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Bernard Hickey: The Money Issues That Will Decide This Election · Making Cents

• 0:00
  Election season and every party is fighting for your vote.
• 0:04
  And no surprise, the main way they're trying to do it is through your wallet.
• 0:08
  So many of us do not feel financially secure, let alone comfortable.
• 0:13
  So the parties are lining up to convince you they've got the fix.
• 0:17
  Top of the list is your Kiwisaver, which everyone seems to have thoughts about, and a wish list to change.
• 0:23
  But there's also the cost of living, your food, your job.
• 0:28
  Paying attention to all of this, Bernard Hickey.
• 0:31
  These days he's a journalist with his own independent outlet, the Kaka.
• 0:36
  But he's been following these issues for literally decades, and it's pretty hard to pull the wool over his eyes.
• 0:42
  Well, of course Kiwisavers should be compulsory.
• 0:44
  And of course we should put more into it.
• 0:47
  Really?
• 0:47
  Are you going to starve the economy of all the cash that currently goes into it, buy food and other things?
• 0:53
  Because pretty words from politicians are one thing, but will any of this actually help those of us in the real world?
• 1:00
  So it's tough to trust either of the major parties here.
• 1:03
  New Zealand can feed 40 million people, but we have a million people having to go to food banks.
• 1:09
  Something's wrong.
• 1:10
  And if we actually plan ahead for the future, what's the big change that could really move the needle?
• 1:15
  Kiwisavers should not be allowed to invest overseas.
• 1:19
  We're not going to get rich unless we invest in Aotearoa.
• 1:22
  And when so many of these issues are driven by big global international events, is there anything we can even do from here in little old New Zealand?
• 1:31
  This is something that people don't talk about in public because it's quite frightening.
• 1:36
  So welcome to Making Sense.
• 1:38
  It's the podcast for people who want financial freedom without giving up their coffee.
• 1:42
  I'm Frances Cook, financial journalist and fellow financial freedom seeker who makes money simple for you today, whether this election will change your Kiwisaver and your money.
• 1:52
  This episode of Making Sense is supported by Odoo, the All in one solution to make running your business smoother and more affordable.
• 1:59
  Go to odoo.com that's odd.com for more.
• 2:04
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• 2:24
  The show grows and I can keep bringing you the Money info that actually moves the dial.
• 2:30
  Welcome Bernard.
• 2:31
  Thank you so much for coming in.
• 2:33
  Look, politics season and the election is looming and cost of living money kiwisavers, certainly all of these things seem to be really looming large this election season.
• 2:47
  What's standing out for you as you're looking at the landscape and what's being chatted about?
• 2:51
  It's amazing really.
• 2:52
  I mean I've spent the last 30, 40 years of my life being a finance and economics nerd, but this election is going to be about two or three key things.
• 3:01
  Firstly, cost of living, that's a very broad topic, but it all about what the Reserve bank is doing with the official cash rate and mortgages or on the other side of the equation, term deposits.
• 3:14
  It's going to be all about what's happening with fuel prices.
• 3:17
  So that's a story about geopolitics.
• 3:20
  It's going to be all about the groceries market and the electricity market.
• 3:24
  Market design, structural separation, nationalization, all sorts of sort of amazing things that, you know, us, you know, competition economist, geeky people would go, whoa.
• 3:39
  And now we have all major parties coming up with substantial policies and a lot of conflict, a lot of debate about, you know, are you a communist or are you a capitalist?
• 3:52
  What does it mean to be a socialist?
• 3:55
  Why is it that New Zealand's spends more on food as a share of income than just about any other country in the world?
• 4:03
  What went wrong over the years with how our supermarkets have gone or our banks or our insurers or our electricity markets?
• 4:13
  We've just gone through a brutal winter of discontent when electricity prices went up 9% three times faster than the top of the Reserve Bank's inflation target zone.
• 4:27
  Why?
• 4:28
  Well, nothing to do with fuel prices because we didn't actually burn much gas or diesel through the year.
• 4:36
  This was actually because interest rates went up and the Commerce Commission forced through higher prices for electricity distributors and the government owned, mostly government owned electricity industry loves lots of dividends.
• 4:52
  So you know, we're going to have an election where these quite high minded, I think important issues around how we save, how our markets are run, what is a properly competitive market, what's happening with the Iranian Revolutionary Guard
• 5:11
  Corps.
• 5:12
  All of these things which normally wouldn't be part of election campaign are right at the heart of it and there is a real contest of ideas and solutions.
• 5:20
  Yeah, and I'm finding it fascinating that all of these things are actually, as you say, being picked up by multiple parties.
• 5:26
  These are the hot button issues and it's fascinating, as you say, I Want to jump into Kiwisaver soon, but you started mentioning about the supermarkets, so we're just going to dig on that too because as you say, we
• 5:39
  are paying a lot for our food.
• 5:42
  And I'm getting a lot of people messaging me, a lot of people in my DMs, a lot of people in my inbox saying food is insane and I can't stop feeding my kids, but I don't know how I
• 5:51
  can keep paying for this.
• 5:52
  And yet we are a huge food producing nation.
• 5:56
  What's going on?
• 5:57
  What do you think is going on?
• 5:58
  Well, we've bought into this idea that New Zealand is a truly flexible, transparent part of the global economy.
• 6:08
  We don't have controls on exports or imports, we don't have tariffs.
• 6:13
  We bet on our future, on the idea that we can grow food and export it for high prices.
• 6:18
  And when you have a problem like New Zealand can feed 40 million people, but we have a million people having to go to food banks, something's wrong.
• 6:29
  And what's wrong is that we thought that a globalized economy with apparently free and transparent pricing based off supply and demand would work to feed everyone.
• 6:43
  And in theory it should.
• 6:46
  But when you have extraordinary climate issues plus geopolitical issues, and they're often quite connected, that is pushing up the price of hard things, real things, commodities.
• 7:02
  Copper, oil, cobalt, fertilizer, beef.
• 7:09
  You know my favorite joke at the moment, and I should stick to not being a comedian, is that mince is the new cheese.
• 7:17
  You know, it's incredibly expensive.
• 7:19
  Why?
• 7:20
  Because of climate change in the United States, which has reduced the size of America's beef herd.
• 7:27
  A whole bunch of the Midwest hasn't had a lot of water lately, so those cows aren't there.
• 7:32
  And all of those burger chains in America want ground mince.
• 7:36
  Where do they get it from?
• 7:38
  Well, America has stopped importing it from Brazil and a bunch of other places.
• 7:43
  They're still importing from New Zealand.
• 7:45
  And we're able to charge a high price because we are selling protein and beef is at the top of the protein chain.
• 7:53
  When you have immense pressures on food costs because of climate change and rising energy costs, you know that flows through.
• 8:01
  Now to change that, we would have to intervene in our economy to make sure that some farms only produce food for New Zealanders.
• 8:10
  And then we'd have to somehow subsidize those farms so that they weren't worse off because they weren't selling to the rest of the world.
• 8:17
  Now these are these seems like completely wild communistic things to think, but up until 1984, that's how new Zealand did it.
• 8:26
  You know, we subsidized dairy farmers and sheep farmers and beef farmers to ensure partly at least, that New Zealanders could buy food at a reasonable price and that those farmers could cope through the ups and downs of commodity
• 8:41
  prices.
• 8:42
  Now, at the moment, commodity prices are going ever higher, and that's great for farmers, or at least for the banks who are receiving repayments of debt, which those farmers have got, but for consumers it's not.
• 8:55
  And that's one layer of extra cost on top of the highest profit margins in supermarkets in the developed world.
• 9:03
  And this has crept up on us over the years in part because of mergers and takeovers that were blocked when perhaps they should have been.
• 9:11
  The one we think of Countdown, which became Woolworth's buying a thing called foodtown back in 2006.
• 9:19
  Six, seven.
• 9:20
  That takeover is one of many that have happened over the last 20 years, which, bit like the boiling frog we've suddenly discovered, actually gave market dominance to one or two players.
• 9:31
  And we're now in a position where consumers are paying more, workers are getting less, and the owners of capital and the profit share is getting higher.
• 9:42
  So all of those things combined has essentially made consumers, particularly workers who do pay tax.
• 9:50
  And it's really all come to a head at once, and people are rightly asking the question, all those usual assumptions and rules, and this is the way it should happen, and this is the way it's normal we're going.
• 10:04
  Well, actually, it doesn't seem to have worked for a lot of people, so maybe we should do it differently.
• 10:08
  And that's part of what the selection campaign's about.
• 10:11
  A lot of the talk has been about do we need to split up the supermarkets?
• 10:17
  And you mentioned there that the mergers are a huge part of the initial problem.
• 10:22
  So is splitting them up the right call?
• 10:24
  Then how you split them up is almost important as the question of do you split them or not?
• 10:29
  And it's worth looking back to one example that actually worked in terms of intervening in a market to split up a dominant player or duopoly, and creating the conditions for a third player, which then led to significant more
• 10:46
  competition and better results for consumers.
• 10:49
  Lower prices, better services, better quality.
• 10:51
  And that's telecommunications.
• 10:53
  In 2005, the then labor government forced the breakup of telecom into Chorus and Sparc, and then making sure that a third player in mobile, which became 2 degrees, got access to some mobile spectrum at a reasonable price.
• 11:10
  We then had real competition between three players.
• 11:13
  The addition of government intervention with the Ultra fast broadband network has helped as well to create some of the best, lowest priced, best quality broadband in the world.
• 11:27
  Again with mobile, New Zealand is in a pretty good place compared to the rest of the world.
• 11:32
  Whereas in 2005, 6 it wasn't.
• 11:34
  So that's the model.
• 11:35
  You break up a dominant player into at least two parts and you encourage a third competitor to come in to really keep the bastards honest if you like.
• 11:44
  And in New Zealand we have the duopoly of bootstuffs and Woolworths.
• 11:50
  The idea that you could just break up that duopoly and this is the national proposal Woolworths left on its own and that somehow you could break up the ownership and the cooperative buying arrangements that currently tie together Pack
• 12:05
  and Save, New World and Foursquare and that would be enough to create competition.
• 12:14
  I'd challenge that because they are still acting together in a buying cooperative which is using its market power to push down the returns for supplies.
• 12:26
  Also that doesn't remove the regional and local monopolies that for example Pack Save and New World have and doesn't ensure that the Foursquare and New World stores compete against Pack Save when for decades they've been working as a
• 12:44
  team.
• 12:45
  And you really only get proper competition when you get someone new of scale come in to compete away those monopoly profits.
• 12:57
  Now the labor proposal is for a telecom style structural separation, creating a wholesale group that is different from the retail group at the moment.
• 13:07
  There's a real intertwining of those ownership and those connections.
• 13:12
  Pack and Save store operators often buy off their own bet because they're big enough to do it.
• 13:18
  An individual store they might do some stuff with the buying cooperative of foodstuffs.
• 13:24
  Sometimes they might not.
• 13:26
  It's hard.
• 13:27
  And you know there's been lots of attempts to wag fingers at the industry.
• 13:31
  That hasn't worked.
• 13:32
  And also there's the Green proposal which is to literally nationalize or buy 120 stores and distribution centers off the two chains and create Kiwi Mart a new state owned competitor.
• 13:47
  So all three of those options, in old times that would have been all seen as radical, you know, that it would all be called communists.
• 13:54
  But now nationals decision to go hard or at least say they're going to go hard because remember they won't do anything until the Kunis Commission has done a formal review and then it goes through parliament and actors said
• 14:09
  they'll block it.
• 14:10
  And then labor also has, remember being here before, they were on the verge of some sort of Split up in 2022, 3, but got spooked when the supermarket said, ah, if there's another Covid outbreak, you know who's going
• 14:24
  to save you then?
• 14:25
  So it's tough to trust either of the major parties here.
• 14:29
  And you're absolutely right.
• 14:30
  It's at the heart of everything.
• 14:32
  Everyone needs to eat and sometimes we can't afford it.
• 14:38
  Yeah, well, I look at these issues and I'm like, people are feeling the crunch now.
• 14:42
  They're certainly also feeling the crunch in terms of being able to make any sort of future planning as well, which is people just seem to be squeezed on all fronts on these very core issues.
• 14:55
  I want to run through some of the Kiwisaver policies as well, because now this is going to be not all of the things they've talked about, but a quick run through.
• 15:04
  So labor saying changes including compulsory employer contributions at 6% and banning total remuneration.
• 15:11
  Meanwhile, national saying they would want changes including making Kiwisaver compulsory, automatically enroll every baby born in New Zealand, as well as a little baby boost payment, fifteen hundred dollars on that and making contribution into Parents Kiwisaver when they're
• 15:25
  on paid parental leave.
• 15:27
  New Zealand first was actually the first off the blocks on the KiwiSaver election promises, saying they wanted to increase employee and employer contributions to 10%, make KiwiSaver compulsory and a similar baby bonus policy, but of $1,000 instead.
• 15:41
  If anyone can follow all of those and keep them in their heads, well done to them, but just sort of giving an idea of where we're at with the areas being discussed here.
• 15:50
  I find it fascinating that everyone is getting into this as well.
• 15:53
  Do you think they're the right areas to be debating?
• 15:57
  It's certainly worth using Kiwisaver as one of the tools to solve our problems, but I think it's worth pulling apart, unfortunately, the complicated strands of this debate and looking at each one of them.
• 16:13
  Before you do that, though, I think it's worth sort of pulling back and understanding the context of Kiwisaver and the debates we're having right now.
• 16:19
  And whenever we do this, the elephant in the room is the Australian superannuation system.
• 16:27
  And the way I look at this is in the early 1990s, New Zealand had a sliding door moment.
• 16:34
  We could have gone down one route or another route.
• 16:37
  We went down the route of not subsidizing pensions and the view was we were going to have a very simple tax system and we'd of course tax capital gains to make it properly comprehensive.
• 16:50
  We never got round to the capital gains thing and we left off the incentives for people to save into a pension scheme.
• 16:58
  Australia, through some interesting accidents of political history, decided in the early 1990s under a labor government that to solve a particular problem they had right then, which was they were worried about rising wages, causing inflation and causing interest
• 17:16
  rates to go up.
• 17:17
  And so a deal was done between Paul Keating and the labor movement in Australia, which is much stronger and more aggressive, in which Keating said, I'll get you a pay increase, but it's not going to be a normal
• 17:31
  sort of pay increase.
• 17:32
  It's actually going to be money put into a compulsory pension system and we'll over time increase that share of your income and the share of your income being contributed by your employers up to more than 10%.
• 17:49
  And the workers who are on the verge of having strikes and going for big pay increases in the early 90s, said, okay, that's fair enough.
• 17:57
  That avoided an inflationary spiral in Australia and now Australia has the third largest pool of pension savings in the world.
• 18:05
  And it helped fund their investment and development over the last 20 years and for most of that period essentially powered Australia's productivity growth and therefore its real wages growth, which has now led to a situation where New Zealand,
• 18:23
  which didn't have that pension scheme, has wages 30% below Australian wages and is driving this constant leakage we have of people across the Tasman.
• 18:35
  So that's the, I think, the background before we even think about this.
• 18:38
  Essentially New Zealand's going, oh no, we should have got ourselves an Australian style scheme.
• 18:42
  How can we turn Kiwisaver into an Australian style scheme?
• 18:45
  Worth remembering that there's no way the Australians could have gotten that scheme across the line in the early 90s unless that offered an incentive for people to save.
• 18:56
  In Australia you contribute money to your compulsory pension scheme and you don't pay tax on it.
• 19:01
  Kiwisaver, you pay the tax first and then you put whatever's left over into the scheme.
• 19:06
  There's no incentive.
• 19:09
  So national and labor are both now talking about compulsion without compensation.
• 19:14
  It's a tax and it's a tax into a savings scheme, most of which will be invested overseas.
• 19:22
  More than 60% of KiwiSaver funds are overseas.
• 19:26
  If we go to 12% and 12% of New Zealand's after tax income is put into a scheme which is not spent on stuff and services in New Zealand, which is not circulating in the economy, 40% of it might
• 19:43
  go into New Zealand investments, but most of it will go into data centers in America.
• 19:52
  Bomb manufacturers in Europe and America will go into government bonds in America, helping Donald Trump to fund his wars and tax cuts.
• 20:05
  And that's a whole bunch of money that's not going to be invested in New Zealand.
• 20:08
  Now, some would say, okay, we just need to build up the pile of money to a high enough level and then eventually we'll get invested in New Zealand.
• 20:16
  But ultimately that'll never be more than 10, 20% of it.
• 20:21
  And essentially it's taking choices away from New Zealanders to put money into their own businesses.
• 20:27
  And this is an interesting problem which no one's really challenged the main parties on.
• 20:33
  Hang on a minute, you're making this compulsory.
• 20:35
  What's in it for us?
• 20:37
  Why are we being forced to do this?
• 20:38
  There is no incentive.
• 20:39
  We are paying tax before it goes in.
• 20:41
  While it's in there, it's paying tax, and it's only when it comes out that it's not taxed.
• 20:47
  Whereas in other countries, often there's no tax paid on the income before it goes in.
• 20:53
  Sometimes there are funds where there's no tax paid while it's in.
• 20:57
  And one of the most interesting sort of accidents of our savings history of the last 20 years is that one of the biggest sources of taxation revenue for the government now is tax from the New Zealand Super Fund
• 21:11
  and from Kiwisaver.
• 21:13
  In fact, for most of the last couple of years, New Zealand super pays tax to the government, which is greater than the contributions the government's making to the Super Fund.
• 21:24
  So, you know, if you're really serious about building up those investment funds and, you know, encouraging people to save, you would give that thing a tax break.
• 21:34
  Particularly when you're not, you're still giving a big tax break for people to put money into leveraged residential property.
• 21:41
  And that's the other thing about Kiwisaver that I challenge.
• 21:45
  We built this thing up and it's presented as this, you know, amazing investment scheme that puts money into real assets and, you know, and.
• 21:53
  And luckily for New Zealanders, there hasn't been a complete wipeout.
• 21:55
  So there's a generation of New Zealanders who love Kiwisaver.
• 21:58
  They look at their accounts every day and go, oh, I'm rich, I'm richer and richer.
• 22:02
  The other thing they're doing, though, is looking at that Kiwisaver encounters and going, oh, my first home deposit just got bigger.
• 22:08
  One of the drawbacks of Kiwisa that I think, is that it's one of the tools that is pumping up house prices.
• 22:14
  It's a drug in a way, that we need to kick at least partially and we need to challenge the assumption that of course it should be compulsory just like the Australians.
• 22:26
  Well the Australians don't mind paying into that thing because they get a tax break to go into it and they do have a capital gains tax now and it's a proper one on their rental property.
• 22:36
  Investors too national is not planning a capital gains tax, labor is.
• 22:41
  And I think that this debate on Kiwisaver needs to be a lot more robust and challenging of the underlying assumptions we have about.
• 22:51
  Well of course Kiwisaver should be compulsory and of course we should put more into it really.
• 22:57
  Are you going to starve the economy of all the cash that currently goes into it to buy food and other things?
• 23:02
  Are you going to pump it up so that people can leverage yet more money into the residential property market?
• 23:10
  Are you going to leave in place the current wild advantage for residential property versus investment in funds?
• 23:18
  And in a world where just everyone puts everything into an exchange traded fund and you know, simply because it costs point, not one basis points to manage, why on earth would anyone put money into a proper New Zealand
• 23:34
  investment, a listed equity or even a private equity?
• 23:37
  We're talking cost management funds management costs of you know, 100, 200, 300 basis points.
• 23:44
  You know, eventually pension funds where consumers are in charge.
• 23:51
  In fact even the professionals when, even when they're in charge they just go, I just dump it in the s and P500, that's three basis points brilliant and I can see why.
• 24:02
  But that's not a way to any sort of national glory or development of our economy because that's not how the globalized free movements of capital people, trade services works.
• 24:16
  And that's the debate everyone's having at the moment is should we allow that to continue because it hasn't really worked for most people.
• 24:22
  Well, yeah, it's an interesting time because I feel like there is a real movement building for making some sort of change to Kiwisaver.
• 24:31
  Right.
• 24:31
  We're coming up on 20 years of having it.
• 24:34
  We've got a new retirement commissioner, we've got an election coming.
• 24:39
  The previous retirement commissioner on her way out the door said I don't think that Kiwisaver is very equitable right now, but also we need to be careful about making too many changes to it because people lose confidence in
• 24:52
  what it can be.
• 24:53
  Some very good salient points there.
• 24:56
  So what do you think when you look at this debate that we're having now?
• 24:59
  Obviously you're not loving the direction of the debate currently, but if you were put in charge Just for a day.
• 25:06
  And you could make one big change to KiwiSaver.
• 25:09
  What do you think would move the dial the most to make this scheme better?
• 25:16
  Stop it from being a slush fund for first Home deposits.
• 25:21
  Ooh.
• 25:22
  First home buyers are going to get their backs up.
• 25:24
  Yeah.
• 25:24
  But house prices would fall, which would make housing more affordable.
• 25:29
  Secondly, it would allow those funds to build up faster and bigger because at the moment a lot of people are taking that money out in their early to mid-30s and that money, if it was left in, would be
• 25:42
  worth an enormous amount more by the time we get to 65.
• 25:47
  I would also look to provide some sort of tax incentive for people to put more money into KiwiSaver.
• 25:55
  And if you are going to make it compulsory.
• 25:57
  Yes.
• 25:58
  Make sure that you, you don't have these horrible total remuneration deals that happen at the moment and that employers should make compulsory contributions.
• 26:11
  And one way to make it more fiscally acceptable for the government is to ensure that there's at least some sort of subsidy, particularly for the consumer and for self employed people, to put money into KiwiSaver.
• 26:28
  I also think that Kiwisavers should not be allowed to invest overseas.
• 26:36
  Not be allowed at all.
• 26:37
  No, go on.
• 26:39
  Because that money should go into New Zealand investments, infrastructure, people skills, technology, businesses to grow our wealth here and our skills and our productivity.
• 26:51
  At the moment we're investing in other people's economies to make them more productive and wealthier and have higher wages.
• 26:58
  We're not investing in our own.
• 27:00
  And it's a lot of money.
• 27:01
  You know, we're up to whatever it is.
• 27:03
  $140 billion or so for KiwiSaver now and 80 billion of that went overseas.
• 27:11
  Ultimately we're not going to get rich unless we invest in Aotearoa.
• 27:15
  It means it's people, it's infrastructure, it's technology, it's businesses.
• 27:20
  And I think if you're going to reform KiwiSaver or make it compulsory, provide incentives for it, you need to do it as part of a wider tax reform, which means that we have a much more level playing field
• 27:33
  for investments.
• 27:34
  At the moment.
• 27:34
  There's a big thumb on the scales in favor of residential property investment.
• 27:38
  That's always the way because you can leverage it and because it's still tax free, particularly on the family home.
• 27:46
  My view is that the rise in the value of land for the family home should be taxed.
• 27:54
  Neither of the main parties are saying that the family home should be taxed.
• 27:58
  They're terrified of it.
• 28:01
  It's Basically referred to as the third rail of politics.
• 28:03
  Right?
• 28:03
  Yeah.
• 28:04
  Because so many New Zealanders have bet their financial lives and the financial lives of their families on it and they think the age of 55, 60, 65, I don't have time to go back and do it the other
• 28:16
  way because I'm not old enough and I'm probably going to stop working at some point or can't work at some point.
• 28:24
  So if you're going to do that, you have to think about how to either compensate in my view.
• 28:28
  I don't think those people require compensation because they made out like bandits for 30 years.
• 28:34
  Many of those people have made leveraged tax free returns of 300, 400% on the money they've invested in their family home and other homes and they're perfectly fine.
• 28:47
  The real problem is for people who don't own a home when they retire or don't own a home full stop throughout their working lives, they're paying tax, income tax, gst.
• 28:59
  People who've put all their money into leveraged residential land are not paying taxes tax and they've had that benefit for 30 or 40 years.
• 29:07
  Okay, sure, the value of their land might fall if there is some sort of tax on it and that expectation of future leveraged spectacular gains may be gone and they may have to think about something different.
• 29:21
  But unless we change the fundamental incentives in our economy around investing and focus a lot more on on investing in great infrastructure, companies, people, technology, businesses, science, research, we're not going to get rich and we're going to stay
• 29:40
  poor and we're going to keep exporting our kids and our grandkids and having to import lots of brand new people who we work for barely minimum wage and or exploit and then kick out after three years.
• 29:55
  That's not a way to run an economy or a society.
• 29:59
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• 30:48
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• 30:52
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• 30:56
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• 31:00
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• 31:06
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• 31:09
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• 31:13
  Also pop that link into the show notes for you.
• 31:16
  Right back to it.
• 31:18
  So if we were going to, I mean, ideally, I guess, in your plan using kiwisaver funds, but you know, look at this investment into New Zealand in general.
• 31:28
  Try and get incomes up, try and boost our economy.
• 31:31
  What would be the big areas that you think, you know?
• 31:33
  Are there certain parts of New Zealand that are ripe for investment that we really good, good at?
• 31:39
  What could be those hot areas?
• 31:41
  We need to build lots of affordable, warm, dry homes that work with cheap public transport.
• 31:50
  And we essentially need to build lots of really fantastic cities full of buses and trains and bikeways and apartments and townhouses where maybe we don't have such big houses, maybe we don't have garages, maybe we only have a
• 32:06
  couple of bedrooms, but at least it's insulated and it's warm and dry and it's a short walk to our work or our school or our university.
• 32:14
  It's going to be much cheaper to live in those homes and get around our cities and they're much healthier, more productive places.
• 32:23
  We know that intense, closely developed cities are the way to grow productivity.
• 32:29
  In an economy there is an agglomeration effect, we know that.
• 32:32
  Yet New Zealand has sort of built itself in this suburban, provincial image that this is what we actually want.
• 32:40
  We want to live with our own section, near a beach, by ourselves, with a double cab ute and another car and then a batch and it'll be brilliant.
• 32:51
  Yeah, well, that doesn't make for a rich country.
• 32:53
  It also means there's a whole bunch of people who don't benefit from that.
• 32:56
  In fact, they're doing really tough.
• 32:59
  And so that's what I invest in.
• 33:01
  Because that will make us richer and happier and healthier and forces us to think differently about what success looks like.
• 33:11
  Because at the moment what we think success look like is selling a house for 10 times more than we bought it and using the unearned, untaxed capital gains to get rich and make sure that our kids are rich,
• 33:26
  which is fine, you know, but you can't have an economy where everyone aspires to be a landlord and is a landlord, otherwise we'd all be landlords and there'd be no tenants, which doesn't work.
• 33:40
  Of course.
• 33:41
  You've touched a bit on sort of intergenerational issues and I want to lean on that a bit more because I do think, I mean, I was talking to you a bit off mic about this that I was watching
• 33:50
  one of the official cash rate announcements and and I saw you going quite hard on the youth unemployment stats that were contained in there and I thought, thank goodness someone else pushing hard on this and raising this stat.
• 34:01
  That is really looking scary.
• 34:03
  The youth unemployment has shot right up.
• 34:05
  I find it quite a concerning canary in the coal mine.
• 34:08
  If we don't have opportunities for young people, of course they'll leave.
• 34:12
  But also what's going to happen to the economy long term?
• 34:15
  You know, people need to get their foot in the jaw on highly skilled jobs.
• 34:19
  What do you see on the youth unemployment stats and what do you think's driving it?
• 34:24
  We've got a generation who graduated into the workforce around 20, 20 and onwards.
• 34:31
  You know, anyone who was in school at the age of 12 or 13 and it was tough during COVID those two Covid years, their education was damaged.
• 34:42
  They then graduated into a very tough, tumultuous labor market.
• 34:46
  At times it was very tight and everyone could get jobs and wages were rising.
• 34:51
  But that didn't last for that long.
• 34:53
  And often it's an unfortunate but true fact of economies that go up and down is that when they go down and unemployment is high, the unfortunate generation who are graduating at that time are the ones that get scarred
• 35:10
  for the rest of their lives.
• 35:11
  They're scarred.
• 35:12
  You know, it's a really ugly thing to essentially have a lottery in which when you are born and when you graduate into the workforce determines your outcome or at least part of your outcome.
• 35:26
  Because we allow economies to run cold, we allow our economies to have a margin of unemployment, which we think is a good thing.
• 35:36
  I actually don't think we should have any unemployment employment and that we should run our economies at full employment and that should be our priority.
• 35:44
  The moment we have a priority which is all about inflation.
• 35:48
  So we have a single target.
• 35:50
  Keep inflation between 1 and 3% and effectively use increased unemployment to slow down your economy to take heat out of it.
• 35:57
  We have 5.6% unemployment overall.
• 36:00
  We have underutilization rates.
• 36:03
  So that's unemployment.
• 36:04
  Plus I'd like to more work or I need more work or more jobs combined for that for youth, underutilization is well into the double digits in some parts of the country.
• 36:16
  30, 40, 50%.
• 36:18
  We should do better than that.
• 36:20
  The way we're running our economy at the moment is we're saying everything should be sacrificed for this target of getting inflation down between 1 and 3%.
• 36:29
  I get it.
• 36:30
  High inflation is bad.
• 36:31
  The problem is we have a Reserve bank and a government which has sliced responsibility for low inflation up.
• 36:39
  Between Reserve bank totally responsible for getting inflation down, the government not responsible at all.
• 36:45
  And what that unfortunately means is that the government can do things which actually deliberately increase inflation, and the Reserve bank have to react to that by making more people unemployed.
• 36:57
  We have an inflation problem right now which is largely caused by, wait for it, Iranian Revolutionary Guard Corps and Donald Trump.
• 37:07
  So we have young people who are unemployed and who are being more and more unemployed, paying a price for the bad decisions, let's say, of the Iranian Revolutionary Guard Corps and their allies and Donald Trump, because that's what's
• 37:23
  caused this jump in fuel prices.
• 37:26
  And we have the people who can least afford to pay the price of beating inflation having to pay the price.
• 37:33
  We're also taking actions which will not change, which will not get rid of that inflation.
• 37:38
  The Iranian Revolutionary Guard Corps are not waiting on the actions of the Reserve Bank Governor of New Zealand or any other Reserve bank governor.
• 37:44
  They're going to do their thing.
• 37:45
  Donald Trump doesn't give a toss.
• 37:47
  So the idea that we should use the Reserve bank and monetary policy to attack inflation when the tools you're using are not solving that problem and are actually punishing those who can least afford it the most.
• 38:01
  I think it's worth debating how we run our economy.
• 38:04
  In my view, for example, the government should help the Reserve bank fight inflation.
• 38:09
  One way to do that is not to put up fees and charges at a council level or at a government level and use the Crown and Council balance sheets to fund a lot of this growth because we have
• 38:20
  an unsustainable situation.
• 38:22
  And the two core pillars of how we run our economy and our society at the moment, they are the Reserve bank act and the Public Finance Act.
• 38:32
  And both of those were put in Place in 1989.
• 38:35
  They are still at the heart of everything.
• 38:37
  They are the pillars that hold up how our government operates and how our economy runs.
• 38:42
  And in my view, they're not working.
• 38:46
  You could argue maybe they never worked.
• 38:48
  They're certainly not working now, and they should be repealed.
• 38:53
  Now, we're talking about some pretty hardcore big topics here.
• 39:00
  I sadly think the only way we're going to get dramatic, necessary reform in our political economy is in the event of a geopolitical catastrophe.
• 39:15
  Well, this is what I was just going to say.
• 39:16
  I mean, some of the things that you've identified so far, I mean, we're talking about big issues for sure, and at least they're being talked about.
• 39:22
  You know, cost of living, cost of food, planning for the future.
• 39:25
  With kiwisaver, you've mentioned a lot of the infrastructure issues.
• 39:29
  And yes, these things are being talked about.
• 39:31
  They're not being talked about in terms of the big structural changes that you're talking about.
• 39:36
  And do you think there's any possibility of these things happening?
• 39:39
  Not in the absence of some sort of catastrophe.
• 39:42
  What would be required for that?
• 39:43
  A nuclear war.
• 39:45
  Wow.
• 39:45
  Do you think that's possible?
• 39:46
  Yep.
• 39:47
  Next year China has said that it'll be ready to attack and take over Taiwan.
• 39:52
  Donald Trump at various points has threatened to attack Iran with nuclear weapons.
• 39:57
  Pakistan has nuclear weapons that could use in response to Israel, which also has nuclear weapons.
• 40:04
  Russia has threatened various NATO nations on its border with attacks that would require NATO responses.
• 40:14
  And there's a very high risk of nuclear exchange there.
• 40:18
  This is something that people don't talk about in public because it's quite frightening.
• 40:23
  And frankly, I grew up in the 1980s worried about these things and that's why we have a nuclear free zone and that's why we thought we had solved those issues when the Cold War ended.
• 40:34
  But it's clear we haven't.
• 40:36
  And we have now nations willing to use their military to achieve their aims.
• 40:43
  And we have a fairly hot war going on in the Middle east which is affecting us day to day.
• 40:48
  And of course then you have the not quite so visible but just as catastrophic effects of climate change that are happening.
• 40:57
  We're about to go into an El Nino, which is is off the charts so scary.
• 41:04
  High temperatures that serious people are worried about tipping points being triggered that would lead to extraordinary events.
• 41:16
  Now let's hope it doesn't happen anytime soon.
• 41:19
  But you can see why people don't want to have kids.
• 41:21
  There is a risk that various risks that something catastrophic could happen in the next few years.
• 41:27
  If that goes on, then New Zealand has to respond.
• 41:30
  And actually you could argue New Zealand is in one of the strongest places in the world to deal with something like some sort of nuclear exchange or some sort of massively catastrophic climate event.
• 41:43
  Because we are the only country in the world which has a moat that is so big and dangerous that no one can come here in a rubber Dinghy.
• 41:54
  The only way you can get here is if you hitchhike on a cruise ship and they can be pretty easily stopped.
• 42:01
  Jump on a plane, well, you're not getting through customs.
• 42:05
  You cannot just decide, I'm going to go to New Zealand because I need to live there now.
• 42:09
  In most other countries in the world that is possible.
• 42:11
  You can walk across a river, you can jump on a rubber boat and go across the English Channel.
• 42:18
  You can move from one country in Africa to another country in Africa.
• 42:23
  The Australians get very nervous about people jumping on boats in Indonesia.
• 42:28
  New Zealand is the only place in the world where we could literally survive without having connections or trade because we are rich in soil which we can use to grow food for ourselves.
• 42:45
  We, we could also, if we properly fitted out the economy with solar panels and batteries and properly used our hydroelectric and geothermal electricity generation, we could be energy self sufficient for transport as well as for electricity.
• 43:04
  And unfortunately it wouldn't take that much to get there.
• 43:09
  This is why my view, we should be buying up Chinese batteries and panels and EVs and trucks and buses and everything they've got as fast as we can and get it shipped here as quickly as we can because
• 43:25
  there may come a time when it can't get here.
• 43:29
  It's about this point in the podcast where the ones people who haven't left already are going, oh my goodness, this is not what I was expecting.
• 43:36
  But.
• 43:37
  But if we are going to be serious about it.
• 43:40
  When you look at the sweep of history, we've only had really major responses to the problems of our age when the usual rules hadn't applied in democracies.
• 43:52
  When you have a war, you don't have political party politics.
• 43:56
  There is no parliament where people have a go at each other in opposition and they have an election every three years.
• 44:03
  You have unified governments where as in Britain and New Zealand, both major parties were in cabinet and you didn't have that sort of usual political infighting that went on and a lot of stuff happened and it was often
• 44:24
  good.
• 44:25
  Now when or if easy for me to say I'm unelectable, unemployable and unappointable, but something we should think about and I hope that someone is doing some work on the background.
• 44:39
  Right, so mfat, for example, they should have a paper written that they can hand over to a government and say, right, China just attacked Taiwan to take it over last night.
• 44:53
  This will mean China will say we have to stop trading with America.
• 44:56
  America says we have to stop trading with China.
• 45:00
  Most of our goods and services go through the Straits of Taiwan or through the South China Sea.
• 45:07
  That's now an active war zone.
• 45:09
  A lot of the Asian refineries have stopped sending fossil fuel, refined fossil fuel to us.
• 45:17
  Global GDP is going to drop.
• 45:20
  Trade's going to do this.
• 45:23
  Here's what we think should happen or this is how we should have prepared.
• 45:28
  I hope someone's doing that because we need to.
• 45:32
  We're so complacent about these sorts of things.
• 45:36
  After a long period of relative stability and peace since 1945 at least now part of the world world but we forget from 1914-18 and 39 to 45 and you could argue during a good chunk of the Cold War
• 45:55
  we didn't think of ourselves as a completely free and independent member of a global free trading, free capital movements, free movements economy.
• 46:09
  People weren't having middle of the winter holidays in Europe in 1943.
• 46:17
  Now you may say, well that was a long time ago and hardly any of us were born or alive then.
• 46:21
  Well, there's a few people who were.
• 46:24
  And the party that is the natural successor to the Nazi party just won an election in East Germany.
• 46:33
  Terrifying.
• 46:33
  Yeah.
• 46:34
  So those risks are there and, and we should not be ready for them and talk about them in public.
• 46:40
  I'm not talking prime time debates, I'm talking some bright people thinking about it in the background.
• 46:45
  I hope someone's doing that because it, you know, it shouldn't be me.
• 46:48
  Look, these are, as you said, these are big issues but they're issues that really need thinking about.
• 46:52
  Right.
• 46:53
  So as we're looking down the barrel of all of these huge issues, we in New Zealand often feels like the bottom of the world.
• 47:03
  But our own election coming up, somewhat of an ability to influence things somewhat not.
• 47:10
  What do you think people should have top of mind heading into this election if they're concerned about the issues that we've talked about today.
• 47:17
  You could say housing, food and energy and security of all three of those.
• 47:22
  So that means making sure everyone has a warm, dry, affordable home, has enough food to eat and has enough electricity but also energy to do the things they need, transport wise.
• 47:36
  And we should be preparing ourselves and be ready to be truly independent if something happens.
• 47:46
  And it's not that hard actually.
• 47:50
  We can grow enough food for 40 million people.
• 47:53
  There is enough sun to power enough solar panels and batteries and run our dams and geothermal in a way that means electricity is affordable and we've got enough of it.
• 48:05
  You know, we can do all these things.
• 48:07
  It's not as far away or as hard as you might think at the moment, who would have thought 20 years ago that we'd have $140 billion KiwiSaver fund scheme or that New Zealand super fund would be, you know,
• 48:21
  tens of billions of dollars or that we would all have computing devices in our pockets that was more power than the Apollo mission.
• 48:31
  So we could do other things that seem big and also are very good.
• 48:36
  And we shouldn't always think that nothing's ever going to change and it's always bad, but we certainly should be ready to do things for ourselves and not think of ourselves as quarks just floating on some sort of global
• 48:51
  sea because we're not, we have two islands, they're not going anywhere, you can't get to them in a rubber boat.
• 48:58
  And we're actually rich.
• 49:00
  We're rich in soil, we're rich in people, we're rich in sun, water, a lot richer than a whole bunch of other people and with a lot more options.
• 49:10
  And we should be aware of that.
• 49:12
  We've tuned ourselves and our entire society to be dependent, interlinked, intertwined with the rest of the world in a way that thinks, well, we have to be connected.
• 49:23
  We can't just turn it all off because then we wouldn't have enough food or well actually we could have enough food and we should take control.
• 49:31
  We shouldn't just cede control of our future to some sort of global politics.
• 49:39
  That doesn't have to happen.
• 49:42
  And we should think a bit higher.
• 49:44
  We've probably gone way beyond the scope of where you were thinking we did,.
• 49:49
  But you've given me so much food for thought.
• 49:51
  Yeah.
• 49:52
  And the people who got to the end of this must be thinking, wow, either I'm really happy I got to the end of that or I need some medication now.
• 50:00
  What a wild ride.
• 50:01
  No, I truly mean it.
• 50:03
  You've given me so much food for thought and a lot to weigh up.
• 50:07
  Look, if people do want more from you, you of course run your own independent media these days.
• 50:13
  Where can people find you?
• 50:15
  So you can go to the Kaka T H E K A K A as in the bird.substack.com and one of the reasons I'm able to do this sort of thing is that people are paying a subscription for me
• 50:30
  to keep doing this sort of work.
• 50:31
  And that's something I'm very grateful for.
• 50:34
  And I keep trying to do as much as I can in public, as much as I can.
• 50:40
  Because one of the sad things, one of the problems with subscription funded media is that the tree fell in the forest Problem?
• 50:53
  You do lots of work, but only the people who pay can see it.
• 50:58
  And I sort of walk a delicate line between putting some stuff behind the paywall and having a lot of it outside the paywall, or doing a lot of work in other media, freely available media, to make sure that
• 51:10
  some of the work I do is out there and useful.
• 51:13
  Yeah, no, I totally agree.
• 51:15
  It's difficult, isn't it, when you feel like the work is important and it needs to reach as many people as possible, but you also have to make an actual business run.
• 51:22
  Yeah.
• 51:23
  Well, thank you very much for coming on here and sharing all of your thoughts and your analysis.
• 51:27
  Bernard Hickey from the Kaka.
• 51:29
  Now, if this was helpful to you, send it to a friend so we can all level up with money together.
• 51:34
  Like I said, lots of food for thought in this one.
• 51:36
  Until next time, have a great day.
• 51:39
  This podcast can only give you general information about how things work in most situations.
• 51:45
  It's not individual financial advice.
• 51:47
  If you're after that, a financial advisor is always the best bet.