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Today NZ finds itself in the midst of a comedy show with an economics theme. Earlier last week, an assortment of commentators, including a former National Party Minister of Finance, jumped on the Reserve Bank of NZ and blamed high house prices on low interest rates and Quantitative Easing. The Governor responded by saying that he was innocent - the problem was actually politicians who lacked "appetites for accepting policy recommendations".


Today the Prime Minister is in the headlines for turning the blame onto you and me - apparently for blocking the necessary reforms. She is quoted by TVNZ as saying "I would say that actually the appetite for some of these policies also needs to come from the public ... We've tried three times now to do things that specifically sit in that taxation category and there hasn't been wide support for that". She seems to be inferring that a capital gains tax would have helped solve the problem but there wasn't support for it from we, the people.


Since everyone is heatedly blaming everyone else, lets join in (!) The two people who are probably MOST to blame for housing affordability problems are former PM John Key and former Finance Minister Bill English. And they seem to have escaped completely unscathed in this debate (!) That is, the root cause of house price inflation in Auckland is the ramp up in the population of NZ by around 1 million people, from 4 to 5 million, over the past 17 years.


The Resource Management Act (RMA) is not to blame, in the sense that it has been in place for over quarter of a century, having been passed in 1991 by a National government. It was largely designed by Deputy PM Geoffrey Palmer under the previous Labour government. In other words, to the extent that regulations have made the process of building houses slow and expensive, little has changed. What has changed is the dramatic increase in numbers of people needing a house over the past decade.


It was John Key and Bill English who oversaw the huge rise in population but did next to nothing to accommodate the extra numbers. It's very strange how the media are running headlines blaming high house prices on you, me, the cat next door, the RMA, the Reserve Bank Governor and all and sundry and oddly not focusing on the Chief Suspects.


For sources, see:

https://www.newshub.co.nz/home/politics/2020/11/jacinda-ardern-partly-blames-new-zealand-public-for-housing-crisis-chloe-swarbrick-reacts-with-scathing-emoji.html


https://www.nzherald.co.nz/business/steven-joyce-focus-on-growth-not-the-property-bubble/LYWRKHDDPAFPBQ6G4XLK6SUQAQ/

For the past eight years, those of us pushing for fundamental changes to how NZ institutions are designed, especially welfare, have been left frustrated by a political class who see virtue in changing very little. It's odd that in the sporting arena, Kiwis are thrilled and awed by radical innovations, such as the design of our America Cup boats, which now go at speeds many multiples of the ones just a few years back, whereas when it comes to major upgrades to speed up the economy, our politicians run for the hills.


I just wrote an article for the NBR on this theme (see below, behind a paywall). It included the lines: "By not facing up to our past, our political leaders have become unable to chart a path to the future. National has rarely ever been a party of change. Labour once was, although has now lost its revolutionary zeal in favor of a 'steady-as-she-goes' doctrine. The election debates made clear that its policies to fix poverty and inequality center largely on tweaks to the benefit system and minimum wage".


Ironically, today the Attorney General, David Parker, told Stuff News that "We were clear - no capital gains tax, no wealth tax ... We didn't say that we wouldn't tinker with the detail of existing taxes". Maybe Labour have discovered what National did years ago - namely that tinkering plays well at the ballot box. The problem is, its not just tax reform, its practically everything from health to education to retirement and our unemployment benefit system.


Out of all the explanations that have been given over the past several decades for our slow productivity growth, my primary suspect is culture. People have to want it. In the US, they have the American Dream, which is the belief that regardless of background, an individual who tries hard and is talented can achieve amazing success, with new inventions and progress for all of humanity as by-products. From my dealings with our politicians, its not clear that they believe in a Kiwi equivalent.


For sources, see:


https://www.nbr.co.nz/opinion/what-path-will-nz-be-next-three-years


https://www.newshub.co.nz/home/politics/2020/11/housing-bright-line-tax-on-property-actually-an-income-tax-labour-mp-david-parker.html


 

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