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A strange trend is developing when it comes to both of our major parties "selling" their economic policies to the public. Namely that they have begun to play us for fools. Neither Labour nor National have delivered investments in infrastructure that have remotely kept in step with the massive increase in the population of New Zealand, which has leapt by around 1 million people these past two decades, from 4 million to 5 million. The latest announcements of both of our major parties are empty since they are in breach of a general legal principle, namely that in democracies such as ours, no parliament may be bound by a predecessor, nor bind a successor.

Take for example, National's recent infrastructure plans that include a second harbor crossing for Auckland beginning in 2028, a new rail line from Avondale to Southdown commencing in the 2030s and a proposed Kaimai tunnel, happening sometime next decade. Since there is no certainty as to which political party will be in office at these times, it is simply not possible for the next government, which may only have a three year term of office, to commit the country to these far-in-the-future projects. The only thing our next government can do is to start projects immediately upon election and hope to get them underway to such an extent that they will not be cancelled by future governments.

Both Labour and National are toying with the public over this issue, which is fast becoming a national crisis, with congestion ranking as one of Aucklanders' biggest bugbears. Labour cancelled a bunch of National's infrastructure projects when they got elected. National will likely cancel a bunch of Labour's favourite infrastructure projects should they gain power.

What's at the heart of this infrastructure dysfunction? The answer seems to lie in the sheer length of time that it is taking for our governments, whether National or Labour, to execute projects quickly. The lengthy planning process and extraordinarily drawn-out construction times have meant that infrastructure projects run across many parliaments, whereupon they can easily be shelved should they not accord with the ideology of the newly elected politicians.

Today, Statistics NZ reports that "the consumers price index (CPI) fell 0.5 percent in the June 2020 quarter as the COVID-19 global pandemic saw cheaper petrol and falling hotel and motel prices". Should there be further drops in the CPI in the context of an Official Cash Rate stuck close to zero percent, then NZ could start to experience rising real interest rates. (The real rate equals the nominal rate minus the inflation rate). Rising real rates at a time of economic weakness can be bad news for the economy. Since they mean that the real cost of borrowing is rising (after adjusting for inflation).

Last year, I wrote an article arguing that the 50 basis point OCR cut by the RBNZ in August was a mistake. One of the reasons was that the cut took the OCR so close to zero that if there was a recession in the near future (which did end up eventuating) then the RBNZ would be unable to cut rates much further. Which is the situation NZ finds itself in now.

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Robert MacCulloch

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