Is This Government Trying to Do Too Much? Vaccine
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HUGO Assessing the economic and political environmentvision in New Zealand Confidential to April 16 2021 HUGO members Is this government trying to do too much? Page 2 A political narrative about this government being increasingly inclined to make unexpected and value-destroying interventions as well as being only moderately competent at policy execution is gaining ground. One unexamined element of this phenomenon is the scale of its agenda. Setting aside the enormous distraction of focus from BAU caused by the covid response, the government is attempting reforms of historic scale in several areas. Is it setting itself up to fail? Vaccine rollout scramble Page 2 Ministers and the Ministry of Health have known since the covid-19 pandemic began in earnest a little over a year ago that a vaccination rollout would eventually be critical to reopening NZ’s borders. It had known since early 2019 – a year pre-covid- that existing vaccination systems needed replacement. Yet there are signs everywhere that vaccination planning is behind schedule, with Accenture only starting to build a vaccination booking system last month. Ministers watching power price shock Page 2 A doubling of wholesale power prices since February is putting larger pulp and steel mills exposed to spot prices under extreme financial pressure, generating headlines that suggest thousands of jobs are at risk. Minister Megan Woods is worried. Generator-retailers are pushing back, asking why large electricity users have chosen such significant exposure to the spot market. National grabs housing initiative as prices keep rising Page 3 The shock of Labour’s late-March housing package and its bombshell interest deductibility move is wearing off before any signs that house price inflation has taken a knock. Landlords have escalated their promises to hike rents, triggering calls for rent controls that the government first toyed with, and then rejected. National grabbed the initiative back this week with an emergency members bill aimed at providing more of a carrot to councils than Labour’s stick. Economic focus turns to bank lending rules Page 5 The Reserve Bank delivered a copy-and-paste type of monetary policy decision this week that left all its settings for interest rates, its bond buying programme and its cheap lending facility to banks in place at the same levels as its February decision. Focus now turns to the May 6 Financial Stability Report, where some type of limit on interest-only loans to landlords is expected. Will the Aussie tourists come and will our workers go? Page 4 Quarantine-free trans-Tasman travel begins on Monday, with signs Australian tourist numbers may be smaller than first thought. Employers’ fears of an exodus of highly-skilled local staff for better pay and lower rents in Sydney, Melbourne and Brisbane are also growing. Text finalised April 16 Contact: [email protected]. No responsibility is accepted for acts or omissions by clients as a result of items herein. © The Hugo Group 2021 HUGOvision April 16 2021 POLITICS AND POLICY Is this government trying to do However, covid response minister Chris Hipkins is obliged to put a brave face on issues such as too much? the fact that health officials had known for a year Any government would be sorely tested by a crisis as before covid came along that the existing National severe or as long-lasting as the covid-19 pandemic. Immunisation Register needed to be replaced. So far, the Ardern administration has done well The business case for this was only written in enough at handling this to be rewarded with an October last year and procurement has yet to begin. absolute parliamentary majority. In the meantime, officials and their agencies have Armed with that and three years of policy been iterating temporary and stop-gap systems first development between 2017 and 2020, the government to track and trace people through covid outbreaks, is now embarking on a range of fundamental then to register the first round of immunisations, reforms that may be the most wide-ranging since and now to allow NZers to make a booking for the fourth Labour government in its 1984-87 term. immunisation once the mass rollout begins in July. Major areas of reform or new policy include: The main embarrassment in the last week has been • resource management and urban planning law the discovery that a small but unknown number reform; of border and MIQ workers have been operating outside any centralised monitoring system for covid • setting climate change policy for the next testing. generation, which could include substantial changes to electricity and other energy market However, equally concerning is confirmation that dynamics; the ministry’s chosen contractor for the booking system, Accenture, only began work last month on a • ‘three waters’ reform; system that needs to be in place by the end of May. • de facto local government reform by Even as a bolt-on configuration of an existing system, simultaneously forcing 3 waters amalgamations that is an extraordinarily tight timeframe for a major and introducing new funding mechanisms; IT upgrade. • freshwater reforms; Further evidence of poor preparation can be seen in the scramble by DHBs to sign commercial and potential to push further into other areas where tenancies for large-scale vaccination centres. The change could have significant economic impact. search for those began early last month, representing For example, proposals by the Retirement another windfall for commercial property leasing Commissioner to require retirement village owners to agents, especially as the search is understood to have mandatorily buy back units and share capital gains prioritised securing space ahead of rental levels. with tenants or their estates have alarmed the sector. The list above is not comprehensive, but is very Power price shock spreads substantial. The two key questions to consider are The chances of regulatory or ministerial intervention whether: in the electricity market are growing along with the • the government and current NZ public sector spike over recent weeks in wholesale prices. policymaking cadre has the capability to devise Large factories without hedges in place are curtailing good policy in so many areas of fundamental production and layoffs are becoming likely. significance to the NZ economy; Heavy use of coal-fired power to make up for the gas • the government has the political skills to execute and water shortages is compounding the political pain. these policies well, notwithstanding its ability for the next two and a half years to pass any legislation Prices are running at more than double long-term it wishes without parliamentary support partners. averages because of shortages of supply from the Pohokura gas fields and relatively low lake levels. Vaccine rollout NZ Steel’s Glenbrook mill is curtailing production and Norske Skog Tasman’s pulp and paper mill ran The government is walking a political tightrope on at 40% and 60% of capacity last month. Methanex the vaccination rollout preparations. has also warned it may lay off workers after idling its There is distress and disappointment in the plants in early April. Beehive that the Ministry of Health did not make The Major Electricity Users Group’s chair John earlier progress on the clear need for a national Harbord is joining the chorus of unhedged retail immunisation system earlier than it has. 2 electricity suppliers who argue that spot prices are HUGOvision April 16 2021 POLITICS AND POLICY excessive relative to the extent of the supply risk the included strong challenges to the government from system is managing. covid-19 spokesman Chris Bishop over testing at the Energy Minister Megan Woods has asked MBIE and border and vagueness and slowness of the Ministry the Electricity Authority to report back on whether of Health’s vaccine rollout plans and transparency. the prices are reasonable and expects a response Also, housing spokeswoman Nicola Willis’ new “within weeks.” proposal for a carrot for councils of a $50,000 grant “If ‘no’ then I will go back and ask for further for each new consent over the five year average took advice.” the initiative back off the government in the housing debate. It’s not clear what the EA or the government could do in the short term to ease the pain and Woods has PM Jacinda Ardern said the carrot wasn’t needed said the various tweaks to policy made after the 2018 as the government had its own $3.8b infrastructure Electricity Price Review needed to be given time to grant plan, although the terms and details of it work. have yet to go through cabinet and be presented to councils. However, the spiking prices may fuel the argument for the government’s $100m investigation of a massive National’s proposal for an emergency members bill ‘battery’ pumped storage scheme at Lake Onslow to force councils to open up 30 years’ worth of land which could be used to squash such price spikes. supply along with the carrot of the grants did force the Government to concede it would need to speed At this stage, Woods has kicked for touch on whether up moves to densify cities. she might dust off advice on structurally separating the gen-tailers. “Is it something that may have to be By prevaricating under questioning about his revisited in the future? Probably, maybe,” she was support for Collins as leader and rumours of forming quoted as saying. a leadership ticket with Christopher Luxon, we judge Simon Bridges to have made his chances of mounting a leadership bid weaker than they were Housing pain deepens already. The government’s late-March package of housing There is simply no reason for National to consider measures, including the shock interest deductibility a leadership change at this stage of the electoral move for landlords, has done little as yet to ease the cycle, particularly in the absence of a clearly better political or economic pain.