On the token moves on climate change and interest rates

Yesterday, a visiting Martian would reasonably conclude that New Zealanders takes the threat of inflation a lot more seriously than climate change. To all outward appearances, the Reserve Bank has been set up to act independently of the wishes and whims of government and/or the short term self-interests of the corporate sector. It has an independent governor working in unison with an expert advisory committee recruited from within and beyond its ranks, and it has the lever of interest rates (among other powers) to achieve its targets. Yesterday, the RBNZ wielded its power to cut interest rates for the first time in two years, down to 1.5% - in the hope this would help keep economic growth afloat in the face of disturbing domestic and international trends. Around the world, central bankers look these days like paper tigers - but at least the RBNZ pulls its levers from behind an outwardly impressive curtain of policy settings, goals and delegated powers.

As New Zealand First was bragging yesterday, it has ensured that the fledgling Climate Change Commission will not be granted statutory independence in the manner of the Reserve Bank. Thanks to NZF’s efforts, action on global warming has been reduced to a shadow of what the Greens originally envisaged. Yesterday, the government unveiled legislation to (a) set up a Climate Change Commission and (b) enshrine greenhouse gas emissions reduction targets of zero for carbon dioxide by 2050, and a 10 percent reduction for methane emissions by 2030, increasing to cuts of 24% to 47% by 2050. In the meantime, the Commission will help devise five yearly carbon budgets and monitor the progress New Zealand is making towards reducing its greenhouse gas emissions, as well as issuing regular risk assessments of climate change.

Crucially, these are to be aspirational targets and recommendations only. The Commission lacks the policies to help achieve them, the powers to enforce them, the penalties to punish non-compliance, and the independence to over-ride the opposition from competing interests. Instead of reporting to Parliament, the Commission will report to the government of the day, who will be free to spin or muzzle its findings as it sees fit. In its preamble yesterday, the government explained that the Commission would” generally” be independent. (Subtext: except when it matters, and when it isn’t.)

Not for the first time, the path of moderation has ended up pleasing virtually no-one. Not for the first time, the path of moderation has ended up pleasing virtually no-one. In a devastating interview on RNZ, Greenpeace executive director Russel Norman fumed that the Commission was all bark, and no bite.

To repeat Norman’s points: the Commission has no teeth, no policies to achieve those aspirational targets, and no mechanisms to enforce them. Predictably, Federated Farmers felt the targets were ‘cruel’ to farmers. For his part Business NZ’s CEO Kirk Hope (no doubt delighted by what lobbying had wrought) chose to kill the Zero Carbon Bill with kindness:

"What we need now is a plan of action to deliver on these ambitious targets," Mr Hope said….The work required to clarify actions needed for both the 2030 and 2050 targets should be a priority. Business is keen to engage with the Government and Climate Change Commission on the workplan for both. We need to implement changes that don’t get ahead of our trade competitors and ensure our exporters remain internationally competitive, while effectively transitioning to a zero-carbon economy.”

Yeah right. You bet that business is “keen to engage” with this process, and keep it on the straight and narrow. One can sympathise (a little) with Climate Change Minister James Shaw. MMP compromises are inevitable, but these watered down solutions call into question the value of engagement. New Zealand First is very good at this kind of thing. Basically, NZF did not choose to compete with National via its Regional Development Fund only to turn around and fritter away the rural goodwill that Shane Jones has bought, by joining the Greens in punishing farmers for the pollution they cause. To actually reach the nominal targets, meaningful changes – to herd sizes, to fertiliser and soil use, to water management etc – would be required. Nothing like a parliamentary majority exists however, for passing a policy package remotely up to the tasks required.

Footnote One: Call me naïve, but it does seem amazing that a target of 10% methane reduction over the next 10 years should be seen as draconian. That’s a rate of progress of only 1% a year, but is being seen as a ‘cruel’ imposition by farming leaders. As Russel Norman concluded: “With a miserly ambition of 10% cuts in methane by 2030 – the gas from our dirtiest industry, dairy – the Zero Carbon Bill is watered-down medicine that lacks the potency to cure the actual ailment we have. We’d hope that the rest of this year would not be spent passing this framework into legislation at the expense of passing meaningful laws to back solar and wind energy, stop the importation of polluting vehicles, reduce cow numbers, end all new oil exploration, and ban synthetic nitrogen.” Amen to that.

Looking back in moderation

As the founder of Christianity once said, a lukewarm response just makes everyone feel sick. Still, at least the recent disappointing decisions on climate change, tax reform and welfare reform have usefully clarified how the three moving parts of this coalition government (don’t) work together. Given the extent of New Zealand First opposition and lukewarm Labour support, the capital gains tax was always doomed. So, it seems, is significant welfare reform. For the past three decades, Labour has been apathetic (at best) about any moves that would improve the lot of the beneficiary poor relative to the waged poor. That’s why Working For Families – the Clark government’s big ticket policy for people on low incomes – excluded beneficiaries altogether.

Add in the reality that superannuitants are the only group of beneficiaries that New Zealand First doesn’t actively disdain, and its obvious why parliamentary support for structural welfare reform is limited to the handful of Greens (hello, Jan Logie) still keen on social justice issues. True to form and at Monday’s post-Cabinet press conference, PM Jacinda Ardern defended her government’s tepid response to the Welfare Expert Advisory Group report by reminding critics of last year’s Families Package tax credits and the Winter Energy payments which, she said, were also available to those on state support.

The “ also available” part is significant. Under Labour, beneficiaries will be allowed to advance only in lockstep with those on low wages and – if Winston Peters has anything to do it – solo parents and other beneficiaries will be stopped from improving their conditions vis-a-vis pensioners. Such are the rules of engagement for the Ardern government’s war on poverty.

So….despite all the rhetoric of compassion, there’s no appetite within this coalition for significant welfare reform and indeed, significant hostility exists to it. Peters is not the only (or most important) factor. Labour’s Third Way politicians dominate its senior ranks. At heart, they have no serious quarrel with neo-liberalism, but would prefer its social outcomes to be nicer. Plus, they’re immensely risk-averse, politically speaking. That’s the main reason why – under Clark and Ardern alike – National’s benefit cuts of the early 1990s have not been addressed. It is why the benefit increases advocated by the Welfare Expert Advisory Group - of between 12% and 47% - have already been ruled out.

For anyone on the left, 2019 has been a wake-up call. This is not a centre-left government. It is a centrist government on a tight leash. As the WEAG report spelled out in detail, there are convincing grounds for raising benefit levels …and you can take your pick from among fairness, compassion, income equality, opportunity cost, long term savings in health and imprisonment costs etc etc. There are also solid political reasons for tackling welfare reform at a structural level, rather than measuring it out in handouts that don’t differentiate between those on benefits and those on low wages. Only structural reform will be able to survive the inevitable change in government, and the arrival of a centre-right administration that can relied on to turn off the welfare tap once again.

It shouldn’t be impossible for Labour to win popularity by building a better welfare safety net. Michael Savage won lasting gratitude for taking the risks involved. There’s now a similar challenge – and opportunity – for Labour and the Greens to build such a compassionate welfare system that a future National government would find it too politically costly to undo. That’s what Labour achieved when it expanded paid parental leave to 26 weeks.

Time is short. As the RBNZ indicated yesterday, the relatively benign economic conditions are not tipped to last. Over the next six years the welfare system will be coming under increased pressure, as a flagging economy generates more people requiring help. The WEAG report eloquently demonstrated that the current benefit system is not fit for purpose. What would structural change look like? Well, the WEAG report made those 42 key recommendations and related suggestions. The blueprint is there, and waiting.

For starters, the government would need to change the welfare bureaucracy’s operating rules and prevailing culture. and give it the resources to do its job properly. It would mean removing the current barriers to access, identifying which groups are not receiving the help to which they’re entitled, scrapping the array of gratuitously punitive sanctions and up-skilling frontline staff so that they can cease being the hostile gatekeepers of deliberately scant resources …and oh yes, it would mean raising the benefit levels. It would be nice to think that Labour and the Greens want to do all these things, but simply can’t get a parliamentary majority to do so. But…do they even want to, much?

The interest rate cut

Talking of tokenism….frankly, it is hard to believe that the threats posed by (a) slowing domestic economic growth and (b) international trade turbulence will be eliminated by the RBNZ cutting interest rates from 1.75% to 1.5%. As mentioned, the omnipotence of central bankers has been taking a hammering all around the world, and well before the Global Financial Crisis kicked in. (In that sense, waiting breathlessly on the RBNZ to pronounce looks like a relic of the 1990s.) Yesterday for instance, the RBNZ was groping for a Goldilocks point of balance - in that the threats to growth had to be so serious as to require immediate action, but not so serious that this gesture would seem to be patently inadequate. Obligingly, it was widely concluded that further cuts had to be in the pipeline.

While some news outlets trumpeted that banks were already passing on the cuts in lower mortgage rates, the more common response by the banks was to cut both lending and savings rates and (in some cases) pass on only 15-16 points of the 25 point rate reduction, while lining their pockets with the rest. This morning on RNZ’s Business News, the omnipotent RBNZ Governor Adrian Orr was therefore advising bank customers to shop around. Really.

The extent of the interest rate cuts that do filter through to mortgage rates will be at the expense of savers, and will be offset in any case by currency speculators fleeing the NZD - which will raise the price of imports such as petrol, and other foreign goods. The currency did take a small hit in March when Orr announced his rate cutting intentions and another small hit yesterday, and (presumably) this impact will be repeated when the RBNZ next takes out its scalpel. Given that cutting interest rates is supposed to stimulate spending, the flow through impact on the price of imports would seem entirely counter-productive.

In sum then… it looks like tinkering. As ANZ chief economist ANZ Sharon Zollner told Interest.co.nz yesterday ….”Too-high interest rates are not this economy’s problem at present…by November the ducks will have lined up for another cut, followed by one in February [2020] In our view, deterioration in global conditions is the primary risk that could bring this forward."

That’s a point. Should the RBNZ be cutting rates now or keeping its powder dry for worse to come? Zollner seemed to think there was a risk in the RBNZ shooting its bolt too soon : ‘...Provided low inflation is not indicative of weak economic conditions but reflects structural change, central banks should not be concerned by this development. There is a very real risk in the current approach that when economies inevitably turn down, monetary authorities will have exhausted the ability of interest rates to provide the impetus that might, at that stage, be so desperately needed." At which point, Orr will be up the creek, without a paddle.

Scott Hutchison, remembered

This Friday marks the first anniversary of the death of Scott Hutchison, leader of the Scottish band Frightened Rabbit. (The band was named after a nickname bestowed on Scott as a child, by his Mum.) This week, the Hutchison family launched a charity to raise awareness about young peoples’ mental health issues, and you can donate to it here.

Hutchison was loved as much for his wide open personality as for his talent, so I’ve chosen tracks that feature him playing live, largely on his own. If you want to check out the band, you could look on Youtube or Spotify for tracks like “Holy” “The Twist”, Acts of Man” and about two dozen more. This live version of “ The Woodpile” he did at 2JJJ in Sydney has always been a personal favourite, as much for his reaction to the DJ as for the soulful rendition that follows…

https://www.youtube.com/watch?v=koBmEi6bKpk

Here’s his live version of “Candlelit,” still one of the most romantic songs ever written:

For many, “The Modern Leper” was their introduction to Frightened Rabbit. This festival live performance is very hard to watch, in the light of what happened a year ago. Yet it remains the purest example of who he was, with every nerve exposed for everyone to see…

Well is that you, in front of me?
Coming back for even more of exactly the same
You must be a masochist
To love a modern leper on his last leg
Well I am ill, but I'm not dead
And I don't know which of those I prefer
Because that limb which I have lost
Was the only thing holding me up, holding me up

And you're not ill and I'm not dead
Doesn't that make us the perfect pair?
You should sit with me, and we'll start again
And you can tell me all about what you did today
What you did today….

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