Long stories short from our political economy on Tuesday, April 15:
New Zealand’s economic recovery is stalling, according to business surveys, retail spending and house sales data out yesterday and this morning.
In the teeth of recessionary headwinds, the Government is about to cut a well-loved education programme introduced by the last National Government.
Immigration is rising again at its fastest rate in more than two years, adding to a workforce and population dealing with unemployment and homelessness.
The focus on cheap, temporary migration was evident in a South African family being kicked out because their son had special needs.
Westpac has halted some mortgage application processing after a surge of applications.
Treasury is unhappy with the Government pushing ahead with $1 billion worth of roading projects that don’t make economic sense.
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The six big things from our political economy today
The economic recovery is stalling
The economy is not doing what it was supposed to when PM Christopher Luxon said in January it was ‘going for growth.’
That’s clear in the BusinessNZ BNZ PSI survey results1 for March published yesterday, which showed a second month of contraction in the services sector, the biggest part of the economy. The companion PMI survey of manufacturers in March was published on Friday and showed only a tepid expansion, at a slower rate than the previous month.
There was also a surprise 0.8% fall2 in retail sales via electronic cards in March. (See charts of the day below.)
REINZ reported this morning that house sales fell a seasonally adjusted 0.3% to 7,640 in March from February nationwide, while sales volumes in Auckland fell a seasonally-adjusted 12.7% to 2.362. Seasonally adjusted prices fell 0.3% in March from February, Infometrics estimated, with prices were lower than a year ago for the eighth consecutive month.
A pro-cyclical fiscal tightening
Meanwhile, the Government is pushing on with its ever-tighter fiscal policy in the face of recessionary headwinds globally and locally, effectively enacting a pro-cyclical (ie worsening a recession) policy in conflict with the Reserve Bank, which has been conservative in its initial decision under a makeshift Governor.
RNZ reported from leaked documents yesterday the Government was considering shutting a $118 million per year education training programme that is well liked by schools and was set up with great fanfare in 2014 by the previous Government. Finance Minister Nicola Willis signalled last week the Government would double down on spending cuts to achieve a budget surplus by 2027/28.
That was in the face of Treasury has advice that Trump’s tariffs will slow global GDP growth and increase inflation, making it harder to achieve that surplus and therefore forcing even bigger cuts within Willis’ $2.4 billion per year operating allowances, most of which have already been spent in the 2025/26 year.
‘But the low-wage & low-cost migrant workers will save us’
However, the Government is pushing for growth in the population and in low-wage temporary workers to generate some nominal GDP growth, as shown in migration figures published yesterday showing a near doubling in net migration to 5,430 February from 23,70 in March.
This increased annual net migration to 32,922 from 30,932 the previous month. This was the strongest monthly balance since December 2023 and the annual increase was the first increase since October 2023.
One feature of an economy dependent on temporary worker migration for growth and low wages is the idea that temporary workers do not cost anything to maintain through the health and education systems, and do not need infrastructure investments in the form of extra housing, schooling and transport investment.
A key element of that is the policy that temporary migrants must be ejected if one of them requires support by the health system, as shown in this RNZ report about a South African declined residency because their son’s health issues are considered a burden on New Zealand's health and education systems.
‘We can’t write mortgages fast enough’
Meanwhile, the pathway to wealth remains dominated by leveraged investment in land for housing, particularly as interest rates fall and the Government looks to force the Reserve Bank to loosen capital and prudential standards to unleash another bout of credit growth to pump up asset values.
Stuff’s Michael Daly reports this morning Westpac has temporarily stopped accepting some loan applications amid increased demand for home loans.
‘But there is money for uneconomic roads & bridges’
One feature of the Government’s strategy is investment in big roads and bridges, even though Treasury and other advice is the projects are not economic, barely generating a new dollar for every dollar invested.
Another example of the advice from Treasury against the projects is evident in Oliver Lewis’ article in BusinessDesk-$ yesterday, which documented Treasury’s opposition to a $1 billion fund set up to accelerate transport projects. Treasury was given one hour’s notice of the change. Here’s the key bit:
In December, former Transport Minister Simeon Brown took a paper to Cabinet to change the scope of the $1b allocation and allow NZTA to draw down the funds for five projects: the Melling Interchange, Waikare Gorge realignment, a second Ashburton bridge, Brougham St improvements in Christchurch, and the removal of level crossings on the Auckland rail network.
Brown also sought to reallocate $78 million set aside to accelerate improvements to the Christchurch bus network to add to the $1b fund. Notably, none of the aforementioned projects, which will use up the majority of the $1.078b fund, is a Rons.
The road-building programme is still included in the Cabinet paper as a focus, but the fund has largely been repurposed to focus on at-risk projects.
“Following the development of the National Land Transport Programme (NLTP) and consultation with my colleagues, NZTA has identified priority projects with unfunded cost pressures that are at risk of not being delivered or facing significant delays,” Brown said in the Cabinet paper. Oliver Lewis’ article in BusinessDesk-$
My Pick ‘n’ Mix Six for Tuesday, April 15
Health crisis news by Tess Brunton for RNZ: 'There is nothing here' - Wānaka woman in mental health crisis made to feel like a burden.
Geopolitics news by Sam Sachdeva for Newsroom: Review of US travel advice due amid Trump-era detentions
Housing crisis first-person article by AnneMarie Quill for Stuff: ‘Past my use by date’: Divorced woman sells house after 1000 job applications and only two interviews. Divorcee Rona Todd thought it would be relatively easy to find work after her marriage ended. A year later, she’s struggling to survive on benefits.
Social media sociopathy news by Dylan Reeve for The Spinoff: The proliferation of Facebook scam ads continues, now starring Christopher Luxon. Meta is doing nothing to combat scams on its platforms, but what about the government?
Geopolitics news by WSJ (gift link): At China’s Wholesale Hub, U.S. Orders Have Suddenly Halted. One Example: Socks.
Geopolitics news by AP: Apple has few incentives to start making iPhones in U.S., despite Trump’s trade war with China
Chart of the day
‘Another step down’
Cartoon of the day
Timeline-cleansing nature pic
Ka kite ano.
Bernard
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