Dawn chorus Monday Nov 2

Greens muzzled for 3 years; Labour hamstrung from taking major housing, tax or climate action; Cabinet lineup due at 1pm; Tenby Powell takes leave from Tauranga mayoralty with cancer

The TLDR version: Labour and the Greens did a deal to form Government that Jacinda Ardern hopes will be seen as stable and likely to retain median voters in 2023. The PM will name her cabinet and outline the Government’s plans to accelerate the recovery this week, but is hamstrung by Labour’s promises on tax, housing and the debt track.

Greens muzzled for three years

Labour and the Greens signed a cooperation agreement over the weekend that will muzzle criticism from the left and aims to retain the support of middle New Zealand ahead of the 2023 election, when a more substantial deal may be needed.

Green Co-Leaders Marama Davidson and James Shaw were granted ministerial roles outside cabinet and as far away from the fiscal levers as possible. Both will have to abide by cabinet responsibility rules on confidentiality and supporting the Government’s positions for their areas of ministerial responsibility. That means the Greens are effectively unable to criticize the Government on climate change, homelessness and family violence.

A closer look at the agreement shows the Greens obtained no tangible or specific policy concessions on climate change, housing or poverty. There was no mention of agriculture in the section on the Zero Carbon Act and only homelessness — rather than housing affordability — was mentioned in the parts of the deal talking about policy, and then without any tangible targets.

There are no suggestions of policies that would require any change in the current fiscal track the Government is on, or that there would be any shifts to the tax system, other than the new top tax rate Labour proposed. The inevitable question about a wealth tax was shut down by both the Prime Minister and Shaw at the news conference about the deal on Sunday.

The Greens lost the Conservation and Associate Transport Ministries held in the first term by Eugenie Sage and Julie-Anne Genter. Shaw lost his Associate Finance and Statistics roles, but kept his Climate Change role and was made Associate Minister for the Environment (Biodiversity). Marama Davidson will become Minister for the Prevention of Family and Sexual Violence and Associate Minister of Housing (Homelessness). Both are nowhere near the budget.

One of the biggest challenges for Shaw and Davidson over the next three years will be stifling criticism within the Green party of their inability to distinguish themselves from Labour, or criticise a lack of action on climate change, housing and poverty.

That was evident in the vote on the deal on Saturday night by the 136 Green delegates. The deal needed 75% support to be ratified and got 83.8%, with 114 voting in favour, 17 against and five abstaining. That compares with 2017, when just three delegates voted against that deal. The leaders can only afford to lose 10 more votes next time before the same deal would not be ratified.

So what next?

Ardern is expected to put her ministerial lineup to Labour’s caucus later this morning for ratification, before an announcement in the Beehive in the early afternoon of the full lineup. Ministers would be sworn in on Friday.

Key areas to watch are who gets Health, Transport, Housing, Foreign Affairs and Education, all of which are seen as up for grabs.

Ardern said on Saturday night she planned to give a speech later this week “setting out the new government's priorities though to the end of this year, in particular actions we will take to accelerate the economic recovery and to continue keeping New Zealand and New Zealanders safe from Covid.”

So what could Ardern ‘accelerate’?

The PM and Finance Minister Grant Robertson don’t have a lot of wriggle room for big new spending, given they committed themselves to no new taxes (other than the new 39 cent rate for incomes over $180,000) and the same debt track as forecast before the election. That sees net debt rising towards 55% of GDP over the next couple of years and then declinging. That is the fiscal envelope the Government has promised to work within. It would require a major change in Treasury’s economic forecasts to give Labour more room to spend on infrastructure.

The Government could push ahead immediately with the NZ Super-CDPQ Infra plan to build a $10b railway from Auckland’s CBD to the airport, which would unleash a rash of medium density housing at various points along the line and avoid adding the debt to the crown’s balance sheet.

The Government committed in the May Budget that Kāinga Ora would build an extra 8,000 houses over the next four years and has said it has no plans for more, even though the housing shortage is at least 50,000 and the housing waiting list has more than quadrupled to over 20,000 over the last three years. The current Government plans don’t even touch the sides.

This Labour Government has hamstrung itself from using either the tax system or the Crown’s balance sheet to solve this issue, and has now muzzled the main voice of criticism on these areas.

Some other bits and bobs of news over the weekend

Tauranga Mayor Tenby Powell has been diagnosed with prostate cancer and will take medical leave. Deputy Mayor Tina Salisbury will step up in his absence.

It’s a major blow for New Zealand’s fastest-growing and least affordable city, given Powell has been pushing hard for new Government infrastructure investment and to use the council balance sheet to deal with these issues. (NZ Herald)

My weekend reading…

In the world is a weird place category…a 64-page document that was later disseminated by close associates of US President Donald Trump appears to be the work of a fake "intelligence firm." The analyst cited in the various documents was an avatar invented by AI. (NBC News)

QEX Logistics is a Kiwi-listed firm that profits from the transport of New Zealand goods to China, in particular infant formula. Conor English chairs the firm. Tim Hunter tells a fascinating tale about the theft of 20 containers from QEX’s bonded warehouse in Shanghai…and how it appears not to have been insured… (NBR-$$$)

Coming up…

Today - PM to announce cabinet lineup shortly after 1pm

Tues Nov 3 - Reserve Bank of Australia expected to ease monetary policy at 4.30pm NZ time.

Weds Nov 4 - US Presidential elections (Nov 4 NZ Time)

Weds Nov 4 - Stats NZ scheduled to release labour market figures at 10.45 am showing unemployment rose to around 5.5% in the September quarter from 4% in the June quarter.

Thurs Nov 5 - Ant Financial shares start trading in Hong Kong

Friday Nov 6 - Official final NZ election and referendum results announced after counting of special votes.

Friday Nov 6 - Ministers to be sworn in at Government House.

Weds Nov 11 - Reserve Bank quarterly Monetary Policy Statement (MPS) and news conference at 2pm. Details expected of the Reserve Bank’s $30-50b Funding for Lending Programme (FLP) of Reserve Bank money printing and lending to banks at or around the Official Cash Rate (currently 0.25% and expected to fall to minus 0.5% next year).

Sat Nov 21 - National Party AGM due to vote on re-election of President Peter Goodfellow.

Weds Nov 25 - Reserve Bank six monthly Financial Stability Report (FSR) scheduled for release. Central Bank expected to warn of re-imposition of high LVR lending limits from May 1, 2021.

Ngā Mihi

Bernard

PS: Hope you enjoyed the pic above from my former Newsroom colleague Mark Daalder, who has a wonderful Instagram channel chock full of native birds.