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Insights 19: 27 May 2016
Dr Eric Crampton talks housing
Wellington's 'Deadly Heritage'
Thursday 14 July - Dinner Lecture with Stephen Jennings - Auckland

Thankfully, a boring budget
Dr Oliver Hartwich | Executive Director |
It is a journalistic sin to come up with headlines such as “Small earthquake in Chile, not many dead”. With that in mind, you have to pity journalists trying to write about yesterday’s budget.

Budget 2016 may well go down in history as the most boring budget ever delivered in New Zealand history. There was simply nothing exciting, eye-catching or even moderately surprising about it.

Yet that was precisely its greatest achievement.

In Westminster-style democracies, there has developed a strange cult around Budget Day. It includes rather odd parliamentary traditions. In Britain, for example, the Chancellor of the Exchequer may have an alcoholic drink while delivering the budget speech to the House of Commons.

Fortunately, we do not have that in New Zealand (nor do I really want to imagine a tipsy Bill English).

However, we do share the expectation in many other English-speaking countries that government’s role on Budget Day is to pull bunnies out of the hat. A tax cut here, some new spending programmes there, or at least a few tax simplifications.

Apparently budgets are meant to be electrifying, unpredictable and sensational. And of course, that is what gallery journalists prefer. After all, their business is reporting on politics as if it was a combat sport.

But is this really the best way to think about policy-making?

In a parliamentary democracy, you would hope that new policy initiatives are not presented by the government as a fait accompli. Instead, they are developed and refined in the parliamentary process.

Bills are introduced, debated in three readings and in select committees before they eventually become law. The purpose is to allow parliament, and the public, to scrutinise the government’s plans and discuss alternatives. It is an often cumbersome procedure but it serves a purpose.

With budgets, the public (or at least the media) expect the opposite. Rather than long and elaborate discussions, they demand manna from heaven: quick fixes for our problems, introduced without preparation or debate, ideally surprising voters and wrong-footing the opposition.

Call me naively democratic, but I do not think that is the best way to run a country.

I much prefer budgets without surprises and real policy developments through the appropriate parliamentary processes. This allows checks and balances, parliamentary scrutiny and public debate.

Bill English has delivered a solid, unspectacular and sober budget. And there is nothing wrong with that. Unless you are a gallery journalist.

You can also read our take on the Budget in The Australian Financial Review, 'NZ gets no-nonsense, no-fuss budget with a surplus on top'.

Hard work on housing starts now
Jason Krupp | Research Fellow |
Last week saw a rare conjunction. Almost all the political parties agreed that Auckland’s artificial rural urban boundary had to be lifted to free up land for housing development. This kind of alignment is rarely seen astrologically, let alone in an adversarial political system.

It was an overdue but welcome development, but it does not solve the problem by itself. That is because there is still another major housing hurdle to overcome in Auckland: infrastructure.

Auckland Council is largely responsible for providing the core infrastructure needed to prepare land for housing. Unfortunately the city’s ability to do so is constrained by high debt levels and high levels of disgruntlement over recent local tax hikes. The reality is that unless policymakers come up with smart ways to solve this problem, lifting zoning restrictions will do little to increase the supply of housing in Auckland.

The good news is that there are plenty of options. One solution that we have long advocated for is a Municipal Utility District (MUD). This is a mechanism whereby developers use bonds to self-fund housing infrastructure, which are then serviced by targeted residents over a 30 year term. Another option is a municipal bond, a debt facility that works in much the same way as a MUD but without the developer raising the debt. Both of these mechanisms have been used in the US to fund the growth of cities without unfairly burdening taxpayers or constraining housing development.

The bad news is that there is no free, or for that matter quick, lunch. In an ideal world, developers would be freed from the restrictions of zoning, but not so much that they pave over prime agricultural land or areas of high environmental value. New funding tools need to be carefully integrated with the broader planning framework, and lots of thought needs to be given to how new infrastructure meshes with existing utilities networks. This is where the hard policy work on housing starts in earnest.

This may seem like a depressing thought, particularly for a Friday, but I would argue the opposite. Three years ago, when the Initiative first proposed abolishing Auckland’s growth boundary, the idea was written off as impossible. Today it is mainstream.

Click here to download the Initiative's report on alternative infrastructure funding for housing.

Pointless tests of character
Dr Eric Crampton | Head of Research |
It has now been a couple of weeks since we found out that the Overseas Investment Office was not being as thorough in its background character checks on investors as some might have wanted.

Every day, I’ve been scanning the newspaper headlines, waiting for the other shoe to drop. Surely if character tests were important, and they weren’t being undertaken, and investors of bad character were let through, we’d have had more than a few exposés by now.

I had expected to find out that high country estates had been carved out of Canterbury and Otago and shipped off to China. Or that a Russian oligarch had absconded with a sensitive wilderness area. Or that an American investor had set up a tuatara safari park, allowing rich hunters to stalk and shoot some of New Zealand’s most dangerous-looking wildlife.

But the newspapers have been quiet. And so I wonder what the point of the character tests really was.

It seems foreign investors’ character carries a lot more political risk than real world risk. In a classic episode of Canadian sketch comedy show Kids in the Hall, a politician accidentally choosing an ex-convict’s jam at an A&P contest winds up losing office over it. He later blames his advisor for not warning him about the tasty, but politically risky, jam. The jam was fine, but its maker’s character was politically risky.

New Zealand does not ban ex-convicts from making jam. But the Overseas Investment Office could well ban a foreign-based investor with a spotty background from investing in a jam plant because the Overseas Investment Act requires investors to pass a character test.

The character test has always been a bit of a puzzle. Immigration restrictions keeping out foreign criminals can make sense. And ensuring that foreigners meet the same standard as locals can also make sense. But just what an overseas investor might do with sensitive land that a Kiwi would not do, when both are subject to consenting requirements on land use, is something of a mystery.

It turns out that foreign investors were not able to skip town with a high country estate when character tests were not particularly thorough. Maybe we should take this as an opportunity to reconsider some of this red tape, rather than seek to enforce it ever more diligently. 

On The Record
All Things Considered
  • Graph(s) of the week: Here are five that explain yesterday's Budget.
  • Fear of missing out: How FOMO can influence decisions in the housing market.
  • Will they, wont they: How 'tells' can predict if someone will vote or not.
  • Never stop learning: Why retirees are returning to study in Europe.
  • Breakfast: Is it the most important meal of the day?
  • It rhymes with fry: Why South Africans love their braai.
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