Pro Live: Budget ‘leak’ sparks SSC investigation
The State Services Commission is to investigate Treasury Secretary Gabriel Makhlouf's conduct over the Budget leak. Jacinda Ardern said she planned a "not substantial" cabinet reshuffle before June 27. The Government announced more detailed plans for a three percent digital services tax on Google, Facebook, Amazon, Airbnb, Uber and others.
Also, Fletcher Building revealed another profit warning. Global stocks fell sharply on fears Trump's threat to increase tariffs on Mexico and India would further slow global trade and growth. Tech stocks were hit hard by growing fears of anti-trust probes in America to break their monopolies. The Reserve Bank of Australia cut its official cash rate to 1.25 percent.
A2 shares fell 10 percent after China announced plans to bolster domestic producers of infant formula with tax breaks, easy loans and overseas funds to help them lift their domestic market share from 47 percent to 60 percent, the AFR reported. A2 is a major exporter of infant formula to China through unofficial online channels known as 'daigou'.
This is where locals or Chinese visitors buy products off the shelf in Australia or New Zealand and then export them back into China through e-commerce websites.
5.35pm - Rate cut - The Reserve Bank of Australia announced it had cut its official cash rate by 25 basis points to 1.25 percent. This was its first rate cut in three years and was widely expected after the bank indicated late last month that the local economy was slowing because of falling house prices and inflation remained below its target. New Zealand's official cash rate was cut last month by 25 basis points to 1.5 percent.
"Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy," the bank said. "It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target," it said.
5.05pm - State Services Commission to investigate Makhlouf conduct -The State Services Commission will inquire into the actions of Treasury Secretary Gabriel Makhlouf after last weeks’ Budget debacle.
The SSC says the investigation will look into Makhlouf’s public statements about the causes of the unauthorised access of Treasury’s systems, the advice he provided to Finance Minister Grant Robertson and his decision to refer the matter to police.
It later emerged that the “hacked” budget information was easily accessible on Treasury’s website, leading to widespread calls for Makhlouf to resign.
Makhlouf informed Robertson on Tuesday night that he had referred the matter to the police on the advice of the NCSC. Robertson pointed the finger at the Opposition, asking National to stop releasing Budget information. Leader Simon Bridges used this to allege his party had been inappropriately smeared with accusations of hacking.
By 5am on Thursday Morning, Treasury was forced to admit the “hack” had in fact been someone repeatedly using the search bar on Treasury’s website. Over the week, Robertson had been forced to quietly walk-back his support of Makhlouf, saying he acted on the advice he was given.
The SSC is already investigating Treasury’s “policies, systems and processes” for Budget Security, which Makhlouf himself requested.
3.35 pm - Brace for it - Prime Minister Jacinda Ardern told her post-cabinet news conference on Tuesday that she would make a "not substantial" cabinet reshuffle by the end of the June Parliamentary sitting period ending on June 27.
Ardern had previously indicated a post-cabinet reshuffle, but had not given a timeframe. Unresolved positions include the positions of Meka Whaitiri, who was removed from her role as Customs Minister outside cabinet in September last year after a bullying investigation. Communications and Broadcasting Minister Clare Curran resigned from cabinet last September.
Transport and Housing Minister Phil Twyford's joint role is seen as under pressure. Ardern would not give more detail, other than to say: "It's not going to be a substantial reshuffle.
Elsewhere in the political economy today, Former BNZ chair Kerry McDonald wants John Key to resign as ANZ chair over its breach of capital rules. The Reserve Bank of Australia is expected to cut interest rates later today.
Meanwhile, China rejected an olive branch from America ahead of the 30th anniversary of the Tiananmen Square massacre at the key Shangri-La security dialogue over the weekend. Newsroom's Sam Sachdeva was there in Singapore and filed this report.
Elsewhere in business and the global economy, Fletcher Building warned of lower profits from its Formica business, which it has sold for NZ$1.185 billion. Fletcher shares fell 1.7 percent and the wider NZX 50 was down the same by mid-afternoon. Meanwhile, Apple announced it was phasing out iTunes and replacing it with Apple Music, Apple TV and Apple Podcasts.
Financial markets are nervous after US President Donald Trump tweeted a threat to impose a 25 percent tariff on Mexican imports from October 1 unless Mexico stopped immigrants illegally entering America. Shares in carmakers slumped because Mexico is the largest source of car and auto part imports. Trump also increased tariffs on India and Turkey by removing them from a tariff exemption programme.
Shares in Facebook, Google and Apple are falling on fresh signs of anti-trust inquiries by US regulators.
Also, US bank economists warned of a recession within nine months because of slowing global trade. Long term bond yields have fallen below short term bond yields, which is seen as a sure indicator of a coming recession. The New Zealand 10 year bond yield fell to a record low 1.67 percent by early afternoon trade.
2:00 pm - 3 percent digital services tax? - Finance Minister Grant Robertson and Revenue Minister Stuart Nash announced the release of a discussion paper on options for a digital services tax, including either waiting for a broad-based OECD solution or going ahead with our own Digital Services Tax of three percent of revenues.
The paper referred to the tax applying to the likes of Uber, Airbnb, eBay, Facebook, Google, Youtube and sellers of data about users. IRD estimated cross-border digital services revenue at around $2.7 billion per annum, which meant the tax could raise between $30 million and $80 million per annum.
11:30am - Study boosted - Minister for Social Development Carmel Sepuloni has announced a $17.1 million boost for New Zealand’s largest study of child development, ‘Growing Up in New Zealand’. A fourth round of the ministry’s $750,000 Children and Families Research Fund has also been opened for research projects that explore and analyse the data gathered in the GUiNZ study. The research funding round closes Friday 26 July.
10.30 am - Setting for summer - Retirement village operator Summerset announced to the NZX it planned to invest $290 million to build its first retirement villages in Whangarei and Cambridge. It said this would bring Summerset’s land bank up to 12 properties across New Zealand, with another 26 villages already open or in development.
Both villages would have over 200 independent living homes, including two and three-bedroom villas, and around 70 serviced apartments. It also said both would also have a ‘continuum of care’, providing rest home and hospital level care, and a memory care centre for people affected by dementia.
9:20 am - Profit downgrade - Fletcher Building announced to the NZX it had lowered its EBIT forecast range for the current year to June 30 to $620 million to $650 million from its previous forecast range of $650 million to $700 million. That was due mostly to a $30 million lowering of its forecast earnings from Formica, which it is selling for NZ$1.185 billion.
Fletcher shares fell 1.7 percent, but that was no more than the wider market, which was down in line with global trade and growth concerns.
CEO Ross Taylor said Fletcher would tell investors what it would do with the proceeds from the Formica sale at its investor day on June 26.
9:10 am - Sliced and diced - Apple announced it would replace iTunes with Apple Music, Apple Podcasts and Apple TV, along with a host of new privacy measures, BBC reported.
My pick of the links today
Stuff (Stacey Kirk) PM holding judgment on Treasury boss
RNZ (Max Towle) TOP down? Can The Opportunities Party survive in-fighting and mud-slinging?
New York Times: Trump Administration Considered Tariffs on Australia
New York Times: Boeing Built Deadly Assumptions Into 737 Max, Blind to a Late Design Change
Longer reads for the weekend
Australia's New Daily: Stimulating the economy requires more imagination – not another interest rate cut
Vox: California is cracking down on the gig economy
New York Times: A ‘Bridge’ to China, and Her Family’s Business, in the Trump Cabinet - Elaine Chao has boosted the profile of her family’s shipping company, which benefits from industrial policies in China that are roiling the Trump administration.
New York Times: After Tiananmen, China Conquers History Itself. Young people question the value of knowledge, a victory for Beijing 30 years after the crackdown on student protests
New York Times: Stephen Colbert on the political targets of satire.
Earlier in the 8 Things email for subscribers...
This morning in the political economy, Budget 2019 remains at the centre of the debate, although it has moved on from the 'hack that wasn't a hack' to the detail underneath the Government's pivot to focusing on 'Wellbeing' rather than just GDP.
The $1.9 billion package for mental health spending and the shift to indexing benefits to wages from prices were welcomed, but the relative lack of action around housing, transport and productivity reform isn't being ignored. Check out David Williams' scene piece from a Winston Peters post-Budget address in Christchurch on Friday.
Blockbuster 2020? - I was on The Nation's panel discussion on Saturday morning with new Sunday Star Times Editor Tracy Watkins and Iron Duke Partners CEO Phil O'Reilly. We all agreed next year's election year Budget would be more of a blockbuster of spending on some of those other issues, given there is plenty of leeway within the Governnment's new 15-25 percent net debt range. This Budget's forecasts saw it dropping under 19 percent by 2023. Going to the upper end of the range next year would potentially give $15 billion of leeway for investment in infrastructure.
Key resignation call - Meanwhile, the debate over bank capital is bubbling up into the public domain. Former BNZ Chairman Kerry McDonald wrote to the Reserve Bank last week to express his dismay over what he saw as a weak punishment for ANZ's breach of rules about calculating its own capital levels. McDonald called on ANZ New Zealand Chairman John Key and the rest of the board to resign over the breach, RNZ reported.
This is a long-held concern for McDonald. He wrote a piece for Newsroom in May 2017, citing weak local governance by both the banks' boards and the Reserve Bank ,and an unfair system that penalises local savers in any crisis. The whole debate about bank capital levels has failed so far to burst out into the open of the main news bulletins or the newspaper front pages, but it's getting closer.
The Reserve Bank said last week it thought banks had only passed on 15 basis points of its 25 basis point cut in interest rates to borrowers. Another failure by banks to pass on more rate cuts or a sign of a lending strike for farmers and small businesses would push it out into the open in a politically difficult way for both the Government and the banks.
June 4 - Today is the 30th anniversary of the Tiananmen Square massacre and it remains an ugly milestone for China and anyone with diplomatic relations with China. It's a very touchy subject that most people in China know little about because of increasingly tight censorship of 'June Fourth Incident'.
Here's a piece from Anne-Marie Brady on the day on Newsroom, and the issue cropped up at the Shangri-La dialogue in Singapore over the weekend, where Sam Sachdeva went to cover the event for Newsroom.
Unrepentant and pugnancious - China is in no mood to back down to what it sees as America's trade and security threats. Chinese Defence Minister Wei Fenghe was asked about the 'June 4 Incident' and his response was spiky, Sam reported yesterday. "How can we say China didn’t manage the Tiananmen incident properly? "That incident was political turbulence, and the central government took measures to stop the political turbulence."
The Chinese Defence Minister, the first to appear at the key regional defence talks in a decade, went on to reject an olive branch offered by America's Defence Secretary.
Overseas, over the weekend, Roy Morgan reported Australian business confidence surged after the surprise re-election of the Liberal-National coalition, which may (or may not) help revive the sagging Australian economy and make the Reserve Bank of Australia think twice later before cutting the official cash rate to 1.25 percent, as most expect.
1. US olive branch pushed away by China
Newsroom Pro's political and foreign affairs editor Sam Sachdeva has been in Singapore for the Shangri-La Dialogue.
He writes that the anxiety over US-China conflict that loomed over the proceedings was initially soothed by an almost-conciliatory tone from the US - but ramped up again by a pugnacious response from China.
Chinese Defence Minister Wei Fenghe, the first Chinese minister to attend Shangri-La in nearly a decade, was unrepentant as he defended China’s activities in the South China Sea and criticised what he said were “people who try to make profits by stirring up trouble in the region”.
Of a potential trade war, he offered: “If the US wants to talk, we will keep the door open – if the US wants to fight, we will fight to the end.”
See Sam's full report here on Newsroom Pro.
And for more about where China is 30 years on from the Tiananmen Square uprising, see this great piece from Ian Buruma on Newsroom.
As other countries threw off communism, China was seen as an outlier - but lliberal capitalism has since emerged as an attractive model to autocrats all over the world - the Chinese just got there first, he says.
See his full comment piece here.
2. Could benefit indexation become a 'super' problem?
Grant Robertson has indexed benefit rates to wages, but without a long-term plan for real stimulus and revenue gathering, he risks creating a crisis like superannuation, writes Thomas Coughlan in the wake of the first Wellbeing Budget.
Treasury’s forecasts over the next four years suggest it has enough money to pay for the extra cost of indexation, but that doesn’t mean it always will.
Long-term forecasts from the Tax Working Group showed a looming budget deficit of roughly 1.2 percent of GDP by 2030 and a massive 4 percent of GDP by 2045 as superannuation and health costs both become too great to be funded by existing revenue. Add to this an unfunded increase to benefit rates, and you have a problem, Thomas writes.
See his full piece on Newsroom Pro.
3. Risk taking girls and the gender pay gap
The Detail, Newsroom's daily podcast co-production with RNZ, took a fascinating look at conclusions on gender and pay that a US researcher came to after studying a unique matriarchal ethnic group in China. Read and listen more here. iPhone users can subscribe here and Android users can subscribe here.
4. Where only trolls and the misshapen go
In Newsroom's new literary review section, Reading Room, Finlay Macdonald looks at Margie Thomson’s deft account of Matt Blomfield’s seven-year defamation battle with WhaleOil blogger Cameron Slater.
He writes that, as he read, his thoughts kept returning to a favourite formulation of the old adage about choosing your battles carefully, from an American businessman describing his experiences dealing with now-dead Australian tycoon Alan Bond: “Doing business with Bond is like wrestling a pig in shit,” he said. “You both get covered in shit, but the pig loves it.”
Read his full review here on Newsroom.
5. $25m to hold back people smugglers
The Wellbeing Budget contained a surprise immigration initiative, aimed at stopping people being smuggled to New Zealand by boat. This isn’t a new risk, so Laura Walters asks why the big boost now?
The $25 million of spending over four years was a surprise new initiative in the 2019 Budget, and seemed more in line with what an Australian budget initiative might look like, with its anti-'boat people' rhetoric.
Laura digs into the thinking behind it in her piece on Newsroom Pro.
6. Coming up this week...
Stats NZ releases its Overseas trade indexes for the March 2019 quarter at 10.45am.
Parliament is not sitting this week.
The Reserve Bank of Australia is expected to cut its official cash rate by 25 basis points to 1.25 percent at around 4.30 pm NZ time.
Stats NZ releases its goods and services trade by country figures for the year and its local authority statistics for the March 2019 quarter at 10.45am.
The Transport and Infrastructure Select Committee holds a public hearing of the Racing Reform Bill
Stats NZ releases its selected services survey for the March 2019 quarter at 10.45am.
7. My pick of the links
Tim Hazledine (Noted): Budget 2019: Why the government is handling our wellbeing the wrong way
Jane Clifton (Listener): There’s more than one elephant in the room in Budget 2019
Jo Moir (RNZ): Budget 2019: Did Labour really deliver a new approach?
Tracy Watkins (Stuff): Another big Budget - but still no silver bullets
Simon Wilson (Herald): Grant Robertson and the Holy Grail
Collette Devlin (Stuff): Government insists Australia not behind Budget funding boost to stop people smugglers
Tom Pullar-Strecker (Stuff): Social Development Ministry gets $137m to stabilise ‘at risk’ IT systems
Alex Braae (Spinoff): ’A beacon for the world’: What foreign media is saying about the Budget
Anuja Nakdarni (Stuff): Billionaire Richard Branson wants the world to follow NZ’s 2019 Wellbeing Budget
Audrey Young (Herald): Simon Bridges has a very good week but it could have been brilliant (paywalled)
Tracy Watkins (Stuff): Madness on Molesworth Street - has politics reached peak crazy?
Herald: Treasury hacking: What does Makhlouf’s new boss say about Budget ‘hack' allegations?
Harrison Christian (Stuff): Police and Corrections staff caught misusing their offender databases
RNZ: Fears vital network of midwives will disappear
Jeremy Rose (RNZ): Media reports’ toxic side effects
RNZ: Minister intervenes in teachers’ pay dispute, calls forum
Rob Stock (Stuff): Putting a dollar figure on road toll
Rob Mitchell (Stuff): Road rage and bikelash: The battle for our city streets
Alice Peacock (Herald): Auckland Transport spent $12,000 of ratepayer money on influencers in past year (paywalled)
RNZ: Wellington’s decade-old car parking policies up for review
Matthew Theunissen (RNZ): Ex-BNZ chairman says Sir John Key should resign from ANZ
Todd Niall (Stuff): Auckland social housing developers say building will stop because of government funding vacuum
Lisette Reymer (Newshub): Desperate times, desperate tenants in Tauranga housing shortfall
RNZ: New Zealand tourist tax legislation passes in Parliament
Mike O’Donnell (Stuff): Government departments need to front up with their strategies
Peter Hartcher (SMH) China shows it has no regrets over the Tiananmen slaughter
Kate MacNamara (Irish Times): Incoming Central Bank chief may face action from NZ watchdog
8. Two fun things...
Budget week is always exciting and stressful in equal measure for press gallery reporters with a strong interest in the political economy.
So Thomas Coughlan has been relaxing with a friend over the weekend. I had no idea pigeons could be pets. I'm guessing the maintenance is easy and there's no need for holiday care.
It's even wearing a nappy. Made of Star Wars merch cardboard. It's a thing. Here's the video.
And for some more conventional wildlife fun, here's a National Geographic video of a newly described Mexican firefly species flickering in unison. It is artful. There is a wafty white dress, a lantern and some amazing drone work.
Bernard, Lynn and the Newsroom Pro team.
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