The integrity of bond markets on both sides of the Tasman is at stake as regulators probe issues of potential market manipulation, Australian Financial Review senior reporter Jonathan Shapiro says.

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.

Grocery Commissioner Pierre van Heerden wants a third supermarket competitor to set up shop in New Zealand in order to tackle the country’s supermarket duopoly, but reducing the barriers to entry won’t happen overnight.

“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. 

New Zealand exporters to the United States might be at greater risk of being disrupted than those exporting to China, according to one trade expert.

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”.

The first New Zealand and international wave of electric vehicle (EV) uptake is probably over, with cheaper cars and better public charging infrastructure required for further major growth in the uptake of these "batteries on wheels," says James Foster.

 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.

Ask Cameron Bagrie how to improve business and rural banking and some words reoccur in his answers. Three of them are "risk", "productivity", and "bankability."

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.

By Gareth Vaughan

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.

The Australian Government's a Future Made in Australiainitiative could attract skilled migrants and potentially investment and entrepreneurs from New Zealand, and ultimately be a catalyst for a much more sustainable future, says Kylie Walker, the CEO of the Australian Academy of Technological Sciences & Engineering.

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.

The fund backing New Zealand's incoming depositor compensation scheme is going to be small, it's going to take a long time to reach its target level, and the lack of depositor preference in the scheme is a mistake, according to a deposit insurance expert.

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.

Renting in New Zealand today is more difficult than a decade ago, with fewer properties available, rents continuing to increase, and the quality of rental properties not much better, Shamubeel Eaqub says. However, the economist and co-author of the 2015 book Generation Rent, rethinking New Zealand's priorities, says it's not all bad news.

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.

With economic growth no longer producing benefits seen in the past such as raising living standards for the middle class, and human activity having exceeded some planetary boundaries, it's time to embrace degrowth, argues Jennifer Wilkins.

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.

For open banking to really grab people's attention the focus needs to be on the services it can enable, rather than the technology behind it, says Andrew Dentice.

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.

Finance spokesperson Barbara Edmonds says a re-elected Labour Government would have been willing to expand its planned public sector cuts to protect key programmes. 

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.

With US Federal Reserve Chairman Jerome Powell signalling interest rate cuts ahead, the US dollar's likely to weaken with the Kiwi dollar rising against it, Imre Speizer, Head of NZ Markets Strategy at Westpac Institutional Bank, says.

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.

The departing Chief Executive of the Insurance Council of New Zealand says if Wellington is hit with an earthquake on a similar scale to the Canterbury quakes, it would “raise some questions” on whether NZ insurers would be able to continue to purchase reinsurance at an affordable cost.

“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.

In five years' time we would see things we can't imagine today if the Government adopts the Commerce Commission's recommendations to boost competition for personal banking services, Commission Chairman John Small says.

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.

With a United States presidential election looming in November, Patrick Watson, Senior Economic Analyst at Mauldin Economics, says it's difficult to say what the key economic battleground will be because many voters are "living in their own realities."

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.

The "cheer squad" make it hard to have a proper debate on housing, especially when looking to address the question of what we want from the housing market from a public policy perspective.

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.

China's economy remains mired in a post-Covid hangover like much of the rest of the world, but the technology, catering and tourism sectors are encouraging, according to David Mahon.

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 coalition government's select committee banking inquiry could look at how to encourage banks to lend more to "productive" sectors of the economy rather than having such a big focus on "unproductive" housing lending, Commerce and Consumer Affairs Minister Andrew Bayly says.

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.

New Zealand should be working towards a 100-year planning horizon when it comes to infrastructure, and viewing planning as "an exercise in dynamism and inquisition" rather than a "bureaucratic exercise."

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.

Although the war on inflation is being won, there are still battles to come and it's too soon to expect Reserve Bank interest rate cuts, says Kiwibank Chief Economist Jarrod Kerr.

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.

Following COP28's call for a transition away from fossil fuels, a key test will be how quickly a rethink of the market capitalisation of oil and gas companies starts emerging, says Rod Oram.

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.

By Gareth Vaughan

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.

The process of growth will be the main benefit from a scaled up Kiwibank, while public acclaim will be a key measure of open banking's success, Commerce Commission Chairman John Small says.

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.

Reserve Bank Governor Adrian Orr says he's "extremely confident" the world is heading back to a period of low inflation, saying the central bank is prepared to do "whatever it takes" to achieve its mandate of low and stable inflation.

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.

On the 22nd of November, while the National Party was putting the finishing touches on its coalition agreement, the European Union (EU) ratified a new trade deal with New Zealand.

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.

Although trading in foreign exchange markets is inherently very risky, the Reserve Bank (RBNZ) boosting its capacity to do so makes sense both from monetary policy and financial stability perspectives, Westpac New Zealand Chief Economist Kelly Eckhold says.

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.

New Zealand should be one of the easiest places in the world to get to net zero greenhouse gas emissions and we should be planning for net negative, the next step after that, says Christina Hood.

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."

After the 2014 election, Peter Dunne got a phone call from Prime Minister John Key to say National wouldn’t need the support of United Future to form a Government. 

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.

New Zealand's supply chains are in "a serious, if not critical condition," requiring holistic systems thinking and a long-term focus, investment and government support to become stronger and more resilient, says self proclaimed supply chain tragic Dave Christie.

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.

The Green Party’s finance (and transport) spokesperson Julie Anne Genter has an unlikely ally on a handful of policy issues: Mayor of Auckland Wayne Brown. 

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.

Labour Party finance spokesperson Grant Robertson admits to overspending in one area, his own personal home sound system, but he doesn’t regret it. 

“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”.

The New Zealand First deputy leader and finance spokesperson Shane Jones is calling for higher growth and more productivity as a way to bring prosperity to a wider class of New Zealanders.

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. 

The Chinese people are very concerned about their country's tense relationship with the United States and it's a factor in weak consumer confidence, says Beijing-based David Mahon.

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.

Deputy Governor Christian Hawkesby says the Reserve Bank's (RBNZ) Monetary Policy Committee might have taken a different stance in May if the economic activity forecasts had been more accurate.

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."

Kia ora,

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.

New Zealand ought to change its political party funding system so it encourages politicians to connect with as many ordinary New Zealanders as possible, Max Rashbrooke argues, whilst noting it's not in political parties' interests to do so meaning such a change probably won't happen anytime soon.

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.

The Commerce Commission should be looking closely at banks' overall interest margins in its market study into personal banking services, says David Cunningham.

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.

New Zealand's anti-money laundering (AML) regime could be simplified and improved, although care would need to be taken to avoid jeopardising our good standing in the international community, not to stop information flow to the police, and to avoid creating loopholes criminals can exploit, says leading AML lawyer Gary Hughes.

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.

Ten years from now Kiwibank CEO Steve Jurkovich wants New Zealanders to be thinking about their big five, rather than big four, banks, with Kiwibank in there mixing it with the four Aussie owned banks and not the smallest among them.

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.

New Zealand survived a tight electricity supply situation on Friday morning - the 12th so far this year.  

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.

Like it or not banks are a cornerstone of our economy, meaning they'll need to be a key influence in the push to decarbonise.

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."

At the heart of suggestions the so-called BRICS countries may develop a new international currency system based on gold that's separate from the US dollar are some simple necessities, according to Nathan Lewis.

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.

2023 has become the year of AI. Hype and doomsaying about AI, or artificial intelligence, is hard to avoid.

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.

Central banks' use of monetary policy to fight inflation is working, but in New Zealand we need to look at evidence demand and prices are being impacted rather than current inflation data, says ANZ Banking Group Chief Economist Richard Yetsenga.

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.

The balance of power in the labour market sits firmly with employers, with a big rise in job applicants over the past year chasing a significantly diminished number of jobs, says Frog Recruitment Managing Director Shannon Barlow.

"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.

Sam Bankman-Fried was a nerdy billionaire and rockstar of the crypto industry, living a lavish lifestyle in the Bahamas, with celebrities advertising his cryptocurrency exchange FTX as he gained influence in Washington DC.

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.

The world needs to move to a new economic system where growth is replaced as the ultimate goal by meeting human needs within ecological limits, argues Gaya Herrington.

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.

If we were building Auckland from a blank canvas with the knowledge we have today there are lots of places where you wouldn't build, says Martin Brook, Associate Professor of Applied Geology at the University of Auckland.

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.

If you're looking for profit-led inflation you should probe consumer facing industries rather than look across the whole economy, says UBS chief economist Paul Donovan.

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.