Change afoot at the Reserve Bank: New Governor appointed

Today it was announced that Adrian Orr, who has overseen the New Zealand Super fund will take over the role of Reserve Bank of New Zealand Governor. Mr Orr who has spent a decade overseeing the fund, which witnessed substantial growth during his tenure will take over at the end of March 2018.

When Dr Don Brash was Governor of the Reserve Bank, he became something of a household name. Dr Brash was willing to be interviewed by the media. He seemed to have the respect of Reserve Bank observers. His tenure lasted from 1988 to 2002, when he stood for National in the 2002 election.

Dr Alan Bollard replaced Dr Brash in 2002. He earned a reputation of encouraging staff at the R.B.N.Z. to develop their own ideas about how goals should be met, took out a layer of management and regularly talked to staff one on one. His tenure was eventful too, for he oversaw a major postwar boom in the New Zealand economy, where at one point the Government had a N.Z.$10 billion surplus and had started paying back some of the debt accrued during previous Governments. He also presided over the R.B.N.Z. during the days of the Global Financial Crisis where more than 30 financial institutions collapsed in New Zealand. Dr Bollard left in 2012 to take over the Secretariat of Asia Pacific Economic Conference.

And then there was Dr Graeme Wheeler. Mr Wheeler replaced Dr Bollard in 2012. Mr Wheeler was not known as a media friendly Governor. During his tenure the Mediaworks company which owns TV3 and operates the Newshub programme was banned from Reserve Bank briefings after one of its reporters leaked an embargoed report on the interest rate. Mr Wheeler was also known for not readily granting interviews, thus making it difficult to report on issues facing the R.B.N.Z. Following Mr Wheeler’s announcement in February 2017 that he would stand down at the end of his five year term which would end in September 2017, the then Treasurer Steven Joyce indicated that due to an impending election three days before his term ends, the Government would appoint a caretaker Governor to oversee the R.B.N.Z. until the new Government can appoint someone for the next term.

With the change of Government, new Treasurer Grant Robertson has signalled substantial changes are coming for the Reserve Bank. The major changes are that its targets are likely to be broadened and that external officials will be able to contribute to decisions around changing interest rates.

So, it will be interesting to see how Mr Orr handles the Governorship. Notable economists speak highly of him. He faces numerous challenges such as balancing the need for higher wages against inflation, the effect of international tensions on the New Zealand economy and the rise of crypto currency.- will it become big enough as a player to influence policy or will crypto currency go the way of the .com bubble?

Earthquake Commission needs bailing out

The coffers of the New Zealand Earthquake Commission are bare. After shelling out billions for the Canterbury earthquake 2010, the Christchurch earthquake (technically an aftershock of the former)in 2011 and the Waiau earthquake of 2016, the bank accounts of the Earthquake Commission are in need of Government bail out.

No one should be surprised at this. Prior to the earthquakes of this decade the Earthquake Commission at one point managed nearly N.Z.$6 billion in assets. The combined costs of the three events is around N.Z.$46 billion (around $4 billion for the Canterbury earthquake; $40 billion for Christchurch earthquake and $2 billion for the Kaikoura earthquake and aftershocks).

However, it is not an acceptable state of affairs in a country as prone to earthquakes as New Zealand is that our main earthquake insurance provider should be without any funds. It also raises questions about how we fund the Earthquake Commission and how we expect it to dispense insurance in the future.

It needs to be remembered that E.Q.C. insurance is capped at N.Z.$100,000 and whatever is in excess of that is the responsibility of the claimants regular insurance company (State, New Zealand Insurance, A.A., and so forth). It is not geared to supporting businesses and only supports domestic assets.

In order to reduce the E.Q.C.’s own exposure it takes out insurance with large reinsurance companies. An example given is the $2.5 billion taken out with 30 reinsurance companies.

Still, the large earthquakes of the last several years have raised a concerning question. How will E.Q.C. cope if further earthquakes occur in the Christchurch or Kaikoura tectonic settings? Such concerns are real because the Hope Fault with a repose period of 120-150 years has not ruptured for 129 years, and typically ruptures in magnitude 7.0-7.3 earthquakes – it branches off the Alpine Fault and goes out to sea just north of Kaikoura. The Greendale Fault, which started the Christchurch earthquake sequence, only partially ruptured on 04 September 2010. Whilst there is no suggestion it is going to rupture in the immediate future, at some point the segment that has not, has to reconcile with the rest of the fault – that will probably be another magnitude 7.0 earthquake.

A Crown Guarantee ensures that should an earthquake breach the $1.5 billion excess cap, the Natural Disaster Fund pays out until its limit is met and then the Crown pays the remainder. All very well, but when the Crown has already forked out for multiple large events that have nearly completely drained E.Q.C., one should consider whether the Crown needs some sort of back up. I do not know how this might happen or if a backer is even possible, but still it is worthwhile considering this possibility.

No charges for C.T.V. building engineers

CTV building before 22 February 2011 and after (PHOTO: 3 NEWS)

At 1251 hours 22 February 2011 in an earthquake that could be technically classified as an aftershock of the 04 September 2010 magnitude 7.1 Canterbury earthquake, the Canterbury Television building on Madras Street, Christchurch collapsed. 115 people lost their lives. Investigations into who knew what about the status of the building found three people potentially culpable for its failure.

The C.T.V. building right from its design and construction was a fundamentally flawed building. On 26 December 2010, a violent magnitude 5.0 aftershock struck right under central Christchurch. Afterwards the C.T.V. building was given a second green sticker, siginalling it had been inspected and no damage likely to threaten the integrity of the building or peoples safety had been detected. This was a fatal mistake.

Today however, the New Zealand Police announced that they were not going to charge anyone over the C.T.V. building failure. The reasons given were:

  1. The threshhold of culpability with the probable charge of manslaughter was too high – the Crown had to prove that the conduct of any defendant charged was so bad as to warrant the distinction of being considered a serious crime
  2. The length of time that had passed between building and the deaths occurring

I accept that the threshhold required to prosecute in negligent manslaughter is very high. To do so one must be able to prove that the building would have failed if it were not for the design flaws.

However there are people who should have been looked at more closely than they were:

  1. Gerald Shirtcliffe (William Fisher), who faked a whole degree based another William Fisher in England who had finished a degree in civil engineering – completely unqualified to be working in the building industry at all and known to have made serious errors in his supervision of the C.T.V. building’s construction
  2. Alan Reay, who designed the building was working out of his depth and knew it
  3. David Harding, the engineer who was employed by Alan Reay Consultants failed to disclose at an Institute of Professional Engineers New Zealand disciplinary hearing his involvement in the C.T.V. building design

I further think that the building code in 1986 was probably strict enough that if followed, the building might have still had deaths in it, but not a catastrophic collapse killing 115 people. Then the specifications set down in the then building code would have designed with the understanding that Christchurch is not immune to earthquakes, that seismic waves can be amplified passing through certain strata and that the seismic waves also induce vertical movement as well as side to side shaking.

A case does exist, nonetheless for amending the law to enable such suggested prosecutions to happen. The investigation should be conducted with the support of a technical expert – qualified I.P.E.N.Z. registered engineer, or other suitable person – who shall have access to whatever files are relevant.

It will not bring back the dead. It will not change the fact that on the day of the quake there was also uncertainty about who should be leading the rescue effort. But it will hopefully ensure that the C.T.V. failure on 22 February 2011 is the last of its kind in New Zealand and that New Zealanders pay due regard to such matters in the future.

Changes coming for foreign purchases of N.Z. properties

Today the Government announced that farm properties will be subject to new restrictions from 15 December. The decision to tighten rules follows concerns about a directive from 2010 which the Minister for Land Information Eugenie Sage considers to be very weak and undermines the Overseas Investment Act.

For New Zealand buyers wanting to invest in New Zealand properties, this is good news. It helps to give them a bigger foot in a doorway crowded by the feet of many wanting a slice of New Zealand real estate. Concerns had been raised that New Zealanders were being locked out of their own country – ironic since it was former Prime Minister John Key who said that New Zealanders risk becoming renters in their own country.

It will invariably invite criticism by National whose party spiel about foreign investment was that it was important for overseas investors to not feel unwelcome in New Zealand. True to an extent, but the National Government of Mr Key, like the Labour Government of Prime Minister Helen Clark to some extent ignored the fact that New Zealanders ability to invest in our own country’s real estate. This helped to give rise to the New Zealand First narrative of New Zealand being sold to the highest bidder by the two major parties.

One group of people particularly likely to feel the pinch are the Chinese. I have mentioned below why Chinese investors find New Zealand so attractive. But it needs to be noted that the Chinese Government has a global agenda in much the same respect as America – power, prestige, but also the means to enable that power to continue to grow.

For the ordinary Chinese citizen though, the reasons are likely to be more mundane. The reasons for Chinese investing here are many and not all necessarily for reasons that Americans or Europeans would:

  1. Chinese purchasing property in New Zealand has to do with many of them seeking a place to invest wealth that they do not want subject to Chinese Government scrutiny.
  2. Ensuring they have a bolt hole in the event that for whatever reason China becomes untenable as a country to live in.
  3. New Zealand may be seen as a less regulated market
  4. New Zealand properties and New Zealand come with a perception – largely true – that New Zealand is clean and green

With a huge population now pushing 1.5 billion people and megalopolises like Guangzhou with 35 million people, urban life in China is one of huge numbers of people, smog, traffic jams and central government planning simply not able to keep up with planning needs. One can sort of sympathize with them for wanting to move to cleaner less polluted countries.

However that does not change the fact that New Zealand needs to look after its own people and real estate. One concern that has arisen in the last several years is that whereas other countries have criteria on who can buy property based on citizenship status, we do not and that New Zealand needs to toughen up. Another one was that if a person from another country buys New Zealand property, would they then live on it, or be absentee landlords of some sort, when a New Zealand buyer would at least live there.

So, I welcome the new measures being put in place.

Tourist season beginning

Against a backdrop of international uncertainty in the Middle East with Saudi Arabia and Iran at loggerheads – again – and incendiary rhetoric spouting from both sides of the Korean Demilitarized Zone, the busy tourist season is showing signs of ramping up. For some the sabre rattling and threat of war will be off putting enough to make them look at safer options; for others it will be the long term trip of a life time.

For locals it might be the chance to catch up with relatives in other parts of the country, or attend one of the many festivals that occur in New Zealand over the course of summer. Numerous big musical acts are coming to visit New Zealand over the course of the summer, including Pink Floyd’s Roger Waters.

For airports this will be a busy time. Congestion both inside and outside the terminals, especially in Auckland. It will be challenging work for the ground staff keeping up with aircraft movements and for rental car companies trying to ensure enough of the right vehicle groups are available, and making sure that coming up to Christmas all of the servicing needs of vehicles are met so that the maintenance sections of their service yards are empty over the Christmas and New Year break.

Cathay Pacific shortly start flying A-350 aircraft into Christchurch, starting on 1 December 2017. This twin engine aircraft is known for its significantly quieter cabin. Emirates will continue flying their A-380 into Christchurch. Singapore airlines, which flies 777-200ER aircraft into Christchurch, are seeking to upgrade to A-350 jets.

Whilst exciting for the tourism industry, this all does come at a cost that is still not being adequately addressed. Every tourist that comes here will need transport, a roof over their head.

Small District Councils may find themselves struggling to pay for tourism infrastructure, such as public toilets, rest areas, car parking and camper van friendly sites as well as rubbish bins. They might also find a need to create designated freedom camping areas, so that those not wanting to use a camping ground have somewhere to go. Debates about how to pay for the infrastructure have resulted in suggestions of a one of levy or other payment at the border, which goes into a fund for such amenities. Others suggestions have included a user pays fee to access national parks to provide relief for local ratepayers.

The change of Government is yet to show anything in terms of tourism related policy. However some sort of policy announcements would be expected in the new year at the latest.