Dawn chorus: $110b water bill

Low debt and low tax settings come home to roost after 30 years of under-investment and the last decade of super-fast population growth; Hospitals under extreme pressure this week for the same reason

TLDR: The obsession of Governments of all colours since the mid-1980s with “keeping a lid on debt” and holding the size of Government down around 30% of GDP is coming home to roost. Stuff’s Thomas Coughlan reports this morning on official advice that councils and the Government need to spend up to $110b over the next 30-40 years to deal with past under-investment and necessary improvements.

It shows again the puny-ness of the $761m set aside by the Government in its ‘3 Waters’ reform process as its carrot to tempt councils to sign up to new water authorities is. All because the Finance Minister and Prime Minister want to ‘keep a lid’ on debt and Treasury (bizarrely) still have not worked out what they think a prudent level of debt should be in this new era of low interest rates for so much longer.

Meanwhile, the blowback against this week’s interest deductibility shock is growing among landlords, who describe a ‘bitter taste’, have launched a petition, and say the changes are much worse than the British ones they were modeled on. We’ll see how dedicated the Government is to its policy, now there is such political heat and talk of 10-30% price falls among economists. By the way, the NZ$ fell sharply this week to 69.5 USc, partly because this package suggests lower interest rates for longer, and switches some of the incentives from investing in property to investing in actual businesses that might export something. That’s good.

Brace for it

The first big test of the market will be later today when auctions for houses are held up and down the country. Auctioneers and vendors will be nervous. First home buyers will be crowding in, but I suspect everyone will struggle to get decisions out of their bankers, both because the tax changes shift the risks for banks and because of Westpac’s massive decision to sell Westpac NZ.

By the way, here’s my ‘When the facts change’ podcast on The Spinoff for this week, focused on the big housing package.

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