On Tuesday, Prime Minister Jacinda Ardern attempted to squash the nation’s business confidence scourge.
It was a good try. She highlighted how a few of today’s market indicators look healthy:
‘…we’ve run a strong surplus, have the best net international investment position ever recorded, stable and low interest rates forecast for some time which ought to spur investment and the lowest unemployment rate in a decade.’
And yet, despite these facts, Kiwi businesses still lack confidence in our future. Why?
Jacinda claimed that the true reason was certainty, particularly policy certainty.
But I doubt it. Why? Because ‘policy certainty’ is a vague term that politicians — especially politicians seeking re-election — use as an invitation to expand their various programmes and schemes.
And Jacinda confirmed that by announcing several new projects.
And every single one called for more government and more intervention.
Maybe…just maybe…that’s why businesspeople across New Zealand are losing confidence.
Maybe it’s not that they’re worried about what the government won’t do, but rather what the government will do.
If you’re a small business owner, you might be concerned about the current administration broadening regulation on you — forcing you to give your employees pay raises, upping your tax burden or weakening the dollar…
And yet Jacinda pointed towards doing each of these.
Maybe she should spend less time talking to her peanut gallery of economists and more time talking to real-life businesspeople.
Cooking the books
If you need more proof that the state acts in its own interest, look no further than Housing New Zealand (HNZ).
HNZ is a state-run social housing programme for low-income Kiwis. It’s been a major element of Labour’s political agenda and has been recently expanded to fulfil some huge promises.
We’re talking 6,400 new state homes over four years.
And a project like that requires big monies — Housing Minister Phil Twyford called for NZ$2.9 billion.
By the way, that works out to $453,000 per house…that is significantly more than the average building cost of a house at $395,000. But who expects the state to be efficient, right?
Anyways, back to the $2.9 billion. It’s where the juicy scandal is.
When Twyford and Finance Minister Grant Robertson called for these funds, they were encouraged by the Treasury to borrow through normal government sources.
If the funds were to come out of the normal Crown debt, the interest rate would be lower, and the amount would be on the books. That is, the debt would show up in the government’s budget.
Treasury analysts did the numbers and predicted that borrowing through the Crown would save $11 million each year over borrowing through independent sources.
But it would vastly increase the amount of core Crown debt.
And that could prevent the government from achieving its budget goal of bringing Crown debt under 20% of GDP in five years. [openx slug=inpost]
So what did Robertson and Twyford do?
They ignored the analysts and borrowed from independent sources, effectively hiding the debt from the budget. And costing taxpayers millions of dollars more each year for a less-secure source of funds.
In other words, they’re paying millions more for funds to keep the debt off central government balance sheets.
And this isn’t some CIA black-ops mission. It’s the social housing programme.
No, it’s all a farce — an organised government farce to improve optics and shirk the normal budgetary processes.
At the same time, don’t think we’re only going to name-and-shame Labour here. Just a few years ago, National pulled a similar stunt. Stuff.co.nz reports:
‘The advice echoed similar words given by Treasury when the National-led Government decided to allow Housing New Zealand to borrow over $1b in the last Budget.’
This isn’t a party problem; it’s a politics problem.
It’s a tactic for pointing out the benefits while brushing the costs under the rug. And that’s why it should tick you off. It’s a blatant attempt to manipulate you — the voter — into thinking the authorities are doing a fantastic job.
Come election season, you better believe you’ll be hearing about this again. Labour will be quick to point out that they will have built 6,400 houses while keeping Crown debt under 20% of GDP.
Never mind the $2.9 billion camouflaged off the state’s balance sheet.
So what’s the government going to do with all this cash? Twyford claims he’ll help move thousands of less fortunate Kiwis into his homes, but so far, the evidence shows that he hasn’t done a great job.
If you weren’t aware, there’s a long wait list to get into one of these HNZ houses. As of June, the number was over 8,700 households.
That’s 56% more than last year.
And why is the list swelling?
Well, Twyford claims it’s because so many more Kiwis are crawling out of the woodworks into his loving arms.
He says, ‘We expected the waiting list to grow as more of the hidden homeless — families living in overcrowded homes, people couch surfing and others living in substandard homes and unsustainable conditions — come forward for help.’
Or maybe it’s because he’s not delivering on the homes he’s promised.
Folks have to wait an average of 136 days on the wait list before moving into homes. And many of these households qualify for state-paid motel stays while they wait.
Reliable. Efficient. Housing New Zealand.
Editor, Money Morning New Zealand