Johnston, a Pulitzer Prize winning investigative journalist, co-founder of DCReport and journalism professor at Rochester Institute of Technology, spoke to interest.co.nz in a new episode of the Of Interest podcast.

Johnston first met Trump in Atlantic City in 1988, and has probed and written about the affairs of Trump for decades.

Domestically he says Trump's under pressure from his MAGA (make America great again) base with the economy not doing well, and over the Epstein files and the US attack on Iran. With the US mid-term elections looming in November, Johnston says checks and balances via the likes of Congress, the courts and the Constitution supposed to limit the President's power, are failing.

"The checks and balances system isn't working, plain and simple. He thinks he's the world's dictator. He hasn't
consolidated his power even in the US, but that's his goal, totally consolidate his power, to be totally unaccountable, unfortunately," Johnston says.

He says Trump's presidency could effectively be over if he loses control of the House and Senate in the mid-term elections, which is "weighing on his mind." Against this backdrop Johnston says voter intimidation and suppression is underway.

Asked how the Trump era may end, Johnston says he fears for US democracy.

"At the moment, the United States is a dictatorship. It is not fully consolidated, but it is a dictatorship. Whether we restore our democracy is not clear at this point. We may cease to be a democracy."

Johnston says opposition emerged through the No Kings demonstrations, which he'll be watching closely over the coming US summer. These protests come against the backdrop of danger the US becomes "a huge autocratic nation, not unlike Xi's China, MBS's [Mohammed bin Salman Al Saud's] Saudi Arabia, [and] Putin's Russia.

"And that would be a terrible thing for the whole world."

For NZ, as a small, trading nation, Johnston suggests at this stage we ought to keep our heads down.

"The key objective is to not become the focus of Donald's wrath because he could say, 'well, I'm going to prevent anyone from moving to New Zealand or coming from New Zealand. I'm going to ban Air New Zealand. He could do all sorts of things to make trouble. So my fundamental advice would be just try to stay off his radar, go on living your lives."

In the podcast audio Johnston talks in more detail about why he believes Trump's tariffs are illegal, the US war with Iran, attack on Venezuela and other countries Trump could target, Trump and the Epstein files, the US economy, who Trump listens to and who influences him, the mid-term and primary elections and more.

Johnston previously spoke to interest.co.nz about Trump in 2016 and in 2018.

*You can find all previous episodes of the Of Interest podcast here.

Laurence, founder and CEO of Ten Past Tomorrow which is an AI consultancy and education business, spoke to interest.co.nz in a new episode of the Of Interest podcast.

"I'm kind of flabbergasted that it hasn't become a political talking point," Laurence says, noting AI "has become a really hot political topic" in the United States over the past six months.

He describes AI as "a general purpose technology."

"My focus is how does New Zealand, as a small, educated, economically prosperous and politically stable country, how do we become the best users of this technology where we as a nation, we're very skilled and very literate and know how to use it, know when to use it, know how to use it responsibly and ethically?"

"Because you can scale from the individual productivity to national GDP on a very clear line."

Laurence points out Singapore is spending NZ$1.25 billion over five years with the goal of tripling their AI practitioner workforce. The United Kingdom is investing US$500 million per year over the next five years with the goal of having 10 million AI literate workers by 2030. And Finland is spending €100 million per year for the next four years in AI readiness training.

So does he think getting a more AI literate NZ population needs to be government led?

"I do [think so] and I think importantly it needs to be non-partisan," Laurence says.

" Whichever party wins [the election], this needs to happen. It's like to me, it's that critical to New Zealand productivity challenges. And so yes, it absolutely needs to be publicly led."

However, he adds that in the countries making public investment he cites, private investment generally "floods in behind it."

"We [NZ] have an AI strategy which was released last year. It's pretty flimsy and really if you kind of read between the lines, it's basically saying at the moment we're leaving this to the private sector to kickstart. I do think the stimulus needs to come, the action needs to come, the motivation needs to come, from public sectors," says Laurence.

"Simply, this nation has an obsession with productivity challenges that we've developed in the last number of years. That's why I say sitting still is not a neutral option, it's a decision with consequences. The gap compounds [and] moves from being a gap to actually a chasm."

In the podcast audio Laurence also talks about how NZ businesses are working with and thinking about AI, AI training, education opportunities from AI, guardrails and regulation, the previous technological breakthrough he compares AI with, how the effect and harms of AI on children could be worse than social media, why he says "AI is going to
make lazy people super lazy and it will give dedicated people superpowers," and more.

*You can find all previous episodes of the Of Interest podcast here.

The Reserve Bank of Australia's decision to lift its cash rate 25 basis points this week means it's now 160 basis points higher than the Reserve Bank of New Zealand's official cash rate highlighting differing levels of assertiveness between the two central banks, Imre Speizer, Head of New Zealand Strategy at Westpac, says.

The RBS's cash rate is now at 3.85% with the RBNZ's OCR at 2.25%. Speaking in a new episode of the Of Interest podcast, Speizer says it has been 13 or 14 years since there has been such a gap, with the two economies tending "to cycle together most of the time."

"It comes down to a different central bank approach. The RBA has deliberately maintained a fairly dampened approach to tackling either low inflation or high inflation. So when it has needed to hike or cut, it has done [so] in a very cautious and drawn out manner. And by doing so it hasn't had to flip around as much as the likes of some other countries," says Speizer.

"The central bank of New Zealand has been pretty much an activist in terms of tackling inflation. So when inflation was high in the most recent cycle it went fairly hard and hiked rates a lot to bring it back down again, and that then amongst other things did help to engineer a brief recession."

"It paid a cost to do so but it got inflation under control. Now we're basically coming out of that era and [economic] growth is starting to pick up. And so the Reserve Bank [of NZ] is now faced with the task of thinking well at what point do we need to start thinking about pushing rates up to prevent inflation from running away?"

"I guess it just means the assertiveness of the relative central banks is probably explained [in] why we've ended up with such big differences between New Zealand interest rates and say the Australian interest rate. In time that will rectify itself and will get back to something that looks a bit more normal, I.E. Kiwi rates a little bit higher than Aussie rates. But I think it's going to be some way down the track," Speizer says.

He says lots of people are asking how the cash rate differential between New Zealand and Australia might play out with mortgage rates.

"There shouldn’t be any direct impact if the cause of Australian rate rises is unique to Australia. But much of the time, there is a common global factor at play, so New Zealand rates do follow Australian and US term rates," Speizer says answering a follow-up question to the podcast interview.

"Also, if the strong Australian economy is seen as eventually benefitting New Zealand’s economy, New Zealand term rates could rationally follow Australian rates higher in dampened fashion."

In the podcast audio he also speaks about the direction of swap rates and what it means for mortgage rates, what the yield curve's suggesting at the moment, the outlook for NZ government bonds, the impact the volatility of US President Donald Trump's administration has on the US dollar and financial markets more broadly, incoming Federal Reserve Governor Kevin Warsh, the impact of US government shutdowns on economic data availability, geopolitics and more.​

A new all-of-government strategy to tackle organised crime aims to make New Zealand the hardest place in the world for organised criminal groups to do business and following the money is key to the fight, says the Chairman of the Ministerial Advisory Group on Transnational, Serious and Organised Crime.

One of the Ministerial Advisory Group's recommendations is to broaden the legal definition of money laundering, with barrister Steve Symon, who chaired the Advisory Group, saying money is the key driver.

"The reason they operate in New Zealand is money. I'm not saying that we will cure the problem of organised crime globally, but we can make New Zealand the hardest place for organised crime to operate, such that they'll see other markets as more lucrative," Symon says in a new episode of interest.co.nz's Of Interest podcast.

"We're effectively saying 'organised crime don't operate here, go elsewhere to do that.' We have to make it as challenging as possible for organised crime to profit from it, to use money."

"The money laundering regime is a key aspect of that. Obviously there has to be a way for organised crime to take the money that they get from crime and benefit from it. Transfer it, launder it... into a way that they can use it," says Symon.

"The challenges that we have in relation to the current money laundering regime [are] probably best demonstrated by the small number of money laundering cases that go through our courts. We know that the drug trade is driven by organised crime. And...theoretically, for every drug case you should have a money laundering case as well."

Symon says fortunately most New Zealanders won't be aware of the problem of organised crime, but they will see the symptoms of it.

"The methamphetamine use, particularly in our rural communities, [which] is decimating some of our rural communities. The advent of the fraud that is spreading. One in 10 New Zealanders are the victim of fraud and that number is escalating."

"And there'll be touch points that the public are not aware of, where they are interacting with people who are exploited migrants who have been exploited by organised crime," says Symon.

"We will see new and emerging threats through organised crime, such as a black market in tobacco which has been, escalating in New Zealand. And these things are growing and becoming more complex. What we're also seeing is organised crime working in more nefarious ways. So working on corrupting individuals, corrupting New Zealanders going about doing their work to try and maximise the return they can get from their crime."

"Organised crime is working more and more like large commercial enterprises. So when you think of large companies and how they spend their energy on facilitating and maximising the return that they can get for their investors, it's the same logic you should apply to organised crime," says Symon.

In the podcast audiohe also talks about the challenge of cash "the primary currency of organised crime" and the recommendation to stop cash payments in certain industries, why the Advisory Group recommends a dedicated Transnational, Serious and Organised Crime Minister, funding the fight against organised crime, why more is needed from Inland Revenue, working across government agencies, the role of the private sector, cryptocurrency, the need for international cooperation and more.

Just before Christmas Associate Police Minister Casey Costello unveiled a new all-of-government strategy to tackle organised crime. Costello released this strategy document, and this action plan. Details on the Ministerial Advisory Group and all its reports can be found here.

*You can find all episodes of the Of Interest podcast here.

Governor Anna Breman has implied the Reserve Bank's Monetary Policy Committee will increase the Official Cash Rate (OCR) in the run-up to November's election if members believe this is what is required.

"We are statutory independent. We are an independent central bank, like you point out, and we will do what is best for the New Zealand economy and to reach our inflation target," Breman told interest.co.nz in a new episode of the Of Interest podcast.

She was asked if the Reserve Bank believes increasing the OCR is necessary, she would be comfortable doing so in the run up to November's election.

Breman was speaking on Friday, after the release of Statistics NZ's December quarter Consumers Price Index (CPI) showed annual inflation at 3.1%, above the Reserve Bank's 1% to 3% target range.

"We are carefully looking through all the data. It's clear that there are some items in there that typically are very volatile. They can change a lot between different quarters. But of course 3.1% is high and it means that inflation that's been hurting households for many years is still above where we want it to be, but the outlook is still favorable in terms of inflation going forward. So it's also important to stress that we will focus on getting inflation back in the target band and towards the midpoint of the target band," Breman said.

The Reserve Bank reviews the OCR for the first time this year on February 18.

In a note following the CPI release BNZ Head of Research Stephen Toplis said financial markets had almost fully priced in a first OCR increase for the Reserve Bank's September 2 Monetary Policy Statement. And BNZ's economists have brought forward their expectations for a first OCR hike to September 2 from February 2027.

"One thing that needs to be taken into consideration is the General Election on November 7. The Reserve Bank is operationally independent so it can broadly do what it wants when it wants, but central banks are not keen to become embroiled in election campaigns if it can be avoided," said Toplis.

"In our opinion, this means the 28 October Monetary Policy Review would be far from optimal for a first rate hike. Moreover, it’s always easier to tell the full story with a complete Monetary Policy Statement when a hiking cycle, or cutting, begins."

Breman said she doesn't comment directly on market pricing. The OCR is currently at 2.25%, having been reduced from 5.50% since July 2024.

In the podcast audioBreman speaks further about inflation including the challenges facing households, whether she expects help from government with the inflation fight, limits to Reserve Bank monetary policy, her recent support of US Federal Reserve Chairman Jerome Powell and the response from Foreign Minister Winston Peters and Finance Minister Nicola Willis, risks around the Fed becoming less independent when President Donald Trump appoints a new Chairman, what climate change means for the Reserve Bank, her thoughts on a potential central bank digital currency, and more.

*You can find all episodes of the Of Interest podcast here.​

Mahon, who is Managing Director of Mahon China Investment Management and has lived in China since 1984, spoke to interest.co.nz in a new episode of the Of Interest podcast.

Luxon, who before the 2023 election said achieving a free trade agreement with India would be a major strategic priority for a National government, is set to visit India next month. He's yet to visit China as Prime Minister, but is expected to do so this year.

"If the Prime Minister had gone to China and conferred upon it as a great power the respect it deserved in the last year or so of his tenure, it'd be fine. But it's almost a statement of a diplomatic insult not going to China before going to India," Mahon said.

He said potentially the prospects for NZ products in China over the next two to three years are very good, with China retaining a great need for protein, wanting to buy seafood, and NZ logs still selling reasonably well.

However, Mahon suggested after a good relationship with China for many years, highlighted by the 2008 Free Trade Agreement (FTA), NZ is now seen as "a country of diplomatic infidelity."

"And for most of my life, we've been the opposite of that. Under Helen Clark, John Key, Jim Bolger, we were the country that was respected. Now people are scratching their heads and saying, what's wrong with New Zealand? It seems to have lost its sincerity, its sense of loyalty."

The recent signing of a China-Cook Islands comprehensive strategic partnership, which the NZ Government was kept in the dark over, shouldn't be viewed by NZ as an insult or provocation from China, Mahon said. The Cook Islands is a self-governing state in ‘free association’ with NZ with its citizens having NZ passports.

"...what China is determined to do is to make sure that it retains this relationship with New Zealand, although New Zealand is struggling in many ways to hold up its end."

"We shouldn't be too peevish that they [the Cook Islands] want to do a deal with someone with more money than us," Mahon said.

"In the end, China is going to invest throughout the Pacific, where it can. Part of it is that it wants to express its influence."

The Cook Islands-China agreement reportedly includes plans for co-operation on seabed mining, the establishment of diplomatic missions and preferential treatment in regional and multi-lateral forums, but excludes security ties.

An attraction of the Cook Islands deal for China will "definitely" be minerals, Mahon said.

"If you go back to the technological revolution, which is really what's occurring in Chinese manufacturing, they need these minerals very much," said Mahon. "China is actually very poor in resources."

'China is full of Deep Seeks'

Meanwhile, Mahon said recent surprise around Chinese artificial intelligence (AI) company Deep Seek highlights westerners taking their eye off China and its burgeoning technology sector.

"China's full of Deep Seeks. There are companies in China, the names of which we just have never heard of, that are about to change major sectors that influence our lives."

So Deep Seek is like the first, I don't want to say shot across the bows because it makes a sort of military metaphor, but it is a flare, a signal."

"This is what China's been focused on in the last 10 years. Getting away from making nylon socks and teddy bears and cheap stuff and making really good technology, really sophisticated technology. And so this is what's going to come out of China now in waves and make all our lives cheaper in terms of buying stuff that's important to us," said Mahon.

"And it's going to be a major challenge to the major tech companies of the West, creating the kind of competition that markets run on. Innovation's driven by it. So this should be perceived as a positive thing."

In the podcast audio Mahon talks about these issues in more detail, plus this week's meeting between President Xi Jinping and Chinese business leaders, the "shameful scandal" of NZ immigration and visas "violating the spirit" of the FTA, China's relationship with the United States in the time of Donald Trump's second presidency, tariffs, trade war, and the "ghastly concept" of potential military conflict between China and the US, possibly over Taiwan.

"China doesn't want a war. China doesn't want to invade Taiwan. If China were to invade Taiwan, it would be out of
the global financial system within hours. China within six months would face a massive economic crisis," he said.

*You can find all episodes of the Of Interest podcast here.

Treasury, the Reserve Bank, and most economists expect growth to resume in 2025 as interest rates fall. Consumer spending should pick back up and cheaper credit should make business investments more worthwhile. 

But while private New Zealanders open up their wallets, the Government will continue to tighten its belt. Core Crown expenses are predicted to fall from almost 34% of GDP in 2025 to 31.5% by the end of the decade.

This would be enough to balance the books—if you ignore annual losses at the supposedly self-funded Accident Compensation Corporation—and halt net core Crown debt at 45%.

But Finance Minister Nicola Willis told Interest.co.nz this wasn’t her top priority. 

“Our view is you can never ignore sensible fiscal policy, and it's irresponsible to indebt future generations to an extent that they won't be able to have the services that we have today,” she said in an interview.

“But at the same time, you also need to make sure that you're maintaining today's services, that you're keeping the foundations for productivity, and that you are ensuring that your measures make sense—not just in the short term for coloring the books and making them look pretty—but will actually generate a sustainable basis for growth in the medium term”.

Many left-leaning critics of the Finance Minster would like to see greater Government investment to support the growth forecasts next year. They worry a withdrawal in spending will hamstring the recovery and leave the economy less productive in the future.

It may surprise you to hear that Willis agrees with them. She says it is “factually incorrect” to accuse her of austerity, as the Coalition’s fiscal policies are still stimulating demand.   

“We have a government that is actually continuing to increase its overall levels of spending, both in absolute terms, but also as a proportion of the economy.  And actually, the fiscal impulse will be positive.”

“But the point that we are making is this does need to unwind over time, and so we've set out a path of gradual fiscal consolidation, which we think is the responsible way to go”.

She says policies which deregulate the economy, open New Zealand up to more foreign investment, and crack down on uncompetitive industries will be more important to future growth than fiscal stimulus. 

Banking is one of these uncompetitive sectors in which she wants reform. She's already told Kiwibank to raise $500 million and the Reserve Bank to put more weight on competition when setting regulation policies, and is more than willing to go further. 

“When I read through the Commerce Commission report on our banking sector, it couldn't have been any clearer to me that we have a major problem,” she said.

“I have put the banks on notice and made it clear that if they want to do more of their nice talk about how they're going to be really good … that won't wash with us. They need to be acting or we will take further action, and there are a lot of options for what we can do there”.  

She’s open to charging banks a special levy or tax, like in the United Kingdom and Australia, which recognises they benefit from an implied Crown guarantee and earn very high risk-adjusted returns as a result. Big banks beware!

Fresh from his 13 part interest.co.nz series on NZ's government retirement income system and associated taxes, Coleman spoke to myself and Terry Baucher on a combined episode of the Of Interest podcast and the New Zealand Tax Podcast.

Coleman is currently a visiting professor at the Asia School of Business in Kuala Lumpur while on extended leave from the Reserve Bank. He has also worked for Treasury and the Productivity Commission. The views expressed are his own.

Coleman says the urgency for making change isn't just down to an ageing population and the increasing taxes he says young people will have to pay. It's also because those under 45 are inheriting a very costly system, which might not be what they like or want.

He uses an analogy of a 22 year-old who recruits help from their father or uncle to buy a car.

"And he says, 'oh, cars, I'm good at cars. You know, when I was a kid we had these great Holdens and you could put six people in them, everyone in the whole family would fit in them. And they had a big six litre engine'... And you say, 'oh, well that's maybe not what I wanted.' But he says 'oh look, I'll go and get you the car, just give me the money and I'll get you the car.' And so you give him ten grand and [he] comes back [with an] old Holden, which is a gas guzzler and not particularly safe."

"And you've only got a girlfriend or a boyfriend and no kids and it's nothing like the car that you want and yet you've paid for it. And it's got these high ongoing costs because it's chewing down the petrol," Coleman says.

"You wanted a little hybrid or electric car or maybe just a Toyota Corolla, which was quite small and fits in your little parking place. And it's a bit like that. Young people today are inheriting a [retirement income] system designed in the seventies when Holdens ruled. And it may not be what they want and it's very costly."

In his series Coleman suggests a new pension system, which he calls KiwiSaver 2.1, which would be a shift from pay-as-you-go funded pensions to save-as-you-go funded pensions. I asked him whether a transition could be made to the new system for those under 45, with the current system kept in place for older people, without higher taxes on older people which he suggested in his series would be required to change to a new system.

"There's no reason why you can't have two systems going. And one of the reasons is that your entitlement would depend on your birth date...that's very straightforward. We would just at some point introduce the second system for people under 45 and build it up and keep old people on the current system," says Coleman.

"Can we do it without an increase in taxes on older people, or more generally? No."

"There is a transition issue. It's like digging a hole. Once you've dug the hole, if you want to get out of the hole, you have to do some work to fill it in again. And so when we adopted a pay as you go system or expanded it significantly back in the 1970s, it meant that to reverse it, some future generations are going to have to be worse off than they otherwise would have been. And that's the political difficulty here. It's like there's this beautiful thing that you want over there, a beautiful island that you can go to, but you can't get there for free."

"But there's goodwill out there. I think a lot of people my age... recognise that young people are paying a disproportionate amount of the costs and that if we can find a way of increasing taxes on ourselves in order to make the system better for younger people, that's something that a lot of people would be prepared to do now. It won't have to be a permanent increase in taxes. It's a transitory phenomenon," Coleman says.

"Once we've got the new system up and running, taxes would come down and we would have a much better tax system. There should be, if we do this, a statue to the unknown 75 year-old who paid a few more taxes so that all the young New Zealanders of the future could be better off and have a better system."

In terms of what tax(es) are used, Coleman says a transitional social security tax on older people is an option. Social security taxes, such as Accident Compensation Corporation levies, are paid on labour income.

There's much more detailed discussion in the podcast audio including on taxes.

*You can find all episodes of the Of Interest podcast here.

In the latest episode of the Of Interest podcast I asked Lyon how well general insurers are serving New Zealanders, how competitive the market is, and how the public should judge strong financial results from their insurers. As well as being CEO of Ando, an underwriting agency, he's also the former CEO of Lumley Insurance. 

Statistics NZ's Consumers Price Index shows insurance costs rose 14% in the June year, making them a key contributor to households' cost of living pressures and the stubbornly high non-tradable inflation that meant the Reserve Bank held the Official Cash Rate at 5.50% for as long as it did.

"I think we should be grateful that there are insurance companies who are still committed to the New Zealand market, because what we need is a healthy, strong insurance market because the risks are so great in New Zealand," Lyon says.

"When you think about the risks we're exposed to from volcanoes that are overdue, to the well known earthquake exposures, the evolving cyclone and climate change issues, [and] we don't really fully understand tsunami risk. There's lots of evidence that there have been major tsunamis along the coast of New Zealand. At what frequency would we expect something like that to happen? We don't know. That's not been particularly well modelled. That's a major risk to the country."

"There's a whole bunch of factors in there that we can talk about in terms of what New Zealand Inc needs to do to protect itself from the environment we live in. And climate change is a big part of that. But it's also all of the other generic risks that are there in front of us. So we have to think about how we manage them as well," says Lyon.

With the likes of IAG, Suncorp and Tower having recently reported strong financial results, how should we judge how well they're doing financially?

"One of the things that the reinsurers did [last year], as well as putting prices up, was they went to the insurance companies and they said, 'you now need to hold more of the risk to your own account'."

"The Suncorps and IAGs, and indeed our business, was faced with a situation where if we had been holding, say, $100 million of the risk to our own account before reinsurance comes in, the reinsurers might have put that up to $500 million. So if you think about that, then if you've got an exposure of $500 million for any one event, you're not going to get $500 million every year."

"So typically what insurance companies will do is they say, 'well, maybe over five years, we'd expect to have $100 million on average. So it'll be one big event every five years. That's $500 million. We'd spread that cost over five years.' So in every year you'd put a cat allowance [catastrophic event allowance] in of $100 million. If you don't have a cat event, you've got $100 million profit and then the next year you might have no event and you got another $100 million profit. But in year five you've got a $500 million event and you lose $500 million."

"That's the market that we have moved to. The insurance companies need to be very profitable in the good years because the cost of managing the bad years is a lot higher. So it's not just reinsurers that suffer when there is a big event. The insurance companies hold more to their bottom line and that's a challenge for all the businesses in that respect," Lyon says.

"So it's hard to judge insurance on a year on year basis."

Lyon suggests the most significant barrier to enter the general insurance market is New Zealand's risk profile, noting a number of international insurers look at NZ and see the economy is relatively small.

"It'll never be a major strategic value add to a global company in terms of incremental growth. So all you're going to have is a problem when a big thing happens like an earthquake."

In the podcast audio Lyon also talks about what he believes should be done that would be more beneficial to customers' insurance costs than a market study, how the insurance industry is lagging from a transparency perspective, the perception of choice created by the big companies being behind numerous brands, how competitive the market is, the level of market power the big players have, climate adaptation, managed retreat and uninsurable areas, whether the general insurance market is a duopoly, insurance policies being used as a taxation device, risk-based pricing, parametric insurance, what the insurance equivalent of open banking could mean, and more.

*You can find all episodes of the Of Interest podcast here.

“I think it's the right time to have the discussions we were having at the [Financial Services Council] Conference. By and large, providers are pretty well aligned around how we can improve KiwiSaver and make it better for New Zealanders retirements,” Milford's Murray Harris says on a new episode of the Of Interest podcast.

KiwiSaver has become a bigger topic of financial conversation this year and the discussion around potential tweaks and changes to the savings scheme has become more of a ‘when they happen’ and less of an ‘if’ scenario.

At the Financial Services Council Conference in early September, KiwiSaver was a hot debate, with KiwiSaver providers discussing how New Zealanders are simply not saving enough for their retirement and the Retirement Commissioner pointing out that Kiwisaver governance lacks clarity.

Harris tells interest.co.nz that KiwiSaver has been “very successful” in attracting members and the savings scheme doesn’t have a participation problem.

The latest KiwiSaver statistics out of Inland Revenue shows over 3.36 million people are now enrolled in KiwiSaver as of July 2024 and Harris says the participation rates are highest amongst those between the age brackets of 25–34 and 35–44.  

“The participation's really good, but we have an issue around the contribution rate or the amount that people are contributing,” he says.

“Most people are doing 3%, and ... 90% of employers only do 3%. So together, those contributions are not going to be enough to get people to where they need to be for a really comfortable retirement. And I think that's the key issue. That's the real nub of it being very successful in terms of getting people interested and involved, but we're just not contributing enough.”

The Financial Markets Authority released its 2024 KiwiSaver report on Tuesday which showed total KiwiSaver contributions – this includes employee, employer and government contributions – came to $11.2 billion in the March 2024 year. This is up 6.5% from the prior year.

Harris says the KiwiSaver industry has a job to do in terms of educating its members that the current default contribution rate in KiwiSaver, which is 3%,  is a good start – but not enough to get people to where they likely think they're going to be savings wise by retirement.

“Most people think it's 3%, and that's the problem with the settings as they are. You tell people to do 3%, that's what they'll do, and they'll think that's all they need to do. But in reality, it's a lot more,” he says.

The Retirement Commission has called for a higher default contribution rate of at least 4% and says employers should be matching at this level or more. 

Harris says there are also things New Zealand can learn from “the lucky country” – Australia  – when it comes to saving for retirement.  

The minimum contribution rate for Australia’s superannuation scheme – the equivalent to NZ’s KiwiSaver scheme – is currently 11.5% for employees and employers. This is being raised to 12% in 2025.

“They've amassed a lot of assets and they've been able to reinvest those assets into the local economy. So you go to Australia, you cross some wonderful bridges, the motorway systems, the tunnels through central Sydney. Now they've been built with superannuation money and it's been a win-win because the economy moves better, industry can move their goods and services at a better pace and they've provided some great investment returns for investors, for super investors. So that's a win win. I think that's something that we could definitely learn from,” he says.

*You can find all episodes of the Of Interest podcast here.

Shapiro is covering the Australian Securities and Investments Commission (ASIC) probe of the ANZ Group's role in a A$14 billion 2023 Australian government bond sale, and taking an interest in the Financial Markets Authority's probe into possible manipulation in New Zealand's wholesale interest rate and government bond markets. 

Speaking in the latest episode of the Of Interest podcastShapiro says the ASIC probe of ANZ boils down to allegations of interest rate rigging, allegations of providing false information to the Australian Office of Financial Management (AOFM), which manages the Australian government's debt portfolio and hired ANZ as risk manager for government bond issues, and workplace culture issues.

"What is alleged is in that role they [ANZ] might have moved the market in their favour and made trading profits. And those trading profits came at the expense of the [Australian] government because ultimately their alleged actions forced up the government bond [borrowing] rate. We calculated about five basis points extra ... and that's for $14 billion of debt over 11 years," Shapiro says.

ANZ Group CEO Shayne Elliott says the bank itself has found no evidence misconduct or market manipulation by ANZ in connection with the bond issues cost the government financially. Elliott also says whilst some information provided to AOFM may have been incorrect, this was a mistake, rather than a deliberate act. Meanwhile, three traders have left the bank and a fourth has been warned.

Shapiro says what's being alleged is very serious and everyone in Australia has an interest in the outcome because the government was ANZ's client.

In New Zealand the Financial Markets Authority (FMA) says it's investigating two complaints about possible market manipulation in NZ's wholesale interest rate and government bond markets.

Shapiro says market integrity is absolutely critical, with pension funds, sovereign wealth funds, central banks and other investors trading government bonds.

"They don't want to be on the other side of of any funny business...it's extremely important that these markets are trustworthy."

Because they're viewed as the risk-free rate of return, government bond rates underpin the whole market, Shapiro notes.

"So regulators should absolutely be looking at any issues in these markets and making sure that they're transparent, that they're clean, and that there's nothing untoward going on. And one would think that participants in that market, especially the big banks of countries like New Zealand and Australia, would have an interest in making sure that, firstly, they're doing everything they can for their client, the government, but also making sure the bond market works as efficiently as it can."

The ANZ Group has been left out of the last three Australian government bond issues, Shapiro says.

In the podcast Shapiro also talks about why he refers to the ASIC probe as the biggest scandal in the ANZ Group's 182-year history, goes into detail on the three key issues at stake and the ANZ Group's responses, what's at stake for the bank potentially financially and reputationally, as well as for Elliott, possible similarities with what's at issue in the FMA investigations and more.

*You can find all episodes of the Of Interest podcast here.

“What we've been told by these players is when they come and they want to open up a large store in New Zealand, the cost to get a spade in the ground is double that of Australia,” he says in a new episode of the Of Interest podcast. 

“Now that is significant. And when they look at 'do we open up a store in Wagga Wagga or Tamworth or wherever in Australia' versus coming to open up in Auckland where there is massive demand or any of the other centres, really, the cost is double that of Australia. And the timeframe often is more than double as well. So when they do their business cases, they look at that and say, 'well, we're going to be better off by going elsewhere rather than here.' Now the government is saying that they're going to change things to make New Zealand more competitive for international players. And that's really what we're looking at.”

The Commerce Commission released its first annual grocery report on Wednesday which revealed ComCom’s efforts to boost grocery competition over the past year hasn’t had much impact. 

The report found between 2019 and 2023, price-cost margins on non-fresh products across the New World, Pak’nSave, and Woolworths brands increased by 3.1 percentage points on average, while fresh food margins rose a lesser 0.4% on average.

The Commission defines price-cost margins as a measure of the difference between the price a firm receives for the sale of an item and the direct supply costs incurred.

Broken down, the price-cost margins for non-fresh products in that period rose the most at Foodstuffs North Island’s New World stores which reported a 3.9 percentage point increase in that period.

In second and third, Woolworths NZ’s Countdown stores, now renamed back to Woolworths, reported a 3.6 percentage point increase, and Foodstuffs South Island reported a 2.9% percentage point increase during 2019 and 2023.

The consumer watchdog said the report provided “clear evidence for stronger action” in NZ’s $25 billion grocery sector.

Speaking on the Of Interest podcast, van Heerden says the Commission wants to make sure the barriers to entry are reduced enough to make NZ’s supermarket sector more competitive. 

Barriers to entry for potential new supermarket hopefuls also include things outside the Commission's control like planning regulations including zoning requirements within the local council’s District Plan, and the resource consent process in some cases. 

The Overseas Investment Act 2005 can also create additional costs, delays and uncertainty in relation to site acquisition by overseas entities looking to enter or expand in the New Zealand grocery industry, van Heerden says.

Asked if a giant entity would be needed to enter NZ’s supermarket sector – which is currently controlled by Woolworths NZ and Foodstuffs – as a third entrant or if a smaller grocery player could work as well, van Heerden says it can be a combination.

“We would like to see someone who can come in and has the scale to do it nationally, because that's the way they're going to get the best prices from suppliers. You know, they can get good trade spend or discounts in their stores as well. Because when I look at Auckland as an example, in Auckland, the concentration or the market share of the major supermarkets has come down by 4% from 74 to, I think it's 70%. What has caused that – Costco coming into the market. A lot of the Asian supermarkets are growing and we've just seen Foodies open and they sold out from what I've seen, you know, four weeks' stock in three days,” he says.

“So consumers are anxious and they want to get better deals and they will support these players. But I want to see that same level of competition out in the smaller areas. And if a big player comes in and as in Australia, a hard discounter where they really give very good prices, I think that will shake up the industry and it will ensure that the big players are more competitive.”

Van Heerden says the supermarkets have “said all the right things” when contributing to the Commission’s work on the grocery sector

“If you look at the comments that both the major supermarkets have brought out since the report came out, they all say they work, they work with us, they support the objectives. But I want those words to change into actions. I want to actually see it happening. I look at, for instance, the refund policies and the pricing issues. We've raised that now with them since I started. And quite honestly, the response has been, 'yes, we're getting it done,' but the actual actions have been slow. So I'd like to see them ramping up those actions and letting their actions be the same as what they're telling us, that they're happy to work with us to get things done,” he says.

The Commerce Commission's grocery report can be found here.

*You can find all episodes of the Of Interest podcast here. 

Speaking in a new episode of the Of Interest podcast, Speizer says although the expected central bank interest rate trajectory is very similar in NZ and the US over the next 12 months, financial markets will focus much more on the US.

"If the two racehorses go neck and neck, that should probably be neutral for the Kiwi dollar. [But] I don't think it will be, because the market will put a lot more importance on the US side of things. So even though the yield spread between New Zealand rates and US rates might not move too much, just the fact that the Fed is cutting aggressively will actually weigh on the broader US dollar," Speizer says.

"So you'll get the market selling the US dollar against all of the major G10 currencies and that will have a ripple effect into the Kiwi-US exchange rate... And therefore, if we see that US dollar weakening, which is our view over the next few quarters, you should see the Kiwi-US, all things equal, rising a bit."

Speizer also expects local swap rates, already down significantly over the last couple of months, to continue falling.

"The swap rates are going to fall a bit further over the next few quarters, and that's simply mechanical. So even if views around the economy don't change, the markets have already priced in this whole easing cycle. So think of it as they're priced in, they know the Official Cash Rate is 5.25% today. They believe it'll be below 5% by the end of the year. And in a year's time, into the threes [3% range], that's already priced in," Speizer says.

"So as you move forward in time, those high OCRs drop out of the calculation of a swap rate and you just mechanically end up with a lower rate. So even if nothing in the world changed, you would see, for example, that two year swap rate moving from its current rate of about 3.85% down towards somewhere in the lower threes over time. So that's just time and the mathematics doing its work. It's not really the market moving as such."

"Swap rates are very important in the New Zealand financial markets. They're arguably the most important interest rate instrument. Whatever swap rates do, other interest rates will follow. So, for example, if your two year swap rate went up by 100 basis points, you would find mortgage rates following suit, other business lending rates, bond yields, pretty much anything. They are the foundation of all interest rates in New Zealand. And the swap rates themselves are constructed by expectations of the OCR mostly," says Speizer.

In the podcast audio he also talks about what in Powell's Jackson Hole comments surprised financial markets, what to watch ahead of September's Federal Open Markets Committee meeting, OCR market expectations, what the yield curve is telling us at the moment, how commodities might start to exert more influence on exchange rates, the NZ government bond market following the issuing last week of a $6 billion bond that attracted record interest of $22.7 billion, the yen carry trade, Australia, China, geopolitical risk, and where he sees the NZ dollar at year's end.

Small spoke to interest.co.nz for the latest episode of the Of Interest podcast, which will be published later on Wednesday. The interview came after the Commission released the final report from its market study into personal banking services. The Government says it'll act on all 14 recommendations from the report.

Speaking in a previous Of Interest podcast episode, after the Commission's interim report was issued in March, Small said the most important of that report's 16 recommendations was; "The Reserve Bank should review its prudential capital settings to ensure they are competitively neutral and smaller players are better able to compete."

So why is that recommendation gone from the final report?

"We still feel that there's aspects of the regulatory regime that could be improved to promote competition. We've just, I suppose, got a bit more refined about how we're suggesting that that happens. And we've keyed in, particularly to a number of programmes of work that the Reserve Bank already has underway. So we've made a fairly broad overall suggestion about how the bank thinks about competition, which is essentially that we would like them to put a bit more focus on barriers to entry and expansion, so that it's more easily able for small players to get into the market, particularly the kind of players that we expect to be able to disrupt this industry who don't look like the traditional banks," Small says.

"Another one that applies more to the traditional banks is to think about the way that risk weights are calculated for reasonably standardised loans and make that more granular...so there's less averaging involved. It's a better, it's a more accurate, representation of risk and it gives them the ability to price loans differently depending on just how risky they are."

A helping hand for community housing

The Commission's also calling for the Reserve Bank to reduce the risk rating of lending to housing co-operatives and community housing providers to lower, and more accurate, levels. This is currently treated as commercial lending rather than housing lending.

Risk weightings are used to link the minimum amount of capital banks must hold, with the risk profile of the bank's lending activities.

"The work around mortgage advisors is also more nuanced, I should say, [is] probably the way to put it. We found out quite a bit about the mortgage advisor sector after the draft report and we had some of them around at our consultation conference... We [also] took some soundings in Australia about how their mortgage advisor sector works," Small says.

'The process of growth'

On the recommendation to scale up Kiwibank by getting it access to more capital, Small says the main competitive benefit "is about the process of growth rather than what happens once they're big."

"So we want them to be taking chunks of market share out of the big four on their way up, and for that to provoke a competitive reaction from the larger banks."

"What will really matter will be them [ANZ, ASB, BNZ and Westpac] perceiving a real threat of losing share, because that is what will stimulate them to fight back," Small says.

'Interesting stuff' from Westpac NZ's CEO

The Commission also calls for the acceleration and co-ordination of progress on open banking. In the podcast Small talks about lessons from the United Kingdom and hearing "some real interesting stuff" from Westpac NZ CEO Catherine McGrath. Prior to taking the Westpac job McGrath worked for Barclays and was involved in a Competition and Markets Authority open banking committee in the UK.

"We're just copying what we can, ruthlessly copying what we can," Small says. "So, you know, I absolutely grant you that in terms of overall open banking as distinct from payments, it hasn't been a roaring success in either of those places [Australia or the UK]. I think we can learn from both of them and do it a lot better."

Better bank switching desired

The Commission also says the bank switching service, operated through the bank-owned Payments NZ, needs investment and improvement.

"We were a bit surprised, to be honest, when we visited the headquarters of the big banks and asked them about this service and asked them in particular, 'if I was to come in off the street as a customer of someone else's bank and was interested in converting to you, would you recommend that I use this service?' And generally speaking no, they wouldn't."

"And they don't ask their staff to recommend that. So that tells me that it's obviously not being promoted. I think it could be improved, the actual functionality could be improved, it needs to be more visible and known and also they need to report on its usage, its success rates, what people think about it, and just that sort of basic transparency hygiene system would be very helpful indeed," says Small.

In terms of how open banking's success could be measured, Small suggests public acclaim is one way.

"I think if ordinary people on the street see it as being useful and working for them, then that's a great indicator...I would like to see it taking market share off the banks. Definitely. I'd like to see more variety of services out there and definitely like to see government agencies using it, because I think that's an important driver of success."

A message for consumers

And what's Small's message for bank customers?

"My message is you really should shop around. I don't like to just put everything back onto the consumers, but consumers can get better deals than I was aware of before I started this market study. For example, mortgages. You can usually drive a better bargain than you see on the headline [interest rate]. So shop around and be a savvy consumer."

"Also stand by and keep your eyes open for the innovation that we think is going to come. Some of this, by the way, is going to require change by consumers. There are a bunch of people out there, quite a large number of people in New Zealand, that are using somewhat dangerous banking technology that involves handing over their login details to a third party provider. We think that's something that has to be phased out. It's just dangerous. It's putting people at risk. So we think that what's coming up is going to be faster, safer, cheaper. Yeah. It won't happen tomorrow, but it will be here within 18 months or two years, I think."

What about splitting up the big banks?

Speaking earlier Wednesday Small said the Commission had considered recommending splitting big banks up.

"We did think about that, but we came to the view that the structure can be changed, the market structure can be changed through the two main levers that we're suggesting. One is a growing Kiwibank, and the main point about growing Kiwibank is that it will destabilise the big four as it grows. And then secondly, with open banking coming in, behind these are new business models that are not the same as the existing [ones]. And I think our view is that that's more disruptive and more enduring disruption, and more competitive innovation."

The Commission's final report is here.

*You can find all episodes of the Of Interest podcast here.

In May, forecasts had anticipated 1% GDP growth for the calendar year. But by August, that had been revised to a 0.4% contraction, with a deep decline in the June quarter.

The RBNZ chose to cut the Official Cash Rate from 5.50% to 5.25% last Wednesday partly in response to these lower economic activity forecasts.

Another key factor was that businesses have been adjusting their wage and price-setting behaviour more quickly than anticipated in response to the low inflation environment.

Speaking in the latest episode of interest.co.nz's Of Interest podcast, Hawkesby said the committee would not have adopted such a hawkish stance if these data points had been available during the May meeting.

“The uncertainty was around the speed and intensity that [tight policy] would be felt in the economy … Since then we've had a whole heap of evidence on the downside playing out”. 

Uncertain

He said the OCR projection, published in that Monetary Policy Statement, was “flat with a slight upward bias” but with “big uncertainties” that were outlined in the record of meeting.

Weaker than forecast GDP was not cited as a risk in the May meeting record, and uncertainty about price-setting behaviour was described as an upside risk. The committee agreed that interest rates need to “remain at a restrictive level for a sustained period.”

The chapter on economic projections included a disclaimer that said there was “significant uncertainty” about the assumptions used in the baseline forecasts. But the possibility of easing rates in the near future was not mentioned in the 60-page document.

This shift led some economists to describe the August decision as a 'U-turn.' However, there was consensus that it was the correct move, given the clear signs of a weakening economy.

Stay off the track

Hawkesby also said there had been a “misconception” that the central bank was going to keep the OCR at 5.50% until it saw inflation below 3%. 

“You need to work on the basis that monetary policy is going to work. You don’t have to wait until the number is within the band, you just have to have confidence it will settle there.” 

However, the May monetary policy statement projected the OCR would remain above 5.50% until September 2025, by which time inflation would have been below 3% for a full year.

This was true in the February 2024 and November 2023 monetary policy statements as well. 

Hawkesby said the OCR track that published in each statement often gets overanalyzed, without enough recognition that it is based on a set of assumptions.

“There's something quite peculiar that happens when someone sees a line on a chart, or they see a number in a table, it has this sense of being real and factual,” he said.

“My advice to people would be to focus more on the record of the meeting than the OCR projection."

"For our recruitment agency, we're probably experiencing around three to four times the volume of applications compared with last year. And that's across the board, across different industries and job types," Barlow says in the latest episode of interest.co.nz's Of Interest podcast.

"At the extremes, it can be even more than that. So for some business support [roles], other industries like supply chain or operational roles where we were happy to get, say, 30 applications, we'd be celebrating last year. Now those can reach up to nearly 300 applications and that's within a week. So you have to pull the ad so that you've got the time to get through all those applications."

"I'd say with the higher volumes of applications as well, I think the biggest factor isn't actually about there being more people looking for work...the big factor is there are less jobs available. So there's less than half the number of job postings in the market today compared with 2022," says Barlow.

Her comments come ahead of the June quarter labour market data from Statistics NZ, due out of Wednesday, August 7 and expected to show an increase in unemployment.

Barlow previously appeared on the Of Interest podcast in August 2022 at a time when the border had just fully reopened following its closure due to Covid-19, and the balance of power in the labour market was firmly in favour of job seekers, or workers.

Since then there has been a massive surge of inward migration, which hit a record high for a calendar year of 126,000 in 2023, according to Statistics NZ. Despite this Barlow says it hasn't solved skill shortages.

"The problem is that quantity doesn't always equal quality. There've been problems with the new accredited employer programme and the new government is still working through changes to those immigration settings. So we haven't got it quite right yet. So although we've refilled the talent pool, we haven't necessarily attracted the right people to be able to cover our areas of skill shortages;" says Barlow.

"Plus we might have had record migration, but we've also had record numbers of Kiwis leaving New Zealand this year."

Statistics NZ's latest figures show a net loss of 2,000 people due to migration during May.

In the podcast audio Barlow also talks about the regions were job seekers are really feeling the pinch, and regions where job listings are actually increasing, how and why some workers are having to take pay cuts, how the labour market has got harder for graduate or entry level roles, what the biggest challenge is for employers now, lingering effects of Covid-19 including attitudes and expectations for working from home, whether she thinks the jobs market has bottomed out yet, and more.

*You can find all episodes of the Of Interest podcast here.

Speaking in a new episode of interest.co.nz's Of Interest podcast, Bolton, also a former banker who has dabbled in property development, says apartments, including small ones, offer people who otherwise couldn't afford to buy in Auckland the opportunity to do so. He gives the example of a recent client who wanted an Auckland CBD shoebox apartment.

"He was actually just over 50 and a first home buyer. He had about $150,000 in savings and an income of about 120,000 and he was just keen to get something. Now, the interesting thing for him is that we worked it out and he could pay it off before retirement and that was his goal. So he was looking to pay it off in about 15 years and the only way he was gonna be able to do that was with a shoebox apartment. He was really happy with that...He'd be a classic example, I guess, of the target market for someone that otherwise couldn't buy."

Investors will always look at it on a yield basis, Bolton notes.

"The numbers have to stack up. The attraction for investors historically with the shoebox apartments has been purely yield, straight yield play. They [can] get much better yields on them than a standard apartment."

Bolton also says there's a growing number of retirees struggling to find places to live.

"When we talk about shoebox apartments or just small living spaces, it could be some single level brick and tile units in the suburbs. It doesn't have to be a traditional high rise apartment with shoeboxes in it, you know, just little living spaces out in the suburbs, all on one level, which gives them easy access."

"It's a really important market, and I think it's a market that is going to come with a whole lot of issues in the future because rents are so high. Retirees on the pension simply cannot afford to rent houses or even townhouses. And multi level townhouses are not the right product for them. And so I think getting affordable solutions that cater to our growing retiree market, of whom an increasing proportion of them don't own property, or if they do, they need to downsize because they're taking mortgage debt into retirement. I think there's a real market there, and I think it's not the inner city shoebox that we're talking about. What we're starting to talk about is how do you cater to those communities, and then how do you build a property that's appropriate for them, that's affordable? And I can see that being out in the suburbs, I can see that being in the provinces. So I think there's an opportunity here to reshape the way that parts of our market are operating," says Bolton.

Last month Housing Minister Chris Bishop gave a speech outlining the Government’s plans for housing.

Included in Bishop’s speech was a pledge to remove the ability for councils to set rules or guidelines requiring balconies, or floor areas of apartments to be of a minimum size. This, Bishop says, will increase housing supply by enabling more homes to be built at cheaper prices.

Auckland Council's rules currently set the minimum net floor size for an apartments at 30 square metres, or 35 in the city centre. The latter can be reduced by five square metres if there's outdoor living space, a balcony, ground floor terrace or roof terrace. The smallest apartment allowed by Wellington City Council is 35 metres squared, and the city centre also has requirements for outdoor living space area with the smallest a minimum area of five metres squared and a minimum dimension of 1.8 metres.

In the podcast audio Bolton also talks about the size of deposits needed to get bank loans to buy different sorts of apartments, banks' apartment lending appetites and why they can be reluctant to lend for smaller apartments, apartment developers and pre-sales, construction costs for apartments and financing of new builds, locations for apartments and more.

*You can find all episodes of the Of Interest podcast here.

Advocates say you don't do MMT, rather it's a description of how the monetary system works. And countries like New Zealand, where the Government - via the Reserve Bank - is the monopoly issuer of a fiat currency, are monetary sovereigns and thus can't run out of money. 

"We think the monetary system is central to the way modern economies work. And so it's really important to base a discussion of macroeconomics and public finance on having a proper description of the monetary system," Hail says in the latest episode of interest.co.nz's Of Interest podcast.

"When the Government has plans to invest in healthcare, transportation, climate change, housing, anything else that they're going to be spending on, when people say where are you going to get the money, that's the wrong question to ask. The question that we need to ask about national government spending is always where are the productive resources coming from? Where are the people? Where are the materials where's the technology? Where's the institutional capacity, which businesses have spare capacity to meet the Government's demand for what it wants to do? And that transforms your discussion about government economic policy," Hail says.

I first interviewed Hail in 2020 as Covid-19 swept the globe as one of a series of interviews trying to make sense of what was going on and what it all meant. A recurring theme in these interviews, as governments spent lots more money than they had in decades, was MMT. Hail was then a lecturer at the University of Adelaide School of Economics. He now runs Modern Money Lab, a not-for-profit, in partnership with Torrens University.

Looking back now, to what extent does he think the massive government spending contributed to the subsequent global inflation surge?

"Well, the first thing to say is that we've just been through about three of the four horses of the apocalypse. So if the worst problem we're going to have in terms of reacting to that is a temporary increase in the inflation rate in New Zealand to just over 7% per annum, we've done pretty well...The second thing to say is what was the alternative to supporting businesses and supporting people during the pandemic and during lockdowns?" Hail asks.

"Did the spending contribute to inflation? Well, to an extent. But every major central bank in the world that's researched the drivers of inflation following the pandemic said that most of it was to do with the supply side. That's not surprising, is it? A, we built a global economy with very fragile, incredibly complex supply chains, and they just collapsed during the pandemic. And subsequently, of course, once we got over the worst of that, we then had the Russia-Ukraine war driving energy prices up and food prices, too."

"You can argue that some of the government spending was not as effective or efficient as it might otherwise have been. But we're talking about what immediately before would have seemed almost an unimaginable catastrophe that governments were having to react to overnight," says Hail.

And what about the role of quantitative easing (QE), through which the Reserve Bank spent $53 billion buying government and local government bonds on the secondary market from banks during 2020-21? Used for the first time in NZ during the pandemic, QE had been used by central banks in other countries such as Japan, the United States, Europe and Britain for years before that.

"Now, in all those other countries where quantitative easing was used to a very large extent over many years prior to the pandemic, it caused a significant increase in inflation, or it caused an uncontroversial so that everybody accepts it significant increase in total spending in the economy, on precisely no occasions. And there's a good reason for this, which is that quantitative easing is not really the creation of new money," says Hail.

"It's certainly not giving money away. It's an asset swap, and it's actually an asset swap of two very similar assets these days. Because, after all, central banks pay interest on the reserves private banks hold at central banks, and most central banks are part of the broadly defined government sector. So those reserves are an interest bearing financial liability of the government, really. And when central banks buy treasury bonds from private banks, what are they buying? While, those treasury bonds. What are they? Interest bearing liabilities of the government sector."

"So when you practise quantitative easing, you're really swapping apples for very similar apples. You are not adding to the net financial assets of the private sector. What you are doing is putting a little bit of downward pressure on long-term interest rates."

Still Adelaide-based, Hail is visiting New Zealand during August to run an interactive seminar in Auckland, and show the documentary Finding the Money- featuring Hail's friend and high profile US MMT economist Stephanie Kelton - in both Auckland and Wellington. As well as an introduction to MMT, the seminar will look at the economy as a subsystem of the natural environment and probe human behaviour, inequality and global trade. It'll also cover planetary boundaries and climate change.

Listen to more on these topics and others, including economic growth, sustainability and reducing our impact on the environment, in the podcast audio. 

*You can find all episodes of the Of Interest podcast here.

AAM, which launched three years ago, is a corporate debt fund manager organising wholesale investorsto contribute to direct secured loans to businesses. Private credit, a form of shadow banking, has made headlines in the US, Europe and Australia over the past couple of years. The International Monetary Fund estimates the fast growing "opaque" and " highly interconnected" private credit market topped US$2.1 trillion globally last year, and over time "could become a systemic risk for the broader financial system."

In a new episode of interest.co.nz's Of Interest podcast, Carnachan says in NZ the largely unregulated private credit industry's probably a decade behind where it's at in larger economies, including Australia's.

"I don't necessarily think this industry will, or should, become heavily regulated over time because a big part of the driver here is to move risk away from deposit taking institutions which carry systemic risk. But it is really important, I think, for the longevity of the industry that managers are being really transparent around how they're conducting themselves, how they're valuing their assets," Carnachan says.

"There is huge potential for this industry to grow...If you look at that business lending segment in New Zealand, it's roughly $120 billion, a lot of that's property linked. If you say half of that relates to operating companies, $60 billion, I think realistically where private credit investors like ourselves could come in to help manage some of the risk it's really between 2% to 5% of that over time. A relatively small chunk of the market, but will create options for those great kiwi businesses that are looking to grow, looking to expand, looking to acquire."

In the podcast Carnachan talks about who the private credit investors and borrowers are, the interest rates they earn and pay, how the floating rate loans are priced, loan covenants and syndications involved, the fees AAM charges, the impact of high interest rates and falling interest rates on private credit, where the sub-investment grade borrowers rank in S&P Global Ratings' methodology, how AAM's portfolio currently has no credit loss issues or impairment issues, and more.

"In terms of the return profile that we offer, we're a floating rate product, so we provide a spread or a margin above. We use the Official Cash Rate as the benchmark because it's well understood. So what that means is we are an inflation hedge because as inflation rises or falls, typically market rates move commensurately. But we can always lock in an attractive margin over that benchmark rate," says Carnachan.

"And I think it's important to understand in terms of that marginal credit spread, we do a lot of work around ensuring that that is driving really good risk adjusted returns for our investors, and also taking into account the fact that these underlying investments are relatively illiquid. So it's not a product that you can trade in and out of. It's a hold to maturity product."

"We are effectively a fixed income product that provides, we think, a really attractive diversifier away from bonds and yield stocks."

*You can find all episodes of the Of Interest podcast here.

While the tone shift was unexpected, the central bank was reacting to the same data which had caused ASB’s economics team to change their own interest rate forecast the week prior.

Nick Tuffley, the retail bank’s chief economist, said economic data was sending very different signals in July than it had been prior to the RBNZ’s meeting in May.

Monetary policymakers had then been facing consecutive inflation data releases which showed domestic pressure tracking well above forecasts, he said. 

“When we roll forward to where we are now, it's just clear that the economy is performing weaker than what they had been anticipating [in May]. We are now forecasting another mild double dip recession; that may not occur but it just highlights how weak things look”. 

The RBNZ had been forecasting slight economic growth from here, picking up momentum in each subsequent quarter, but fresh forecasts look like there will be further contractions. 

Tuffley told the Of Interest podcast that the Monetary Policy Committee would have been looking at new forecasts, even though they don’t get released to the public.

“When the Reserve Bank does these monetary policy reviews, it will have re-cranked its forecasts again and will be working on an updated view,” he said. 

“Undoubtedly, what that view is showing is that GDP is going to be much weaker over the course of this year than they anticipated”. 

This would likely mean higher unemployment, slower wage growth, and disinflation happening faster than forecast as well. Tuffley expects annual inflation was 3.3% in June.

“The other thing we are mindful of is that [monetary policy] is like an oil tanker going at full speed, when you put it in reverse you don’t see much impact on momentum for a while”.

For a long time, the Reserve Bank has been most worried about cutting rates too soon and leaving the embers of inflation smoldering, ready to bust back into flames.

Now the central bank was becoming very confident inflation was coming under control and was shifting focus to the risk that interest rates are damaging the economy unnecessarily.

Since the Coalition Government removed RBNZ’s employment mandate, the policymakers are nominally not required to consider economic damage in their decisions. 

However, inflation may drop below 2% if they allow the economy to become too weak and the committee is tasked with avoiding “unnecessary volatility” in output and employment.

Tuffley expects the Official Cash Rate to be cut in November, while the RBNZ most recently suggested it was planning to hold off until next August — although that is likely to change.

Bond traders and other financial market participants have priced in a decent change of a rate cut at the RBNZ’s next meeting this August, and possibly a 50 basis point cut in November. 

Tuffley said this sort of gap between the central bank and the market was fairly common.

“Markets tend to forecast rate cuts tomorrow, whilst the Reserve Bank might be looking at next year, and often you end up meeting a bit in the middle,” he said.

Despite talk about the need to diversify away from China due to geopolitical differences, it may be the United States that hits Kiwi businesses with tariffs intended to shut them out.

Stephen Jacobi, the executive director of the NZ International Business Forum, said a second Trump presidency was a “sword of Damocles hanging over the global economy”. 

Speaking on the Of Interest podcast, Jacobi said the 45th president had imposed “enormous tariffs” during his first term and plans to go further if elected for a second time in November.

“This time, the big thing is the 10% tariff he keeps talking about. If a 10% tariff was imposed on New Zealand exports to the United States across the board, a lot of trade would be killed off,” he said. 

As part of his election campaign, Donald Trump has proposed a 10% tariff on all imports and a 60% tariff on imports from China. This would go much further than what he did after 2016. 

Earlier tariffs of between 10% and 15% were applied to a specific list of goods, which were largely targeted at China but also included various other countries. 

New Zealand was subjected to a 15% tariff on steel and aluminium, for example. This was bad enough, but a blanket tariff would hit much more important exports such as beef and dairy. 

Jacobi said these sectors already faced strong competition from local US producers and there was also a risk that some international competitors might be able to dodge the tariff. 

For example, Australia was exempted from the steel and aluminium tariffs because it had a free trade agreement with the United States — which NZ does not have.

“Go figure. This is the country that won't give us a trade agreement,” Jacobi said. 

“I spent 10 years of my life trying to argue for an FTA with the United States and thought we had it in TPP, only to see them leave when President Trump got elected”.

It was this lack of guaranteed market access that makes the United States look like a riskier bet than China, where NZ does have a free trade agreement.

“Look, it's not always easy doing business with China, let's face it. But they have opened the market to us and it has transformed our economy”.

Chinese consumers were often the only ones who wanted to buy Kiwi products at the volumes and prices businesses require, he said. 

Jacobi said he was not supportive of efforts to shift trade away from China, or join the AUKUS security agreement — which was clearly directed at China.

“Well, the risk [of disruption] is greater from the United States, potentially with a change of government”.

 In a new episode of interest.co.nz's Of Interest podcast, Foster, who runs the EVDB website, says EVs reaching price parity with internal combustion engine (petrol) vehicles, will be a very significant development. The rise of Chinese EVs should help with this.

"At the beginning of 2022 we didn't really have any Chinese brand vehicles [in NZ] and now 20% of those on the road are [Chinese]. It's happened in two years. And that kind of shows you, I guess, why maybe the US have freaked out and implemented protectionist policies to try and protect their own car market. The amount of momentum coming out of China is extraordinary. And the build quality, I wouldn't say is taking people by surprise. But I know historically in New Zealand when we have new brands come to market...way back with the Japanese brands or Korean brands, at first you're kind of like, 'I don't know about this.' And then eventually they become normalised. They just become another brand that's part of the story," Foster says.

"I keep a running tally all the time of the 10 cheapest EVs in New Zealand, and then I get an average from that and that gives me an indication of where we're at. Those are all Chinese vehicles."

From a personal perspective Foster enjoys his EV being a part of energy self sufficiency, or sovereignty.

"That's something that I find quite profound. Since I got the solar panels on the roof I feel like I'm in science fiction...I've actually got the sun's rays going into my house's power and then into a battery in my car and I drive it. Compared to drilling oil, refining it, putting it on a ship, sending it over, driving it down..."

In the podcast Foster also talks about the reasons for the dramatic drop in EV uptake in NZ this year, the popular models and brands, prices including in the secondhand market, battery range, home and public charging, insurance and repairs, other EVs beyond cars such as utes, vans and heavy transport, hybrids and hydrogen vehicles, his expectations for NZ's future vehicle fleet and how electricity supply will cope.

*You can find all episodes of the Of Interest podcast here.

With two parliamentary select committees set to hold an inquiry into banking competition, the business and rural banking markets will feature, unlike in the Commerce Commission probe into competition in the personal banking market. In the latest episode of interest.co.nz's Of Interest podcast, Bagrie, now of Bagrie Economics and Chaperon and formerly ANZ NZ's chief economist, speaks about why banks favour housing lending over lending to the business and rural sectors, and whether it would be good to entice them to change this and how it could be done.

At the top of the select committee inquiry's terms of reference ought to be balance between the pricing of risk versus the taking of risk by banks, and how that's impacting productivity, Bagrie says.

"I think we need to have a really good, hard debate about where the money is actually going, the composition of bank lending, whether it's short-term behaviour versus a long-term growth maximising strategy. Let's have a serious conversation about risk going forward, because risk is a big enabler. It's not open season on risk, but risk is an enabler of innovation, driving productivity. It just seems like we've screwed things far too far towards a low risk approach, and ultimately we pay the price for that over time," Bagrie says.

"I go back to the fundamentals of banking. The fundamentals of banking is pricing for risk and taking risk. And what we're seeing out there at the moment is that SMEs and farmers are certainly being priced for risk... Let's have a look at return on equities out of the banks by segment, not the aggregate top down number. Let's break it down into personal lending, including home lending. Let's have a look at business lending. Let's have a look at farm lending and the institutional [loan] book, and have a look at where those ROEs [returns on equity] actually sit. And I think we're going to be surprised how high those ROEs are for certain segments."

"The key here is to go through each segment and look at the risk adjusted returns," he says.

Figures from the International Monetary Fund show housing lending at 35% to 40% of total bank lending in some countries, whereas in NZ it's nearer 65%, having risen significantly over the past five years.

Bagrie also argues that banks' regulatory capital settings encourage them towards housing lending instead of business and rural lending, when there's "more productivity bang for your buck" when you're lending into the business sector. 

"We need to have a look at this through the eyes of economic efficiency, economic growth, productivity, innovation. Because when you make banks a lot more safer, there's a price that you pay on the other side."

"The whole process of credit intermediation is a pretty critical part of economic development. And I don't think we've got financial system settings right on a whole lot of areas," he says.

Financial system settings and banking don't tend to be areas thought of when people think about what to do to make NZ a better place economically in regard to taking risk and driving productivity growth, Bagrie says.

"We sort of overlook what's a fundamentally essential one and that's that flow, that process of credit intermediation, [it] is absolutely essential. The Prime Minister has been talking a lot about encouraging the taking of risk...Well, yeah, in order for firms to take risk, you need the financial system to be prepared to take risk."

In the podcast Bagrie also talks about NZ businesses having a bankability problem and how to rectify this, the role of the Reserve Bank's regulatory capital settings, banks' becoming more vanilla, the rise and rise of bank profits over the past 30 years or so, the low level of banks' non-performing loans, the need for better competition policy across the economy, how housing lending has grown as a percentage of total NZ bank lending over the past 20-odd years, and especially over the past five years, Australian influence at the big four banks, open banking, his thoughts on the idea of a Business Growth Fund, and more.

*You can find all episodes of the Of Interest podcast here.

How seriously is the public sector taking the fight against money laundering and terrorism financing?

This question comes up in a new episode of interest.co.nz's Of Interest podcast, featuring barrister and solicitor Fiona Hall and anti-money laundering auditor and consultant Martin Dilly.

In a recent article the two raised concerns about impending job cuts to the team at the Department of Internal Affairs (DIA) tasked with supervising compliance with the Anti-Money Laundering and Countering Financing of Terrorism Act (AML/CFT Act). 

Dilly says the DIA proposal to cut 40% of AML/CFT staff "gives us concern that that's going to affect their ability to enforce and supervise this act." There's concern whether the next evaluation of New Zealand by the Financial Action Task Force (FATF), an inter-governmental body that sets international standards and is considered the global money laundering and terrorist financing watchdog, will show NZ technically compliant with FATF's recommendations, and whether we're effective in supervising the reporting entities who must comply with the law.

"I have heard some reporting entities clapping their hands with joy if they're supervised by the DIA, but it's not the good reporting entities. And I like to think that most businesses are good businesses that want to comply with the law. And the risk you have is, yes, sure, if there are far fewer DIA investigators, you're less likely to get a knock on your door. But the problem is, if you do get a knock on your door, you now might be being investigated by someone who really doesn't have a good handle on the legislation, let alone a good understanding of your business. And you are going to be in a much worse position," Hall says.

Dilly made an Official Information Act (OIA) request to DIA in an attempt to get more information, which he says "shows a pattern of under resourcing of the AML team within the DIA."

 "They were essentially budgeted to have 55 staff members. That's what they had determined was necessary...The information provided shows at no point did they ever hit 55 staff. They've been consistently below that. In 2022, they only had 37 staff instead of 55... So the question becomes, why is that?"

"One of the other questions I specifically asked was, has any of the budget been reallocated from the AML team to other areas of the Department of Internal Affairs? And we get some government speak here. So one of the things they talk about is they don't talk about reallocation. They use the terminology 'a permanent reprioritisation of constant underspend.' And my question is, well, what does constant underspend mean? Why would you be underspending your budget in an area where you are tasked with implementing AML and educating and supervising these new entities [lawyers, accountants and real estate agents]?" Dilly asks.

Other issues Hall and Dilly cite include different agendas and lack of consistency to AML/CFT Act supervision between the DIA, and NZ's two other AML/CFT Act supervisors, the Reserve Bank and Financial Markets Authority.

The two are hopeful that Associate Minister of Justice Nicole McKee's proclamation that reforming the AML/CFT Act is "one of my priorities this parliamentary term," could lead to improvement. They would both like to see a shift to a single standalone supervisor.

"I think the results from the [DIA] OIA show that if it's within other ministries that you cannot trust them to not reallocate budget, whatever language they want to put on that. The other point I would really like to see is a move back to a more risk based approach. The act itself is risk based, which essentially means that we accept that people have limited resources and you are supposed to direct those resources towards the areas of highest risk in your business," says Dilly.

Hall would like to see better supervision of the supervisors.

The two also have many tales of frustration and contradiction. Hall gives the example of a client that collects school donations, arranges school lunches, the uniform shop, and sells tickets to school shows, and has been deemed high risk of money laundering.

"I sat with the Minister and said, 'look, how does buying two pairs of grey shorts from a school uniform shop ever get anywhere near, I mean, this is where I'm going to launder my money?' It is ridiculous."

On the flip side she points out the likes of Ticketmaster, selling tickets to shows, aren't considered reporting entities None of those are considered reporting entities, and neither are travel agents who have trust accounts and manage funds.

"So we have this real disconnect, in my view, even about who is and isn't a reporting entity," Hall says.

Meanwhile in the real estate sector, they have to do customer due diligence.

"Their customer is the vendor, it's not the buyer, which I always find so interesting because that's where the money is. And often a property's been bought years and years before, and suddenly, you know, the vendor's been asked to prove how they purchased this and how they funded it, and there is resistance."

There are also personal anecdotes. Dilly says the bank he has been a customer of for more than 40 years asked him about an account he has had for 25 years.

"They have full visibility of every one of my financial transactions. And I was interrogated as to what my plans were for that account. And my thinking was why? Why would you rely on anything I tell you when you've got 25 years of data on my behaviour? If I was an actual money launderer, why would I give you a straight story?"

And here's Hall; "I was at the supermarket checkout and I'd been having a particularly trying day for poor entities [clients] that I didn't think should be captured [by the AML/CFT Act] at all. And I was standing in line and I looked up and I was behind a whole lot of gang members...They were buying lots of meat, lots of alcohol, and out came the wads of cash. And I thought, 'my poor clients who are spending all their money trying to comply, and really there's the money that we probably are looking for right in front of me."

Much more is discussed in the podcast including why the public should care about the fight against money laundering and terrorist financing and the impact of it, the purpose of it, concerns NZ could end up on a grey list, concerns over whether the Police Financial Intelligence Unit is reactive and doesn't have the capacity to deal with all the suspicious activity reports they receive, quick wins with asset seizure where there's a lower threshold from a legal perspective, and more.

*You can find all episodes of the Of Interest podcast here.

In last month's budget, Prime Minister Anthony Albanese's government unveiled a Future Made in Australia, saying this would invest A$22.7 billion over a decade to "build a stronger, more diversified and more resilient economy powered by clean energy, in a way that creates secure, well paid jobs and delivers benefits to communities across the country."

Speaking in the latest episode of interest.co.nz's Of Interest podcast, Walker says a key aim of the initiative is to boost Australia's economy complexity, a measure of the knowledge in a society as expressed in the products it produces, by upskilling and moving up the value chain.

"Obviously, we can't do everything, but we can absolutely do more than just digging up [natural resources such as minerals] and selling them off and then buying them back again in more technologically sophisticated forms. We know that those critical minerals are absolutely necessary for the ongoing electronics revolution, as well as for the clean energy future globally. So we can, for example, process our iron ore, or it can be used in or [turned] into green iron, at least, so that it can be used in green steel. And we have the minerals to make batteries for electric vehicles, for example. We have extraordinary batteries technology. Some of our researchers and developers in that space are amongst the best in the world. And so it seems to me, putting these two kind of natural assets at either end of that development spectrum together, that there ought to be a way to move us a little bit further along the value chain," Walker says.

To this end there'll be a need for skilled workers, especially in STEM (science, technology, engineering, and maths).

"Around 48% of professional occupations were in shortage across Australia last year, and that's up from 39% the year before. There's a similar shortage in the technical and trades occupations in Australia. So we are both going to have to train new people domestically as a matter of priority, and in addition to that, rely on skilled migration. And, you know, I think traditionally it's probably reasonable to assume some of that skilled migration might come from New Zealand," she says.

There should also be a role for private sector investment, research, development and ideas. Much of the earmarked government investment takes the form of tax incentives, but also includes a range of funding mechanisms.

"One of the other focus areas that we've got simultaneously with this Future Made in Australia push is, of course, building capacity in the global region. And there is a huge place, a huge part to play for New Zealand, for Pacific island nations and other near neighbours like Indonesia, in collaborating to research and commercialise those developments, particularly in the technology and engineering spaces, and to do that for mutual benefit, so that we build the capacity for the entire region," says Walker.

Ultimately, Walker hopes in 20 or 30 years, a Future Made in Australia can be looked back on as a catalyst for a more sustainable future.

"And I mean that both in terms of economically sustainable and societal wellbeing, and in terms of environmentally sustainable. I think if we do this really well, we can build a more circular economy, we can reduce our waste as well as our emissions. We can see small scale manufacturing and pop up factories all over the place. There are some really, really interesting and pretty great technologies coming up where, for example, a micro-factory the size of a shipping container can take glass and fabric being recycled from a building site and turn it into a new material to use in a new building on the same site. I'd like to see huge and widespread adoption of renewables [energy]. And I'm hoping that when we look back, we see not only that resilient infrastructure within Australia, but a booming export market for those products as well, ranging right through from the energy and the fuels, through to those slightly value added up the chain minerals exports, green agricultural exports as well, and a range of other stuff which, frankly, you and I haven't heard of because it probably hasn't been invented yet."

In the podcast Walker also talks about where a Future Made in Australia comes from, what's behind it, what needs to happen for Australia to become a renewable energy superpower, green hydrogen, mining, critical minerals, concerns about a Future Made in Australia picking winners and benefiting billionaires, its national interest framework, research and development, and how Australia can get along in a world of rising geopolitical tensions between the United States and China.

*You can find all episodes of the Of Interest podcast here.

Geof Mortlock, an international financial regulatory consultant who does work for the International Monetary Fund and World Bank specialising in financial system stability, resolution of bank failures and deposit insurance, spoke about the depositor compensation scheme in a new episode of interest.co.nz's Of Interest podcast.

The scheme, expected to be launched in mid-2025, will provide protection of up to $100,000 per eligible depositor, per licensed bank, building society, credit union and deposit taking finance company, in the event of deposit taker failure.

 Finance Minister Nicola Willis has decided the fund backing the scheme, to be funded through levies paid by deposit takers, will be built up over 20 years to a size equivalent to 0.8% of protected deposits, or about $1 billion.

Mortlock says other countries typically have a fund size equivalent to between about 1% and 4% of protected deposits, and he recommends taking about 10 years to build the fund up to its target level.

He says the NZ scheme would likely be used for the failure of a non-bank deposit taker or small bank, but wouldn't be sufficient for the failure of a medium-sized or big bank, the failure of which would require "alternative mechanisms." Nonetheless Mortlock says it is worth having the scheme.

"I think it's definitely worth having because there are quite a sizable number of small deposit takers out there. And at some stage, one of them is going to fail. Hopefully not for a long time. But statistically, if you look around the world, there are occasional bank failures, and most of them tend to be small."

"For a small deposit taker or a medium sized one, I think having a deposit insurance scheme is really important, and I think it helps in two ways. It reduces the risk of what we call interbank contagion, where one failure can trigger multiple runs across the banking system. And secondly, it helps to reduce the risk for the taxpayer, because it means that there is a dedicated fund paid in by deposit takers and therefore [this] reduces the need for government funding," says Mortlock.

"But for a large bank failure, it is not going to be sufficient. And if you look around the world for a large bank failure, deposit insurance funds are not typically used anyway."

An option for a larger bank failure is the Reserve Bank's Open Bank Resolution (OBR) Policy. In the podcast Mortlock explains why he thinks it would be "potentially catastrophic" for the Reserve Bank to use OBR, and he doesn't think a Finance Minister would allow them to.

In the podcast he also talks about what other resolution options could be for a large bank failure, what products the scheme will cover, the impact deposit takers paying a levy may have on deposit rates, how the Reserve Bank should administer the scheme, bail-in, depositor preference and more.

Under depositor preference, depositors rank ahead of other secured creditors in a liquidation. Mortlock says it helps reduce the risk of runs on banks, and facilitates bail-in whereby unsecured liabilities such as bonds may be written down or converted into equity in the event of a bank failure.

At the moment, with OBR, NZ is "about the only jurisdiction I can think of outside of some dubious ones, which would apply a haircut to deposit liabilities and no depositor preference," Mortlock says.

"So if you're a wholesale depositor in a bank and the banking system is looking shaky, and you know that the OBR is out there and could be triggered, what are you going to do? I think you're going to do a preemptive run. And what would that do? That would almost certainly mean that the [Reserve Bank] Governor, joined by the Minister of Finance, would have to say, a, we're not doing OBR, and b, we are putting in place a temporary guarantee of all wholesale deposits. Just the opposite of what you would want to have to do. So I think it is a foolish policy, OBR, and made even more foolish by the absence of depositor preference."

*You can find all episodes of the Of Interest podcast here.

Speaking in the latest episode of interest.co.nz's Of Interest podcast, Eaqub says the "lived reality of renting" has got harder over the past decade, but the regulatory settings are slowly improving.

"We need to ensure there's sufficient renters' rights ... because in New Zealand renting is so insecure and is such a problematic thing for so many people."

One area giving Eaqub optimism is the rise of build to rent, where landlords must offer 10-year rental tenancy agreements.

"I've been a long time fan of institutional landlords rather than accidental landlords. When you are in the business of land lording, you want to have as little turnover as possible, whereas if you're an accidental landlord, you are much more interested in having quick turnover and being able to sell it off and all those other bits and pieces. The tenant is kind of incidental to the story and a bit of an annoyance, really."

Eaqub says build to rent offers two types of security; tenure security and financial security.

"Because more often than not [build to rent] will come with contracts that will have a known level of [rental] increase for the next, say three years, so you can plan your finances. Whereas in a normal tenancy you have only certainty for 12 months and then you don't know what will happen next."

Build to rent is adding new housing supply targeted for one particular use, which he says is unusual in NZ.

"If you look at what happens in New Zealand, or how it has generally happened in New Zealand in the past, it's the idea of filtering, right? You build houses which are for new homes and for rich people, and then the older homes that are secondhand, that kind of gets recycled into the rental market."

"So I'm very encouraged to see this new supply that's coming in, that's very much targeted towards renting specifically. Because if you think about the pressures that we see in terms of emergency housing, social housing and all those kinds of things, that's happening because people are falling out of the rental market, because the rental market is short supplied and is very expensive. And so the more we can do to get more supply directly and retained in the rental market, the better it is," Eaqub says.

He also talks about his disappointment at the fracturing of the Labour-National consensus on medium density residential standards (MDRS).

"[The consensus] showed me for the first time the grown-up-ness of the way that our politicians can respond to structural problems, that we can put aside our political differences and just do something because it's the right thing to do, not because you're on one side of the House or the other. But that grown up moment of politics lasted very, very briefly, and we threw it away at the first chance when the election campaign started," Eaqub says.

In the podcast Eaqub also talks about NIMBYS, the construction sector, what's driving rents, problems with local government, his views on rent controls, the accommodation supplement, emergency housing, what the rental market may be like for his kids' generation, and more.

*You can find all episodes of the Of Interest podcast here.

Wilkins is a researcher and advocate on sustainability in business with a focus on degrowth. In a new episode of interest.co.nz's Of Interest podcast, she discusses the degrowth movement.

"Degrowth is normally described or defined as an equitable downscaling of production and consumption. Other people add in other parts of that definition, which is about reorganising the market for a new role in provisioning. So I think about degrowth as being a transition. Starting from the economy that we have now, which is very much about trickle down wealth and extracting from nature, to a future economy which is more about universal wellbeing in an economy within ecology and nature. And degrowth is really the transition from one to the other," Wilkins says.

"So I don't think about it as being a very rapid change or a very smooth change. I think about it as being a hybrid of emergence and receding ideas, quite a lot of tension and a lot of mutation in the economy. So it's quite a complex thing, degrowth."

She traces degrowth's origins to the 1970s, and Romanian mathematician, statistician, economist and author of The Entropy Law, Nicholas Georgescu-Roegen, "the father of ecological economics."

The push for net zero greenhouse gas emissions is needed but not enough, Wilkins says. With a degrowth economy requiring more of a collective than individual approach, Wilkins says "the jury's out on the role of capitalism." And does advocating for a reduction in production and consumption mean people would be expected to accept a lower standard of living?

"I think degrowth is definitely looking to raise standards of living for the majority of people around the world. I think standards of living are actually decreasing at the moment. I think around the world, middle class lifestyles are decreasing in quality. And so there's this myth, if you like, that raising growth improves wellbeing. But the evidence shows that there's actually a bliss point. Economic growth improves wellbeing up to a certain GDP per capita, and beyond that, it either doesn't make a difference and/or eventually it begins to reduce wellbeing," says Wilkins.

"The bliss point is actually quite a lot lower than New Zealand's GDP per capita. So we have theoretically enough wealth already. We just need to redistribute it. I think people who are very well off will not see a reduction in their wellbeing or their living standards through a redistribution, but I think people who are less well off will see a great improvement in their wellbeing through a redistribution."

Wilkins believes degrowth will become public policy, saying politicians who want to run on a degrowth platform have lots of positive things they can say.

"It's about redefining what we see as value. I mean, at the moment we think about wealth as value and prosperity, but prosperity is really about things like having more leisure time, having a healthier natural environment around us, having more community health and more community cohesion, having more access to services and assets, and having an increase in our democratic participation. And those are all things that degrowth wishes to grow," Wilkins says.

"I think it [degrowth] will become public policy. I think parties will run on it as a platform. It's hard to say when that would happen, but I think in the not too distant future. And I think the thing is that growth as an idea is so embedded as a common sense that it never has to explain itself. And so there's a bit of an unfair playing field in terms of degrowth will have to explain itself to become credible. Whereas growth gets a free pass."

"Growth is not producing the effects that we have experienced in the past, like the raising the living standards of the middle class. That ship has sailed. We're in a different world now. There isn't room for growth to create those kinds of benefits anymore. We need to create benefits in a different way. So growth will fail to evidence itself as a wellbeing, a process for wellbeing in future. And there'll be a confluence of factors. There'll be, you know, this failure of neoliberalism, which I think we're already experiencing," says Wilkins.

There's more from Wilkins in the podcast itself, including what degrowth would mean for individuals, businesses and communities, and what it would mean for agriculture, manufacturing and tourism.

*You can find all episodes of the Of Interest podcast here.

In the latest episode of interest.co.nz's Of Interest podcast, Dentice, a technology lawyer and partner at HudsonGavinMartin, discusses the data sharing that enables open banking, what open banking actually is, why progress towards it has been slow in New Zealand, what's going on with open banking overseas, the threat and opportunity of open banking for banks, the benefits of it for consumers, and more.

One of the points he makes is consumers need to be put at the heart of it.

"If you're talking about APIs [application programming interfaces] and bank account information, it's not exactly the most sexy conversation to be having," Dentice says. "We have to put the consumer front and centre, have a look at some of these really amazing use cases that are starting to come out, and get people excited about it. And then that drives the [banking] industry to do more as well." 

"I think you've almost got to separate the open banking technology itself from the stuff that it enables," says Dentice.

"That technology itself is actually not that exciting as a consumer. APIs have been around for years. As a consumer, I don't really see that. What I see is the cool new app, the Sharesies, the Monzo, the Wise in market, that when I go and use it gives me a really fantastic, brand new experience."

"We're never going to get people excited with the underlying tech around open banking. We're going to get them excited around the use cases that it's driving. So it's kind of an enablement layer rather than new technology in itself," Dentice says.

Asked what the banking experience might look like for consumers in five to 10 years time if open banking really takes off in NZ, Dentice says better, more competitive, more interesting product offerings would be a great outcome.

"I would hope that there's a range of new, great, innovative New Zealand fintechs that are able to drive their business models off the back of this. I'd also hope that the great companies from overseas see New Zealand as a market that they want to enter. There's some larger [overseas] fintechs like Revolut and others coming into the market. I think if we have that open banking framework all up and running, then it makes New Zealand a much more likely place [where] the big players will come in and offer more competition."

He also thinks service from incumbent banks could be better and more competitive.

"I saw recently HSBC basically launched a competitor to Wise in that FX [foreign exchange] space. So there's the fintechs kind of coming in cutting [banks'] lunch, and then the banks' trying to cut the lunch back."

"And then I think digital first financial services means that people just have a better understanding of their money, their financial position. Financial literacy is really important. There's some great fintechs who are doing things with kids in that space, like SquareOne and Banqer."

"So there's a societal benefit to it, as well as a pure kind of competition and innovation benefit as well," Dentice says.

*You can find all episodes of the Of Interest podcast here.

The tax lawyer turned MP spoke on Interest.co.nz’s Of Interest podcast about the Coalition’s fiscal policy and her role in rebuilding the Labour Party after its election defeat. 

Part of that project will be rehabilitating the party’s economic credibility after presiding over a massive cost of living crisis. 

Ipsos’ February issues poll showed inflation, or the cost of living, was the number one issue facing New Zealand voters and only 23% saw Labour as being best able to deal with it. 

Only 22% thought it was the best party at “managing the economy” down from 31% a year ago and well below the National Party which has climbed from 42% to 47%.

The parties which have formed the Coalition Government campaigned on bringing down spending and therefore inflation, as well as cutting taxes for some groups. 

Edmonds agreed there was a need to consolidate spending—which had got ahead of revenue during the past three years—but tax cuts were a bad investment. 

Labour’s fiscal plan asked for up to 2% reductions in public sector budgets, while the Coalition Government is asking for up to 7.5%.

She admits her party would have had to make further cuts, given new Treasury forecasts showing tax revenue falling below pre-election forecasts. 

“If we had to make more cuts, or look at different savings, in order to ensure that lunches in schools kept going … we would have had to make those decisions,” she said. 

“I wouldn't apologize for making those types of choices. But what I wouldn't have done is promised really unaffordable tax cuts”.

Edmonds said the limited money available was better invested in infrastructure, schools, healthcare, public and private transport, and climate action.

Which tax? 

Edmonds said she was out meeting with key sector leaders and listening to new ideas she can carry back to Labour's policy council. 

Her role was to guide her colleagues through the process of developing a manifesto for 2026 and informing them about the costs and tradeoffs involved. 

“If I need to say no, I’ll say no. I’m a mum of eight, I know how to say no,” she said. 

“Ultimately, if I believe that it's going to put Labour into a difficult fiscal position going into the next election, I will make those views very clearly known”.

Labour recently voted against a bill put forward by Te Pāti Māori, which would have removed the GST from all food, on the basis that it was too expensive.

But the big policy question is about tax. Political opposition to taxes on capital has been the unslayable dragon of New Zealand politics.

Tax reform is back on the table but Edmonds won’t be drawn on exactly what kind.

She said it was necessary to first ask what the party was trying to achieve and then design a tax model that supported those outcomes.

The country will be facing some serious fiscal challenges by 2060 when superannuation could cost 10% of GDP and healthcare could absorb another 7%.

“2060 looks like ages away, but that’s the next generation. That’s my kids. So, we need to ask, what is the society that we want to leave this generation and how does tax help us get there?” 

The Treasury and the International Monetary Fund have both made recommendations about possible reforms, but Labour would be starting from scratch based on its long-term vision for New Zealand. 

Edmonds said political parties don’t win elections based on tax policy, anyway. 

“You win on committing to a better health system, better education, making sure the vulnerable are supported, and that our businesses are able to grow,” she said.

You can find all episodes of the Of Interest podcast here.

“I think reinsurers would still be there. But the ability to purchase reinsurance at a good rate and the degree of capacity that would be available, particularly for property in Wellington, could be really challenging,” he says in a new episode of interest.co.nz’s Of Interest podcast.

“Ensuring how we manage that risk is really critical because we're very dependent on offshore capital and reinsurance to help support our insurance programs in New Zealand.”

The Insurance Council says to date, private insurers have incurred over $21 billion in expenses due to the Canterbury Earthquakes.

Toka Tū Ake EQC has contributed an additional $10 billion, resulting in a total insured cost surpassing $31 billion for the event. 

The Insurance Council estimates the overall economic losses for the entire sequence are estimated to exceed $40 billion.

This week marks the conclusion of Grafton's nearly 12-year tenure as CEO of the Insurance Council and he reflected on his time in the role on the podcast.

He says lessons were learnt from the 2010 and 2011 Canterbury Earthquakes, which were then applied to responses to the Kaikōura earthquake in 2016 and the Auckland floods and Cyclone Gabrielle last year as well.

“When that [Kaikōura] earthquake struck, which was just a little bit after midnight, I think, on the 14th November, a lot of people were thrown out of bed almost by the earthquake in Wellington. And after the shaking stopped, I rang my counterpart at EQC Ian Simpson [EQC’s Chief Executive at the time] and said, ‘we’ve got to do better than Canterbury and can we meet in a few hours and work out where we go from here’,” he says.

“So, within four weeks, we had the foundations of an agreement which enabled insurers to manage and settle claims on behalf of EQC. And that meant that for the customer, there was one point of accountability and responsibility for their claims, their insurer. And so it didn't matter whether it was an EQC claim or an insurer claim, they didn't get bounced around between the two.”

“So from that, we then developed a more formal and longer lasting agreement with EQC to be their agents. And I think also the experience of those events from Canterbury through to Kaikōura, meant that when the Auckland anniversary floods and Cyclone Gabrielle came along, we were well seasoned in dealing with these kinds of situations.”

Kris Faafoi will be the Insurance Council’s new Chief Executive from next week. Faafoi held a number of portfolios during the Sixth Labour Government before he quit politics in 2022, including Commerce and Consumer Affairs, Broadcasting and Media, Immigration and Civil Defence.

You can find all episodes of the Of Interest podcast here.

Speaking about the Commission's draft report from its banking market study in the latest episode of interest.co.nz's Of Interest podcast, Small says he'll be interested to see what sort of response the Commission gets from the big four banks, ANZ, ASB, BNZ and Westpac, who it says are an oligopoly who don't face strong competition.

"We haven't accused them of doing anything nefarious. They're responding to the incentives that are in front of them. And we think that they've settled into a particular pattern of conduct that we think should be disrupted. But we don't blame them for that," Small says.

"I'll be really interested to see what they do have to say about it."

The Commission makes 16 recommendations in its draft report, and says they should be considered as a whole. He's optimistic about what the market for personal banking services could look like five years from now if the Government was to adopt them all. 

"We would see things that we just can't imagine today. So if open banking is operational within a couple of years, if Kiwibank has already been disruptive, then I think we've set the industry up for a really healthy, competitive future that will be greatly beneficial to New Zealanders throughout their economy. And that [interest] rates will be sharper, and the range of services will be much wider and the choice between providers, trusted providers, will be much wider as well. So I would see it as being really positive five years from now," says Small.

In the podcast Small also discloses which three of the Commission's 16 recommendations he believes are most important. With the Commission recommending the Reserve Bank review its bank regulatory capital settings, he also discusses dialogue with the Reserve Bank about this, and wanting them to "think really carefully about the competitive aspects of their decisions."

He also talks about why the big four banks don't face strong competition, what could be done to make Kiwibank a disruptive competitor, how the banking industry hasn't disrupted itself via open banking, customers moving between banks, the competitive landscape for home loans versus deposits, his take on the idea of a windfall profits tax on banks, and what a parliamentary select committee bank inquiry could probe. 

*You can find all episodes of the Of Interest podcast here.

Speaking in a new episode of interest.co.nz's Of Interest podcast, Watson says there's not a great deal of agreement on whether the US economy is even in good or bad shape.

"If you ask Democrats, they mostly say the economy is fantastic. If you ask Republicans, they say the economy is terrible. I think it's somewhere in between. I think that's what the data actually shows," Watson says.

The election is expected to be a rematch between incumbent Democrat Joe Biden, and his Republican predecessor Donald Trump.

"On the Trump side, they have not really announced a great deal of specific policy. So that's kind of a mystery. We know what the Biden administration has done and says they will do. People can like it or not like it, but they at least know. So what we do know from the Republican Trump side is he wants to further restrict immigration. He will probably resume the various trade war and tariff measures that he was doing last time and possibly more aggressively," Watson says.

"But again, the difficulty is people aren't operating from reality. People are operating from their own predispositions, what they think is happening. So that makes it hard to predict."

Asked whether the average American is feeling as if they're doing well at the moment, Watson says this is a really interesting question.

"The survey data that's out there is really confusing, because when they ask people, how is your situation, how are you doing financially in your own family and household? Most people, pretty solid majorities, over 60% are saying, 'I'm great, I'm in a good spot.' But then if you ask them how do you think the economy is doing overall for everyone else, they become very bearish. They think it's terrible. So it's hard to see how both of those are true at the same time," says Watson.

In the podcast Watson also talks about this week's Federal Open Market Committee (FOMC) monetary policy review and the outlook for interest rate cuts, the US inflation picture including housing's role in its stickiness, what's going on in US share markets, regional economic performance in the US, challenges in the US labour market, and the influence of the Inflation Reduction Act.

So says Cameron Murray, Chief Economist at Fresh Economic Thinking, a new Australian think-tank. In the latest episode of interest.co.nz's Of Interest podcastMurray talks about housing and his new book The Great Housing Hijack. He describes the housing markets and attitudes to housing in Australia and New Zealand as "culturally very similar in terms of the attitude to housing."

Murray, who has been a real estate agent, property investor and worked for FKP Property Group, says his book title essentially describes the state of the public debate in housing.

"There are so many vested interests, so many different groups and hobby horses that have lobbied, professionally or not for many decades, that it is very hard to have a straight conversation about housing in a public forum. So that is the housing hijack," he says.

"The housing hijack is all about what I call in the book the cheer squad, these noisy people on the sideline distracting us from the game of housing and, rather than understanding the plays and the strategy of the game, we're getting distracted by the noise of the cheer squad."

In the podcast Murray talks about why we should acknowledge the post-World War II to mid-1970s period was an unusual golden age in housing, what he sees as the five housing market equilibria, why he doesn't believe simply freeing up land and loosening zoning rules to enable housing supply is the silver bullet, KiwiBuild and the politics of housing.

Murray proposes HouseMate, a parallel public homeownership system alongside purchase and rental in the private property market. It would offer non-property owner citizens the option to buy a home from a public provider at a cheap price.

"The reason to propose this is simply that I couldn't find any examples anywhere in history or anywhere in the world where we'd sold housing for that group, that 10% or 15% of people who are renters, who are getting squeezed every time the market adjusts and people's incomes are rising. I couldn't find any examples where those people's housing had been improved without a public option of some sort. Whether that's regulated rental, like Vienna, where there's massive council housing and it's somewhat universal, anyone can access it. Or whether it's public housing home ownership, which is more of a Singapore type approach. Europeans have long term rental, but I think culturally, the Australians and the Kiwis would go for a home ownership type approach," he says.

"At the end of the day, we have to accept the economics that there is a subsidy exactly equal to the difference between the market price and what you get people into that home at. There is no sneaking around this economically."

"If I could find a way to just change zoning regulations and taxes and make housing cheap for those people, I would do it. Like, who wouldn't? It would be so easy. But I've spent decades looking around trying to understand housing, and in the last four years looking for examples around the world, and I just can't find them. I'm sorry. So we have to do it the hard way," says Murray.

*You can find all episodes of the Of Interest podcast here.

Mahon, the Beijing-based Managing Director of Mahon China Investment Management, spoke to interest.co.nz in the latest episode of our Of Interest podcast.

The relative weakness of the Chinese economy, compared to its rapid expansion of recent decades, amid ongoing concerns about the property market and deflation, has been making international headlines. Mahon says some of what's going on isn't dissimilar to elsewhere in the world.

"We're going through a period of the post-Covid hangover that the whole world is still going through. We talk about China in isolation. Look at global consumption, look at New Zealand growth rates. They're not great. This is normal. The pandemic was huge. Even the Second World War didn't touch every human being on the planet with the same hand of fear, with the same uncertainty. So I think we need to be patient with ourselves, we need to be patient with the global economy and therefore a little bit with the Chinese economy," Mahon said.

"The isolation, the closure of China for three years had a huge impact. And there are losses and there are contradictions in the system that have been highlighted that really are a challenge to the Government."

Nonetheless he suggests the technology sector is a good engine for the Chinese economy.

"And also given the fact that China is being isolated on technology, there is a strategic reason why China will push that further. So I can see some strong engines. The other one is catering and tourism. Catering is very good for New Zealand because it means that Fonterra will be selling its products to the food services sector," said Mahon.

I also asked Mahon about New Zealand's new government flirting with joining AUKUS, the Australia-United States-United Kingdom security partnership, and what sort of impact this could have on NZ's relationship with China including our trade relationship. This issue gathered momentum after Foreign Affairs Minister Winston Peters and Defence Minister Judith Collins met with their Australian counterparts in early February.

"If New Zealand were to join AUKUS in any form, whether it was phase one or two, it would have an impact, definitely, and it would be a major sign of a change in [NZ] policy of perhaps two generations. So I think we have to wait to see what [Prime Minister] Christopher Luxon says rather than what Winston Peters and Judith Collins say," said Mahon. 

In the podcast Mahon talks further about the NZ-China relationship, the China-US relationship, the Chinese economy, tensions over Taiwan, the Xinjiang region and the Uyghurs, President  Xi Jinping's power, Chinese consumers, the middle class, the potential for more monetary and/or fiscal stimulus in China and more.

*You can find all episodes of the Of Interest podcast here.

The National-NZ First coalition agreement says the government will establish a select committee inquiry into banking competition "with broad and deep criteria to focus on competitiveness, customer services, and profitability."

Speaking in interest.co.nz's Of Interest podcast, Bayly said the government will wait to see what the Commerce Commission has to say in its market study into personal banking services before launching the select committee probe. The Commission's draft report is due on March 21.

"Why have we seen outflows from the productive sector like small businesses, farming and property development which is really important if you want to build houses in New Zealand? We've seen funding going out of that sector, going into what I would term the unproductive sector which is the mortgage market. That's interesting because it obviously has a big impact on businesses and the productive sector," said Bayly.

"Then there are things around margin [and] capital adequacy ratios that the Reserve Bank manages. That will help banks determine where they put their money, and whether they want to invest in more mortgages, or whether they want to invest in supporting businesses."

"I'm approaching it with an open mind. I want to see where they [the Commerce Commission] have got to with retail [banking], but I think inevitably there's some other areas we want to cover," said Bayly.

Under bank regulatory capital rules overseen by the Reserve Bank, banks are required to hold less capital against housing lending than against other types of lending such as business/corporate and agriculture lending. The major lending exposure of all NZ's major banks is housing. ANZ NZ, the country's biggest bank, has 72% of its total lending in housing.

Bayly is also Minister of Statistics, plus Small Business and Manufacturing Minister.

On Statistics NZ, Bayly said it will deliver the 7.5% annual spending reduction the government has asked for. Decisions and preparation are ahead for the 2028 census, he said, noting the 2023 census cost $326 million, "a lot of money."

"I'm wanting to make sure that what we do drives economic growth for New Zealand, how we can power up those businesses. That's the big strategic intent," he said.

"Do you run another huge census every five years? That's the first question. And if you read the Stats NZ] briefing [to the incoming minister] there's a proposal that you don't run those big things again. Because governments all around the world are having the same issue where if you front up to someone now and say 'can you fill out this long form' most of them tell you to naf off," Bayly said.

The next census could look to make more use of administrative data like home addresses or tax returns, he said, information and data that lies within various government entities.

"Obviously they've got to do it within privacy settings. But that is certainly the trend overseas and we will have to look at it.. that you may move towards more localised, small surveys, targeted surveys, and look to buttress that information using existing data sources that are potentially untapped at the moment."

In the podcast Bayly also talks about Stats NZ reporting Consumers Price Index (CPI) data monthly, funding to update the CPI that's overdue, the Credit Contracts and Consumer Finance Act, the conduct of financial institutions (CoFI) regime, buy now, pay later, anti-money laundering rules, and his plans to rewrite the Companies Act.

*You can find all episodes of the Of Interest podcast here.

That's the view of Geoff Cooper, General Manager of Strategy at the New Zealand Infrastructure Commission.

Speaking in interest.co.nz's Of Interest podcast, Cooper argues planning gets a bad rap.

"It's seen as a bureaucratic exercise and it should be seen as an exercise in dynamism and inquisition. I think we need to see more of this planning expertise coming into government, and planning happening from a much earlier period of time, front footing the needs rather than waiting for them to be in front of us," Cooper says.

"Getting ahead of the planning cycle is a really obvious place to start. And start identifying options before we get into solutions because the moment a project is announced you've created interests. The moment you announce a project all of a sudden there's interested parties. And once there are interested parties, whatever the project is, it's very difficult to do optioneering, almost impossible."

"So what we would say here is think slow, act fast. Go through a slow, rigorous planning process, identify your problem definition first ... then once you've got a preferred solution which you've stress tested,  then you get on with it and do it as fast as you can," says Cooper.

In terms of the sort of timeframes we should be thinking about for infrastructure planning in New Zealand, Cooper says there's no firm answer.

"But certainly I would be thinking [a] 100-year [time]frame personally."

In the podcast Cooper also talks about the five key drivers of infrastructure demand, NZ's infrastructure deficit, how our infrastructure needs are changing, project selection and delivery, why big projects always seem to cost more and take longer than expected, funding, financing, contestable infrastructure priorities, plus the resilience and sustainability of infrastructure.

"What we're dealing with here is uncertainty and risk. As we're building our new infrastructure what we're seeing are the risks associated with climate change, and the level of resilience that we need, is far higher than what we thought. In fact a lot of our infrastructure is simply not designed for the level of resilience that we need today. And it's going to take decades to get it there as you've seen with things like the earthquake strengthening. The difficult thing with resilience, of course, is out of sight out of mind. It's very difficult to get the acceptance that we need to invest in something that you may or may not need in the future. So it becomes a very difficult thing to sell," Cooper says.

*You can find all episodes of the Of Interest podcast here.

Speaking to interest.co.nz for the first 2024 episode of our Of Interest podcast, Kerr says the cost of living crisis is improving for households and businesses.

"We are winning the war on inflation but there are a few battles ahead and a few wins that we need over this year. We think inflation will fall to 3% quite quickly, but the move from 3% to 2% might be a bit awkward later this year and into next year," says Kerr.

On Wednesday Statistics New Zealand's latest Consumers Price Index (CPI) showed annual inflation down to 4.7% in the December quarter from 5.6% in the September quarter. Hot on the heels of the latest inflation data, Reserve Bank Chief Economist and Monetary Policy Committee member Paul Conway is due to give a speech next Tuesday. This will include comments on NZ data released since the central bank's last Monetary Policy Statement in November.

These will be the first public comments from a senior Reserve Bank figure this year. 

"I think we have to have an acknowledgement [from Conway] that the overly hawkish commentary from November is no longer. When you look at what they told us in November, they basically told us they've got no tolerance for upside surprises. We've had nothing but downside surprises since that statement... The GDP report came out much weaker than what the central bank [expected]," Kerr says.

"They gave us a clear indication that if everything goes wrong to the upside that they will hike [the Official Cash Rate] again, and they gave us a 60% probability that they would hike again. I think that was wrong at the time and it has been proven wrong now. And I think Paul may hint that suggestions of another hike in this cycle have evaporated. But equally talk of rate cuts, I think they'll be coming out and say that's premature, that's a conversation for later in the year."

A key area of concern remaining for the Reserve Bank will be non-tradeable inflation, relating to inflation from domestic goods and services. This came in at an annual rate of 5.9% in the December quarter versus the Reserve Bank's 5.7% forecast. Kerr notes much of this is coming from housing related costs such as rents, helped higher by record net migration levels, insurance, and construction costs. In reality the Reserve Bank doesn't have a great deal of influence in the areas of insurance, rates and rents, Kerr says.

In the podcast he also talks about the next OCR review on February 28, whether the Reserve Bank's Monetary Policy Remit to; "achieve and maintain future annual inflation between 1% and 3% over the medium-term, with a focus on keeping future inflation near the 2% mid-point," may need to change in an era of climate change and other challenges, when he expects the Reserve Bank to cut the OCR, the US interest rate outlook, the outlook for the NZ dollar, the inflationary threat from Middle East conflict, and concerns about China.

*You can find all episodes of the Of Interest podcast here.

Fresh from attending COP28 in Dubai, Newsroom journalist Oram spoke to interest.co.nz for the latest episode of our Of Interest podcast.

COP28, or the 28th meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change, was overseen by its president Sultan Ahmed al-Jabar, managing director of Abu Dhabi National Oil Company, or ADNOC, the United Arab Emirates' state owned oil company.

Fossil fuels did, however, make it into the final agreement in a substantial way for the first time at a COP, Oram says. Whilst it's "weaker and slower and less specific [language] than is actually required," it's still significant progress.

The "UAE Consensus" text agreed by 198 countries also includes a global renewables and energy efficiency pledge.

"That does start to send a signal. Not only to governments as they prepare their next commitments under the Paris Agreement, by 2025 countries have to come back with an improved commitment, but it sends a powerful signal to them that they must be working more on fossil fuel reductions in consumption and production, and it also starts to send a stronger message to financial markets," says Oram.

The Paris Agreement is a legally binding international treaty on climate change.

"I think the key test in financial markets, both of that language on fossil fuels but then [also] on this language of a big increase in renewables, is how quickly we start to see a reappraisal of the market cap of oil and gas companies. And how quickly we'll see an appraisal that says 'oh, maybe they aren't going to be producing as much as we thought, say over the next 10 years, because people won't be burning as much because governments have started to shift, consumers have started to shift, renewables are escalating at a rapid pace.' And that to me is going to be the acid test as how soon we start to see that revaluation in the stock market of oil and gas companies," Oram says.

In terms of the annual COP meetings, Oram points out they require consensus across all 198 countries so it's not the place for really big breakthroughs. Instead COP, once a year, provides "a really good scorecard about what the state of play is on all of these issues."

"This isn't anymore just about negotiations between government officials and politicians. This is very much an all-of-society meeting, and that's why the numbers [of delegates attending] were so big this year."

In the podcast Oram also talks about the New Zealand presence at COP28, NZ winning fossil of the day, the first official recognition of and finance mechanism for helping developing countries cope with economic losses and physical damage from storms, droughts, and other climate impacts, the first time there has been a COP declaration on agriculture, and the "deeply, deeply, deeply fascinating" experience of attending a COP in person. Oram also addresses criticism of people flying across the world to discuss climate change, and his hopes for COP29 next year in Azerbaijan.

*You can find all episodes of the Of Interest podcast here.

The first-half of 2024 is likely to be tough with rising unemployment and more businesses failing as the economy "bounces along the bottom," says BNZ Head of Research Stephen Toplis. 

In a new episode of interest.co.nz's Of Interest podcast, Toplis delves into the swathe of domestic economic data from the past week including Gross Domestic Product, migration, Statistics New Zealand's Selected Price Indexes, the Real Estate Institute's latest monthly housing data, the current account deficit, the dovish US Federal Reserve monetary policy review, China and more.

It's tough times for businesses and households are under the cosh, Toplis says.

"Our view has long been that the second-half of 2023 and first-half of 2024 would be the trough in the economic cycle. And I think this [recent data] is confirming evidence of it," says Toplis.

"We're just bouncing along the bottom. And we'll continue to bounce along the bottom, probably until the central bank starts lowering interest rates. So there's more of this really, probably until the second-half of next year."

He notes the economy would look even worse without surging migration, but this is becoming problematic.

"We knew prior to Covid that we were having difficulty as an economy absorbing more than about 50,000 or 60,000 people in a given year. Now we're trying to absorb double that, and that's resulting in things like pressure on your rents, pressure on your housing market, and a pick up in demand in some places that will be difficult to meet," Toplis says.

Thus it's time to "look very closely at tweaking the [migration] settings to moderate those inflows."

Meanwhile, with the new coalition government planning to reduce government consumption aggressively, the reduction in the size of government "is going to be a headwind to New Zealand for some time to come."

"There are quite strong multiplier effects of that because government consumption is largely people employed. So if you reduce the size of the state sector, particularly its employment, it will have multiplier impacts on spending throughout the economy."

"If you think about the last time we had a massive correction in the size of government, that was actually in the early 1990s when Ruth Richardson ran her mother of all budgets as she called it. The sort of decline in government consumption that we're talking about now is of a similar magnitude. Back then it had a very, very big impact on both the unemployment rate and economic activity generally. The broader environment was quite different so it would be remiss to suggest it would be exactly the same impact, but it will be meaningful," Toplis says.

In the podcast he also talks about the inflation outlook, including why we "need to be a little bit careful in being overly concerned about non-tradeables" inflation, the housing market, the labour market, the outlook for interest rates, and more. (See more on tradeable versus non-tradeable inflation here).

"Volatility remains the order of the day unfortunately, and we still have the worst of this economic recovery to get through."

*You can find all episodes of the Of Interest podcast here.

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, Orr talks about the reaction from financial markets to last week's Reserve Bank monetary policy review, what its Monetary Policy Committee members will be watching between now and when they next review monetary policy on February 28, and what the Reserve Bank would need to see to be more relaxed about inflation.

"We just need to repeat we are willing to do whatever it takes to achieve our mandate, [of] low and stable inflation. If we get further inflation shocks there may be more work to do. So we're in a holding position, but we've made it clear where our nerves sit," Orr says.

"Basically we need to see more spare capacity in the economy to have the real confidence that the inflation pressures are coming off. All the indicators are moving in the right direction, but there's a lot of news still to arrive on the table."

He also talks about "historically significant" immigration, noting countries such as Australia, Canada and New Zealand, with strong net inward migration are "having the highest core inflation challenges."

With the new National-led government set to remove the Reserve Bank's requirement to "support maximum sustainable employment," from its monetary policy remit, Orr discusses how different monetary policy might have been over recent years if that hadn't been part of the Reserve Bank's mandate.

Orr also says profit-led inflation, businesses pushing through price increases under cover of news about a major shock to the economy because there'll be less pushback from customers at such times, has been happening in NZ as it has overseas.

"We just used to call that inflation expectations and generalised inflation," Orr says.

"Whenever you've got high inflation people can hide price rises even though it's not something specific to their good or service. They can get away with high or variable inflation, they can start shifting relative prices around, and then that leads to more generalised inflation as input costs rise and wage costs rise and so on."

"And it's that scramble and mess that causes long-term inflation problems. And so I would say all of those things have been happening in New Zealand as they have been everywhere else," Orr says.

"This is the challenge for monetary policy, we have to lean against that desire to tuck a little price increase in behind generalised inflation hoping no one notices. Consumers have to be laser-like focused and think 'is that right, should I be shopping somewhere else?'," Orr adds.

In the podcast Orr also discusses the degree to which Official Cash Rate (OCR) rises are responsible for reducing inflation, inequities involved with monetary policy, whether price controls could be used to help fight inflation, whether the Reserve Bank's monetary policy should be required to support sustainable house prices, what he expects to see from the Commerce Commission's market study into retail banking competition, the level where he'd consider the OCR to be neutral in that it's neither stimulating nor constraining economic activity, his ideal scenario for monetary policy a year from now, and how he's "fully convinced" the world is heading back to low and stable inflation but there may be higher interest rates on average to achieve that.

*You can find all episodes of the Of Interest podcast here.

It was the latest in a long line of agreements NZ has struck since 1983, but it could be the last. 

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, John Ballingall, a partner at economic consultancy firm Sense Partners, says NZ may have reached “peak FTA” as there aren’t any likely or worthwhile deals on offer.

This jars with the newly-elected National-led government’s promise to “work relentlessly” to smooth NZ’s trade links and open up new markets for exporters. 

Todd McClay, a senior and long-serving National MP, was sworn in as the Trade Minister on Monday and will be tasked with doubling the value of exports in the next 10 years.

Achieving that goal would require an annual growth rate of 7.2%, compared to an historical average over the past decade of roughly 4%. 

The past two years have seen much higher rates of growth but only because various exports have bounced back from very low levels during the era of pandemic restrictions.

National says it'll chase the goal by working to win a trade deal with India and the Gulf Cooperation Council, while also reducing “non-tariff barriers” to make trade cheaper. 

Ballingall says the incoming government needs to put the most resources into that last element. 

A paper he published in October provocatively suggests NZ should “gently say no” to any country looking to start an FTA negotiation, unless it will be clean and fast. 

The exceptions to this rule would be India, the United States, and the Gulf Cooperation Council countries, but none of these are likely to be achieved in the next 10 years.

If any of these deals were to become possible in the future, they would likely be much less lucrative than the China agreement which transformed the NZ economy. This is partly because of the economic and political situation in those countries, but also because the FTA agreement with Europe did not include dairy and meat. 

Ballinghall says the EU deal was “genuinely world leading” in some areas, but it doesn’t offer as much market access for our farming sector as NZ would like. 

“Once you've told the rest of the world that you're prepared to take the deal that's on offer, not your ideal outcome, then that becomes the precedent, almost a starting point for your next set of negotiations,” he says. 

In a press release prior to the election, McClay said the rewards of securing a free trade agreement were large. Two-way trade with China has increased seven-fold since 2008.

Labour had “dropped the ball” on the India trade relationship, he said, but a National government would make it a “priority”.

Ballingall worries that chasing a trade deal with India would use up too many resources that could be put to better use elsewhere. For example, Australia has been negotiating since 2011.

His report recommends focusing on regional trade agreements that include multiple trading partners and attacking less tangible barriers that create costs for exporters. 

Sense Partners estimates the cost of non-tariff measures, such as bureaucratic border regulations, on NZ exporters at about $12 billion. That’s 10 times higher than the cost from the few remaining tariffs.

“The time is ripe for a new trade strategy,” Ballingall says. 

One that focuses more on reducing transaction costs and getting the most out of existing trade deals, rather than focusing on new market access with ever diminishing returns.

While that may be a less charismatic message to deliver to the voting public, it does appear McClay and the incoming government are aware of the need to shift focus. 

“Over the next decade, National will measure the success of our trade policy in the value of exports, not simply by how many new trade agreements we sign,” McClay says, in that same press release. 

The new government has promised a record number of trade missions and a trip to India in the first year, but some in the trade sector will be hoping it also focuses on the less cinematic work of smoothing existing trade links.

*You can find all episodes of the Of Interest podcast here.

Speaking in in the latest episode of interest.co.nz's Of Interest podcast, Eckhold whoformerly worked as the RBNZ's manager of foreign reserves and at the International Monetary Fund, says the RBNZ's foreign currency intervention capacity is likely to increase significantly over the next two or three years from the NZ$17.725 billion as of its latest disclosure.

That's even after the RBNZ in July ramped up its foreign currency intervention capacity by almost NZ$4 billion by creating and selling NZ dollars. This followed January's announcement of its new Foreign Reserves Management and Co-ordination Framework (FRCF).

Eckhold points out the RBNZ's total level of foreign reserves hadn't changed substantively since 2008, and the economy's about 80% bigger now and the foreign exchange market has probably doubled in size.

"When you see this rather large and abrupt change in the level of reserves going on here it's a consequence of the fact that the framework hasn't been reviewed for a very long time," Eckhold says.

"We have a well functioning foreign exchange market. The purpose of having the intervention policy for crisis situations is to keep it that way at all times," he says.

From a monetary policy perspective the RBNZ may intervene when the NZ dollar "overshoots or undershoots relative to its justified or fundamental levels." It's a tool available to "lean against some of those really large unjustified deviations in the exchange rate."

"With respect to the crisis intervention role, what it really does is help provide a bit of insurance in the event that some relatively rare but bad situations occur. And one of the good things about insurance is that it makes people probably a little bit more comfortable investing in the country because they feel there's some buffers there that could be used if something bad happens. That probably means all else equal your interest rate's a little bit lower, potentially your exchange rate could be a little bit less volatile, and that's going to be to the benefit of ordinary New Zealanders and firms," says Eckhold.

"For the monetary policy intervention operation to the extent they have some success in helping moderate the cycle, then that would help contribute to reduced instability in output, inflation, [and] the exchange rate itself. And that's also going to be of benefit to everybody over time."

"I calculated the total government foreign exchange reserves at [the equivalent of] about 7% [of] GDP. So we're not talking about something that's going to break the bank here."

In the podcast Eckhold also talks about how and where the RBNZ holds its foreign currency reserves, how much bigger the holding might get, the circumstances under which the RBNZ may intervene, the RBNZ's intervention track record, its hedged and unhedged foreign reserves, and more.

The new FRCF will be reviewed every five years.

*You can find all episodes of the Of Interest podcast here.

Hood, the head of energy and climate policy consultancy Compass Climate, spoke to interest.co.nz in a new episode of our Of Interest podcast. Hood is also the former head of the climate unit at theInternational Energy Agency in Paris.

In the podcast she spoke about the push to net zero by 2050; addressing issues such as what it actually means, what the practicalities of it are, and what it'll mean for the lives and livelihoods of New Zealanders and the economy.

"I think New Zealand is one of the easiest places in the world to get to net zero because of our abundant renewable energy resources, [and] because of the amount of land that could be restored to indigenous forests. A lot of our CO2 [carbon dioxide] emissions since preindustrial times are from land clearance not from fossil fuel use. And we see in Tairāwhiti a lot of land that should never have been cleared, so there's a lot of trees that can go back. We have all of that potential, it's totally doable," Hood says.

"We also have a legal framework in place through our Climate Change Response Act and that sets stepping stones towards 2050 to try and keep governments on track. National has firmly committed to the interim milestones. We have carbon budgets for every five years that step down to meet the net zero target and they've said they're committed to those. And that's actually where things are going to bite because those short term targets hold politicians' feet to the fire in terms of acting now, not just making plans for later."

But, Hood says, when and if we get to net zero we can't rest on our laurels.

"If we do [get there] it's not the end of the story. It's just a particular point that we pass through. Because the science tells us that when we get to that point we would have already emitted too much C02 for the kinds of temperatures that we want to keep our climate systems liveable."

"Even if we get to that net zero we will have emitted too much. The phase after that is actually to be net negative. We're going to have to continue to draw down that excess C02 from the atmosphere through native forest regeneration, but also through technology. And we should be starting to plan for that phase now because it's only a few decades away," says Hood.

In the podcast she explains what net zero means, what the origins of the concept are, the key challenges to getting there, what it means for the agriculture sector, trade and travel, plus feeding the planet, the challenges and targets in big emitters such as the United States, China and India, and also talks about different visions of what net zero means.

"There's a spectrum. [At] one end [there are] extreme techno optimists who say 'new technologies will just replace everything that we currently use and we'll carry on and nobody's going to notice the difference'," Hood says.

"At the other end of the spectrum is an extreme degrowth perspective which says 'technology is just not going to be the answer. What we need to do is to fundamentally reconstruct the way we run society, shrink our energy use until it reaches such a point as we're in balance with nature.' Most climate people, including myself, sit somewhere in the middle."

The same call was made to the Act and Māori parties, which had also signed confidence and supply agreements after the 2011 election. 

Key invited all three parties to stay in the tent, if they wanted, but said there wouldn’t be any policy concessions or negotiations. They took the deal. 

“A bird in the hand is worth two in the bush,” Dunne said, in an interview for interest.co.nz's Of Interest podcast.

“About 10 days later, the specials came in and National had lost a couple of seats, and its outright majority, and suddenly realised they had a problem”. 

Key and his team came back to the three parties and asked to renegotiate the newly-signed confidence and supply agreements into a more substantial and specific arrangement.

Dunne, and the others, refused: “I said, no, we've got a signed piece of paper here”. 

“National, ended up in the worst of all worlds. It had supply partners they hadn't conceded anything to. All it was getting from us was confidence and supply. Everything else had to be negotiated case by case”.

“If they'd been a little less impatient, and waited till the specials they could have got better deals”.

This memory might be a factor in why National and New Zealand First have been holding out for the final vote count. The numbers might shift around in unpredictable ways. 

Once the special votes are reported, Dunne thinks a Government could form quite quickly. 

He said it was partly Christopher Luxon’s leadership style. But also because Parliament has to sit by mid-December, and the National won’t want that to happen under a caretaker government. 

The National leader’s message, that he would not provide blow-by-blow commentary on the negotiations, was more directed at Winston Peters than at the media. 

“I thought he was also sending a pretty clear warning to Act and New Zealand First: don't you either.” 

“Because, if you look at New Zealand First's track record, they like to control negotiations, they like to be the ones that sort of indicate where things are at”.

It was an “unedifying spectacle” in 1996 and 2017 when Jim Bolger and Jacinda Ardern found out they would be Prime Minister, only when Peters announced it on live television. 

“The bronze medal winner shouldn't tell the gold and silver medals who they are. I think Luxon is trying to guard against all that sort of thing happening again”. 

Listen to the rest of the interview for more insight into negotiating a coalition.

*You can find all episodes of the Of Interest podcast here.

Christie, who has worked in supply chain roles for the army, PwC, the Warehouse, Fonterra, Coda Group, Tainui Group Holdings developing the Ruakura Superhub, and Synergic Technologies, spoke to interest.co.nz in the latest episode of our Of Interest podcastabout NZ's supply chain issues and the Ministry of Transport's recently released Aotearoa New Zealand Freight and Supply Chain Strategy. Christie was part ofan industry reference group in the development of this strategy.

He says supply chain problems caused by the Covid-19 pandemic brought "an invisible part of business and society" out into the light, and highlighted to the Government how vulnerable NZ is to global disruptions.

"The concern I have is we feel we've come out of Covid and people are kind of going' the supply chain's resolved.' ... What happened with Covid is the tide went out and we saw these rocks, they were exposed and we started to deal with those, but we dealt with them in what I would say were very unsophisticated ways. Now the tide's rising and everyone's forgotten about the rocks below the water," Christie says.

"if I was a doctor who was diagnosing the New Zealand supply chain as my patient I would have to say the diagnosis is that we are in serious, if not critical condition."

"And perhaps staying with that human analogy and referring it to the supply chain, the heart is the beating production sector of New Zealand. And while that's performing well, I think it's actually unproductive and we've seen this multiple times through the Productivity Commission's reports. So our heart isn't beating as efficiently as it can. The arteries and veins are the networks that flow products and goods around, not just [around] New Zealand but the globe, [and] they are constrained, we've got cholesterol in there and high blood pressure," says Christie.

"We've got parts of our network where the blood doesn't flow correctly, so that's not getting to the extremities well, our nervous system, we're actually deaf, dumb and blind, we don't know where the problems are and where they're coming from so we just get smacked in the face and we're probably suffering from early onset dementia. We don't actually have the cognitive ability to learn from our mistakes and improve, so we continually make the same mistakes."

However, he says all is not lost.

"We know lots of patients who are serious and in a critical condition. [But] if they get the right care they can come out the other end better, stronger and more resilient. And I honestly believe that's potentially the future for us in New Zealand and our supply chain."

Given the investment needed, 30-year timeframes, regulatory settings and 360 degree thinking needed, there's a role for government to play, Christie adds. 

In the podcast he also talks about the need to change NZ's port structure, why NZ should have reserve stocks of critical imports, whether NZ should have a national shipping line, the role for coastal shipping and rail, why supply chain improvements really matter to small businesses, the push to decarbonise, and more.

"If we want to make a change we're going to have some tough conversations. We're going to have to change some of the settings," Christie says, adding this should always be for the greater good.

*You can find all episodes of the Of Interest podcast here.

Both politicians agree New Zealand needs to scale up its public transport, move more freight by rail, implement congestion charging, and build cheaper versions of big Labour projects. 

The Greens already have three former mayoral candidates (one successful) in winnable spots on their party list — could Wayne Brown make the 2026 list? Genter doesn’t think so. 

“I think that my colleague Chloe Swarbrick, MP for Auckland Central, has had to be involved in some campaigns to stop cuts to the Auckland City budget”. 

“But I do think it's great that Wayne Brown is onside with surface light rail,” she said, in an interview for the Of Interest podcast.

Genter supports light rail in Auckland but opposes Labour’s plan to build it in a tunnel under Dominion Road, which could cost roughly $15 billion. 

Surface light rail might be up to $6 billion cheaper, savings which could be used to build light rail projects in New Zealand’s other major cities. 

“We could deliver surface light rail in Auckland, Wellington, and Christchurch—as the spine of an improved public transport system that connects with bikes and buses and everything else. 

And, we can do that for less than the cost of the tunnel light rail line in Auckland, and we can do it faster with less disruption and make a bigger difference to people,” she said.

The parties which “claim to be fiscally responsible” are simultaneously promising projects that don’t stack up just because they think they will be popular with voters. 

One example of this could be Labour’s multi-tunnel Waitemata Harbour crossing, which was announced before even an indicative business case was completed.

Both Genter and her “unexpected ally” Wayne Brown think the Government should build a bridge instead. 

She said the alignment between the policy platforms was because Brown was “someone who looks at the numbers”. 

He was willing to make an evidence-based decision on what would be the best use of money and get the best outcomes, rather than just pursuing a particular transport ideology. 

The two larger parties were stuck in “a race to the bottom” making big promises for people involved in delivering these large highway projects or large tunnelling projects, or on the assumption that roads will be popular with voters. 

“I think they assume that because everyone drives, they just want more roads, whereas lots of people would like the option to not drive,” she said.

Evidence-based populism

The Green Party prides itself on being evidence-based policymakers, but it isn’t immune from the occasional tilt towards populism. 

One example (arguably) is rent control. The Greens’ manifesto pledged to limit annual rent increases to 3%, and sometimes less. 

A rental price index would be set at whichever rate was lowest: general inflation, net hourly wage growth minus one percentage point, or 3%.

The evidence in support of rent controls is mixed, at best. This literature review found they worked to lower cost increases, but also caused a “wide range of adverse effects”.

Adverse effects can include a reduction in the quantity and quality of available housing stock over time. Genter said the party’s suite of rental policies would offset the negative effects. 

“Yes, there may be examples of places where rent controls haven't worked well. But that's because they don't have the other policies that we're proposing, which is a big push on public supply”. 

The Green Party plans to build 35,000 publicly owned homes over the next five years, using long-term funding and materials contracts, as well as pre-fabrication. 

Kāinga Ora would be tasked with targeting housing affordability and maintaining a building programme that anticipates demand and adds enough homes to meet it. 

Of course, the rent controls won’t be needed if supply-side reform works in the long term. 

Genter said the 3% speed limit was necessary as a “stop-gap” measure, because governments hadn’t provided enough housing over the past few decades. 

Wealthy mandate

Labour has ruled out implementing a wealth tax if it were able to form a government after the election. This puts the Greens in a difficult position, since many of their policies are unpinned by an increase in tax revenue. 

Genter said the Green Party would push for a wealth tax in the coming Parliamentary term, even if only 15% of votes had been cast for political parties that supported the policy. 

“Well, the really puzzling thing to me is that 50% of National and Act Party voters support a wealth tax or capital gains tax. So, I don't know that people are voting on policy”.

Polling had demonstrated that there was a majority of New Zealanders who supported tax reform, but even without majority support Parliament had a responsibility to pass good laws.

“We are elected as representatives to use the power and the mandate, we have to get the best possible outcomes and I feel really confident the country would be better off as a result”.

You can listen to the full interview with Julie Anne Genter on our podcast, as well as interviews with Labour’s Grant Robertson and NZ First’s Shane Jones. 

Interest.co.nz has also asked National and Act’s finance spokespeople for an interview.

“I probably spent more money on stereo equipment than [I should’ve], but I get a great deal of joy out of it,” he said, after Interest.co.nz asked for an example.

It turns out he is something of an audiophile and a huge fan of Flying Nun Records and the Dunedin Sound which were a pop culture phenomenon in the 1980s. 

Robertson also doesn’t regret using the Crown’s borrowing power to insulate New Zealand’s economy and workers from the worst effects of the pandemic and its response.

Steering the country through the crisis and coming out the other end with a bigger economy and record employment rates was his greatest accomplishment, he said. 

More than $70 billion was spent on wage subsidies, low-interest loans for small businesses, the health response, vaccines, managed isolation, and other pandemic related things. 

This caused net debt to climb from just $5.4 billion in 2019 to about $71 billion today, or from 1.8% of gross domestic product to 18.1%. 

Despite the sharp increase, debt is forecast to remain below the 30% ceiling recommended by the Treasury. This is a ceiling for business-as-usual debt and leaves room for a crisis response. 

“You could go above but you wouldn't want to be there for very long, was Treasury's advice, essentially,” Robertson said. 

In a serious economic shock, the Government could potentially raise debt levels to 40% or 50% of GDP without threatening the financial stability of the country. 

“It's not desirable. It's not what you want to do. But in a crisis, the government will always step up … Our economy is resilient. The reason we can do that is because the underpinnings of it are strong”.

“But there's also an obligation for a Minister of Finance to make sure that we don't unnecessarily strain the economy, especially at a time when cost of borrowing is quite high”.

Duelling mandates

Borrowing costs are high because central banks around the world have been hiking interest rates to stave off a post-pandemic inflation shock. 

Inflation is incredibly unpopular with voters and it has given political momentum to a pre-existing critique of the Labour’s decision to broaden the Reserve Bank’s mandate. 

In 2019, the Government amended the central bank’s legislation to make monetary policy a committee decision and to formalise its role in supporting employment. 

This dual-mandate, price stability and full employment, has been the model used by the US Federal Reserve since 1977 and the Australian Reserve Bank since 1957. 

The National Party has promised to remove employment from the RBNZ’s mandate in its first 100 days, if elected.

Robertson said this would be a step backwards. The central bank's primary job is to keep annual inflation between 1% and 3% — but that is a fairly wide channel to swim in. 

“We also believe that when decisions are being taken about [price stability], the broader economy also needs to be borne in mind”. 

The best proxy for economic well-being was employment and so the RBNZ was told to ‘support’ the maximum sustainable level, as determined by the bank itself. 

It is also inherently linked to price stability, as inflation tends to pick up when employment is above sustainable levels and fall away when it is below those levels. 

Robertson said the dual mandate was important and could have a significant impact on monetary policy in the future, but it hadn’t done so yet. 

“Adrian Orr has made clear that in the period since the mandate changed, they wouldn't have changed an individual decision because of that,” he said. 

“There's no problem here. The Reserve Bank knows what its job is, and if the Federal Reserve can do it, and the Reserve Bank of Australia can do it, and to a certain extent, the Bank of England can do it, then I think RBNZ can do it as well”.

He adds this is the way to help Maori overcome negative social statistics, and the thicket of regulation governing business in all areas of the economy only makes things worse for everyone.

Jones adds tax relief will have to be looked at again because of the country's vulnerable economic condition. 

Mahon, a New Zealander who has lived in China since 1984, is Managing Director of Mahon China Investment Management. He spoke to interest.co.nz in the latest episode of our Of Interest podcast.

Mahon says during a recent visit to a mountain village in Yunnan Province,  one of the more remote places in China, he had dinner with local officials. This highlighted worry about ongoing tensions with the US.

"All were asking me about why is it America wants a war with China. They are concerned with the tension they could sense. It worried them for their own futures, their kids, their own prosperity," Mahon says.

"If people living as remotely from the centres of power and commerce are concerned about a dynamic like that, it shows all of China is concerned. It is a factor of the low consumer confidence at the moment."

Mahon says the Chinese economy's "probably more complex than I can remember."

"There's a lack of confidence, consumers are not going back to buying and investing as they were and the Government is now struggling to reset things as far as it feels it needs it must to get demand back on track."

"China's not in the doldrums but there are a patchwork of doldrums across the country," says Mahon.

Nonetheless Mahon says by the second quarter next year "all these major concerns and these doubts about the Chinese economy will be being put to one side." And whilst there's a challenging 12 to 18 months for New Zealand dairy exports to China and Fonterra, with China sitting on more than 500,000 metric tonnes of whole milk powder in storage, there are good times ahead, which will be helped when all NZ dairy exports to China become tariff free from the start of 2024.

In the podcast Mahon also talks about China's efforts to become carbon neutral, why he thinks deflation fears are overdone, what's gong on with China's property sector, the importance of the Chinese middle class, what the Chinese Communist Party needs to do to shore up the tacit support of the people, why tax changes are needed, recent floods, and more.

*You can find all episodes of the Of Interest podcast here, including two previous ones featuring David Mahon.

Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

And today we lead with news central banks in both China in the EU have been active overnight, both dovishly.

But first up, initial American US jobless claims last week came in little-changed at +220,000 so there are now 1.69 mln people on these benefits, also very little-changed. Their long-awaited labour market stress still hasn't arrived. It surely will, but has defied the gloomsters for nearly two years now. They may have a long time to wait yet before their stopped-clock position is achieved.

American retail sales rose +0.6% in August from July and easily beating forecasts of a +0.2% rise. Year-on-year these sales are up only +2.9% however which is less than inflation. But the recent rises point to good consumer spending despite high prices and borrowing costs. But part of the recent increase is due to higher fuel costs. Excluding those fuel costs, retail sales only rose +0.2% in August from July, but they were +4.3% higher than year-ago levels which bests inflation by +1.0%.

On the factory floor, producer prices rose by +0.7% in August from July, the highest level since June 2022, and higher that analysts expected of a +0.4% rise. On an annual basis however, producer price inflation reached a four-month high of +1.6%, while the core rate actually eased and to +2.2%, which interestingly was its lowest level since January 2021.

Meanwhile, neither wholesale nor retail inventories are rising, so there is no inventory stress building in this economy.

In Japan they recorded a drop in new machinery orders in July. This series does not include orders for ships or electric power systems. Including them, orders rose sharply. The decline in core orders was driven mainly by a -5.3% decrease in the manufacturing sector, while the non-manufacturing sector posted a +1.3% increase. Industries in the manufacturing sector with the sharpest falls include for petroleum & coal products where orders fell a startling -57%.

Overnight, the People's Bank of China has announced a -25 bps cut in their reserve requirement ratio for all banks, taking it to a weighted average deposit reserve ratio of 7.4%. The banks already on 5% however got no change. At the same time they doubled down on defending the yuan and the managed rate they want to see.

The ECB hiked its policy interest rates for the 10th consecutive time overnight. But it also signaled that it is likely done with its tightening policy, as inflation has started to decline. After this change, their main refinancing operations rate reached a 22-year high of 4.5%, and the deposit facility rate set a new record at 4%. According to the projections released with this policy change, average inflation is forecasted to be at 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, primarily due to higher energy costs.

In Australia, there was a bigger than expected surge in employment in August but most of it was for part-time jobs. Full time jobs grew by a tiny +2,800 while part-time jobs grew by +62,100. Their jobless rate stayed at 3.7% in August as expected but that remains a 3 month high matching July's rate. There are now 540,500 people without jobs, up +42,600 from a year ago. (For comparison, Australia has 69.5% of their employed workforce in full time jobs, its lowest level in 10 months; New Zealand has 80.0%, a level we have been at for five years and the best since the 1990s.)

And a new report out from the Australian Productivity Commission shows that almost all (95%) of workers got pay increases equal or better than productivity increases. 

Internationally, last week there was a sharp drop of more than -7% in global container freight rates. It was particularly noticeable in outbound rates from China to the EU. Meanwhile bulk cargo freight rates are on the move up.

The UST 10yr yield starts today up +5 bps at 4.29%. 

The price of gold will start today at just on US$1909/oz and down -US$1 from yesterday.

And oil prices are +$1.50 higher from yesterday at just over US$89.50/bbl in the US and back at its ten month high. The international Brent price is now over US$93/bbl.

And perhaps we should note that the price of uranium is rising fast now, approaching a decade high on rising demand.

The Kiwi dollar starts today little-changed from this time yesterday at 59.1 USc, still settled in its tight range. Against the Aussie we are softer at 91.9 AUc. Against the euro we are +½c higher at 55.6 euro cents. That all means our TWI-5 is actually little-changed at 68.7.

The bitcoin price has moved higher from this time yesterday, and is now at US$26,627, a net rise of +1.9%. Volatility over the past 24 hours has been modest at just over +/-1.3%.

You can find links to the articles mentioned today in our show notes.

You can get more news affecting the economy in New Zealand from interest.co.nz.

Kia ora. I'm David Chaston. And we will do this again on Monday.

Rashbrooke, a senior research fellow in the school of government at Victoria University, spoke about political donations in a new episode of interest.co.nz's Of Interest podcastas the October 14 election looms. Rashbrooke, and his Victoria University colleague Lisa Marriott, last year published a report on political party funding in NZ called Money for Something.

Rashbrooke says work on the report gave the authors "a glimpse into quite a murky world" of access and influence. One where party leaders, including prime ministers, fund raisers and big money donors, are in each other's company through a socialisation network featuring big fundraising dinners and other encounters.

This enormous and informal access to party leaders is something the rest of us wouldn't hope to enjoy, he says.

"So there's an immense socialisation and during that process I think it's fairly obvious that the views and interests of the donors and the politicians are to some extent going to become aligned," Rashbrooke says.

One of five key recommendations from the report is for the introduction of state funding in the form of tax credits and democracy vouchers, plus lump sum payments to smaller parties.

Rashbrooke notes NZ already has state funding for political parties via a broadcasting allowance, and money for parties to run their parliamentary wings. The question is whether we would benefit from a small increase in that, when the public has "massive distrust" in the current system given research shows more than 70% of New Zealanders say they don't trust the way political parties are funded. 

"The thread that I think holds together all of our recommendations is that we as New Zealanders would all be better off if we shifted from a system that relies on large amounts of money from a small number of donors to a system that relies on small amounts of money from a large number of donors. You are preserving peoples' freedom to donate to a political party of their choice, but what you're doing is creating a world where political parties aren't beholden to any one donor because no one is giving them a very large amount of money. And actually they are incentivised to go out and connect with a huge range of ordinary New Zealanders, which is what we want political parties to do," Rashbrooke says.

"Whereas the current system for their funding just encourages them to spend a huge amount of time on a small number of very wealthy people."

The report recommends a version of the Canadian system where for small donations, up to about $2,000, the donor gets a tax credit for a proportion of that donation.

"So basically through those tax credits the state is subsidising people to give small amounts to political parties, but capping the subsidy at a very low level so the incentive is just for those small donations," says Rashbrooke.

"We're talking about maybe $5 million to $6 million a year, that's it. So my pitch is for probably for less than $2 per person in New Zealand, $2 per voter, we could just clean big money out of the system completely and remove the potential for influence that it brings."

In the podcast he also talks about why he doesn't think such a change is likely in the short-term, the unprecedented situation where National and ACT are getting way more money than Labour, what a donation is, who can make one, how important donations are to political parties, what we know about the people and entities that donate and what they want, whether it's possible to draw a direct line between donations and policies, whether there's an advantage for the party or parties who raise more money, and more.

*You can find all episodes of the Of Interest podcast here.

Cunningham is CEO of Squirrel Group, a mortgage broker that also offers lending and investing products and services, and a former CEO of The Co-operative Bank and manager at Westpac New Zealand.

In the latest episode of interest.co.nz's Of Interest podcast, Cunningham talks in detail about how interest rates are set for borrowers and savers, and the key area the Commerce Commission should look as it assesses competition for deposits and home loans.

Banks ultimately manage to the overall interest margin across both sides of their balance sheet covering their lending via the likes of home loans, and borrowing via the likes of deposits, Cunningham notes.

"Banks use something called transfer pricing, where they use the wholesale [interest] rate as a benchmark and then they assess the margin above that for loans and below that for deposits. But of course those margins on loans and deposits move in and out through the interest rate cycle. They're wider on lending at the lows, narrower in lending at the highs," says Cunningham.

"I think what the Commerce Commission should be looking at is that overall margin."

He says it's "disingenuous" for a banker to say margins are low on home loans at the moment without looking at the other side of the balance sheet because margins could be high on deposits.

"Unfortunately right now we're actually having that behaviour where we've got some banks setting rates with only reference, it would seem to me, to the wholesale [interest] rates."

"The key point is margins move in and out but you've got to look at the total. And that's what I think the Commerce Commission will be looking at, that quantum of the whole pricing decision. Not just a pricing decision on an individual product in isolation," says Cunningham.

The record low 0.25% Official Cash Rate (OCR) through most of 2020-2021 followed by a rapid increase to 5.50%, has allowed banks to expand interest margins by about 20%, Cunningham says.

"It's a lift in the price of the net margin you're charging on your product of 20%, which actually most New Zealand businesses would love if they could do that as an industry. And that's an oligopoly in action, and that's what the Commerce Commission will be exploring."

In the podcast Cunningham also talks about why he doesn't believe banks' net interest margins are justifiable at the moment, what to be wary of in a high interest rate environment including break fees, the role of bank capital in driving decisions on sectors banks like lending to, secured and unsecured lending, and how interest rates are set on everything from the OCR, to the bank bill benchmark rate, swap rates, home loans, term deposits, personal loans, car loans, credit cards, business lending, rural lending and bonds, and his own role in making fixed-term mortgages more popular than floating rates.

Hughes speaks about the Anti-Money Laundering and Countering Financing of Terrorism Act, which has just notched up 10 years since taking effect, in a new episode of interest.co.nz's Of Interest podcast.

The Act's impact is widely felt. This isn't surprising given the police describe businesses operating in the financial, legal, property and high value goods markets as being at the frontline for countering illicit activity, while describing themselves as the last line of defence against money laundering and terrorism financing. As an election approaches, both the National and ACT parties are making noises about lessening the AML/CFT burden on businesses, which the Ministry of Justice estimates costs NZ about $260 million a year.

Hughes, an Auckland-based barrister who chairs the AML and Sanctions Experts Committee at the International Bar Association, sees "a good deal of scope for simplifying and improving the regime," thus potentially making compliance for businesses easier. He gives the example of a code of practice around identity verification for small businesses, noting there can be too much tick box regulation and a one size fits all approach.

But he says care needs to be taken.

"You don't want to lose the benefits of good standing in the international community. We're now seen by the FATF [Financial Action Taskforce] and others as doing very well in this regard. And also you don't want to lose the information flow to the police or create loopholes that criminals are rich enough or cunning enough to exploit. So it's always a balancing act," Hughes says.

In the podcast Hughes also talks about how to measure the extent to which the Act is preventing money laundering and terrorism financing, what the impetus behind the Act was, why FATF is described as "the most powerful international body you've never heard of," how the Act is instrumental in collecting key data and evidence for police, why he thinks NZ should have one AML/CFT Act supervisor instead of three, what happens to the thousands of suspicious activity and transaction reports, whether the regime is outcomes focused enough, financial exclusion and more.

"People say it's too costly and it's a handbrake on business. And yes it is partly. But equally some of those businesses, if you look at the banking sector, are making enormous profits and have very good information that I would think why shouldn't they be forced to actually use some of that and pass on the intelligence to support the law enforcement efforts? I don't think you can take all the cream out of the economy and not offer something back," says Hughes.

*You can find all episodes of the Of Interest podcast here.

In the latest episode of interest.co.nz's Of Interest podcast, Jurkovich speaks about where the now 21 year-old Kiwibank has come from, where it's at, and where it's heading. This comes with the bank having just posted a 34% increase in annual profit to a record high of $175 million.

"I'd certainly like New Zealand to be thinking about its big five banks. And I guess my stretch goal is that we're not the fifth biggest, we're the third or the fourth. And I don't think there's any reason we can't be that. Whether I'm here running it or not, I hope I've played my part in getting it there. I'd like people to look back and go 'remember when it was only making $175 million? Remember when it only had a million customers? And look at it now'," he says.

Speaking about the Commerce Commission's market study into personal banking competition, Jurkovich says if they want a bigger Kiwibank and more bank profit staying in NZ, New Zealanders need to exercise their choice.

"Because leaving it up to the Government, and we have lots of people in New Zealand who complain that the Government does too much, I don't think is going to change anything. We have to be good enough to earn your business, and you have to be fired up enough to make a move. And if we can get those two things together, then we'll have a way more competitive market place." 

Jurkovich also reveals he has been meeting weekly with the CEOs of the big four banks - ANZ NZ, ASB, BNZ and Westpac NZ - for about the past month to discuss mounting concerns about scams and frauds being committed against their customers. The New Zealand Banking Association's CEO Roger Beaumont has facilitated these meetings.

"If I think about the things I really worry about, scams and fraud are definitely one of them. Our own fraud rates are growing at north of 100%," says Jurkovich. "This needs to be a joint arms race otherwise we've got no chance."

In the podcast he also talks about tough times in the housing market as customers' mortgage payments jump, the potential for a partial government sell-down of Kiwibank via a share market listing should the Government change in October's election, Kiwibank's plans to grow and build capital and what a requirement to pay a chunky dividend would mean for these, how the bank has moved on from an expensive, failed core banking system upgrade just before he joined as CEO five years ago, why Kiwibank won't be entering the institutional or rural banking markets anytime soon, and the bank's role in a decarbonising economy.

"I really feel like a 21 year-old. We're just getting started," Jurkovich says.

*You can find all episodes of the Of Interest podcast here.

It happened after Transpower warned the residual quantum of electricity available for use was sinking towards the 200 megawatt danger mark between 7 am and 9 am. 

In the end, the 200 megawatt level was not breached, and even if it reached zero, unused reserves would still be available.

But it is a predicament that keeps Transpower on constant alert, which it warned about in May and again a month later. 

This subject and other energy problems are the subject of the latest interest.co.nz Of Interest podcast.  

*You can find all episodes of the Of Interest podcast here.

One of the ways BNZ is trying to do this is through membership of the Net-Zero Banking Alliance (NZBA).

Speaking in interest.co.nz's Of Interest podcast Rebekah Cain, BNZ's Chief Sustainability Officer, describes the NZBA as "a group of banks committed to transition the finance sector to net-zero." Finance, she notes, is "a key lever to pull in order to shift the real economy."

"Part of the reason for this is because if something is funded it happens. And if it isn't funded it doesn't happen," Cain says.

The industry-led, United Nations convened NZBA has 133 bank members from 43 countries holding a combined US$74 trillion in total assets, which is estimated to be 41% of global banking assets. BNZ's the only New Zealand member, although the Aussie parents of all NZ's big four banks are members, as is the Dutch parent of rural lender Rabobank NZ.

BNZ's NZBA targets disclosureinitially features2030 targets for the coal mining, dairy farming, power generation and oil and gas sectors. For dairy, which contributes 23% of NZ's annual export earnings and 22% of its annual gross emissions, the target assumptions include reducing dairy cow numbers, lowering milk production, and less use of nitrogen fertiliser.

For BNZ Cain acknowledges there's both derisking going on and lending growth opportunities being eyed. In terms of the latter, in the power generation sector BNZ's assuming a 50% increase in electricity demand between 2020 and 2050.

"I think the focus needs to switch from what's being taken away to the opportunity that exists," she says.

NZBA criteria features 10 sectors banks needs to have targets for. That means by November next year BNZ must also have targets in place for other parts of the agriculture sector such as sheep and beef, and residential real estate where it has its biggest lending exposure.

The NZBA has been criticised with Germany's GLS Bank quitting in February over concerns about US bank members continuing to support oil, gas and coal projects in emerging markets. 

"Any of these initiatives are only valuable if they are interrogated and criticised. Otherwise it's really easy to sign-up, set and forget, not really report on it," Cain says.

Due to being part of the NZGA and NZ's new mandatory climate-related disclosure regime, Cain says BNZ's having internal conversations they were never having before.

"So that has got to be good."

The United States-based Lewis spoke about this issue in a new episode of interest.co.nz's Of Interest podcast. Lewis runs New World Economics, is an author, a former analyst and money manager for institutional investors, and a fellow of the wealth and poverty programme at the Discovery Institute think tank.

As Lewis puts it, the BRICS countries - Brazil, Russia, India, China and South Africa - need or want some plumbing for trade and debt financing for their governments and corporates.

These countries have been coming together at least in part because their trust and satisfaction with the US-led global financial order, which has the US dollar as reserve currency, has been declining. This has increased as tensions between the US and China have heightened, and following Russia's invasion of Ukraine, which saw it locked out of the Western financial world including the SWIFT international payments system.

"What was low level grumbling for a long time now has become active efforts to create a new alternative," says Lewis.

"The first basic need is just to be able to buy stuff."

"Most of these countries' currencies have a history of mediocracy or outright failure, which means they tend to fall in value a lot. So no one wants to borrow or lend for any length of time in Russian rubles," Lewis says.

"They need a currency that's reliable enough so they can access the world debt markets, that international lenders will buy these bonds and their own people will buy these bonds. Historically that has meant 'pay me in dollars'."

So why gold?

"They want to land on some kind of internationally acceptable medium...There's one thing that everyone's always been able to agree on and that is gold," says Lewis.

"The reason why it [gold] has been the basis of money for literally 5000 years is because it works. And the reason it works is because it does not vary in value very much. The basic premise is that gold is stable enough [so] it doesn't really cause a problem."

The 15th BRICS Summit scheduled for Johannesburg between August 22 and 24 will be watched closely. Basically these countries want a financial system that functions even if the US does not approve, says Lewis.

If such a system gets off the ground, what might it mean for a small trading nation like New Zealand, that's close to the US but has China as its key trade partner? Lewis expects pragmatism. Ultimately, he suggests, you could; "just go down to your local office of the [Industrial and] Commercial Bank of China and open an account and you're in."

Lewis envisages a scenario where; "99.99% of the time you're just trading gold checking accounts, it's all digital. But if push came to shove yeah, 'you've got to deliver some gold buddy'."

"So I think there are ways of minimising the need for international cooperation," says Lewis.

*You can find all episodes of the Of Interest podcast here.

A key catalyst was OpenAI's release of AI chatbox ChatGPT late last year. So should we be excited or fearful about the rise of AI, or both? 

I discussed this with Michael Timothy Bennett, an AI researcher at the Australian National University, in the latest episode of our Of Interest podcast. Bennett is recently returned from a major Artificial General Intelligence conference in Stockholm where he both presented and won an award.

He described the mood at the conference as "feverish and exuberant," noting "suddenly there's a whole lot of money and power at stake" in the AI industry.

So what are we to make of all the hype around AI, and what might it mean for our lives?

"It's sort of the next step in the industrial revolution more than a lot of what we'd see in, say Terminator," Bennett says.

"AI is like a collection of black swan events that are going to play out over the next several decades as we see different sorts of jobs and industries hit with a lot of automation. Things will get much easier for some people and a lot harder for others."

In the podcast he talks about just what AI is, its origins, ways we've been using it for years, predictions of AI-derived productivity gains and job losses, and whether the New Zealand government should be looking to regulate AI technology.

He also offers suggestions on how young people heading into the workforce or considering career options should think about AI, how middle aged workers should think about it, what it means for business owners, and how investors should be considering AI.

Bennett also weighs in on the debate over whether AI is an existential threat or could be humanity's salvation.

Speaking in the Of Interest podcast, Yetsenga says news of an inflation fall in the United States suggests the Federal Reserve is close to an extended pause having increased its Federal Funds Rate to between 5% and 5.25% from 0% to 0.25% since March 2022.

US consumer price index (CPI) inflation rose 3% in the June year, down from 9.1% a year earlier. Yetsenga expects another 25 basis points increase from the Fed, after which he expects a period of pause.

"It's not obvious that pause will be followed by further hikes, but neither is it obvious that that pause will be followed by cuts. And I think that's a good signal," says Yetsenga.

In New Zealand, where March quarter CPI was 6.7% and June quarter CPI, due out July 19, is expected to be about 6%, Yetsenga says the current inflation rate isn't necessarily the key thing to look at in the inflation fight. On Thursday Statistics NZ said food prices rose 12.5% in the June year, a 35 year high.

"When you've hiked [interest rates] by 400 or 450 basis points, the current inflation rate, yes it's still important, but it's less additive to your information set. What is more additive is can we see the signs that demand and price pass through is being crimped by the policy moves that we have done? And the answer is unambiguously yes," Yetsenga says.

He acknowledges higher interest rates are a blunt tool and may not impact the economy the way we'd ideally like.

"Certainly there are other policy tools available. But in the absence of somebody else stepping up and delivering those other policy tools, it's up to our central banks that have their inflation mandates. And so far I think they're doing a good job at trying to balance getting inflation back to target without crimping the economy too much."

In the podcast Yetsenga also talks about the Reserve Bank of Australia's approach to the inflation fight in comparison to the Reserve Bank of New Zealand, evidence central bank monetary policy is working, whether central banks need more inflation fighting tools, China's "remarkable" 0.0% CPI, and the impact of a higher frequency of extreme weather events on inflation.

"We are talking about deflation there [China]. We need to separate our expectations for China, I think, in the next 20 years [from] what China has looked like in the last 20 years. I don't think those two things will be in any way comparable," says Yetsenga.

Climate challenges, meanwhile, are "a supply side shock which will tend to boost inflation and will tend to worsen incomes. And so it hits productivity as well, and it reduces standards of living."

*You can find all episodes of the Of Interest podcast here.

Then it all went wrong. FTX collapsed, leaving an US$8 billion hole and lots of angry customers. FTX was placed in Chapter 11 bankruptcy protection. Worse for Bankman-Fried, he was charged with fraud and extradited to the United States.

He's alleged to have used billions of dollars of FTX customer funds for his personal use, to make investments and millions of dollars of political contributions to federal political candidates and committees, and to repay billions of dollars in loans owed by Alameda Research, a cryptocurrency trading company he also founded.

After being released on a US$250 million bond and placed under house arrest, Bankman-Fried, who has proclaimed his innocence, is now living at his parents' house in California ahead of a trial. 

Speaking in the Of Interest podcast, San Francisco-based Bloomberg crypto, venture capital and startups reporter Hannah Miller, says if you wanted to make a technology company founder as a science experiment, it would be Bankman-Fried. 

Miller hosts, writes and reports on a six-part podcast from Bloomberg and Wondery called Spellcaster: The Fall of Sam Bankman-Fried.

"He [Bankman-Fried] basically grew up on the campus of Stanford University. The big joke is that if you wanted to create the perfect tech founder, he's it. He grew up in Silicon Valley. He grew up in the heart of the tech industry, he was right down the road from some of the people who would actually go on to invest in FTX as venture capitalists," Miller says.

In the Of Interest podcast she talks about how Bankman-Fried embraced effective altruism in his student days at the Massachusetts Institute of Technology, early working experience at Wall Street trading firm Jane Street Capital, and launch of Alameda Research and arbitrage trading of bitcoin between the US and Japan.

Then in 2019 FTX was founded and questions emerged over whether it and Alameda Research were really the separate companies Bankman-Fried claimed they were.

Miller talks about encountering Caroline Ellison, Alameda Research's co-CEO, who had been in a romantic relationship with Bankman-Fried at a mutual friend's bachelorette weekend. She also talks about how big and high profile FTX was at its height, how Bankman-Fried sought to be seen as "the good guy of crypto" in Washington DC, and the company's demise.

"I try to focus on the fact that there are people who trusted their life savings with FTX and now have no idea if they're ever going to get that money back. I think you have to look at the consequences here," Miller says.

"This is someone who really got a lot of people to trust him. And the fact of the matter is FTX is bankrupt and there are people with way more questions than answers."

*You can find all episodes of the Of Interest podcast here.

Speaking in the Of Interest podcastHerrington explains how working at the Dutch central bank, De Nederlandsche Bank, during the Global Financial Crisis led to her realising how interconnected things were.

When subsequently studying sustainability at Harvard University, she decided to revisit the famous 1972 book by a group of Massachusetts Institute of Technology (MIT) researchers, The Limits to Growth for her thesis.

As Herrington, now Vice President for ESG Research at Schneider Electric, puts it, the book; "indicated that our peak welfare levels would be around now, globally. And we would have a choice to maintain it or go down." Her research found we are most closely aligned today with The Limits to Growth authors' business as usual scenario.

"Growing forever on a finite planet is simply not an option," she says.

We don't have a lot of time but do have an opportunity to align ourselves with something like the stabilised world scenario from the MIT team.

How would we do this, what will it mean and can we do it? A new economic system must, first and foremost, replace growth as the ultimate goal with something else.

"I think it should be meeting human needs within ecological limits. That doesn't mean you're anti-growth. If growth then contributes to human wellbeing and can do that with a low environmental impact, we'll still do it and if not we won't bother," says Herrington.

One way or another, she argues, growth will halt.

In the podcast she also talks about what she believes the "very loaded word collapse" would mean, what the world might be like if The Limits to Growth warning had been heeded in the 70s, what system dynamics is, the difference between needs and wants and how this has become muddied, what the role of technology, finance and agriculture could be in a new economic system, how vested interests including billionaires have to give things up, why she sees a significant role for credit unions, whether human nature could allow such change, and whether we will actually make the change.

"I don't know because we've seen in history that it can go either way. I do think that we'll stop growing one way or another. I think what we're seeing already is a destabilisation of the system," Herrington says.

You can find the original The Limits to Growth book here, Herrington's Update to The Limits to Growth here, and her book Five Insights for Avoiding Global Collapse here.

(Note, this podcast was recorded via Zoom. While Gaya comes across clearly, for some reason the start of my questions sometimes doesn't. Apologies for this, we're not sure why it happened).

*You can find all episodes of the Of Interest podcast here.

Speaking in the Of Interest podcast, Brook says this year's spate of extreme weather events means we are talking more about the dangers of floods, slips and landslides, but there's a lot of work to do to better prepare ourselves for future such events.

"Generally if we were planning we'd avoid slopes and flood plains and obviously that includes a lot of Auckland. In fact GNS reports in 2009 stated that most of Auckland is at moderate or high risk of landslides...That encompasses a lot of the landscape of Auckland and it would mean that we wouldn't build in a lot of Auckland," says Brook.

"If you look at the Auckland Unitary Plan it doesn't encompass the geomorphology [the study of landforms and landform evolution], if you like, which is the land forms and the earth's surface processes that are currently shaping our landscape."

"I think we build too close to slopes. We love doing that, we cut trees down, we love building mansions on slopes so we have wonderful views. We have a history in New Zealand of building on unstable land, and part of that is the 1981 Local Government Amendment Act which absolved councils of civil liability if they permitted building on unstable land," Brook says.

He says landslides have killed more people in NZ over the last 150 years than earthquakes.

In parts of Auckland Brook says there's a lack of adequate building set-back distances, being the distance between a dwelling and slope or cliff, with set-backs from the bottom of slopes also very important.

Ideally, Brook says, a house on a 30-metre high North Shore cliff should be set-back about 100 metres from the cliff edge.

Brook suggests we have a general issue of politicians not liking to make difficult decisions, but is encouraged by Finance Minister Grant Robertson recently providing risk categories and definitions for properties affected by flooding and cyclones.

"People are talking more about hazards other than earthquakes and volcanic eruptions. Storms do cause floods and landslides and we seem to get them rather often unfortunately. So people are talking about this which I think is great. So let's hope some good does come out of it," says Brook.

In the podcast Brook also talks about managed retreat, places becoming uninsurable, the idea for a national geotechnical control office perhaps within the Earthquake Commission, warning systems and monitoring of moisture levels in slopes, and why he'd prefer "a more holistic storm based approach" than Auckland Council's Making Space for Water initiative.

**And you can find all episodes of the Of Interest podcast here.

Speaking in the Of Interest podcast, the London-based Donovan says profit-led inflation, whereby companies are able to expand profit margins and convince customers it's fair to do so, is the third wave of inflation experienced in developed economies since the Covid-19 pandemic. It follows a demand shock as developed country economies reopened and consumers had a "stockpile of savings" they spent on durable goods such as furniture, electronics and cars, and an energy supply shock after Russia invaded Ukraine, energy prices surged and demand reduced.

"What it [profit-led inflation] has really done is prolong the inflation. If we had not had the war in Ukraine I don't think we'd have got the profit-led inflation because Ukraine has been an important part of the story that companies have told to convince people to accept higher prices. I think if we hadn't had the war in Ukraine we would be sitting here talking about falling prices today," Donovan says.

"Right now we're starting to see profit-led inflation be challenged in a number of countries. But I'd say that it has probably accounted for about half of the inflation that we've experienced over the last six-to-eight months."

Lobby group Business NZ issued a report itcommissioned from consultants this week on profit-led inflation, or "greedflation" as it put it, saying it was "an imported narrative not supported by the evidence." Looking at data from 14 industries over the three years to December 2022, the report said 71% of price increases came from input costs, 15% labour costs and 14% gross profit increases.

Donovan says three years is too long of a period to look at for profit-led inflation, and you wouldn't expect to see it across the economy as a whole.

"I think this is one of the problems with a lot of the analysis that we've seen on profit-led inflation. There is this assumption that every company is raising profit margins and that absolutely isn't the case, it's a subset of companies that raise margins. And so if you look at economy-wide data you're going to find less evidence of profit-led inflation," says Donovan.

"In the case of New Zealand, if you're going to get profit-led inflation coming through, you don't look at the entire economy, you look at the consumer facing sectors [such as retail, restaurants, clothing brands or food brands], and see what's happening with margins there. That's the critical story."

In the podcast he also talks about how to spot profit-led inflation, consumers' naive views about what causes inflation, why he doesn't like the greedflation term, why central bankers should talk more about profit-led inflation, why it took off in the wake of Covid-19, and the role of social media.

"Two things made profit-led inflation easier this time. Consumers did have more savings, sort of a windfall of savings during the pandemic. No one's going to describe the pandemic as a lottery win but it was a bit like that. You got a sudden influx of cash that you weren't expecting to have. So that meant that people perhaps became a little bit more indifferent to prices," says Donovan.

*Donovan published a report on profit-led inflation earlier this year which we covered here.
 *And you can find all episodes of the Of Interest podcast here.

Speaking in the latest episode of the Of Interest podcast, Turnbull says the realisation from frequent and extreme weather such as the Auckland anniversary floods and Cyclone Gabrielle is that we are seeing climate change, and we need to understand it better and adapt.

"We're starting to rethink how to respond to some of these flood events. One thing's very clear, Mother Nature always wins. So we can't just sit there and try and pipe away this excess water, we have to think differently," Turnbull says.

Auckland Council's Making Space for Water programme to help manage floods is "quite innovative," he adds.

Turnbull says the spate of extreme weather events is changing the way reinsurers, who provide insurance for insurers, look at New Zealand, which will lead to further price rises.

"This has been a bit of a surprise to some of them [reinsurers]," Turnbull says.

Parametric insurance and risk based pricing are two ways Tower's responding to potentially higher reinsurance costs.

Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

Turnbull says a parametric insurance pilot in Fiji has gone well, with Tower set to also start offering it in Samoa and Tonga and likely NZ to.

"We do think it [parametric insurance] has application for here in New Zealand in areas that could have higher propensity for flooding and cyclones and where traditional comprehensive insurance may become too expensive for some households and communities. We would like to explore the option for offering parametric cover," says Turnbull.

"We're talking to a couple of iwi groups, which is quite exciting and they're giving us feedback."

Tower's risk-based pricing, linked to the risks of individual homes, already includes earthquakes and floods, and is being extended to cover coastal inundation and slips. Turnbull says risk-based insurance for drivers, using telematics, could also follow.

Meanwhile, Turnbull suggests NZ is moving closer to having areas regarded as uninsurable by private sector insurers after the recent run of extreme weather events.

"I think we are [closer than a year ago] ... I think it's really important that as a country, as insurers, as communities, that we do acknowledge them [the weather events], [and] don't let that big disaster go to waste. It's time to adapt and get out of the way of where there are flood prone areas," Turnbull says.

In the podcast he talks about other issues, including Tower's recent interim financial results, how the insurer has responded to high inflation, the future for insurance, and the response to Cyclone Gabrielle and North Island flooding.

You can find all episodes of the Of Interest podcast here.

The current account deficit, reflecting we're spending more than we're earning overseas, swelled to its highest dollar value of $33.8 billion last year.  As a percentage of Gross Domestic Product (GDP), showing its significance in the context of NZ's overall economy, it weighed in at 8.9%, the highest it has been since the 1970s.

Foo, director and analyst at credit ratings agency S&P Global Ratings, spoke to interest.co.nz in the latest episode of the Of Interest podcast about this and more.

Foo talks about why NZ's current account deficit is so big, why it could get worse before it gets better, what a country can do to try and reduce a current account deficit, explains S&P's existing NZ sovereign credit ratings, why NZ scores lowly in S&P's external assessment, NZ's international investment position, how S&P would signal a potential downgrade, whether an upgrade's possible, and S&P's assessment of last week's budget.

*PLEASE INSERT AUDIO HERE*

 "We [S&P] are raising our collective eyebrows and raising some serious questions. The current account deficit is an indicator of underlying economic conditions, or underlying fiscal conditions, and we have to think about what's causing these record imports," Foo says.

"New Zealand's external metrics do look quite weak compared to other comparable countries right now. As a simple example, last month the International Monetary Fund released its world economic outlook and the current account deficit at 8.9% of GDP was actually the largest of any advanced economy with the possible exception of Greece. Perhaps what's more interesting is the IMF is projecting that the deficit will stay quite elevated at about 8.6% of GDP in 2023, which would make New Zealand the worst performer on this particular metric."

S&P upgraded NZ's sovereign credit ratings in February 2021. They're now an AA+ foreign currency rating and a AAA local currency rating, both with stable outlooks. They're the highest and second highest credit ratings S&P issues. (In the podcast Foo explains what foreign and local currency ratings are).

S&P last downgraded NZ in September 2011, lowering the foreign currency rating one notch to AA, and the local currency rating a notch to AA+. Foo says there are some interesting comparisons between then and now.

That was a long time ago and the world was a very different place but there are some striking similarities to what's happening today. 

"New Zealand was facing a rising current account deficit and that was occurring in conjunction with earthquake related spending pressures, as well as fiscal stimulus to support growth. And if you look at today's situation, if you substitute the word 'earthquake' with the word 'cyclone,' then you have a situation that's airily familiar."

Nonetheless Foo says S&P still sees NZ as having "very, very strong credit metrics."

"We currently have New Zealand on a stable outlook. If we were to move we would typically signal that with a change of outlook, perhaps to negative. Right now we're still comfortable with the stable outlook," Foo says.

Crampton explains why giving subsidies to the game development industry is a sort of mutually assured waste of taxpayer money, and how tobacco tax could mean the government books take an extra year to return to surplus. 

Renney tells us how S&P Global Ratings said NZ government debt was not unlike a designer Hermès handbag and makes the case that Budget 2023 is not as inflationary as some have claimed. 

But neither think that it matched up to its 'No-Frills' moniker.

There are predictions of global financial chaos if Democrats and Republicans can't agree on a deal to raise or suspend the debt ceiling, currently at US$31.4 trillion, soon. Treasury Secretary Janet Yellen says if something's not done the US government won't be able to meet its financial obligations as soon as June 1. That includes salaries for government employees and the military, pensions and making interest payments on government debt.

President Joe Biden says if the US defaults on its debt "the whole world is in trouble."

There is, however, a silly sounding yet simple and constitutional solution available. It involves minting a very high value platinum coin. 

In the latest episode of interest.co.nz's Of Interest podcast I spoke with Rohan Grey, Assistant Professor of Law at Willamette University's College of Law in Oregon, about the debt ceiling, the platinum coin and more.

Grey explains how and why the US federal government came to have a debt ceiling, when the debt ceiling become a political football, what the idea of minting a US$1 trillion platinum coin is all about, and where it comes from.

"It sounds ridiculous, it almost shocks the conscious, but it is legal," Grey says, adding that the US government actually minting the coin would be "a public education moment."

"If there's one thing that the president and the Treasury Secretary are not allowed to do it's default. There's no constitutional authority to default. The 14th Amendment says you cannot do it, the existing laws say you cannot do it, Congress did not give them an option to default. They gave them multiple pathways to finance spending and they told them they had to spend. So at the end of the day even if Biden really hates it, even if it really makes him feel stupid and silly, the coin isn't a choice. It is the last option before an unthinkable, prohibited option," says Grey.

"What a coin represents in my opinion, is the bringing back of the budget to a level that the public can understand. No complicated bond markets, no complicated debt instruments, it's something that you can talk to your seven year-old about. And to me it's only silly to people who think sounding very serious is being very serious."

You can find all episodes of the Of Interest podcast here.

Notably the balances of exchange settlement accounts held by banks and others with the Reserve Bank soared as the central bank bought government and local government bonds off banks in the secondary market, peaking at $56.4 billion last December after averaging about $7.5 billion in the decade up to 2020.

Holders of the settlement accounts receive interest on their deposits at the Official Cash Rate (OCR), which has risen to 5.25% since the 0.25% Covid low.

Treasury says its best estimate of the expected direct fiscal loss from the Reserve Bank's QE, its so-called Large Scale Asset Purchase (LSAP) programme, is about $10.5 billion. It notes this has been partially offset by the fiscal benefits of the LSAP through stabilising the NZ government bond market and providing economic stimulus at a time of heightened uncertainty in 2020.

From a whole-of-government perspective Treasury says the LSAP withdrew fixed-rate government bonds from the market and replaced them with floating-rate settlement cash balances. This means the Crown has more floating rate liabilities, becoming more exposed than it would have been to rising interest costs.

In the latest episode of interest.co.nz's Of Interest podcast Paul Tucker, former deputy governor of the Bank of England and now a research fellow at the Harvard Kennedy School, speaks about the impact of QE on the public finances. Tucker's also the author of a recent paper called Quantitative easing, monetary policy implementation and the public finances.

"This has turned out to be a bad thing in many countries specifically because of how low world interest rates were during 2020 and 2021. Although it was essential for governments to protect families and protect small firms from the ravages of Covid and economic lockdown during 2020 and 2021, they would actually have done better to finance that by borrowing in the markets because long-term interest rates were remarkably low for states with a good credit rating, which includes my own and includes yours," says Tucker.

"Instead they exposed themselves to the path of short-term central banking interest rates."

Speaking to interest.co.nz on Thursday, BNZ Chief Financial Officer (CFO) Peter MacGillivray said BNZ currently has about $10 billion in its settlement account. And on Friday ANZ NZ CFO Amanda Owen said her bank's settlement account balance would be bigger than BNZ's.

Asked whether receiving interest at the OCR would now be lucrative for settlement account holders Tucker says; "Broadly yes. It depends on whether they pass it on to their customers. The banks are sitting on this large pile of cash with the central banks and suddenly that's paying a healthier rate of interest."

You can find all episodes of the Of Interest podcast here.

Statistics NZ last month reported the annual current account deficit reached $33.8 billion last year, equivalent to 8.9% of gross domestic product, the worst ratio since measurement began in 1988. 

In response credit rating agency S&P Global Ratings told Bloomberg the deficit was; "catching our attention, the persistently weak and worsening current account position of the New Zealand sovereign, particularly given that it has been quite weak the last year or two and our forecasts are for it to narrow.” This led to fears of a potential downgrade to NZ's S&P sovereign credit rating.

In terms of overseas investors who buy NZ's government bonds, Whetton says the current account deficit is something they'll look at.

"And obviously when that number came out recently there was a bit of a shock to the market because there was the immediate response from S&P that suggested that the rating could be under threat as a result," Whetton said in the latest episode of interest.co.nz's Of Interest podcast.

"A decision on that can take some time, And I think if we just cool down for a moment and say 'New Zealand is in a very solid position, it has got a strong economy, and it does have very low debt-to-GDP at the government level,' then it's not something that people will lose a lot of sleep over."

"There are investors who simply have hard mandates around credit rating, but when you're starting at the top of the tree in ratings, very few people would not be able to buy New Zealand [government debt] so that's not an issue if there was a downgrade," said Whetton.

S&P has an 'AAA' sovereign domestic currency rating with a stable outlook on NZ. This rating assesses the country's capacity to meet obligations denominated in the NZ dollar, which almost all government debt is issued and repaid in. (See more on NZ sovereign credit ratings here, and credit ratings explained here).

In the podcast Whetton also talks about the attraction to overseas investors of NZ government bonds, the NZ yield premium over other similarly rated bonds, the big issues in sovereign bond markets at the moment, why he thinks NZ government debt is at a sustainable level, and finally how countries get into trouble with their sovereign debt.

"Typically it's borrow in a foreign currency. The benefit of countries like Australia, New Zealand, the UK, Japan, Italy, [is we] borrow in our own currency. So we pay it back in our own currency and you can always print more of that currency. Now the purists would recoil at that comment and I understand why because it can be inflationary. But if you need to solve it that way you can," Whetton said.

"You also, as we in Australia and New Zealand have found in the last couple of years, can get your central bank to buy [government] debt. I would not say that is the way you do things. Having a fiscal programme that is credible over the medium to long-term is probably your best starting point."

*This episode follows a recent one with Kim Martin, Director of New Zealand Debt Management which is the Treasury unit responsible for managing the Government's debt. And you can find all episodes of the Of Interest podcast here.

Hazledine, Emeritus Professor of Economics at the University of Auckland, discusses this and more in the latest episode of interest.co.nz's Of Interest podcast.

Following Thursday's Consumers Price Index (CPI) release from Statistics NZ, Hazledine's assessment is the inflation tide is going out.

"It's receding, which is good. The question is whether it would've gone out anyway or whether King Canute in the Reserve Bank had anything to do with it," says Hazledine.

His key evidence for improvement is the 1.2% March quarter CPI figure, down from 1.8% in the March quarter last year.

"That's the indicator that you really should be interested in and that's encouraging."

Nonetheless Hazledine says there are signs a recession is going to happen, and suggests we ought to be looking at policy instruments to support the Reserve Bank, which has "a monopoly on inflation fighting almost by statute."

This includes expanding the Commerce Commission's mandate so it becomes a price watch commission, potentially even with a mandate to roll back price increases if they think they're not justified.

"They really have to be finding out about prices everywhere and investigating costs, investigating pricing practices," says Hazledine.

He also promotes the concept of tripartite pay talks, seen in parts of Europe, between the Government, unions and employer groups, exploring an extension of the Pharmac model to source other products and services at lower prices from international suppliers, and reducing GST to 10% from 15%.

"That [a GST cut] would immediately cut consumer prices...The biggest single beneficiary from inflation in New Zealand is the Government."

You can find all episodes of the Of Interest podcast here.

Speaking in interest.co.nz's Of Interest podcast, Kim Martin, Director of New Zealand Debt Management (NZDM), says you might expect more interest in inflation-indexed bonds when inflation is high. Statistics NZ releases its Consumers Price Index for the March quarter on Thursday, which is expected to show inflation above 7% for the fourth consecutive quarter, at a time when there has also been high inflation overseas.

"Inflation indexed bonds have a coupon that is indexed to inflation so the value of your regular coupon is protected against that high inflation period...We have seen our inflation indexed bonds outperform their generic equivalents over the past couple of years, but we haven't seen any significant change in demand," Martin says.

"We've heard a few rumours about retail demand for inflation protection products, but we really haven't seen anything that's of particular note, which is quite interesting when you think about how topical inflation has become in recent times."

In the podcast Martin also talks about the impact of the Reserve Bank's quantitative easing, through which it bought around $50 billion worth of NZ government bonds, on the bond market and what might've happened without it.

She also talks about how NZDM borrows and repays money, what options it offers for retail investors, how borrowing decisions are made, whether you can trace proceeds from individual bond issues to government expenditure, what currencies NZDM borrows in, who it competes with for investor interest, the importance of registered tender counterparties, the value of strong sovereign credit ratings, and the key risks for NZDM.

You can find all episodes of the Of Interest podcast here.

Speaking on the Of Interest podcast, principal economist at the New Zealand Institute of Economic Research, Christina Leung, said businesses have reported cost pressure becoming more intense as inflation has surged.  

Earlier, the unprecedented amount of economic stimulus propped up demand and allowed some businesses to pass on higher costs to customers. But as the Reserve Bank has withdrawn that support, it has become much more difficult to pass on costs. 

“The fact that with that softening in demand, businesses are at reduced pricing power, but with cost pressures still not moderating enough for them to recoup margin, you are in this environment where operating margins are still quite crunched in.”

According to Reuters, data presented to policymakers at an European Central Bank's (ECB) retreat in Finland showed that companies in the euro zone were increasing profit margins in the face of sharp input cost increases. 

The Reserve Bank has said increases in both real profits and wages have contributed to inflation, although the data on wages was much more comprehensive than on profits. 

Leung said there may be examples of businesses that have been able to “take advantage, increase prices and bolster their margins”. However, NZIER’s quarterly survey showed profitability has been declining in aggregate. 

Most industries are fairly competitive and businesses in those sectors have been eating their margins, rather than risk losing customers. 

“If there was a lack of healthy competition within certain industries, then you would tend to see probably more opportunistic pricing behavior take place.”

You can find all episodes of the Of Interest podcast here.

The Pastoral Greenhouse Gas Consortium is a public-private partnership that has been working for 20 years to reduce agriculture greenhouse gas emissions. Speaking in interest.co.nz's Of Interest podcast, Aspin discusses the lessons and progress along the way.

With the agriculture sector contributing half NZ's emissions, according to the Ministry for the Environment's greenhouse gas inventory, and methane 44% largely due to the digestive process of ruminant animals such as cows and sheep, Aspin talks in detail about the four key methane mitigation tools being worked on.

These are methane inhibitors, genetic selection to breed low-emission cows and sheep, low-emission feed and forage, and a vaccine that could stimulate the animal's immune system to generate antibodies in saliva that target proteins on methane-producing microbes, or methanogens, in the rumen area of the stomach restricting their growth and ability to produce methane.

The Government has a target of reducing biogenic methane emissions from 2017 levels by between 24% and 47% by 2050. Aspin says the four key areas of work have the potential to make a big dent in NZ agriculture's methane emissions.

"In a perfect world yes, we could probably make a big hole in the agricultural emissions if we could get them all to work," says Aspin.

He acknowledges that the vaccine is "proving very tough," but continues to believe it could work.

In the podcast he also talks about the challenges of being a livestock grazing nation, intellectual property related to this technology, regulatory requirements, what's going on overseas, NZ's international climate change commitments, and the position of NZ and its agriculture sector in the context of global greenhouse gas emissions.

Given the importance of the CPI as a measure of the changes in the price of goods and services for NZ households, do we have its settings right? What's in it, how is this determined and measured, and is a quarterly CPI release frequent enough?

To address all this we spoke with Bill Rosenberg in a new episode of interest.co.nz's Of Interest podcast. Rosenberg, now a Commissioner of the Productivity Commission, is the former Policy Director and Economist at the Council of Trade Unions. He was also one of nine people Statistics NZ appointed to a committee to independently review the CPI 10 years ago.

Rosenberg notes interest payments are excluded from the CPI. And while housing rentals and purchases of newly constructed dwellings excluding land are in, sales of existing houses are not. The CPI is "an index is designed for the Reserve Bank," Rosenberg says and the Household Living-Costs Price Indexes (HLPI), another Statistics NZ series, is a better measure of inflation for NZ households. It includes mortgage interest payments.

The latest HLPI figures show the annual inflation rate in the December quarter for all households was 8.2%, significantly higher than the CPI's 7.2%. 

The HLPI breaks out different indexes for all households being the average household, beneficiaries, Māori, superannuitants, highest-spending households and lowest-spending households. The CPI, in contrast, measures how inflation affects New Zealand as a whole. Thus the HLPI is able to show highest spending households experienced the biggest annual inflation increase of 9.4% in the December quarter because they spend more on interest payments than other household groups.

"I think there should be more focus on the HLPI, the Household Living-Cost Price Index," Rosenberg says.

"It's more representative of the costs that people face and people can actually go to it and see 'roughly speaking I'm [a] middle income household, I can see how my costs have been changing'," he says.

The NZ Government expects the major banks to be in a position soon to decide whether to join it as an investor in a business growth fund (BGF). This comes after last year's Budget proposed a BGF to improve SMEs' access to finance, with up to $100 million earmarked for Crown investment as a minority shareholder alongside banks.

Speaking in interest.co.nz's Of Interest podcast, Anthony Healy, CEO and Managing Director of the Australian Business Growth Fund (ABGF), explains how the ABGF works and sets out why he thinks such a fund is easily transferable to NZ. Healy, now based in Melbourne, was CEO of BNZ between 2014 and 2017.

"There are no differences that I could identify that would suggest the Fund wouldn't work [in NZ]. And I think the banks in New Zealand, their parent banks obviously supported the concept here, so it's not unknown to them," says Healy. "...the economies, the market, the business environment, they're very similar. The banking system's pretty similar."

Establishing a BGF was a recommendation made by the Government's Small Business Council in its New Zealand Small Business Strategy in 2019. 

The ABGF received A$100 million from the Federal Government, A$100 million each from the Aussie parents of ANZ NZ, ASB, BNZ and Westpac NZ, plus A$20 million each from HSBC and Macquarie Group.

Healy suggests a $400 million to $500 million BGF feels about the right size for NZ.

"There are tens of thousands of SMEs that would fit the [investment] profile in New Zealand. They could be in every sector of the economy," he says.

In the podcast Healy also talks about how he got involved in the ABGF, getting the banks onboard, why it fills a gap in the investment market, the ABGF's investment process, the returns it seeks, the investments made to date and lots more.

You can find all episodes of the Of Interest podcast here.

Last year was the first since 1870 that bonds and equities both experienced an annual decline, as the interest rate shock destroyed the value of assets in almost all classes. 

Investors have been rushing to redesign their portfolios as the style of investing, which had worked so well in the years post-global financial crisis, somewhat fell apart. 

Speaking in interest.co.nz's Of Interest podcast, Greg Fleming, head of global diversified funds at Salt Funds, said fiscal and monetary stimulus during the pandemic had created several parallel bubbles which are now deflating. 

"We had an extraordinary amount of money sloshing around after Covid triggered that super-stimulus; not just fiscal stimulus but also central bank stimulus."

“That amount of money sloshing around the system had to find a home. Many markets took that money, some as solid as residential property, others as ethereal as ethereum.” 

Bubbles in both dependable and speculative markets have been deflating and bringing investment portfolios with them. 

Silicon Valley Bank, for example, was at the heart of the venture capital boom which occurred in 2021 as cashed up investors looked for places to invest all the excess liquidity they found themselves holding. 

Deposits rushed into the bank as start-ups raised big funding rounds and Silicon Valley Bank invested that cash in treasury bonds. 

But it couldn’t last, start-ups stopped depositing money when venture capitalists stopped writing them checks in 2022 and sky-rocketing rates depleted the value of the bank’s bonds. 

It's a classic boom and bust story. The economy got too hot, the bank grew too fast, and it imploded when conditions suddenly reversed. 

Not all assets and investments have experienced the dizzying extremes that Silicon Valley Bank has, but most have charted a similar direction of travel. 

Accident waiting to happen

“If you go back three years, and were constructing a portfolio from scratch, one thing you would see was horrifically expensive bonds everywhere, that looked like an accident waiting to happen,” Fleming said. 

“It is almost wearying to see people expressing surprise at the bond meltdown that happened last year, it was always going to happen and was just a question of minimizing your investors' exposure to it.” 

The meltdown was the worst bear market in bonds that has ever occurred, which coincided with a bear market in stocks. These two assets have traditionally had an inverse-correlation, meaning one would fall when the other climbed. 

That has not been the case in the past year and these two asset types have begun moving in the same direction, posing a challenge to traditional portfolio construction.  

It is possible both stocks and bonds could rally when – or if – central banks cut interest rates, extending the correlation between the assets. 

This might require investors to look for other uncorrelated assets to smooth out volatility in portfolios. Examples might include infrastructure, carbon credits, or even commodities like timber. 

In its quarterly Global Outlook Report, Salt Funds said the approach of building portfolios from hundreds or thousands of individual securities was reliant on broad multi-year market rallies such as occurred after the global financial crisis. 

“However, such rallies may now be found to belong to a vanished era, where central banks cushioned or prevented recessions by expanding liquidity and lowering the cost of activity through interest rate suppression”.

With central banks now focused on price stability, and willing to induce recessions to get there, the era of “wave riding investment strategies” may have passed. 

“For instance, it is plausible to foresee a phase in which the main market benchmark indices move sideways in ranges, whilst individual securities within them still offer scope for better outcomes.”

Fleming said his expectation for financial markets in the remainder of 2023 was that it won’t be as bad as it might have felt this past week. 

“We’re in more of a dilemma than a disaster,” he said. “It is a dilemma because the central banks do have to put a stopper in inflation, but they don’t want to break too many things that are reliant on yields not going through the roof”. 

“Be satisfied with the quality and the underlying balance sheet of anything you invest in; be very, very vigilant about that."

You can find all episodes of the Of Interest podcast here.

The high water mark saw US payments company Square, now Block, strike a US$29 billion deal to acquire Australian BNPL service provider Afterpay in August 2021.

But 18 months on the picture is very different with several BNPL companies in serious difficulties or shutting up shop. Latitude Financial Services has just announced its pulling the plug on Genoapay, its BNPL service. Openpay went into receivership, Humm pulled out of the New Zealand market and NZ company Laybuy has delisted from the Australian Stock Exchange.

So what has gone wrong with the BNPL sector? And did its substance ever really match the hype swirling around it?

To discuss this we spoke with Melbourne-based Grant Halverson, CEO of retail banking and payments consultancy McLean Roche, in the latest episode of interest.co.nz's Of Interest podcast.

Halverson notes that BNPL services, in one form or another, have been around for centuries. The new twist was putting an app on a phone. He notes the sector, which both the NZ and Australian governments are moving to regulate, currently offers unregulated credit.

A long time critic of the sector, Halverson describes it as: "Worse than payday lenders in terms of what they're doing, but they do it with an image that doesn't actually hold scrutiny."

Whilst supporting moves to regulate BNPL services, Halverson suggests many of the companies won't be around for much longer as the rising interest rate environment has dramatically increased their funding costs.

'I think it [the future] is very dismal. I think unless they can be bought by somebody most of them [ BNPL companies] will have disappeared by the end of this year. They're all in trouble, they're all in deep trouble," says Halverson.

You can find all episodes of the Of Interest podcast here.

This came through the Resource Management (Enabling Housing Supply and Other Matters) Amendment Act. Pushed through a rushed select committee process to the protestations of the ACT and Green parties, it will allow the building of up to three homes of up to three storeys on most sites in Auckland, Hamilton, Tauranga, Wellington and Christchurch without the need for a resource consent.

Councils in the five cities are now moving to adopt medium density residential standards (MDRS). 

But what does all this really mean, where's the process at, and is this actually the right way to tackle New Zealand's housing crisis?

To discuss all this we spoke with Doug Fairgray, director at consulting and economic research firm Market Economics, in a new episode of the Of Interest podcast.

"One of the effects [of the changes] will be that the distribution of new housing supply is likely to become spread more widely across cities rather than focused around centres and transit stations as is intended under the National Policy Statement [on Urban Development]," Fairgray says.

"There has been a strong narrative, [over] the last decade at least, that planning is to blame for high housing prices. And that has led to a focus that therefore planning legislation should solve the problem. There's quite a debate about that because house prices have been driven above all by consumer sentiment and interest rates," adds Fairgray, who is also secretary of the Association for Resource Management Practitioners.

You can find all episodes of the Of Interest podcast here.

In a new book, The War on Dirty Money, authors Nicholas Gilmour and Tristram Hicks detail the failings of the fight against money laundering and offer solutions designed to make the war more winnable.

Speaking to interest.co.nz for the Of Interest podcast, Gilmour describes dirty money as all money deriving from crime, and money laundering as a series of transfers and purchases as criminals strive to distance the money from the crime. The war against dirty money needs a better global response, says Gilmour, with New Zealand one of hundreds of countries where dirty money sloshes around.

Hicks points out the horrendously high death toll from the recent Turkish earthquake involves a "straight forward link" between corruption, dirty money and the loss of life because of corruption around building standards.

So is the war winnable?

"We think it is [but] it's going to be a difficult war to win. This is a global problem, it requires a global solution. But it is winnable and it's winnable in small increments. It's not going to be easy and it's going to mean that some people have to change their mindset completely, do a 180 degree change in their mindset," says Gilmour.

"The Financial Action Task Force [the global money laundering and terrorist financing watchdog] only looks at countries, it doesn't look at illicit financial flows between countries. We think that it could do that and we've proposed a way of doing it," Hicks adds. 

Gilmour, now a consultant/advisor working with governments and the private sector on financial crime, analysis plus information and intelligence sharing, previously worked for the NZ Police Financial Intelligence Unit. Hicks is an advisor on the operational effectiveness of asset recovery and criminal justice anti-money laundering regimes.

You can find all episodes of the Of Interest podcast here.

Mahon, the Beijing-based Managing Director of Mahon China Investment Management, spoke to interest.co.nz in the latest episode of our Of Interest podcast.

"China has to come some distance still to get away from the fear of this virus, the fear it may return. I'm sure that when we get into the autumn there'll be considerable concern amongst a lot of people. Nonetheless China has come through this reasonably well. People are back to work with real energy. They might be a little nervous, they will wear masks on public transport...but people are working, people are very keen to be back at work. Production has kicked in. The Chinese economy is beginning to really move again. So from that measure people have gone back to what they now perceive as a normality," Mahon says.

In the podcast Mahon talks about his recent traveling experience in China including differences in rural and urban areas, the impact from the spread of the omicron Covid variant, and a perception in parts of China that they've been failed by their leaders with public confidence needing to be re-earned. He also talks about what banks are being told, his expectation for the property sector this year, why he sees a year of relative economic strength, and gives his take on changes at the top of the political pyramid following the 20th national congress of the Chinese Communist Party in October.

Mahon also talks about China's relationships with the United States and Russia, suggesting the relationship with the US is "bad and getting worse," and that there's "fury" in the Chinese administration over Russia both initiating a war in Ukraine, and that it has gone on for so long.

Overall he says the "trauma" of Covid has been considerable, but a positive is it's leading to more challenging of authority from the general population, in terms of an attitude of "show me the facts here, tell me why this is something I should comply with."

Hall, Climate Policy Director at Tohaand until recently Senior Lecturer in Social Sciences and Public Policy at the Auckland University of Technology (AUT), spoke to interest.co.nz for the Of Interest podcast.

Hall says in events like the recent flooding he feels "a sense of grizzly resignation" with what has been predicted "playing out before our eyes."

With the likelihood, as in post-earthquake Christchurch, for a long wait for people who've filed insurance claims due to flood damage to their property, Hall highlights potential for prolonged uncertainty as insurance claims are assessed.

Hall, who recently published a detailed paper on adaptation finance, suggests parametric insurance could complement traditional indemnity insurance. Parametric insurance is a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

"So it could be the severity of the event. [For example], if a flood event reaches a certain level of precipitation, or if an ex-tropical cycle event reaches a certain threshold in terms of wind speed, or drought reaches a certain threshold. Then that trigger is hit and a payout is made. And then people can use that money in a multitude of different ways. They don't necessarily need to use it to pay for replacement or repair of the assets lost or damaged. They might choose to use it in order to relocate, for instance. And so not only does parametric insurance have the advantage of being quick, it also has the advantage of being flexible," says Hall.

"I don't think this is necessarily a replacement for indemnity insurance. But it could be a complement which could give people greater flexibility and certain comfort after events like this." 

He notes parametric insurance is used in Fiji.

"When Fiji gets hit by cyclones or similar events a trigger is struck and a small payout is made to small-hold farmers and so on who are dealing with the consequences of those events. It gives you quick settlement and a bit of liquidity," Hall says.

He goes on to say that parametric insurance products might work better for a public insurance scheme, rather than private insurers, such as EQC as it morphs into the Natural Hazards Commission.

In the podcast Hall also talks about the difficulty of measuring whether adaptation finance is money well spent, insurance retreat, the urgency for climate adaptation and the politics of it plus much more.

His fullAdaptation finance: Risks and opportunities for Aotearoa New Zealand report is here.

Hall was also a contributing author for the Australasia chapter in the Intergovernmental Panel on Climate Change (IPCC) report Climate Change 2022: Impacts, Adaptation and Vulnerability. Additionally And Hall was co-Chair of the Mayor's Independent Advisory Group for Auckland's Climate Plan issued in December 2020.

You can find all episodes of the Of Interest podcast here.

McDermott, Executive Director of economic and policy research institute Motu is also a former Reserve Bank Assistant Governor. 

He says quantitative easing (QE) via the Reserve Bank's large scale asset purchase programme has proven problematic.

"I think we'll reassess history and decide QE turns out to be a really bad idea, apart from [during] the really emergency settings."

"Under normal times central banks should not be doing this and they should be repairing the balance sheet. Because QE just seems to find itself in asset markets. It moves equity markets up, it moves house prices [up], it creates other distortions in the economy that we really don't need to have. It creates all kinds of financial stability problems. QE has proved very dangerous. Maybe we should have it for just in case, but understand the cost of using it is much, much higher than we ever anticipated," McDermott says.

QE) is a monetary policy tool through which a central bank buys securities on the open market with the aim of reducing interest rates, increasing the money supply and bolstering economic activity. During 2020 and 2021 the Reserve Bank bought $53 billion worth of government and local government bonds from banks. It's now selling $5 billion worth annually to New Zealand Debt Management, the Treasury unit that manages government debt.

QE, McDermott says, gets into the financial system where it has to work through asset prices.

"So it has over inflated asset prices. It creates a distortion in terms of wealth distribution, it distorts business decisions, and it creates financial fragility in the system so everybody is over leveraged, there's too much debt in the system," says McDermott.

The exit strategy for central banks is tricky, McDermott adds, saying he hasn't seen any country do this well.

"The business model relies on keeping QE going. So I think we need to say that has not to be New Zealand's future, we don't want a distorted financial system. So it's important to reduce it before we get hooked on that really bad habit."

In the podcast he also talks about whether inflation has peaked, good and bad forward guidance from central banks, the sport of Federal Reserve watching, the need for New Zealand to have monthly Consumers Price Index inflation data, the state of the global economy, including China, the US and Australia, and the three things he'd be watching over summer if he still worked at the Reserve Bank.

That's the view of Adam Boileau, Executive Director of security, testing and assurance at cyber security provider CyberCX.

Speaking in a new episode of interest.co.nz's Of Interest podcast, Boileau says it's clear cybercrime is getting worse. Criminal gangs can make good money out of computer crime, and when the likes of Russia won't extradite criminals, doing so has become a viable occupation, Boileau says.

"The world around us has shaped how computer security has become relevant to individual people and to businesses, to enterprises, to government," says Boileau.

In the podcast Boileau explains why he's closely watching Australia, where Minister for Cyber Security Clare O'Neil pledges to "punch back at the hackers," taking the attack to cyber-criminals. He describes the Aussie approach as "a pragmatic answer to a very real problem"

New Zealand, Boileau adds, should also have a Cyber Security Minister.

"Computers are so important to everything now. ..This is no longer a thing [just] for nerds."

I have a message for all cybercriminals: Australia is fighting back.#Insiders pic.twitter.com/jEyk6rzgGj

— Clare O'Neil MP (@ClareONeilMP) November 13, 2022

To probe this and more I spoke with David McLeish, Head of Fixed Income at Fisher Funds Management, in the latest episode of our Of Interest podcast.

McLeish argues that monetary policy is largely focused on demand issues when supply issues are behind most of the current inflationary pressures. He also says he's quite optimistic about the alleviation of these inflationary pressures, arguing there are lots of reasons he can already point to as evidence monetary policy has done its job.

McLeish also explains why he's skeptical about whether inflation expectations set inflation, talks about the role of government fiscal policy in the current economic environment, the difficulty of setting interest rates by looking in the rear vision mirror for an economy that's six, 12,  or 18 months into the future, the distorted labour market, and much more.

Speaking in a new episode of interest.co.nz's Of Interest Podcast, Silk, also a member of the Monetary Policy Committee responsible for making monetary policy, says if the Reserve Bank's current hawkish outlook is to moderate it needs to start seeing a slowdown in the level of household spending.

Thus the likes of electronic card transaction data, retail spending, credit card survey data, plus manufacturing and services data will be watched closely.

In the podcast Silk also explains why inflation forecasts from businesses are important to the Reserve Bank, how close the Reserve Bank came to making a 100 basis points increase to the Official Cash Rate last week (it went for 75), and why core inflation when volatile food and energy costs are stripped out is such a concern.

She also talks about what needs to happen in the labour market for the Reserve Bank to consider employment to be reined in from beyond what's deemed to be its maximum sustainable level, and more.

Speaking in a new episode of interest.co.nz's Of Interest Podcast, Kerr says he expects the Reserve Bank to increase the Official Cash Rate by 75 basis points to 4.25% when it reviews the OCR for the last time in 2022 on November 23.

"It is an aggressive move but the war on inflation is far from over," Kerr says. "The deceleration back towards price stability is going to take some time."

By the time the Reserve Bank is next scheduled to review the OCR, on February 22 next year, Kerr expects to see a significant slowdown in household consumption, further signs of a slowdown in global economic growth, and "hopefully" a slowdown in inflation.

"By the end of next year I think enough will have been done that we'll actually be in a situation where central banks, including the Reserve Bank, will start to ease monetary policy into 2024. So more hikes, more pain near term, a cash rate of 5% which sees mortgage rates staying around current levels if not a little bit higher. And then hopefully by the end of next year, the war on inflation will be won and we'll see central banks starting to reduce interest rates," says Kerr.

In the podcast he talks in detail about the inflation picture including core inflation, the labour market and why the Reserve Bank wants to see a rise in unemployment, plus the role of government fiscal policy. Kerr also discusses just how disruptive the Covid-19 pandemic has been to the economy, when the world last witnessed shocks of this magnitude with war-time settings such as closed borders and disrupted supply chains, and the changes this has wrought on the economy.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Nana says the government's formal response to the Productivity Commission's inquiry into NZ's long-term immigration settings is expected before Christmas. Among other things the inquiry, completed earlier this year, recommends a government policy statement requiring governments to set a clear strategic direction for immigration policy.

Nana notes the level of immigration influences the overall population, the requirement for infrastructure including transport networks, hospitals, schools, energy requirements, early childhood needs, and regional development. At the moment there's a "disconnect" between immigration settings and these other areas, and a disconnect between workforce training and skills development and labour market policy, Nana argues.

He also wants to see a longer-term focus for immigration rather than the "ad hoc adjustments" currently made every few months or years. This ought to have a timeframe of at least 10-years.

In the podcast he talks about these issues in detail, plus how often the government policy statement could be revised, the idea of holding a referendum on the population size we want, the recent slowdown in population growth and decline in areas such as Auckland and Wellington, the impact on natural resources and land use, why the population size isn't the answer to productivity or wellbeing, what he'd like to hear during election year, what the Treaty of Waitangi means to immigration, and more.

"Migration is always going to be part of our population story," Nana says.

"The world is going to be a lot different and if we continue to plan on the past we will be disappointed. I think we've got an opportunity to set our own path, and our own trajectory in terms of population, in terms of migration and population growth. Let's do that openly and explicitly rather than stumble into the rather large population growth we had pre-Covid."

We address these questions in the latest episode of interest.co.nz's Of Interest Podcastwith Martien Lubberink, Associate Professor at Victoria University’s School of Accounting and Commercial Law. Lubberink has previously worked for the Dutch central bank and contributed to the development of bank regulatory capital and disclosure standards both in Europe and globally.

New Zealand banks do the majority of their lending to people buying houses. ANZ NZ, the country's biggest bank, has $104 billion of housing lending, which is 71% of its total lending. It's a similar story at the other major banks. At ASB 69% of total lending is housing lending. At Westpac NZ it's 66%, at Kiwibank it's 84% and at BNZ it's 55%. 

In the podcast we discuss how and why bank regulatory capital settings incentivise housing lending, how the political economy favours home owners, the potential of so-called fintech financial service providers to boost borrowing opportunities for small businesses, or SMEs, and more.

"We are very much focused on lending to residential real estate, our homes. We've got no capital gains tax, everything's geared up to supporting the home owners. And that is because we vote for that, we want that. We are not explicitly voting for SMEs, and SMEs themselves are fragmented, poorly organised. So they can not stand up against powerful politicians, [the] powerful interests of other parties. SMEs are in a way the wallflower of our economy and that's kind of detrimental because a lot of growth and great ideas will come from that sector," Lubberink says.

"The banking system in itself is not a problem, it's more the way that the lending is organised. And that's more like a political deal made between voters who want their homes. In fact these homes are subsidised because there's almost no risk attached to them. If something goes wrong owners will be bailed out or banks will be bailed out. That's the world we live in, which I think is very hard to change."

"There is a bit of a trade-off. The banking system is safe. On the other hand the big problem still is the very large exposure to a single asset class [housing]. If something goes wrong in that single asset class it goes wrong very quickly," Lubberink says.

Rebecca Ingram, Chief Executive of Tourism Industry Aotearoa, says the industry, dramatically impacted by the Covid-19 pandemic with the border closed and domestic travel restricted for periods of time, continues to face major challenges.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Ingram says there's no understating the impact of the last couple of years.

"This restart we're going through at the moment, it's really not just flicking a switch. You can't just shut something down for a couple of years and then hope that it will turn back on just the way it was," says Ingram. "So it's very difficult out there at the moment. People are having to make lots of choices with imperfect information."

While the industry is feeling quite hopeful about the upcoming summer, flight connectivity isn't back where it was pre-Covid, and the industry lost 72,000 workers. Ingram says tourism businesses are recruiting for everything from beauty and massage therapists for spas and hotels, to mechanics for rental car companies right across the country.

And in a world where climate change and net-zero carbon emissions is on the agenda, there's also debate about the types and volume of tourists New Zealand should be targeting.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, MinterEllisonRuddWatts partner Jeremy Muir discusses a wide range of crypto-asset related issues.

A leading lawyer for cryptocurrencies, digital tokens and coins, non-fungible tokens (NFTs), and other blockchain projects, Muir is one of two special advisors to the finance and expenditure committee for its crypto inquiry.

"Our role now is to write a report that will be delivered to the committee. It has been taking time because it's a very fast moving space, so as soon as you write one thing something else comes along. But we are nearly done, that will be delivered shortly. Then the next stage will be for the politicians and the select committee officials to write their report, which will then be tabled [in the House] together with our advisers' report," Muir says.

"The thing to note, and this will certainly be reflected in our report, is that because this is a very fast moving area, there is not necessarily a great advantage to being a fast mover when it comes to writing new laws," says Muir. "New laws may become out of date almost instantly, or they will be compared to new laws in other jurisdictions perhaps favourably, perhaps unfavourably. But it is a real chess game to decide when it is actually helpful to do so."

"We will certainly be counselling as part of our report that there isn't a single easy fix, there isn't a single crypto act which will make all of the scams and problems go away whilst also encouraging innovation in the industry," Muir says.

In the podcast Muir also discusses the New Zealand blockchain scene, the Financial Markets Authority's attitude to the industry, NZ regulatory gaps, overseas regulations, stablecoins, and the "battle brewing over the future of money."

Quite a bit according to University of Auckland Associate Professor of Economics Ryan Greenaway-McGrevy.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Greenaway-McGrevy talks about a recent paper he co-authored on the impact of upzoning on Auckland housing construction, plus a range of other housing related issues.

Greenaway-McGrevy explains why he believes Auckland leads the world when it comes to upzoning, the impact of the Unitary Plan on residential building consents, and where Auckland's at with housing affordability and rents.

He also discusses land prices versus land costs and explains why he supports the concept of a land tax.

We also talk about the Medium Density Residential Standards following 2021's Resource Management (Enabling Housing Supply and Other Matters) Amendment Act, and what these could mean for cities and towns around New Zealand, including Christchurch where the Christchurch City Council voted against the new housing intensification standards.

Fifteen years later Energy and Resources minister Megan Woods announced $30 million had been allocated to develop a business case to tackle New Zealand's dry year storage problem. This would mostly focus on a pumped hydro storage project at Lake Onslow.

Bardsley, Honorary Associate Professor at Waikato University's School of Science, talks about the Lake Onslow pumped hydro concept in the latest episode of interest.co.nz's Of Interest Podcast.

Should it go ahead the project would be a massive public infrastructure project taking years to complete, impact the local environment, and cost billions of dollars. Effectively it would involve soring energy like a battery, Bardsley says.

Water would be pumped up to a high elevation from the Clutha River and stay there until it's needed.

"So the energy is stored in the form of gravitational potential energy," says Bardsley.

The potential volume of water held, the capacity for generating power, and the actual energy stored would be massive. As potentially would be the impact on electricity supply and storage.

"I think the key selling point would be that it's an enabler to get rid of fossil fuel power generation, and secondly more than that it's an enabler of the green transition. So we can actually go ahead and move into EVs, maybe green hydrogen, because it's just not obvious to me that there are other mechanisms around by which we can actually do that," says Bardsley.

Part of the NZ Battery Project under the oversight of the Ministry of Business, Innovation & Employment, advice on technical, commercial and environmental feasibility studies of the Lake Onslow option is scheduled to be provided to Cabinet in December. 

There's more from Bardsley on the Lake Onslow proposal here.

The incoming regime aims to ensure financial institutions do what's best for their customers over the entire lifecycle of a financial product, and introduces a fair conduct principle through which financial institutions are required to treat customers fairly.

Why is change needed? What problems is the conduct of financial institutions regime designed to address? And what changes will consumers and the public notice?

To address these questions and other issues I spoke with Clare Bolingford, the FMA's Director of Banking and Insurance Conduct, in the latest episode of interest.co.nz's Of Interest Podcast.

"What the new regime does is it puts a legal obligation on banks and insurers to make sure they are treating customers fairly, that's the central principle," Bolingford says.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Conway says New Zealanders work about 10% more hours per person, but produce about 20% less output than workers in the average OECD economy, which is why average incomes and wealth in NZ are both significantly below the OECD average.

Whilst NZ's productivity performance hasn't been great for several decades, in part at least because we're "a small economy that's the last bus stop on the planet," Conway sees optimism for improvement ahead.

"The reason I'm optimistic about productivity is because technology is changing everything. In the digital realm geography becomes less of an issue. It becomes less of a handbrake. So it's like technology is eroding those economic forces that have kept productivity growth low in New Zealand for so long," Conway says.

He does acknowledge, however, that there's a long way to go.

In the podcast Conway also talks about what productivity is, why it matters, what the transition to a zero carbon economy may mean for productivity, the concept of degrowth, how NZ can improve productivity and more.

Figure 3 below comes from the Productivity Commission. Also see Conway's 2020 article on a pro-productivity policy agenda for New Zealand here.

China is an authoritarian one-party state. Its human rights record came under fire from the United Nations this week, and China's growing international assertiveness is seeing it butt heads with the United States and increase its influence in the South Pacific.

Against this backdrop, is it possible that NZ is too dependent on China as a destination for our exports? What are the risk to this relationship? And could we diversify by exporting more of our key products to other countries? 

To discuss this I am joined by Stephen Jacobi, Executive Director of the New Zealand International Business Forum, for the latest episode of interest.co.nz's Of Interest Podcast.

To talk about all these issues and more, I spoke to Beijing-based David Mahon, Managing Director of Mahon China Investment Management, for the latest episode of interest.co.nz's Of Interest Podcast.

On the weather Mahon says it's China's hottest summer since records began in 1961, and has exceeded anything he has experienced in the almost 40 years he has lived in China.

It has also been dry leading to "a complete collapse" of key hydro-driven power from the Yangtze River and its tributaries. This has led to factory closures and limited electricity supplies to some cities, with the impact stretching from Sichuan province to Shanghai.

"It's having major ramifications on the economy," Mahon says. "This year's weather means the harvest in general will also be poor."

In terms of the battle against Covid-19, Mahon describes the experience of being tested every three days, the challenges of business travel, clients in lockdown running out of food, and when and how he thinks the Government will start to loosen the Covid-zero policy.

"The Covid policies are baffling at the moment. I think China knows that whatever happens there'll be a death toll once they begin to relax as New Zealand is finding," says Mahon.

In the podcast he also talks about how China's strategic reserves are helping it combat inflation, interest rates, supply chains, problems in the commercial property sector, high youth unemployment and general demographic challenges, plus what recent clashes between bank depositors and the police were about.

"The longer-term issue is that in general China won't have enough workers in industry, and they're going to have to look at a migrant worker programme, something which to date they never would've even begun to conceive of," Mahon says of China's demographic challenges.

Speaking in interest.co.nz's Of Interest Podcast, Eaqub, now of economic consultancy Sense Partners, explains why he's now optimistic about the housing market.

"I think there is a consensus across the political spectrum that there is a problem, and now we're fighting about what the solutions are. To me that's a really optimistic place to be when it comes to the housing market," Eaqub says.

"We've seen changes in the Auckland Unitary Plan which has led to significant increase in supply, diversity of types of supply in terms of more medium density [housing], high density, places that are infills, places that are greenfield. So we're seeing really good progress. We've seen changes in the Residential Tenancies Act, it's not perfect but it's heading in the right direction. Recently we saw an announcement for build to rent. Again it's not perfect, [but is] heading in the right direction. We're building more state houses, [which is] very, very good because we have a massive wait list of over 25,000 households that are waiting for social housing."

"So I think we are heading in the right direction in that the balance has moved from apathy towards action, and we are arguing about what are the best solutions," Eaqub says.

In the podcast he also talks about why a land tax - a "pseudo wealth tax" - is top of his housing market wish list, the psychology of the housing market, pressure on the Reserve Bank after it "misdiagnosed the [Covid-19] problem and flooded the housing market with money with predictable results," and perhaps what it should've done, outdated thinking in the public service, the needs of renters and requirements for affordable housing, consenting, the current difficulties for borrowers in attracting mortgages and how and when this might change, and much more.

The Deposit Takers Bill is expected to be introduced to Parliament in the third quarter of this year. Included within it are proposals for a depositor compensation scheme to cover bank depositors in the event of bank, or non-bank deposit taker such as a building society, failing. Depositors will be covered for a total of $100,000 per institution, per depositor.

Speaking in interest.co.nz's Of Interest Podcast, Geof Mortlock explains what deposit insurance is and what its objectives are.

Mortlock is an international financial regulatory consultant who undertakes work for the International Monetary Fund and World Bank, specialising in financial system stability, resolution of bank failures, deposit insurance and related matters. 

Mortlock also explains why it has taken NZ so long to adopt deposit insurance. According to the International Association of Deposit Insurers, at least 145 jurisdictions have some form of explicit deposit insurance.

Additionally he talks about the $100,000 limit, how the deposit insurance fund will be established including how much this will cost and what this is likely to mean for the interest rates depositors are paid.

Mortlock also talks about which products are likely to be insured, or covered by the scheme, and which are unlikely to be, whether a depositor preference regime should be introduced in the event of a bank failure, how the Crown's deposit insurer should operate, and more.

The Reserve Bank expects the Deposit Takers Bill to be passed into law in mid-to-late 2023, with a depositor compensation scheme expected to be up and running in early 2024.

Speaking in interest.co.nz's Of Interest Podcast, Manji says any inquiry into the Reserve Bank's response to the Covid-19 pandemic should be as apolitical as possible.

"Let's look at what we did, could we have done things differently, what were the impacts of what we did, and could we have changed that response at an earlier stage? And I think clearly the answer to that is yes," Manji says.

"One of the first focus points was the misdiagnosis of what was happening. And I think for me when I go back, and it's important that we all reflect on what we said at the time, I was very, very clear that this was a liquidity crisis. It wasn't particularly a credit crisis, it was not a business cycle recession or depression, yet that's how it was being treated."

In terms of quantitative easing, or the Reserve Bank buying up tens of billions of dollars worth of government and local government bonds in the secondary market from banks, Manji says he'd have preferred Treasury and the Reserve Bank to deal directly with each other rather than "providing huge amounts of profit for the banks."

"New Zealand's problem, which is always our problem, is the huge focus on the property market and the impact that has. And there's no doubt that probably, whichever data you look at, probably a third of our inflationary impulse was from the housing market and the follow on effects of that, the renovations, the squeeze in capacity, and just the extraordinary rise in property prices," says Manji.

"I think if the Reserve Bank had looked a little bit more carefully at the outcomes of its policy towards the end of 2020 they might have gone 'okay everyone, let's get in a room, what has happened here, do we need to change our policy'?"

"We're in a position that could've been avoided to some extent," Manji says.

In the podcast Manji also talks in depth about interest rates, inflation, government debt, overt monetary financing, the Government's fiscal policy response to Covid-19 and more.

It seems as if every business you visit, and every business owner you talk to no matter what industry they're in, is looking for staff. Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Shannon Barlow, the Managing Director of recruitment agency Frog Recruitment, says this does indeed appear the case.

"Definitely finding staff, or retaining talent, is the number one problem for businesses across New Zealand," she says.

In the podcast Barlow talks about which industries are especially feeling the staffing squeeze, where workers are getting 20% to 30% pay rises, the Great Resignation, and how 2021 was the year of wellbeing with businesses recognising the importance of workers' mental health and wellbeing, but in 2022 cash is king.

She also talks about how the Covid-19 pandemic added new factors and supercharged existing factors affecting labour shortages, and how towards the end of last year the balance of power shifted to employees from employers, and whether there's any circuit breaker on the horizon.

"With that shift in the balance of power job seekers are really using the market conditions as a bargaining chip to be able to secure better conditions, definitely including pay. And with increased living costs, I guess a lot of people are in a situation where they can't afford not to do that, and why wouldn't you take that opportunity," Barlow says.

Speaking in the latest episode of interest.co.nz's Of Interest Podcast, Smyth also says financial markets pricing in Federal Reserve rate cuts as soon as next year, despite the Fed's current aggressive hiking and US Consumer Price Index (CPI) inflation of more than 9%, suggests markets are worried about recession risk. 

"The market has got circa 90 basis points of rate hikes over the remaining three [Fed] meetings this year, so still got the Fed hiking quite aggressively over the remainder of this year. And then next year it's pricing just over 50 basis points of rate cuts with the first rate cut fully priced by June," Smyth says.

"So why is that?"

"The logical way to interpret it would be to say markets are worried about recession risk. And I guess you can kind of see evidence of that in various parts of the financial markets," says Smyth.

"So for instance the S&P 500 is down more than 20%. That's that definition of a bear market. Bear markets are often, but let's be clear not always, associated with a recession. The US yield curve is inverted, which historically has been quite a reliable leading indicator of recession."

"We've got industrial commodity prices like copper, and copper's kind of used in lots of different things [and] historically that has been quite a good barometer of the strength of global demand. And that had fallen more than 30% from its peak," Smyth says.

"So you've got a number of asset classes that are behaving in a way they normally would in the lead up to, or around recessions. And this is taking place in the context of central banks really aggressively lifting interest rates over a short period of time, and in quite a synchronized manner."

Excluding China, which has its challenges around zero-Covid, and Japan which still has relatively low inflation, Smyth notes even the European Central Bank is raising interest rates, having not done so for 10 years.

"So a synchronized global tightening cycle will certainly slow [economic] growth. And then we've got these other contributing factors that are giving markets concern about the rising risk of recession including the risk of lockdowns and restrictions in China, and the situation in Europe where you've got potential gas shortages and power rationing later this year."

"So I think asset markets are kind of telling you that there's at least a reasonable, if not a high chance, of recession next year. And historically during recessions the Fed cuts interest rates."

The Fed increased the Federal Funds Rate, its equivalent of the Official Cash Rate (OCR), by 75 basis points to a range of 2.25% to 2.50% on July 27.Smyth says markets see it peaking at between 3.25% to 3.50% in the current tightening cycle. And they see the OCR, currently at 2.5%, peaking at between 3.75% and 4%.

"And the New Zealand market now is reflecting that same profile as what the US is, so there are some rate cuts, albeit not as much as in the US, that are priced in to the short-end of our curve as well," says Smyth.

Meanwhile, Smyth says markets see US CPI inflation, currently running at a "staggeringly high" annual rate of 9.1%, dropping to about 7.5% by the end of the year, and then down to about 2.7% by the end of 2023.

"So that is a really big fall. And again that's consistent with the market thinking there'll be a recession or some kind of miracle with global supply chains," says Smyth.

In the podcast Smyth also talks in detail about this week's market reaction to the Fed's rate hike, what the yield curve is telling us at the moment, Reserve Bank and Fed quantitative tightening, or moves to decrease liquidity, or money supply in the economy, and expectations for Wednesday's Household Labour Force Survey from Statistics NZ, and what this will say about the labour/job market.

In the 2017 television programme What Next?, psychologist Nigel Latta suggested that over 20 years the number of accountants in New Zealand would plummet from 17,669 to just 19, with humans being replaced by robots and algorithms.

Rick Jones, the New Zealand Country Head for accounting industry body CPA Australia, experienced a prompt response to the Latta programme from CPA members.

"It feels like yesterday that that show was on," Jones told interest.co.nz in the latest episode of our Of Interest Podcast. 

"I remember watching it on a Sunday evening. And then I got to work on Monday morning and had a couple of phone calls, quite early from new members who had just joined CPA Australia as an accounting professional body member. They referenced that programme, and they said, 'look, I'm not sure this is the right path for me' [as] a direct result of the Nigel Latta shows. So it was really interesting that immediately there was a short-term response," said Jones.

Jones fielded additional enquiries that week from people "genuinely worried about accounting as a viable profession," wondering whether they were on the right path, and whether automation would take over their role. The TV programme certainly created a stir in the accounting industry. Some hit back at Latta, including Xero Chief Product Officer Anna Curzon via this Linkedin post.

But in the time since concerns about automation haven't gone away.

"It still gets talked about on a daily basis with employers and with the profession. There are some roles that automation and software have taken over, but what we have seen is a whole lot of new roles have been created. So the demand for accountants and accounting roles has never been greater, but the role of the accountant is evolving and technology is actually an enabler," Jones said.

He speaks about this at length in the podcast, as well as about the challenges of attracting young people to the accounting profession in a dynamic, and changing world.

Turnbull spoke to interest.co.nz for the latest episode of our Of Interest Podcast about insurance and climate change.

Reinsurers are highlighting they've taken losses for several years in a row, Turnbull said.

"And they are looking very closely, as you would expect, about where they want to have insurance for insurers. And especially more recently with the floods in Australia, which are record $4 [billion] to $5 billion events, they are questioning whether they want to be down under. And that's a concern for us because we rely on that capacity. In our case we have category cover up to just below $1 billion, and we need that cover."

Reinsurance is often described as insurance for insurance companies like Tower, allowing them to transfer some of the financial risk they assume when issuing insurance policies to a reinsurer.

Turnbull said Tower's highlighting to reinsurers that New Zealand is not Australia. Although we too have floods, they're typically alluvial and eluvial, and not on the scale of Australia's inland river flooding where there are huge catchment areas.

"So what we're saying to reinsurers is 'please don't join us together and say you're the same. We're quite different and the nature of those storm events are quite different.' I think also in the case of Tower what reinsurers do like is things like risk-based pricing because we are working with customers and communities to really understand it, and to help mitigate it, and to also price appropriately for it."

Turnbull also spoke about the Government's draft national adaptation plan, which is currently open for consultation. When the draft plan was released in April, Climate Change Minister James Shaw said it was designed to help communities across New Zealand "adapt to the unavoidable impacts of climate change." The draft plan includes discussion of managed retreat, or moving people, property and infrastructure away from areas at high risk.

"We don't have uninsurable pockets at the moment, but if we look forward and these trends continue, that is a risk. So plans like the national adaptation plan, those discussions, the Natural Hazards Bill that's going through [parliament], that's really, really important to now start informing ourselves and responding," Turnbull said.

In the podcast he also talks about wanting councils to stop issuing consents that enable building in flood prone areas, on top of "a lot of newer subdivisions that are [already] in areas prone to flooding and that is causing problems."

He also talks about the impact of climate change on businesses and rural areas, what Tower's data tells it about the  frequency and severity of major weather events, Westport and Buller's efforts to improve flood resilience, the recent floods in Canterbury and Kumeu, the UK's reinsurance scheme Flood Re, and much more.

"Today we don't have uninsurable areas but we want to make sure we don't have them in the future and that's the reason we must take action," Turnbull said. "The key thing about the national adaptation plan is we're round the table talking about it."

The final version of the adaptation plan is scheduled to be published in August, with a Climate Adaptation Act set to follow.

Tava Olsen, Professor of Operations and Supply Chain Management and Director of the Centre for Supply Chain Management at the University of Auckland Business School, spoke to interest.co.nz for the latest episode of our Of Interest Podcast.

Earlier this year the Ministry of Transport issued the New Zealand freight and supply chain issues paper.In the wake of global supply chain disruption caused by the Covid-19 pandemic. Transport Minister Michael Wood said the Government was "taking action to future proof our supply chain, limiting the impact of the next global shock on our businesses across the country."

Olsen said while the paper does an excellent job of outlining the background and all the issues, she's not convinced a national supply chain strategy is a good idea.

"I don't think a national supply chain strategy makes much sense. A freight strategy maybe, quite possibly. But in our very first class on supply chain what we teach is that you don't have one supply chain strategy. You have to match your supply chain strategy to the type of product."

"So Fisher & Paykel Healthcare exporting their high tech, light masks, are going to need a completely different supply chain than Fonterra exporting their low value, heavy milk powder bags. Those are two fundamentally different supply chain types. And if you look at what you're going to emphasize, you're going to emphasize responsiveness for Fisher & Paykel Healthcare, and you're going to emphasize minimising cost for the Fonterra milk powder," Olsen said.

"The other issue I have with their proposed strategy is they don't seem to recognise that. So they want productivity or efficiency, and they want responsiveness or resilience. Yes, we want both of those but where's that trade off? Which one do we want to emphasize? Well, it depends on what product we're actually thinking about. So I think coming up with a country strategy for supply chain, it doesn't make a whole lot of sense."

"Coming up with a country strategy for freight, thinking about the modes we want to use, and whether we want to subsidise rail more, or roads more, or coastal shipping more, that makes a lot of sense. So yes, we should be thinking a lot more in terms of our strategic planning for our country's freight network," said Olsen.

The Ministry of Transport says it received more than 70 submissions on the issues paper. Some will be published, along with a summary document, by the end of July.

In the podcast Olsen also argues NZ should "absolutely be looking at" developing a system for compulsory stocks of critical supplies such as fuel, medical supplies and key foods that are brought in from overseas. 

Additionally she talks about whether the "just in time" model has a future, the concept of a national shipping line, how local government ownership prevents a shift to a hub and spoke model for NZ export and import ports, coastal shipping, automation and robot deliveries, supply chains and climate change, the tyranny of distance, and the need for NZ businesses to upskill their supply chain knowledge and her desire for more investment in research and development.

Bolton, founder and executive director of mortgage broker Squirrel Mortgages, spoke to interest.co.nz for the latest episode of the Of Interest Podcast.

While the average bank two-year fixed mortgage rate, typically the most popular term with New Zealand borrowers, bottomed out at about 2.51% in mid-2021, it's now at 5.4%. This type of move leads to big repayment increases, or mortgage shock, for borrowers when they refix their mortgages. 

But Bolton says after the sharp rise in mortgage rates, he believes they are starting to peak.

"I don't think they're going much higher. We are going to go into a recession, and I think even in the last week or so you've started to see the swap [rate] market come off a little bit. I think the economy's going to come off quite hard and fast, and you're going to see those longer term swap rates [which influence bank mortgage rate pricing] come back a bit," says Bolton.

"We talk about the OCR being neutral at 2% but we are not neutral, we are way past neutral at the moment. Because the Reserve Bank has talked it up so hard that mortgage rates are already pretty much pricing in every [future] OCR increase. We've tightened incredibly fast. So it's not surprising that has flowed through to the housing market. I mean we shouldn't be surprised."

The Reserve Bank is forecasting the OCR will peak at about 4% by mid-2023.It started increasing the OCR from its record low of 0.25% as recently as October last year.

"The OCR's going to go up but it's already fully priced into mortgage rates, so I think mortgage rates are going to start to stabilise quite quickly. We get this panic that runs through our market and everyone's like '[mortgage] rates could get to 8% or 9%'...Clearly no one could afford that. So I think that panic will start to dissipate when people start to see that interest rates are stabilising, they're not nearly moving as quickly as they have been. And that people just settle into the fact that, 'ok I've got to plan a future that says that mortgage rates are going to be hovering around 5% to 6%.' That's not the end of the world for most people and most people can adjust to that. So that will just gradually work its way through and people will get used to it," Bolton says.

"We're not seeing a lot of [mortgage] distress, I think we're starting to see a little bit. But the distress that we're seeing is probably people that just need to adjust their living expenses. Every generation goes through this."

He does, however, see higher mortgage rates having a broad impact on the economy by reducing the discretionary spending of mortgage holders.

"The thing that I find with the higher mortgage rates is it's going to translate into the real economy really fast because about 60% to 70% of the housing market is fixed on terms of less than a year. So you're going to get a really rapid reduction in discretionary income. When you reduce discretionary income, you're taking it out of hospitality, takeaways, retail, domestic tourism. So we're talking about a whole lot of industries that have been through two years of pain already that are now losing their customer base really, really fast. People just aren't going to be eating out as much, they're not going to be taking those domestic holidays...There's an increasing part of the population that's thinking 'I've got to hunker down for a while'," Bolton says.

In terms of house prices, Bolton estimates they are down between 10% and 15% from last year's peak already. 

"The media's going to be reporting that [falling house prices ] for at least another six to 12 months. I think most of the absolute change is already there in the market, [but] it's going to take a while to work its way through in the statistics," says Bolton.

"They [prices] are down 10% to 15% in absolute terms, I don't see them going much further. I think it will stabilise around that level. I think there will be vendors that just take their properties off the market, and there's not a lot of supply out there."

Parts of the market, where there's still a supply-demand imbalance, are still holding up quite well, Bolton says, adding that the house price fall isn't as big a drop as seen in the prices of other assets.

"The S&P 500's down over 20% this year, the Nasdaq's down 30%, crypto's down 60%. The everything bubble's popping, [and] property has probably done comparatively well. Where else do you put your money?"

In the podcast Bolton also talks about bank behaviour, cashbacks being offered to borrowers, the opportunity for non-bank lenders, the impact of December's changes to the Credit Contracts and Consumer Finance Act, comments from Reserve Bank Chief Economist Paul Conway that the tide may have turned on housing being a one-way bet, the residential property development market, and more.

Climate Change Commission Chairman Rod Carr says he's optimistic about New Zealand's transition towards a zero carbon future despite the massive challenges we face, including from inflation.

Carr spoke to interest.co.nz in an episode of the Of Interest Podcast.

In the podcast he discusses the impact on inflation from moves to combat climate change, and from climate change itself, and what can be done to mitigate it. This includes so-called "fossilflation," "greenflation," and "climateflation."

In a world that now has high consumer price inflation I ask Carr whether he's concerned this may slowdown efforts to combat climate change. For example, by reducing petrol excise duty and road user charges to give consumers some relief from high petrol prices while we are trying to wean ourselves off fossil fuels, does the Government risk countering measures such as clean car rebates and cash for clunkers to encourage the take-up of electric vehicles?

We also discuss the big global electrification push and what this is doing to demand for key mined metals and minerals required in the green transition such as copper, lithium and cobalt.

Then there's the rising number of severe weather events, and the impact this has on food product, supply and prices. 

"I would not underestimate the challenge that humanity faces in decarbonising our livelihoods and lifestyles. The fossil fuel technology that has been developed and deployed largely since the middle of the 19th century is incredibly powerful as a source of energy. And we have embedded that in our civilisation, in the way we earn our livings, and how we live our lives. And that transition is going to be costly. And that transition needs to be done with urgency. And the consequence is that relative prices will change. The price of high emission lifestyles will rise, and the vulnerability of high emission livelihoods will increase," Carr says.

"The major cause of the consumer price inflation we see today is not climate change or our response to it. The amount of pricing of carbon emissions in the global economy is modest and has only risen slightly over the last decade. The real challenge is that in our response first to the global financial crisis in 2008, and then more recently to the pandemic in 2020, the world's central banks, supported by the world's governments, have created an enormous amount of very low cost credit. And it is that abundance of low cost credit that has put pressure on the demand side of consumer pricing, while the pandemic itself has constrained supply. And that has been compounded in some product supplies, particularly in agriculture products, by the war in Ukraine. So don't over interpret climate as the driver of the current decades high levels of consumer price inflation."

Carr is also a former Chairman, Deputy Governor and Acting Governor of the Reserve Bank. So what does all this mean for fiscal policy, or the Government using spending and tax policies to influence the economy, and the Reserve Bank's efforts to use monetary policy to maintain price stability and support maximum sustainable employment?

Carr says he remains optimistic about the transition to a zero carbon future because there are "very real opportunities" for NZ in this transition. NZ farmers, he says, must face the challenge of showing and leading the world how to create protein and carbohydrates with year-on-year reductions in environmental impact.

"And that if we can understand those opportunities that make for a better, cleaner, greener and healthier society for all New Zealanders by 2050, where we reduce gross emissions from how we earn our livings and how we live our lives, we will see that as an opportunity not a threat. We will see fiscal policy as an investment not a cost, we will see the new jobs that are created as being more sustainable and less vulnerable than the old tasks which we are no longer fulfilling," says Carr.

"And I think that's what the optimism comes from, is from the opportunity that is real. New Zealand is not soldiering alone on this campaign. The world recognises the challenge. Other countries are already seeing and seizing the opportunities. We see it in the way in which the UK has developed offshore wind which it now sells to the world, we see it in Norway that has developed some of the most advanced infrastructure for supporting electrification which it now sells to the world, we see it in China in its advances in the solar panel technology where it is now the world's largest global manufacturer of solar arrays. So there are opportunities here to be  not as I said at the bleeding edge, but now that the die is cast , seeing and seizing the opportunities that must be developed to create the more sustainable, low emissions future within the next 30 years."

By late 2020 it was clear central bank and government monetary policy and fiscal policy responses to the Covid-19 pandemic had prevented a major economic downturn, and thus the Reserve Bank should've been looking to move monetary policy to a neutral rather than super easy setting, says Grant Spencer.

Spencer, Adjunct Professor at Victoria University's School of Economics and Finance, is also a former Reserve Bank Deputy Governor, and was Acting Governor for six months up to his departure from the central bank in March 2018.

Spencer spoke to interest.co.nz about inflation in the second episode of the Of Interest Podcast, where we delve into big issues and new developments in the economic and financial worlds.

New Zealand's March quarter Consumers Price Index (CPI) inflation came in at 6.9%, the highest it has been since 1990, and well above the Reserve Bank's 1% to 3% target range. CPI inflation is even higher in other parts of the world, reaching 9% in the United Kingdom, 8.6% in the United States, 8.1% in the Eurozone, and Australia's last reading of 5.1% is expected to rise.

Inflation, Spencer says, is always driven by persistent excess demand.

"And in this situation over the past two-and-a-half years we've had persistent excess demand resulting from an adverse supply shock and expansionary demand policies, in particular monetary policy and fiscal policy."

By about September-October 2020 Spencer says it was apparent the emergency Reserve Bank and government policies had been successful in preventing the high unemployment and "drastic economic downturn" people had feared was coming in early 2020.

"I think it was around September-October 2020 when bond rates, interest rates, that had been falling, started to move up again. And that was in response to emerging economic indicators both here and internationally, which were saying the out-turn for real activity in the global economy is not going to be as bad as we thought, unemployment's not going to be as bad as we thought. "

After that Spencer says the Reserve Bank should've been thinking about moving the Official Cash Rate (OCR) back gradually towards a more neutral position rather than waiting until October 2021 to increase the OCR from its record low of 0.25%, where it had been reduced to in March 2020.

"Different countries had different sets of indicators. But I think that shape of the trend in bond rates was generalised across the major markets, it wasn't just New Zealand. So that's when the information started to turn," Spencer says.

"The key is the interpretation of that so-called inflation, price increases. Is this a temporary shock, supply side blip, or is it something that policy should respond to with a generalised firming of policy? And that's always the nature of the discussion. And it's very easy to be biased in one direction and just sit pat until you've got a convincing case that overall core inflation, or underlying inflation, is moving therefore we need to move."

"It's difficult for policymakers to turn policy because as soon as you turn policy the markets will expect that you're going to continue to tighten. And the whole shape of the interest rate curve will change and you can have a significant effect on things just by that decision to start to make one increase rather than being on an easing mode," says Spencer.

"That's why they're nervous about shifting from an easing to tightening cycle until they can see the whites of the eyes of inflation. But that's also the challenge, because as it has turned out they really should've been tightening earlier."

He says the Reserve Bank should've started shifting the OCR back towards a neutral setting sooner than October last year, but won't give a specific time when he thinks this should've started.

"They should've been moving back to neutral. The default should be seen as neutral, not as super easy," Spencer says.

The neutral OCR rate is the level where it's deemed to be neither stimulating nor constraining economic activity. The Reserve Bank currently considers the neutral rate to be about 2%. That's where it's now at, after a 50 basis points increase on May 25. It was at 0.25% as recently as October last year. Spencer says the neutral OCR may be higher than 2%.

The record low OCR wasn't the only aspect to easy monetary policy. Between March 2020 and July 2021 the Reserve Bank bought $53.5 billion worth of NZ government bonds and local government bonds on the secondary market off banks in its first foray into quantitative easing. This was aimed at suppressing interest rates.

"You know if you've got super easy policy you should be moving back towards neutral if you think that things are starting to change, and you shouldn't be just focused on one of the dual mandate objectives," Spencer says.

The Reserve Bank's monetary policy remit states that it must both maintain price stability and support maximum sustainable employment.

In the podcast Spencer also talks in detail about what is causing the high inflation, what his outlook for inflation is, the role of the NZ housing market, Russian invasion of Ukraine and China's zero Covid policy in this, and whether we're in for a hard landing, or a marked economic slowdown or downturn.

"It's a very difficult situation to manage through," Spencer says of the current situation.

The Reserve Bank of New Zealand (RBNZ) considering launching a central bank digital currency (CBDC) is in part a defensive move to protect it and NZ's monetary sovereignty, says RBNZ Director of Money and Cash Ian Woolford.

The RBNZ is one of dozens of central banks around the world considering introducing a CBDC. A few, including those of The Bahamas and Nigeria, have already done so.

A CBDC is the digital form of a country’s fiat currency. That means an RBNZ issued CBDC, like the physical NZ dollar, would be a liability of the RBNZ, backed essentially by trust in the Government and its institutions. By law the RBNZ is the sole supplier of NZ banknotes and coins, with this being a key raison d'être for the central bank.

Although most financial transactions are already done electronically, Woolford points out these are done using digital forms of private money.

"Most people use private money in the form of their bank accounts with registered banks in New Zealand. I guess the main point of difference is you are effectively taking a credit risk with your bank, so your claim is on the bank. Whereas with a central bank digital currency your claim would effectively be on the Government, which typically and is the case in New Zealand, has a higher credit rating than private institutions," Woolford says.

He says the RBNZ hasn't yet made a formal decision on whether it will launch a CBDC or not, and it's likely to be years not months before it does. Nonetheless he says the RBNZ considers that a CBDC "will make sense."

In a world of cryptocurrencies, stablecoins and big technology companies such as Apple, Facebook and Google pushing into payments and financial services, Woolford acknowledges there's a defensive aspect to the RBNZ looking to launch a CBDC.

"Yes, I think that it's fair to say that to a degree this is a defensive play," Woolford says.

"I don't want to come across as too defensive, but I think it's hard to argue otherwise if you are interested in protecting monetary sovereignty, and that threat [to it] could come from private forms of digital currency [or] big tech firms."

"Monetary sovereignty matters in that it enables us to operate monetary policy, to set interest rates that reflect the state of the New Zealand economy," says Woolford.

"If you don't have monetary sovereignty you end up usually, and you've seen this in a number of countries around the world, being dollarised. So the citizens lose confidence in their own currency...Dollarised typically refers to the US dollar, so they lose control of domestic monetary policy."

"It's really important first and foremost that New Zealand retains monetary sovereignty. Monetary sovereignty can be undermined or threatened through a number of channels. One channel, for example, could be the advent of cryptocurrencies or stablecoins. People choosing not to transact in the New Zealand dollar whether it's a private form of digital currency like a stablecoin, or whether it is using another country's central bank digital currency. So effectively you'd be dollarised," Woolford says.

"Dollarised" refers to when a country begins to recognize the US dollar, which is viewed as the world's reserve currency, as a medium of exchange or legal tender alongside or in place of its domestic currency.

In the podcast Woolford talks in detail about the RBNZ's work on a CBDC, including what introducing one would mean for cash and privacy. Among other things, Woolford also talks about how the RBNZ believes a CBDC could bolster competition and innovation in the NZ financial system, and the potential for a CBDC to reduce or eliminate the role of banks.

That means a deliberate move by the government, with the cooperation of the Reserve Bank, local government and banks, to push house prices down.

Such a move would require a government prepared to see house prices fall by a significant amount.

We look at why homeownership is desirable, whether it would be possible to engineer a housing market correction, whether it would be desirable to do so, whether a housing market correction could be controlled, and whether homeowners who would be hardest hit by a correction could be compensated.