The news that matters this morning
Four Eyes at once - Prime Minister Jacinda Ardern had a rare opportunity overnight to meet almost all the leaders of New Zealand's 'Five Eyes' security intelligence partners. The only one missing was Donald Trump.
Hot on the heels of allegations that Russian-backed hackers had launched cyber attacks across the world, including in New Zealand, Ardern met in London with Malcolm Turnbull, Theresa May and Justin Trudeau at the National Cyber Security Centre. They were tight lipped about what they would talk about. ( RNZ
Auckland housing delays - A $300 million Housing Infrastructure Fund Plan to build the infrastructure for 6,200 new homes at Whenuapai and Redhills had stalled because rising infrastructure costs and developers not being able to fund their portion meant the scheme may not proceed, the NZ Herald reported .
"There is uncertainty around the level of risk that council is exposed to through potential escalation in costs for capital projects," according to a report submitted to Auckland Council.
There were also concerns that unlocking Whenuapai and Redhills for housing would raise expectations about unlocking land in the wider area for 13,000 new houses, which the cash-strapped council could not afford, the Herald reported.
R&D tax credit - As promised before the election, the Labour-led government has proposed phasing out the Growth Grant administered by Callaghan Innovation and introducing a 12.5 percent research and development tax incentive in a discussion document released this morning.
Secret trip - In a major concession to North Korea that signaled some sort of de-escalation of tension on the peninsular is increasingly possible, US President Donald Trump disclosed his CIA Director Mike Pompeo had secretly traveled to North Korea to meet with Kim Yong Un to organise a summit between the two leaders. South Korea also said it had started talks to formally end the war with North Korea. ( New York Times )
2. A dispute of our times
Newsroom's Auckland social issues reporter Teuila Fuatai has been following Fu Wah's plans to build a Park Hyatt hotel in the Wynyard Quarter in Auckland with the help of 200 temporary workers from China.
It is an emblematic story of the political and economic pressures on the Government and the country more generally. Auckland desperately needs someone to build new hotels, hospitals, roads, railways, houses and schools, but is just as short of the construction workers needed to make it happen.
Meanwhile, voters frustrated with all the infrastructure shortages want to stop the migration pressures on the infrastructure. Labour and New Zealand First promised to tighten the temporary visa rules that allowed in tens of thousands of cooks, retail assistants and service station attendants, but want to avoid clamping off the flow of construction workers needed to build the infrastructure. In part, the promised (but not delivered) tightening of temporary worker rules is designed to reduce the downward pressure on wages at the low end.
Hence the interest in Fu Wah's proposal to bring in workers from China at 25 percent below-market rates, before they have to pay their employer for their own food and board, as Teuila reported on February 28.
Fu Wah is going through the application for work visas and has had to disclose that it plans to pay them less than for locals. It is now arguing it plans to train locals and has worked with unions on the application.
Now Teuila reports the unions are opposing the application, saying Fu Wah misrepresented their views in the application.
Former Alliance MP Matt Robson is representing Fu Wah and has been guiding the application through the process, including with the Ministry of Social Development.
This application is now something of a political weathervane. If it is approved, it will send a signal on the Government's thinking. I spoke to a construction worker recruiter in Christchurch recently who said he was able to import workers from the Philippines for as much as $10-15 hour less than the equivalent New Zealand worker.
Here is Teuila's full story first published on Newsroom Pro.
3. Our Sri Lankan opportunity
Newsroom's National Affairs Editor Shane Cowlishaw has become our office's resident Sri Lanka expert after he visited Sri Lanka and India last year.
He has written a detailed look at the prospects for New Zealand to ramp up trade with the fast-growing island economy as it recovers from a civil war.
Sri Lanka is hoping for an economic boom similar to New Zealand’s, Shane reports in a piece that starts with a conversation with Dilmah founder Merrill J. Fernando at his Colombo villa. It turns out Fernando has a soft spot for New Zealand.
Years after the end of a brutal civil war, Sri Lanka's beautiful beaches are beginning to attract attention, while the easy accessibility and rich cultural history have put the country on many must-visit lists.
The country also has a fledgling whale-watching industry, another similarity linking the two countries. Despite this, trade between the two countries remains insignificant.
In 2016, New Zealand sent $254 million in dairy products and fruit to Sri Lanka, while $55m in tea, retreated tyres and clothing flowed back. While our exports have doubled since 2000, both sides believe there is room for much more growth.
There is a possible free trade agreement in the works, or possibly a trilateral agreement including Singapore that has been dubbed ‘3i’, or ‘Three Islands’.
A multi-country agreement is a likely option, but also of interest to New Zealand businesses is the rare free trade deal Sri Lanka holds with India.
While officially still on the table, New Zealand’s own negotiations with the second most-populous country on the planet are effectively dead in the water. But gaining access to Sri Lanka, or setting up a springboard there, could open up the larger lucrative Indian market to enterprising companies.
See Shane's full article here on Newsroom Pro , where it was published first.
4. Developers, agents cheer IMF view
Newsroom's Business Editor in Auckland Nikki Mandow has picked up on comments from the IMF critical of the changes to the Overseas Investment Act designed to stop foreign investors from owning homes they might build here.
Opponents say it is stripping a potentially large amount of capital and expertise out of the effort to build tens of thousands of affordable homes. The proposed changes are currently before a select committee.
Nikki reports property developer Alastair Porter, one of the submitters to the committee hearings, welcomed the IMF’s stance, saying the foreign buyer ban has too many unintended consequences.
“The political problem is that what they are suggesting sounds like a good idea. If you stop selling houses overseas somehow there will be more for New Zealanders. But as 95 percent of submissions [to the committee] said, actually it will have the reverse effect - it will aggravate the shortage of affordable housing,” Porter said.
The Real Estate Institute of New Zealand was also cheered by the IMF’s statement. Reinz has argued there is no data to suggest foreign buyers are buying the nation's houses, referring to data from LINZ showing two percent of buyers did not have New Zealand tax residency.
However, that LINZ data is useless as a measure of foreign buying, given it only measures tax residency and includes ownership by local corporates where the ultimate ownership is not identified.
See Nikki's full story here on Newsroom.
5. A tax on net equity?
Susan St John from Auckland University has written an Op-Ed to add to the debate around how to tax capital gains in property, particularly by landlords.
She argues for a tax on net equity.
"The Tax Working Group should look carefully at the 2001 Tax Review and explore a tax on net equity approach. Based on the principle that all income-earning assets should be treated equally, the $50,000 net equity (invested by a landlord in a $550,000 property) could be treated the same as if the investor had placed that money on deposit at the bank. At five percent this creates a taxable annual income of $2,500, a rather modest sum. But with a non-deductible $25,000 interest bill to pay and with other costs, the investment is clearly not worth it at current rents," she writes.
"And it won’t get better, because net equity increases each year as the value of the property goes up.
"Unwisely Labour has taken the owner-occupied home off the Tax Working Group’s table. The danger of that decision is that elaborate owner-occupied housing becomes even more attractive. It would be better to allow a generous exemption for a home, say up to say $1 million net equity per person.
"That way the $20 million owner-occupied mansions will be included, but modest homes fall outside the net."
See Susan St John's full column here.
6. Coming up...
Statistics New Zealand is scheduled to report inflation figures for the March quarter today at 10.45 am. Thomas Coughlan will cover it for Newsroom.
Economists expect quarterly inflation of around 0.4 percent, which would see annual inflation drop from 1.6 percent to 1.0 percent -- the bottom of the Reserve Bank's target band. The Reserve Bank's last public forecast in February was for 0.6 percent for the quarter and 1.1 percent for the year.
Outside of housing costs (rent and house building costs), there is little inflation. The move to free fees for the first year of tertiary education is expected to offset a 10 percent rise in tobacco excise.
Economists are not expecting the Reserve Bank to hike rates until well into next year, although all will be watching Adrian Orr's first Monetary Policy Statement as Governor closely on May 10.
7. One fun thing...
This may well be photoshopped, but it still tickled my fancy.
Only in Australia: "Australia summed up in one picture."
And the Onion is on fire again.
"On This Day In History: Cackling Trump Reveals To Dinner Guests They’ve All Just Eaten Single Piece Of His Tax Returns."
8. This morning's political links
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