The Budget Policy Statement released by Finance Minister Grant Robertson on 14 December showed how the Government would fit its 100-day plan and coalition agreements into the Budget outlook. And it fits, within self-imposed surplus and debt levels, but it is tight. It also foreshadowed the limits on spending over and above the early deliverables.
The Half Yearly Fiscal and Economic Update (HYFEU) showed the Government has just $6.6 billion for extra operating spending over the next four years. There is also limited room for capital expenditure with provision for $8.9 billion over four years.
With an ambitious programme to implement and high expectations to meet, these numbers are constraining; so much so Grant Robertson conceded the Government will have to look to Public Private Partnerships for infrastructure investments such as rail and housing. It also explains why, during the post-election negotiation, Labour was concerned to cost pay equity deals and understand the implications of wage inflation catch-ups for public servants. This tight Budget outlook may also see cuts in some non-priority areas of Government expenditure.
Added to that, there are signs the economic environment will get tough for the Government through 2018. Treasury has forecast a slight fall in economic growth while drought throughout much of the country is likely to result in reduced GDP. As well as drought conditions, the water temperature in the Tasman Sea is a significant six degrees above normal for December. This sets the scene for tropical cyclones in January or February. Altogether, 2018 looks set to be a challenging year for a Government still finding its feet.
That said, this Labour-NZ First coalition, with Green Party support, is swiftly stamping its mark on Government. Its centre-left policies are changing the business and social environment rapidly. The Government wants to be known to be true to its word. To date it is and this will continue. While business confidence has declined, polling by Labour’s pollster UMR shows historically high levels of voters believe the country is now on the ‘right track’. UMR has run this right track-wrong track poll since the mid-1980s and the current 17 percent ‘wrong track’ reading is the lowest ever recorded. Whatever its critics may say, the Ardern Government appears to be supported by a large well of public good will.
Overseas Investment Amendment Bill 2017: Legislation to implement policy to ban foreign purchases of residential property had its first reading on 19 December and has been referred to Select Committee. The Government wants the Bill passed before the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is ratified in the first quarter of 2017. This means that while the Government is looking to the Select Committee to refine and improve the hastily prepared Bill, submissions will likely close in late January.
The Bill provides for an exemption power, by regulation, which will allow country citizens to be exempted from the Bill’s provisions in accordance with existing FTA clauses. It is this provision, which will be applied to exempt Australia and potentially Singapore if on-going economic partnership negotiations are unsuccessful. There is also an exemption in the Bill to permit foreign investment in long-term accommodation. This is the so-called rest home clause but it will also apply to long-term accommodation such as student accommodation. The provision will allow for foreign owners to build, lease and on-sell this accommodation type. While submissions to the Select Committee will have to be prepared over the summer break, politicians expect to be deluged with submissions. Having recently been on the campaign trail, they are acutely aware of public sensitivity to foreign land sales.
Treasury warned the Government that its rush to ban overseas sales of existing New Zealand homes might have ‘sub-optimal’ or ‘unintended consequences’. The regulatory impact statement also questioned whether the law change would actually ease pressure on the housing market.
The Bill before Parliament is not the end of the issue for the Government. Regulation will be tightened around rural land sales with criteria narrowed under which sensitive land sales can occur. The Government is still developing policy on infrastructure investments – but it is clear that there will be a national interest test. It also appears that there will be restraints imposed on sales of overseas-owned assets to overseas buyers. Forestry is the exception due to what is described as a ‘climate change payoff’ that is, its potential to contribute to carbon sequestration.
Government view on extractive industries: The Government has announced that no new mining permits will be granted on conservation land while other applications for coal mining, offshore oil drilling and fracking will be considered on a case-by-case basis. This reflects conservation and environmental concerns around the Cabinet table around what many are describing as legacy extractive industries. Parliament’s new generation of politicians, who are gaining influence and power, have a deep concern about not only foreign ownership of land but also whether NZ has the balance right on extractive industries. These industries are mining, gas and oil extraction and exploration and intensive farming. There is a view that dairying has lost, or is close to losing its social licence. Environment Minister David Parker is driving this new approach.
Farming: The Government has signalled that it wants positive relationships with farmers but it also wants farmers to control their behaviours around pollution and rivers. If behaviours don’t change then it will regulate.
National Policy Statement on Special Soils: In response to food industry lobbying and concerns about sprawling South Auckland housing taking in the Pukekohe market gardens, the Government has begun work on a special soils policy.
Climate change: The Prime Minister and Climate Change Minister James Shaw announced the Government will set up an interim Climate Change Commission in March or April next year. This will consult widely and try to win cross-party support for a Zero Carbon Act that targets net zero emissions by 2050. A Bill is planned for October 2018. Reflecting the new generation of politicians, National’s Climate Change spokesperson Todd Muller indicated a willingness to engage in the Government’s consultation and Bill drafting.
Coastal Hazards and Climate Change Guidance 2017: Climate Change Minister James Shaw released advice held back by the previous Government on rising sea levels. Described by the Minister as ‘grim reading’, it advises councils to plan for the worst-case scenario.
Housing: The Minister of Housing and Urban Development Phil Twyford has introduced to Parliament the Overseas Investment Act Bill 2017 and the Healthy Homes Guarantee Bill. He instructed Housing NZ to stop the sale of state houses and to loosen its tenancy rules but has decided against restructuring the crown entity. A stocktake on the ‘housing crisis’ commissioned from Shamubeel Eaqub, Phillippa Howden Chapman and Alan Johnson is due with the Minister before Christmas. He has also ended an Auckland relocation grant for Housing NZ tenants to relocate.
The Government’s big-promise – the 100,000 KiwiBuild houses – inched closer with the pre-Christmas announcement of the establishment of a KiwiBuild Unit within MBIE. The Unit (which will be replaced sometime next year by the new Housing Commission) will build KiwiBuild homes on state housing land, purchase new houses off private development plans and explore innovative ways to address current constraints, including alternative financing and construction.
Health: The political nature of health leadership has seen changes come in the form of personnel with the Director General of Health Chai Chua resigning, the Waikato DHB Chair Bob Simcock falling on his sword and the Chair of the three Auckland region DHBs, Lester Levy standing down. Mr Levy is one of five members of a new Ministerial Advisory Group on the Health System. Sir Brian Roche will chair the group. Other members are Professor David Tipene-Leach, Muriel Tūnoho and Dr Karen Poutasi. They have been appointed for two years and will report directly to the Minister. The announcement followed the release of a highly critical Performance Improvement Framework Review of the Ministry.
Government support: A Families Package announced by the Government includes a Winter Energy Payment, Best Start, changes to Accommodation Supplement and Working for Families tax credits and increases to Paid Parental Leave to take effect from 1 July 2018. While some elements of the package are targeted, the $700/year/couple Winter Energy Payment is available to all New Zealanders over the age of 65. People can opt out. The Government also applied this universality approach to student support with its free-fees policy applying to all students entering tertiary education for the first time in 2018.
Key appointments: An important new figure emerged in the last week with the appointment of current NZ SuperFund CEO Adrian Orr as the next Reserve Bank Governor. The Government has already begun a review of the bank to provide it with a dual mandate that targets employment as well as low inflation. Adrian Orr is well known in Wellington circles and is understood to be sympathetic to the aims of the Government.
A second key appointment is Andrew Little’s appointment of the former CEO of Air New Zealand and Executive Chairman of Icebreaker, Rob Fyfe as independent advisor on the re-entry of Pike River. Fyfe won acclaim in 2008 for his management of the Airbus A320 crash in Perpignan, France.
The self-imposed 100-day deadline means that Wellington will kick back into life much earlier in January than is typical. Many officials will return to the office on 8 January. Cabinet Ministers will return on 15 January. In previous years the Wellington bureaucracy has only returned to full strength after Wellington Anniversary Day on 22 January.
Until February the focus remains on the first 100-days commitments. It is only after this that we will see the Government and Ministers prioritise coalition and manifesto commitments. The former have top priority.