The news that mattered this morning
Deal melts down - US President Donald Trump announced this morning he was withdrawing America from a deal struck under President Barack Obama to limit Iran's nuclear programme in exchange for removing sanctions. Trump said he would reimpose even tougher sanctions. European leaders and Obama criticised the move, while Iran said it may retaliate, potentially with a fresh moves to create nuclear fuel that could provoke Israeli action. The oil price was flat after the announcement, but has risen in recent weeks to US$75/barrel. (Reuters)
Budget dripping out - Deputy Prime Minister Winston Peters announced nearly $1 billion in extra funding for aid in the Pacific and diplomats to negotiate fresh trade deals overnight (see more on that below from Sam Sachdeva). This morning Social Development Minister Carmel Sepuloni announced the Budget next Thursday would include an additional $76 million over four years for services for victims, perpetrators and their families of domestic violence.
Tourism pressure - Visitor arrivals are expected to reach 5.1 million a year within six years, up from 3.7 million last year, MBIE forecast yesterday. But can we handle an extra 1.5 million tourists a year? Local Government New Zealand President Dave Cull questioned whether local infrastructure could handle it. "Infrastructure is already under pressure and much more is needed to ensure a fair funding division is achieved between tourists and local ratepayers," Cull said. China’s tourists are forecast to be the biggest spenders at $3.1 billion a year by 2024, just surpassing the Australians. Total spend will be $15 billion by then.
More exploitation? - Following Monday's announcement of a seasonal labour shortage in the Bay of Plenty that will allow tourists to stay to pick kiwifruit, FIRST union questioned whether it would simply allow more migrant exploitation. It pointed to an official investigation last year that found more than half of the Kiwifruit industry's employers breached employment standards.
2. Now it's better than they thought
Prime Minister Jacinda Ardern stood next to Finance Minister Grant Robertson on April 9 to lower expectations about the Budget next Thursday, saying the Government had discovered widespread under-investment and it would have to reprioritise some of its priorities because of that.
Since that dampening down of expectations, the Government has revealed it is delaying some of its promises, in particular a planned cuts in doctors' fees.
But monthly figures released by Treasury yesterday showed the underlying budget surplus measuring ongoing revenues and spending is actually healthier than the Government expected as recently as the half yearly update in mid-December.
Tax revenues are running $1.1 billion above those December forecasts after nine months of the fiscal year and Treasury said this was expected to hold through to the end of the year because solid economic growth is boosting corporate, income and GST taxs. The $3.3 billion surplus by the end of March was $910 million better than forecast.
Add that to the $1.4 billion worth of annualised cost savings and revenue increments from the Government's tax policy tweaks that Robertson identified last week and the Government has at least $2.3 billion worth of fiscal headroom.
That doesn't negate the capital under-investment story, but does mean there are billions of dollars worth of operational surplus free for capital investment in health and education.
The capacity to use the Government's balance sheet to spend more on capital investment is also clear in the latest debt to GDP figures revealed yesterday.
Core Crown debt was 21.4 percent of GDP at the end of March, below the 22.2 percent forecast in December. That suggests the debt track would fall to the Government's 20 percent target faster than the 2021/22 forecast in December without any policy changes.
That means Robertson has both more cashflow to spare and more balance sheet capacity to spare going into the Budget on Thursday to announce surprisingly large capital spending on health, education, housing and transport.
“We’ve been looking at those monthly statements over the last few months that will all be factored in to what we announce next Thursday,” Robertson told Newsroom's Thomas Coughlan yesterday.
Unsurprisingly, we saw an effort a month ago to dampen expectations before a 'better-than-expected' result and spending plan in the budget itself.
See more detail in Thomas Coughlan's report on Newsroom Pro from yesterday
3. Winston delivers for MFAT
At least some of that budget largesse is being dolloped into MFAT for spending on aid in the Pacific and extra diplomats to help negoatiate trade agreements with Europe and the UK post-Brexit.
Newsroom's Foreign Affairs and Trade Editor Sam Sachdeva was at Foreign Minister Winston Peters' speech last night for the announcement of almost $1 billion worth of extra aid, capital and operational spending.
The largest chunk was $$714.2m over four years for New Zealand’s official development assistance (ODA) budget, which Peters said had fallen from 0.3 percent of gross national income (GNI) to 0.23 percent under the last government.
See Sam's full report last night on Newsroom Pro, including news of 50 new foreign policy positions.
National Leader Simon Bridges described the spending as putting diplomats ahead of doctors.
4. $58 mln congestion charging plan
Newsroom's Auckland reporter Farah Hancock has reported this morning on the work Auckland Council is doing on congestion charging.
She has found a $58-million project included in Auckland's 10-year transport plan.
The project to create the infrastructure to support congestion charging is listed in Auckland Transport’s draft Regional Land Transport Plan.
If Auckland’s results after introducing congestion charges match other countries, every commute could be like a school holiday commute, with 15-30 percent less traffic.
The draft Regional Land Transport Plan does not include detail of how the $58m will be spent, describing it only as “infrastructure to support the implementation of congestion pricing”. Currently it is included as an unfunded project within the draft plan.
Auckland Transport told Newsroom the figure is a provisional amount, based on what might be needed to put congestion charging infrastructure in place.
5. Lake Pukaki land deal blocked
An Environment Court battle over a private lodge to be built overlooking Lake Pukaki might be over before it has started, after the Crown refused to sell the land, Newsroom's David Williams reports from the South Island.
The winds of political change are being felt in the Mackenzie Basin.
Land Information New Zealand (LINZ), which manages Crown land, has refused to follow through on the controversial sale of Crown land next to Lake Pukaki. Blue Lake Investment (NZ) Ltd, the company that would have ultimately bought the land, had plans to build a private lodge for its Hong Kong billionaire owner, Ka Kit “Peter” Lee.
Now it has asked the Environment Court to put the case on hold while ownership of the land is resolved.
Key to LINZ’s refusal to sell was “the recent change in Government and ongoing review of land use in the Mackenzie Basin”, as well as the Department of Conservation’s (DOC) intention to seek protection for the land.
Environmental groups that were gearing up to fight Blue Lake’s lodge proposal are delighted, saying it’s a sign of LINZ’s change of attitude under the new Government.
6. Coming up...
The Finance and Expenditure select committee meets at 9 am today to discuss the Overseas Investment Act changes, the Base Erosion and Profit Shifting changes to tax legislation and to hear a briefing on the Budget process. It will also hear submissions on the Treasury's 2018 investment statement.
The Social Services select committee will hear submissions on the Child Poverty Reduction bill from 9 am on Wednesday.
Statistics New Zealand is scheduled to publish electronic card transactions data on retail spending in April at 10.45 am today.
The Reserve Bank is scheduled to publish its May Monetary Policy Statement at 9 am on Thursday and its latest decision on the Official Cash Rate. Economists expect the OCR to remain on hold until well into 2019. Governor Adrian Orr will hold a news conference shortly after 9 am and then take questions at a Finance and Expenditure select committee from 1.10 pm on Thursday.
The Foreign Affairs, Defence and Trade select committee will discuss in public the Comprehensive and Progressive Agreement for Trans-Pacific Partnership from 9.30 am on Thursday.
Finance Minister Grant Robertson will give his traditional pre-Budget speech to the Wellington Chamber of Commerce at 1 pm on Thursday.
The Real Estate Institute is expected to release its sales data for April on Friday morning.
7. One fun thing...
The Australian Treasury held its customary lockup for journalists and analysts in Canberra overnight, but started charging A$3.80 for coffee and A$4 for muffins.
Our Treasury confirmed via tweet yesterday it is much better:
"Don't worry, @nztreasury will not follow Australia's decision to charge for coffee and food at the Budget lock-up. Our Living Standards Framework analysis shows sausage rolls are integral to NZ's social capital, and coffee is a prerequisite for productive use of human capital."
All I can say is no wonder our 10 year bond yield closed yesterday at 2.75 percent.
8. This morning's political links
These are available in the morning subscriber email