Trans-Tasman Bubble: A Bubble Worth Popping?

By Maddison Lewis

Editors’ Note: This article was mostly written before the eight-week closure from 23 July. While this has been adjusted, some claims have been made in a different context.

Photo Source: https://blog.staah.com/tips-trends/are-you-ready-to-make-the-most-of-the-trans-tasman-bubble

COVID-19 is one of the most defining issues in recent history. What seemed like a distant problem that propped up in Wuhan, China, in 2019, quickly transformed the world – locking down countries, economies, and borders. Whether it is the introduction of new words such as ‘social distancing’ to our everyday vocabulary, or the more life-changing consequences of losing a job, there exist very few areas of our life that have not been touched by COVID-19 in some way.

One of the more recent issues surrounding COVID-19 that captured the nation’s eye is the closure of the Trans-Tasman bubble. The closure announced on 26 June on the back of a growing number of cases in Australia was the first time the bubble has been completely shut down. To add to the tumult, New Zealand saw Wellington switch to a Level Two lockdown following a visit from an Australian tourist who was infected with the contagious Delta variant of the virus.[1] And now, from 11:59pm on 23 July, the entire Trans-Tasman bubble will be closed for at least eight weeks (up to 17 September), due to the Delta variant outbreak in New South Wales not being controlled.[2]

Such events have brought the bubble into sharp focus, raising questions around its utility and the relative risks it presents. So, what is the case for the travel bubble? What arguments have been made in its favour by the government and other pundits? Equally important, what arguments have been made against it? Before we get there, let us lay out how the travel bubble works.

What is the Travel Bubble?

On 19 April, Prime Minister Jacinda Ardern announced the Trans-Tasman bubble saying that it “represents a world leading arrangement of safely opening up international travel while continuing to pursue a strategy of elimination”.[3] The bubble allows those who have spent 14 days in Australia or New Zealand to avoid quarantine when travelling between the two countries.[4] In addition, those travelling cannot have tested positive for COVID-19 nor be waiting for COVID-19 test results, and the bubble only applies to commercial flights – ships and private planes still have restrictions applied to them.[5]

On 26 June, rules changed to require that those travelling from certain states in Australia participate in pre-departure testing 72 hours from their flight, while travellers from other particular states were temporarily excluded altogether.[6] Now, with the outbreak in New South Wales, all Australian states are excluded for eight weeks, as the Delta variant has “materially changed the risk profile”, with infected persons carrying 1000 times more copies of the virus compared to the original strain.[2a] If there is anything to grasp about the bubble, it is that it is not a fixed, constant entity; it changes, develops, and will continue to respond to developments around the world.

Photo Source: https://www.rnz.co.nz/news/national/446279/trans-tasman-bubble-pause-ends-for-some-australian-visitors

The Case for the Bubble

Two critical arguments for the travel bubble that have been highlighted is its potential to boost the economy and tourism industry, and its ability to reunite families.[7][8] Tourism Industry Aotearoa (TIA) highlighted pre-COVID-19 that 13.6% of all New Zealand employees were connected to the tourism industry.[9] However, TIA’s 9-20 April survey suggested that “tourism businesses have on average seen their revenues cut almost in half and have shed 4 out of every 10 of their staff”. This equated to about 90,000 job losses.[10] With Australians making up nearly half of all visitors to New Zealand before COVID-19,[8a] these figures show how essential Australia is, for New Zealand’s tourism industry and employment.

While the government announced a 200 million dollar plan to support the industry in its Tourism Communities: Support, Recovery and Re-set Plan,[11] the travel bubble could potentially contribute a far larger one billion dollars to the economy as estimated by Tourism New Zealand.[12] In a similar vein, Chris Roberts, CEO of the TIA, said, “The Australian population is five times New Zealand’s, they are just as keen to travel, and we should stand to have a significant net benefit from free movement across the Tasman.”[13]

An additional argument for the Trans-Tasman bubble is its ability to free up spaces in New Zealand’s MIQ facilities. COVID-19 Response Minister Chris Hipkins estimated that 1000-1300 rooms would become free as a result of the bubble.[3a]

Moreover, not all arguments for the bubble have been primarily concerned with the economy. As an ANZ research report suggested, the Trans-Tasman bubble can “reunite families, and do wonders for relieving our collective sense of claustrophobia”, and that the issue goes beyond questions of GDP.[14] To put it another way, certain policy issues “are about more than ‘dollars’”.[15] When examining the case of the Trans-Tasman bubble, our analysis cannot only contain financial numbers and figures – it is worth considering non-material standards too.

Photo Source: https://www.escape.com.au/news/photos-capture-emotional-reunions-as-transtasman-bubble-officially-begins/news-story/04582a92bb4ab773cfcadee598f76473

Reasons for Concern

However, the travel bubble is not without its concerns. Tom Pullar-Strecker, Stuff Senior Business Journalist, expressed concerns in March that the bubble could have potentially adverse effects on GDP since spending by New Zealand travellers in Australia tended to increase around June to September. In contrast, spending in New Zealand by Australian travellers tended to decrease over this period. This could have “the negative effect of displacing more spending by Kiwis in New Zealand”, assuming a reversion to past travel patterns. Furthermore, Pullar-Strecker suggested that the bubble could have an impact on public perception of risk in New Zealand, affecting economic confidence.[15a]

Another more optimistic view which still forecasted positive effects on GDP, suggested that we ought to not rely on past patterns when predicting the impact of the bubble. This was because possible new trends such as travellers being more reluctant to travel or an influx of Australians wanting to visit family (when such travellers may tend to spend less on tourist activities) may impact our economic forecasts of the bubble.[15b] This concern around visitor versus tourist spending is particularly relevant considering Stats NZ reported Australian 27,000 visitors in April, with over 75% of these seeing family or friends.[16] Additionally, the Centre for Aviation (CAPA) said “discretionary travel has been dampened by the prospect of the bubble being closed”.[17]

Another concern expressed by Professor Michael Plank of the University of Canterbury in an April report by the Science Media Centre was that the freeing up of MIQ space could expose New Zealand to more risk if such spaces were used by travellers coming from high-risk countries even if more border workers are vaccinated.[18] Despite all this, Stats NZ’s provisional travel data for May showed “increases in border crossings.”[16a] This suggests that Tourism New Zealand’s forecast of a billion-dollar economic boost[11a] “seems to be heading towards reality”[8b] – at least before the eight-week closure took place. Given the unpredictable nature of COVID-19, short term boosts could continue to be overshadowed by new perils, as we are currently witnessing.

Photo Source: https://www.news.com.au/travel/travel-advice/airports/transtasman-travel-bubble-viewers-puzzled-by-bizarre-bubble-dance-at-melbourne-airport/news-story/a09dbab9a55636386dcb5edcd000539a

Putting this all together

So, what does all this mean? If anything, it reminds us of the complexity of such policy issues in a highly complicated and changing world. The story of the Trans-Tasman bubble is not a simple narrative and it requires nuance and careful analysis to understand its relevance to New Zealand. If anything, COVID-19 is a lesson for policy makers, that we need to be prepared to make new and innovative solutions to problems we have not seen before. The Trans-Tasman bubble could prove to be such a solution, despite the eight-week setback. This closure shows the potential for how our government can respond to dangers as they materialise.

While we may stand to benefit from the bubble when the situation stabilises, we also ought to diversify beyond just the tourism industry to ensure that there are other revenue streams to supplement our economic recovery, as concerns around the bubble become true. As the pandemic continues around the world, New Zealand will continue to watch the bubble closely and with high hopes for the future that one day we will return to normalcy.

Sources:

[1] https://www.theguardian.com/world/2021/jun/28/new-zealand-nz-travel-bubble-nsw-may-be-excluded-australia-covid-cases-rise

[2][2a] https://www.rnz.co.nz/news/national/447527/nz-government-suspends-quarantine-free-travel-with-australia-for-at-least-eight-weeks

[3][3a] https://www.beehive.govt.nz/release/trans-tasman-bubble-start-19-april

[4] https://covid19.homeaffairs.gov.au/new-zealand-safe-travel-zone

[5] https://www.immigration.govt.nz/about-us/covid-19/border-closures-and-exceptions/you-are-in-a-quarantine-free-travel-zone/you-are-coming-from-australia

[6] https://www.stuff.co.nz/travel/news/300344869/transtasman-bubble-to-reopen-to-select-states-with-predeparture-testing

[7] https://thespinoff.co.nz/the-bulletin/19-04-2021/the-bulletin-risks-and-benefits-loom-as-trans-tasman-bubble-opens/

[8][8a][8b] https://www.scoop.co.nz/stories/BU2105/S00048/weighing-the-prospects-and-benefits-of-trans-tasman-travel-bubble.htm

[9] https://www.tia.org.nz/assets/Uploads/Trans-Tasman-bubble-benefits-NZ-.pdf

[10] https://www.tia.org.nz/assets/Uploads/4-out-of-every-10-tourism-jobs-lost-in-last-year-survey-shows.pdf

[11][11a] https://www.beehive.govt.nz/speech/tourism-communities-support-recovery-and-re-set-plan

[12] https://www.rnz.co.nz/news/national/439782/tourism-new-zealand-forecasting-billion-dollar-economy-boost-if-trans-tasman-bubble-opens

[13] https://www.stuff.co.nz/business/industries/124584260/who-benefits-more-from-a-transtasman-travel-bubble–nz-or-australia

[14] https://www.anz.co.nz/content/dam/anzconz/documents/economics-and-market-research/2021/ANZ-Trans-Tasman-Bubble-Insight-20210409.pdf

[15][15a][15b] https://www.stuff.co.nz/business/opinion-analysis/124609487/why-a-transtasman-bubble-might-not-save-nz-from-recession

[16][16a] https://www.stats.govt.nz/news/trans-tasman-bubble-lifts-travel

[17] https://centreforaviation.com/analysis/reports/lockdown-risk-dampens-demand-for-au-nz-air-travel-bubble-560454

[18] https://www.scoop.co.nz/stories/AK2104/S00102/trans-tasman-travel-bubble-to-open-expert-reaction.htm

Understanding the Public Sector Wage Freeze

By Cole Reyno

On 4 May, the Labour Government announced a three-year extension to the public sector pay freeze. This freezes the wages of public sector workers earning over $100,000 per year, and most earning over $60,000 per year except in “exceptional circumstances”.[1] This policy will largely impact those workers described as Labour’s traditional voter base, and thus begs the question of why such a policy has been decreed.[2]

Public Service Minister Chris Hipkins has called the wage freeze “the opposite of austerity”, arguing that wages will increase for lower-income workers rather than those with higher income.[3] While it is technically accurate that within the public sector income inequality would decrease, this fits the definition of an austerity measure since it decreases government spending.[4] Moreover, due to inflation rates being positive and likely remaining so, in line with the Reserve Bank’s long-term target of 2% per year,[5] a nominal pay freeze is a pay cut in real terms. That is, public sector workers with frozen wages will have reduced purchasing power as prices of goods and services increase.

Chris Hipkins announcing the pay freeze
Source: https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audio/chris-hipkins-public-service-minister-on-the-three-year-pay-freeze-for-civil-servants

Given the real pay cuts over three years, what calculations are the Labour Party running, whether numerical or political?

Numerical

This is part of Labour’s Budget 2021 which they released on 20 May. Their operating allowance for 2021 is $3.8 billion, while for each year 2022–2024 it is $2.7 billion. Labour projects that net core Crown debt to GDP percentage would remain below 50% up to the 2025 forecast.[6] Thus, Labour has deemed public sector pay above $60,000 not worth increasing debt for. This is despite public sector salaries growing 15% slower than private sector salaries between the second quarter of 2009 and the first quarter of 2018.[7]

Political

This wage freeze can be contextualised with the Budget 2021 announcement and the lesser reported-on 7 May announcement on Fair Pay Agreements.[8] Radio New Zealand’s ‘Politics’ section contained 59 articles between 5 May (when they published their first article about the pay freeze) and 14 May (before the leadup to the Budget 2021 announcement on 20 May) – but only one about the Fair Pay Agreements.[9]

So what are these Fair Pay Agreements, and why are they significant?

The Government’s proposal would enable sectoral collective bargaining, where an entire sector of an economy (e.g. supermarkets) could have minimum standards across all firms, rather than different standards for different firms (e.g. Countdown or New World). These labour conditions, such as wages, working hours and vacations, would be negotiated by multiple businesses and unions within their intended sector. Any union can initiate these negotiations, by having the support of either 1000 workers or 10% of that sector. If this level is not reached, negotiations are still possible if a “public interest test” is met where the sector has critical employment issues like low pay or limited bargaining power. Then ideally, negotiations succeed, improving working conditions. Naturally, the Council of Trade Unions (CTU) and First Union support Fair Pay Agreements, with the former’s president stating these signal “the biggest change to workplace laws in several decades” by setting “a more balanced relationship between working people and employers”.[10]

This does however beg the question of what to do if negotiations fail. Additionally, business groups like BusinessNZ and the Employers and Manufacturers Association (EMA) fear widespread strikes and firms being forced to acquiesce to unions’ demands, lowering firms’ bargaining power too much since they must then agree to the arbitration done by the Employment Relations Authority (ERA).[11] Opposition parties were scathing against Labour. ACT attacked the “undemocratic” Fair Pay Agreements as “compulsory unionism” that will be a “wrecking ball on the economy”, while National lambasted them for increasing “centralisation, regulation, bureaucracy” and government power.[12]

It is clear that Fair Pay Agreements will have substantial economic impacts and is accordingly controversial. Yet as above, media coverage focussed much more on the public sector pay freeze than Fair Pay Agreements.

This could be a mere coincidence. Or more likely, part of Labour’s political strategy.

Duncan Grieve of The Spinoff asks whether there is “a noble method to the political madness of the pay freeze”.[13] He opines that the two fastest ways to alleviate poverty are to raise welfare rates and raise wages of lower-income workers. Under the 2021 Budget, benefits will be raised by between $32 and $55 per week.[14] Meanwhile, the latter should occur given no pay freeze if below $60,000. Therefore, it makes sense to freeze higher-income workers in the public sector, to leave more funds for implementing these two measures.

Jon Johansson, political scientist, and former Chief of Staff to Winston Peters, cares less about economic numbers and more about polling numbers. He highlights the importance of focus groups on influencing the ruling party’s policies and their marketing.[15] Johansson agrees that Labour’s recent policies “smacked of political strategy”, and suggested they focus-grouped soft-National supporters who helped deliver Labour their majority of vote share and seats in 2020,[16] after voting for John Key in previous elections. These swing voters would supposedly tolerate Fair Pay Agreements and high spending in Budget 2021 by freezing public sector wages of stereotypical “Wellington pay-pushers”. Meanwhile, Labour should satisfy their base with the Fair Pay Agreements, trading them for the pay freeze. “Classic triangulation” is Johansson’s summary: satisfy the political left and right by adopting policies from both, and insulate themselves from both sides’ attacks.

This paradoxically appeared to have worked. One would think that after the announcement and ensuing media firestorm, Labour would have received at least a minor backlash in party support. Unions of teachers,[17] healthcare workers,[18] and Police and Corrections officers[19] all criticised the Government’s pay freeze. But the latest Newshub–Reid Research poll shows Labour actually rebounding back to having a majority of the country supporting them (52.7%) – conducted between 7 and 13 May (after the announcements on 4 and 7 May).

Party Vote intention
Margin of Error (maximum): 3.1%
Labour: 52.7%
National: 27.0%
Greens: 7.1%
ACT: 6.9%
Māori: 1.2%
Source: https://www.newshub.co.nz/home/politics/2021/05/judith-collins-allegations-of-maori-separatism-not-working-for-national-in-newshub-reid-research-poll

Conclusion

To summarise, the public sector wage freeze aims to:

Genuinely reduce the size of the debt, without expecting backlash
Allow funds to be used for raising welfare rates and other big spending in Budget 2021
Make Fair Pay Agreements tolerable to swing voters, by showing some fiscal restraint against bureaucrats
Neutralise FPA attacks from the right by distracting media with backlash from the left, securing swing voter support

Sources:

[1] https://www.nzherald.co.nz/nz/covid-19-coronavirus-public-sector-pay-freeze-no-increases-for-staff-on-100000/HZ3PYF6F2TCYOXQMFPA75TEROI/

[2] https://www.rnz.co.nz/programmes/the-detail/story/2018794549/pay-freezing-out-your-traditional-voter-base

[3] https://www.rnz.co.nz/news/political/442290/chris-hipkins-on-public-sector-pay-it-s-the-opposite-of-austerity

[4] https://www.investopedia.com/ask/answers/12/austerity-measures.asp

[5] https://www.rbnz.govt.nz/monetary-policy/inflation

[6] https://www.treasury.govt.nz/sites/default/files/2021-05/b21-at-a-glance.pdf

[7] https://www.nzherald.co.nz/business/fact-check-are-public-sector-salaries-higher/FAVMHLHJFD5VJJ4SW66CJSMPTY/

[8] https://www.scoop.co.nz/stories/PA2105/S00062/fair-pay-agreements-to-improve-pay-and-conditions-for-essential-workers.htm

[9] https://www.rnz.co.nz/news/political. Accessed 20 May 2021.

[10] https://thespinoff.co.nz/politics/08-05-2021/the-governments-fair-pay-agreements-plan-is-a-big-deal/

[11] https://www.nzherald.co.nz/nz/unions-vs-businesses-fair-pay-agreement-news-staunchly-divides-factions/HWQG7O76VMO5QHCSKQDOB5IAKM/

[12] https://thespinoff.co.nz/politics/08-05-2021/the-governments-fair-pay-agreements-plan-is-a-big-deal/

[13] https://thespinoff.co.nz/politics/12-05-2021/is-there-a-noble-method-to-the-political-madness-of-the-pay-freeze/

[14] https://www.treasury.govt.nz/sites/default/files/2021-05/b21-at-a-glance.pdf

[15] https://www.stuff.co.nz/national/politics/opinion/300306462/influencing-political-policy-and-the-triumph-of-marketing

[16] https://elections.nz/media-and-news/2020/2020-general-election-official-results/

[17] https://www.stuff.co.nz/national/education/300301094/educators-slam-three-more-years-of-pay-restraint-for-public-servants

[18] https://www.rnz.co.nz/news/national/441928/fears-kiwi-nurses-and-doctors-will-leave-nz-due-to-salary-freeze

[19] https://www.stuff.co.nz/national/crime/300300422/cops-prison-officers-slam-public-sector-pay-freeze-bombshell


Shift in Foreign Policy: New Zealand, Five Eyes, China and the Uyghur:

By Sara Khatau

New Zealand, though a small country, has gained a big reputation for being a moral superpower. In the aftermath of the March 15th terror attacks, the world celebrated New Zealand’s strong rejection of Islamophobia. New Zealand recently signalled a desire to assert its brand of value-based politics at the Christchurch call. However, there seems to be a growing discrepancy between our foreign policy and that of our Five Eyes allies: the UK, US, Canada and Australia.

Five Eyes is an intelligence-sharing alliance that emerged as a result of post-Cold War politics. Over the past decade, mounting Chinese influence has been a prominent concern for the Alliance, encouraging the formation of an Indo-Pacific strategy. Alliance members have condemned both China’s military actions in the South China Sea and their suppression of the democratic movement in Hong Kong. Recently, New Zealand’s response to the treatment of the Chinese Uyghur has had important international relation implications and has forced us to re-evaluate our foreign policy.  However, it appears that New Zealand is at a crossroad. Should we maintain a strong diplomatic relationship with the economic-powerhouse that is the Chinese state? Do we need to appease our traditional allies? How can we uphold our long-standing role as a human-rights defender?

Uyghur Human Rights Abuses:

International authorities have acquired credible evidence that implicates China in committing human rights abuses against the Muslim Uyghur in Xinjiang. Evidence includes ‘forced sterilisation, forced labour, and allegations of mass rape and torture.’[1] The Uyghur is a traditionally marginalised group; a black sheep among the typically monocultural and largely atheist population of China.

China’s actions have and continue to be criticised globally. Criticism has been particularly strong from Five Eyes members such as Britain, the United States and Canada, who have chosen to classify the human rights abuses as genocide.[2] Even smaller countries such as Lithuania and Belgium have spoken out despite the threat of retaliation by China. The Chinese government adamantly refutes responsibility and claims that any international criticism over their domestic matters is an unacceptable encroachment of Chinese sovereignty.[3]

New Zealand’s Response:

ACT politician Brooke van Velden recently filed a motion urging Parliament to consider whether China’s actions against the Uyghur’s can be described as genocide. The Uyghur community in New Zealand in an open letter has also called upon Parliament to take action and help “the fate of the 20 million Uyghur people suffering back home.”[4] While is clear that the Green Party supported the proposal, it is unclear where National stands, with Judith Collins refusing to make a definitive statement.[5]  Ultimately, within cross-party consensus the term ‘genocide’ has been removed from the debate.

Foreign Minister, Nanaia Mahuta, has condemned China for perpetrating ‘severe human rights abuse’ in the Xinjiang region, and noted the need for greater ‘transparency and accountability.’[6] In this manner, New Zealand has acknowledged the situation in Xinjiang yet has made the deliberate decision to use words carefully. However, the Labour government is being criticised for inappropriately “softening” the language to describe the long-term oppression of the minority Uyghurs.[7] New Zealand’s decision of refraining from characterising China’s actions as genocide makes us different to allies such as the United States, Britain and Canada. In fact, during a British parliamentary debate, New Zealand was condemned for succumbing to the Chinese government. Notably MP Bob Seely, denounced New Zealand’s position as an ‘ethical mess.’[8] Recently, a critical Australian 60 minute documentary denounced New Zealand as “New-Xi-Land”.

New Zealand’s policy response to the abuses in Xinjiang can largely be explained simply by one word — trade. As Judith Collins bluntly puts it, New Zealand’s trading relationship with China was the ‘elephant in the room’ influencing the discussion.[9] Currently, China is New Zealand’s largest trading partner: New Zealand exports to China amounting to $20.1 billion annually.[10] Prior to the caucus discussion of the genocide motion, the Trade Minister Damien O’Connor, did not beat around the bush noting the high stakes involved. O’Connor suggested that “it’s hardly rocket science” that China may respond financially if New Zealand was to overstep.[11] New Zealand has seen the financial impact Australia’s condemnation of China has resulted in, with calls to cancel the investment of the Belt and Road initiative with China. While New Zealand’s economy adapts to the new normal of a Covid-19 world, the decision to placate China is perhaps understandable. On the other hand, as Golriz Ghahraman noted, it is unsettling that New Zealand has chosen to “prioritise trade over mass torture and death.”[12]

The Bigger Picture: Foreign Policy Implications:

Putting aside the question as to whether New Zealand’s decision can be justified, our response points to potentially concerning problems in our diplomatic relationship with China. Prime Minister Ardern has herself recognised that New Zealand’s differences with China are becoming “harder to reconcile.”[13] New Zealand must now determine how to carve its national independence while maintaining a strong bilateral relationship with China. This delicate balance may not be easy to achieve but will be critical in determining our foreign policy and ability to take on a leadership role in the international stage.  

Some claim that New Zealand’s reluctance to challenge China has made itself stand out as the ‘weakest’ among the Five Eyes alliance. Alternatively, it may be suggested that by not conforming to the Alliance’s mandate, New Zealand has prevented itself from being cocooned with foreign policy that is designed for and more suitable for the larger alliance members such as the United States. Perhaps, by making independent decisions New Zealand can better serve its own national interests. Regardless of the conclusion reached, going forward it is clear that New Zealand must now make important and strategic decisions. Ultimately, an unfavourable decision may have the effect of landing New Zealand in an undesirable trade war with China or jeopardising our well-established relations with the Five Eyes alliances. It is clear that New Zealand wants to maintain strong diplomatic and bilateral relations whilst upholding its value based politics – the question is how. 

Sources:

[1] https://www.bbc.com/news/world-asia-china-22278037

[2] https://theconversation.com/with-the-us-now-calling-chinas-treatment-of-the-uyghurs-genocide-how-should-nz-respond-153717

[3] https://www.theguardian.com/world/2021/mar/09/chinas-treatment-of-uighurs-breaches-un-genocide-convention-finds-landmark-report

[4] https://our.actionstation.org.nz/petitions/open-letter-let-s-show-compassion-to-the-uyghur-community

[5] https://www.rnz.co.nz/news/political/441755/uyghurs-trade-minister-warns-of-genocide-declaration-repercussions-from-china

[6] https://www.beehive.govt.nz/release/joint-statement-human-rights-abuses-xinjiang

[7] https://www.nzherald.co.nz/nz/labour-has-genocide-term-removed-from-debate-over-uighur-abuses/GSMKN3WJ42JANPUNXF37XUN52M/

[8] https://our.actionstation.org.nz/petitions/open-letter-let-s-show-compassion-to-the-uyghur-community

[9] https://www.nzherald.co.nz/nz/leaders-of-labour-and-national-voice-caution-trade-concerns-over-declaration-of-uighur-genocide-in-xinjiang-china/FCHAKADBGIIF65O56E7DEQ57RU/

[10] https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/nz-china-free-trade-agreement/key-facts-on-new-zealand-china-trade/

[11] https://www.newstalkzb.co.nz/on-air/early-edition/audio/paul-buchanan-parliament-should-follow-uns-lead-on-labelling-of-chinas-treatment-of-uighurs/

[12] https://www.theguardian.com/world/2021/may/04/new-zealand-draws-back-from-calling-chinese-abuses-of-uyghurs-genocide

[13] https://www.stuff.co.nz/national/politics/125004384/jacinda-ardern-says-differences-with-china-are-becoming-harder-to-reconcile

Blog | Experts on Housing Policy Reform

Property prices: Lockdown sees growth rate decline in 13 New Zealand cities  | Newshub

On March 23rd the Government announced a package of policies designed to improve housing affordability and slow down the rapidly increasing price of property. We’re here to break that down and see what the experts think.

What is the government actually trying to accomplish?

We need to firstly define what the government sees as the goal of these policies and the housing market at large. New Zealand has a housing income-to-price ratio of 6.8 and is considered to be ‘extremely unaffordable’ – particularly in Auckland where that ratio is 10.0. However, it isn’t actually a goal of the government to make a big change to this.

Prime Minister Jacinda Ardern noted in December that property is the primary asset of most New Zealanders and that she wants “sustained moderation” of prices over time. Kiwis don’t expect continuous rises in the price of typical assets but they do with property. She would therefore like to see 4% rises in property values accompanied with 5% rises in wages. This would make house prices consistently increase but not allow them to become any more unaffordable in real terms.

So instead the goal of these policies is to blunt not reverse the recent rises in property values, rises which the PM has called unsustainable.

However, the drastic rise of the housing market has been such that even if we did see a fall in house prices with these policies, even something as sharp as 10%, it would only eliminate house price gains since November.

So what is actually in the package?

The Prime Minister’s stated objective with this policy package is to “both bring down the heat and the demand but also increase the number of houses being built in New Zealand.” The policies are primarily in three areas:

  1. An expanded tax;
  2. A new fund; and
  3. A change to what is taxed.

Firstly, the bright-line test will be extended from 5 to 10 years. This means that an existing property bought and sold within 10 years of being purchased will be subject to a capital gains tax and any profit made on the sale of the property will be taxed. The tax doesn’t apply to your primary residence, inheritance, or a new build. Criticisms have been levied at the extension as a “capital gains tax in disguise.” Interestingly, the Treasury suggested that they extend the test to 20 years.

Secondly, a 3.8 billion dollar fund has been proposed for councils and developers. This fund aims to provide sore-needed infrastructure to better support housing construction. Political restrictions, lack of funds, and lack of ability has long been a thorn in the side for local councils, who can now hope to get the construction ball rolling.

Thirdly, they are eliminating the ability of house owners to deduct interest rates from their income tax. This has probably been the most talked about and most misunderstood change. The way it previously worked is that you only paid tax on your rental income minus the interest you paid on your property. For example, if you received $1000 a week in rent, but paid $400 in interest, you would only pay tax on $600. This will soon start to be phased out, and landlords will instead have to pay tax on the entire rental income. The intention as the PM said is to “tilt the playing field towards first home buyers” who usually occupy their own homes and “away from the rampant demand we’ve seen from speculators.”

There have been criticisms from professional landlords regarding the third policy as it will likely reduce their profitability and force them to sell some of their properties. However, it has been pointed out that that is the actual objective of the policy. Landlords have also said that this change could actually lead to landlords increasing rent to cover their increased expenses.

Will these policies work?

This all depends on what you think the objective should be. If you just want a slow-down in house prices, then it seems so. But, if you want it to be more affordable to buy houses, probably not.

We asked Dr. Ryan Greenaway-McGrevy, Economist at the University of Auckland, as to his thoughts on these policies. He believes that the property price increases we have been seeing will be eased as more houses come on the market. Unfortunately, economics is far from simple. He doesn’t expect prices to go down due to house prices in NZ being “downward sticky,” meaning that once property prices go up, they usually don’t go the other way. The 17% increase in house prices in the last 12 months means that prices going down would be a Herculean task.

ASB’s Chief Economist Nick Tuffley stated after the announcements that it would “still mean annual growth in 2021 of around 9 to 10 percent, compared to our view of 15 percent before the housing announcement”. (NZ Herald). However, after 2021 housing prices are forecast to rise 3-5 percent annually – forecasting a definite improvement to the status quo.

Every policy has winners and losers, and Ryan suggests that the winners are those on their way to purchasing their first home. Their gain will come at the expense of wealthier Kiwis. Overall benefit comes in the form of higher tax revenue, with Inland Revenue estimating an additional $650 million annually in tax from just the bright-line extension. There hasn’t been a statement about if the additional revenue will be ring-fenced for anything in particular, but Ryan suggests it will likely be used pay down debt, and mean that future New Zealanders and young people won’t need to pay back as much in the future.

But what about those of us who aren’t buying a house and instead are renting?

Even after all these much discussed policies, the housing market will likely remain ‘extremely unaffordable’ for a significant time – which unfortunately doesn’t look like it’s going to change. So how will renters be affected by these changes?

Unfortunately, it is hard to say of any definitive effect on rental prices. Prices usually change because either supply or demand shifts, which Ryan says likely won’t happen. “In order for market rents to go up, there must be a decrease in supply of rentals, like if landlords sold their properties to owner-occupiers”. But he also points out that this might all be a wash, because as rentals go off the market as they are sold, so do renters as they move into houses they now live in.

Ryan does say that rental prices could go up as landlord expenses go up. Landlords may seek to increase rents that are below the market rate, i.e. any properties with rents below what they could be charging. He notes the following: “many rentals are purposely under-priced as a screening mechanism for landlords to ensure they have good tenants.” We may therefore see rents going up in certain properties, especially with long-term tenants.

Well if all that’s going to happen, what do the experts think we should or could have done instead?

Ryan suggests three things to make housing more available and affordable:

  1. Reduce demand by making it harder to get a large loan;
  2. Increase supply by making it easier to build;
  3. Introduce a land tax so there is a larger incentive to build.

“Given the sheer enormity of the housing affordability problem I also think demand-side policy is called for. Here I favour constraints on credit to investors buying existing structures… loan to value ratios (LVRs) and alike.” This means reducing the size of mortgages that people can get to buy houses, meaning they’d have to have larger deposits and can’t use as much credit to buy, while still letting people borrow more money to build new houses. “I think they can be strengthened further, by, for example, requiring only cash deposits” This means that when the value of one property goes up, the owner can’t use that increased equity as a deposit to buy another house. They have to use actual money as a deposit, not just capital gain.

Further, Ryan says “I would further restrict LVRs on investors to require a 50% minimum deposit and preclude housing equity from being used. But I would keep a 20% deposit for owner-occupiers.”

On the supply side, Ryan suggests that “relaxation of land use regulations and RMA reform” would allow the construction of more housing. This would make it easier and cheaper to build while making it simpler to build in more places and build up in other areas more intensively. The other reform Ryan recommends and which he has mentioned in the past is a tax on the unimproved value of land. He says the tax “disincentivises land banking and land speculation by making it more expensive to sit and wait for prices to rise before developing”. A theoretical example could be two sections on the same street, one with an apartment building on it, the other an empty lot. The unimproved land value is worth the same, so a land tax would mean that each year they both have to pay the same amount of tax, but one makes a lot of money off their building while the other has no income. This creates an incentive for the property owners to make their land productive and get something out of it, rather than waiting on capital gain. Ryan suggests that this would lead to a larger incentive to build more houses being constructed, especially in high-value but underutilised areas. Think of the inner suburbs of Auckland that are close to the city, but have large sections and only a single dwelling.

What’s next for New Zealand then?

There is always discussion to be had on both sides of the aisle as to what the objective of housing policy should be and how it should be achieved.

However, politics will be politics at the end of the day – parties will only do what they think they can get away with. Political realities often mean that the ‘sound’ economic policy is not the winner of the day.

Time will tell how these new changes actually impact on the housing market. Until then, us Generation Z’ers have to keep our fingers crossed!

DELEGATE APPLICATIONS FOR 2021 ARE NOW OPEN!!

APPLY TO BE A DELEGATE HERE

The Public Policy Club has some amazing initiatives planned for 2021, and we’d love to give our wonderful members the opportunity to be involved! There are THREE distinct roles that you can apply for: a High Schools Coordinator, a Content Creator, or a Competitions/Event Coordinator

High Schools Coordinator

Tertiary Coordinator

Our tertiary team delivers our monthly Political Forum that features a topical and interesting political issue. The Political Forum is a space for people to have open and informed dialogue about different policy issues. This programme will be overseen by amazing Tertiary Leads, Phoebe Cettina and Rory Wilkinson! Check out our exec profiles here to see a little bit about them. As a Tertiary Coordinator, you will work closely with the tertiary leads in producing the political forums. You will contribute to topic ideas, research, and the delivery of the discussions! Check out the poster below to see what you could be contributing to:

High Schools Coordinator

The high schools team will be delivering educational and interactive civics workshops primarily in low-decile high schools. This programme will be overseen by our awesome High Schools Leads, Nandini Singh and Tarik Hodzic! Check out our exec profiles here to see a glimpse of the Co-Leads you may be working alongside! We’re aiming to improve youth engagement with politics, and are looking for people with a passion for educating others and working alongside other youth.

Content Creator

The content team will create engaging and thought-provoking articles and media for the PPC content website and Facebook page. This may also organise crowdsourcing content from other university groups. We have some exciting initiatives lined up – such as collaborations and a potential podcast, so if this sounds like something you want to be a part of, the content team is for you! You will be led by this year’s two fantastic Content Leads, Paul Simperingham and Nick Howell – check out the exec profiles here to see a bit about them!

Below is a peek at some of the interesting articles you could end up writing as a content creator!

Competitions/Event Coordinator

We have three or four competitions planned for the year, a couple in each semester. Our first competition in semester 1 is a Policy Brief Competition, with semester 2 yet to be confirmed. Furthermore, we also have some amazing events lined up for the year such as our Alumni Night, events in Politics Week , and annual Baby Back Benches.

You will work with this year’s wonderful Competition Co-Leads, Lily Paterson and Ryan Choo – whose exec profiles you can check out here! Your role will be to assist our Competitions Leaders by:

  • Researching interesting and topical events to set the issue for the competitions
  • Developing materials as needed
  • Organising certificates for winners
  • Helping on the day with physical competitions

You will also work on our bigger events by assisting our Executive Team by:

  • Getting in touch with potential speakers and MCs
  • Helping organise room/venue booking
  • Organising necessary material, such as printing
  • Organising catering, prizes and audience engagement
  • Liaising with other stakeholders, such as other uni clubs

Delegate applications will be CLOSING at 11:59pm MONDAY 5TH APRIL

APPLY TO BE A DELEGATE HERE