The eight news events that mattered in the week around our political economy included the key details in Budget 2018, the emergence of mycoplasma bovis as a macroeconomic and fiscal issue, pressure building on New Zealand's big four banks to detail their conflicts over Kiwisaver sales, and a wider crackdown on retailers not paying workers at the start and end of shifts.
Trump did some things too.
Opportunity cost - Grant Robertson's first budget did exactly what he said it would do on the tin, but it was also the biggest missed opportunity in a generation.
It's hard to accuse politicians of wrongdoing when they deliver exactly what they promised to the letter and the number. The new Labour-led Government promised billions in catch-up spending on hospital spending, new teachers and thousands of new state houses, while at the same time running Budget surpluses and reducing net debt. Budget 2018 ticked those boxes easily.
The trouble is when they could have done so much better if they had only chosen to ignore the fear of a ghost and broken just one promise to properly achieve a transformation that is desperately needed and often talked about by this same Government. Here's more detail in my comment piece on Newsroom Pro.
Sort of net debt - One feature of the Budget was a decision to increase Labour's pre-election promise of building 1,000 new state houses each year to around 1,600 per year. That's not quite as much as the 2,000 a year that Phil Twyford wanted, but it is still expensive at just over $4 billion. If the Government were paying for that itself, it would have eclipsed the additional health spend had it opted to front up with all the spending itself.
But the number isn’t half as interesting as how the build will be financed: $2.9 billion of that funding will come from third parties investing in a new bond issue from Housing New Zealand. Additional funding will come from Housing NZ carrying over $900 million of its operational funding for the build and an additional $234.4 million allocated in this Budget.
Housing New Zealand’s ability to borrow was set in train by the previous government. Robertson confirmed that Housing New Zealand’s debt, as well as the debt issued by Crown Infrastructure Partners would be off balance sheet and not count towards the Government’s target of reducing net core crown debt to 20 percent by 2022. But even if it was included, the number would rise to just 20.1 percent by then. Robertson argued it was within the Budget rules. See Thomas Coughlan's full article here on Newsroom Pro.
Big projects put off - The pressure to meet the 20 percent debt target was evident in some of the decisions not to invest. The Government put off a decision on spending $1 billion on a new prison at Waikeria. Instead, it will house 600 prisoners in temporary buildings. It's essentially a kick for touch in the politically sensitive area of law and order, where the Government faces the unpleasant choices of either building big, new expensive prisons, or dialing back on the 'tough on crime' moves on bail and sentencing laws.
Secondly, the Airforce's long-hoped-for and multi-billion plan to replace its ageing Orion marine surveillance aircraft with variants of the Boeing 737 were put off again. It won't lose any votes for Labour, but it may put yet more pressure on our relations with Australia, which regularly complains we spend less than we should on defence and that we effectively freeload off Australian's much heavier spending.
Black hole referee - Another announcement in the budget that didn't get a lot of attention was a plan to create an independent fiscal institution to advise politicians and the public about Government forecasts and cost political promises. Both Labour and the Greens promised to look at creating one before the election.
Grant Robertson and James Shaw announced consultation over the details of the committee would begin in August. It sure would have been helpful last year when Steven Joyce accused Labour of having an $11.7 billion fiscal hole. The details are not set yet, including how big it would be, who it would report to, and when it would be empowered to operate. That could span the whole gamut from a Canadian-style Parliamentary Budget Officer or a US-style Congressional Budget Office to Britain's Office for Budget Responsibility. There are now 39 such independent fiscal institutions. See more in this list.
The big questions will be whether it runs between elections, how big its budget might be and how its success is judged.
Unpaid bills - The Budget also included an extra $8.85 million over four years to pay for extra labour inspectors. The Inspectorate's more aggressive approach to finding and prosecuting employers who shortchange workers is already paying off for workers. A High Court decision against Smiths City's non-payment of wages for a 15 minute daily prep session for employees has come home to haunt a whole range of retailers.
First Union published a list on Wednesday of 12 companies, including Briscoe’s, Rebel Sport, The Warehouse, Countdown, Pak n Save, Cotton On, Noel Leeming, Harvey Norman, Farmers, Kmart, Whitcoulls and Warehouse Stationery, that almost 1,500 workers had complained about doing similar things. What else might the new inspectors find?
M. Bovis just got real real - This week MPI found mycoplasma bovis in the Waikato and the scale of the crisis became something talked about in macroeconomic and fiscal terms. A decision is looming over the next week over whether to accept it is here and try to manage the fallout, or continue to try to eradicate it with cullings.
Damien O'Connor saw the total cost in the hundreds of millions of dollars and approaching $1 billion. The Government estimated its own costs at $85 million in the Budget, but also included a line in the budget for $11.2 million worth of contributions from the industry to offset that cost. My understanding is Beef and Lamb and DairyNZ are contesting that cost, but also want the eradication effort to continue. Something has got to give on this one, and quickly, because the June 1 'Gypsy Day' when sharemilkers move their herds is approaching fast.
Conflicting pressure - Today is the deadline for the big four Australian-owned banks to hand over details of their internal findings about Australian-style problems with conflicts of interest and poor treatment of customers in New Zealand. The FMA and the Reserve Bank effectively read the banks the riot act in a letter demanding the findings be handed over.
Newsroom's Business Editor Nikki Mandow took a closer look this week at the conflicts of interest problem the biggest banks have around Kiwisaver. The FMA and the Reserve Bank are taking an even closer look behind the scenes. At the same time, calls for our own commission of inquiry are growing, including from bank workers worried about selling customers products that might not be in their best interests.
On the brink - Hopes for a simple and peaceful countdown to US President Donald Trump's summit with North Korea's Kim Jong Un in Singapore on June 12 were dashed this week. North Korea indefinitely postponed separate talks with South Korea and threatened to call off the summit altogether, citing military drills held by South Korea and America.
Meanwhile, China's role in the showdown and the complications behind its trade disputes with America also reared their heads. Trump befuddled friends and critics alike by ordering his Commerce Department to back off sanctions imposed on China's ZTE that have pushed the Chinese telecommunications technology giant to the brink of collapse.
Also, Trump played a role in further destablising the Middle East, carrying through on a promise to establish America's embassy in Jerusalem. That triggered clashes on the border between Israel and Gaza where Israeli forces killed 54 Palestinians and injured over 2,000. He also carried through with his withdrawal from the west's deal with Iran to limit its nuclear programme. The move further alienated America from Europe.