Friday, 20 October 2017

Risks and opportunities

The Outside of the Asylum is getting a new Prime Minister, leading a coalition of Labour, the Greens, and New Zealand First. As always, new governments bring risks and opportunities. Here are some of them.

On the upside, we can hope for more serious addressing of the Auckland housing crisis. It took a long time, but National had finally come around to hitting the infrastructure financing problems at the root of Auckland's housing shortage. Labour can be expected to build on this. Labour's Phil Twyford understands the supply and financing constraints. His solutions, around designated infrastructure corridors and value-uplift charging, differ from National's - but will also work. And remember that it's Labour that's supported abolishing the Auckland rural-urban boundary that has jacked up the price of zoned land.

In the longer term, the government will need to address the incentives issue in which councils bear the bulk of the costs of accommodating growth and central government enjoys the bulk of the upside. But Labour should be able to make some progress on getting the necessary trunk infrastructure through.

I worry that the Labour/Green push for a substantial expansion in building state housing will quickly hit against sector capacity constraints, though, even if they're able to get infrastructure lined up. Last quarter's inflation figures suggest those constraints are starting to bind. The only way of easing those constraints in the short term are through immigration, through more relaxed rules around material supply that would recognize building materials from places like Tokyo, Seattle or Vancouver as being sufficient for New Zealand purposes without re-certification here, and potentially through eased rules around the Overseas Investment Act that would allow foreign construction companies able to build to scale to come in and build thousand-home subdivisions and in-town up-zoned developments.

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First's core beliefs is distrustful of markets and of foreigners. I can't see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand's Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand's Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

And there’s some risk the incoming coalition will end what National has been calling the “Investment Approach” to welfare policy. That one’s been promising, but has remained at the promising stage for a while – they've only started to get it seriously moving.

Under the Investment Approach, the government uses back-end administrative data to figure out which interventions reduce the government's long term fiscal burden. It's taken a long time to get there, but the Social Investment Agency's now set up to do that work, they have good statisticians there doing the analysis, and multicategory appropriations are set to fund things that don't fit departmental siloed budgets.

Prime Minister Bill English's vision behind it has been admirable. He's seen that too little spending is accompanied by any assessment of whether it improves the lives of those receiving it. The Investment Approach would start fixing that. It would also break down the informational advantage that Ministries hold over their Ministers. If the Social Investment Agency can show that NGOs  provide some beneficial outcome at half the cost of the line departments, Ministers can use that to better hold their Ministries to account.

It has been long and hard work for the government. But there are NGOs that really want to be able to assess whether their work does good and have been starting to work with the Social Investment Agency to combine their data and figure things out.

There's been some debate about whether minimizing the state's fiscal liabilities is the right goal, but that goal has always had political side constraints. Nobody would have proposed dumping beneficiaries from the benefit system as a way of minimizing liabilities. And it would always be possible - and desirable - to run some ancillary outcome monitoring alongside the fiscal liability measures. In English's view, which I think is the right one, people wind up costing the state a lot of money when they're living miserable lives, and things that bring them out of misery reduce the government's longer term outlays. He's viewed it as a proxy for reducing misery.

I really hope that the Labour coalition maintains the Investment Approach, and strengthens it by specifying the ancillary outcome monitoring to make sure that the policies that reduce the longer term fiscal burden are also the ones that improve lives.

But they will be under pressure from a public sector that might prefer to maintain information advantages over their Ministers. NZ First has had Big Brother concerns around that use of data - which also make me worry about whether the current push toward open data will be able to continue. And the Greens have wanted to undo much of the welfare policy emphasis that began under Helen Clark's Labour government to encourage beneficiaries to shift into work. Partially due to that shift, New Zealand now has an employment rate that is at least as high as it has ever been since the 1980s. I worry that the trade-offs haven't been appropriately appreciated.

Could be worse though! I expect New Zealand to remain the Outside of the Asylum. I expect that any changes to the Policy Targets Agreement to satisfy New Zealand First might ask the Bank to avoid undue variability in the exchange rate while maintaining inflation in the 1-3% range rather than asking the bank to pursue a dual mandate - the latter would not be a good idea at all. Any large changes to the tax system would only come after assessment by a new Tax Working Group - here are some of the questions I hoped such a group might answer.

And, for a bit of fun, here is the Spotify playlist that The Spinoff put together of tunes from incoming Prime Minister Ardern’s time as DJ. I love the Shatner version of Common People and hadn’t heard it before hearing this playlist. The Tom Jones version of Lust for Life is also great fun.

Update: other opportunities:
  • The coalition will be addressing water quality issues; I hope we're able to do it through cap and trade regimes rather than ones that would do less good at higher cost.
  • New Zealand First's regional development interests and local government experience could allow greater devolution through things like the Manchester City Accord. Wellington asked the government for that kind of an option; New Zealand First might be particularly sympathetic to greater devolution to Councils, depending on what powers Councils might want.
  • The Greens will get a referendum on personal cannabis use by 2020. 

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