government will have difficulty allocating funding to regional projects within the ambitious timeframe it has chosen for itself without splurging on projects whose business case may be less than convincing.
“This rather tentative start perhaps signals a more fundamental concern around the rapidity that current government processes can respond with necessary urgency,” Schulze said.
See Thomas' full report on Newsroom Pro, where it was published on Friday.
5. Briefly in the global political economy..
Malcolm Turnbull confirmed on Saturday that Australia would be exempted from Donald Trump's steel tariffs. Trade Minister Steve Ciobo denied opposition claims Australia had agreed to join America's next military outing. (Guardian)
It turns out Donald Trump agreed to Kim Jong Un's offer of a direct meeting with the US President without even bothering to consult his Secretary of State, National Security Advisor or Chief of Staff. He agreed to the suggestion from a South Korean envoy on the spot during a 45 minute meeting, the New York Times reported. His advisers were openly stunned and worried Trump had made a major concession without a verifiable suspension of North Korea's nuclear programme in return. Trump's latest decisions on North Korea and steel have injected a new element of uncertainty into global politics and trade.
New Zealand's former Carter Holt Harvey CEO, GM CFO and Microsoft CFO, Christopher Liddell, is tipped as one of the candidates to replace Gary Cohn as Donald Trump's chief economic adviser. (CNBC) Sounds like the ultimate hospital pass.
6. Coming up...
Environment Minister Eugenie Sage is expected to announce New Zealand will join the United Nations-led CleanSeas campaign to clean the oceans of plastic later today.
Economists are expecting Statistics New Zealand to report GDP growth in the December quarter of around 0.7 percent on Thursday. They are now fine-tuning their numbers as the components of GDP (wholesale trade and building work put in place) come through. Growth in the quarter from a year ago is expected to be around 3.1 percent.
Statistics NZ is scheduled to publish current account figures on Wednesday.
Parliament is not sitting this week.
7. One fun thing...
BarstoolNate after Martin 'Pharma Bro' Shkreli was sentenced to seven years in prison for fraud. (Shkreli outraged many when he increased the price of Daraprim, a drug used to treat toxoplasmosis in people with HIV/AIDs, by 5,500 percent)
"Never forget how funny the transcripts from Martin Shkreli's jury selection were". The link is worth the click
8. This morning's political links
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