Speaker 1: Kyota.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. The official
Speaker 2: cash rate has been cut by fifty basis points, bringing
Speaker 2: it down to four point twenty five percent. This marks
Speaker 2: the third consecutive cut to the OSER since August and
Speaker 2: brings it to the lowest level since November.
Speaker 1: Twenty twenty two.
Speaker 2: With inflation also dropping last month to two point two percent.
Speaker 2: Stats show an improving economy, but low spending is sparking
Speaker 2: concerns that we aren't out.
Speaker 1: Of the woods yet.
Speaker 2: Today on the front Page, we're joined by a simplicity
Speaker 2: cheap economist, Shamabil Yakob, to run through the numbers. So
Speaker 2: the ocr has dropped fifty points to four point two
Speaker 2: five percent.
Speaker 1: Is that good news?
Speaker 3: Well, it is good news, and it's expected news. The
Speaker 3: economy is weak. Infleation is not a problem. The Reserve
Speaker 3: Bank should be cutting interest rates because they're far too high.
Speaker 1: What's the prediction for next year? Then, how low will
Speaker 1: it actually go?
Speaker 3: Probably can get down towards three percent, so there is
Speaker 3: probably another one point two five percentage points of rate
Speaker 3: cuts to come. They're probably going to wait to see
Speaker 3: what happens over the busy Christmas period, and if the
Speaker 3: economy continues to be weak, they will continue to cut rates.
Speaker 2: So an Z cut most of its fixed home loan
Speaker 2: interest rates ahead of yesterday's OCR decision, and straight off
Speaker 2: the bat there, Kiwi Bank has cut its variable home
Speaker 2: loan and business lending rates, ASB has dropped interest rates
Speaker 2: across personal business and rural lending.
Speaker 1: I mean, this has to be some good news ahead
Speaker 1: of Christmas.
Speaker 3: Right, Absolutely, we desperately need this good news. For the
Speaker 3: last couple of years, people have been ref fixing their
Speaker 3: mortgages from very cheap to very expensive rates, and we've
Speaker 3: now just turned the corner and these lower interest rates
Speaker 3: are going to give a lot of relief to people
Speaker 3: who are refixing in the next year or so. So
Speaker 3: absolutely good news, but it takes a little bit of
Speaker 3: time for them to flow through.
Speaker 1: How much time does it take to flow through do
Speaker 1: you think?
Speaker 2: And what kind of numbers are we going to be
Speaker 2: looking at after this decision.
Speaker 3: Look, it usually takes somewhere between six and twelve months
Speaker 3: before these interest rate cuts really kind of become broad
Speaker 3: based better news for the economy. That's because the current
Speaker 3: level of interest rates are still quite painful. They're quite high,
Speaker 3: so people aren't borrowing and investing like we're doing during
Speaker 3: good economic times. So we probably need to assume that
Speaker 3: for the next three to six months things are still
Speaker 3: going to remain a little bit painful. We'll initially get
Speaker 3: just a better relief that people are not paying so
Speaker 3: much when mortgages, and then eventually when interest rates get
Speaker 3: low enough, we're going to start borrowing and investing again,
Speaker 3: and that's when the party begins.
Speaker 2: If you could explain to me, like I'm a five
Speaker 2: year old, how cur rights then translate to a better economy,
Speaker 2: could you do that?
Speaker 3: Of course? So the OCI is kind of like the
Speaker 3: interest rates from very short term money. You and I
Speaker 3: don't borrow that money. But when the reserve Bank changes
Speaker 3: the OCA, it also changes your floating mortgage rate. It
Speaker 3: also changes your fixed mortgage rates, not by the same amount,
Speaker 3: but it influences all those costs of borrowing for all
Speaker 3: of us. And so when the reserve bank drives and
Speaker 3: the cost of debt, it means that we are paying
Speaker 3: less for that. And when we see less expensive debt,
Speaker 3: when we see banks being more willing to lend, not
Speaker 3: only do we get relieved from the debt we already have,
Speaker 3: but we are willing to take on more new debt,
Speaker 3: and so we are spending, We're investing, We've got more
Speaker 3: spare cash, and it means there is just more money
Speaker 3: going around in the economy. We all feel better.
Speaker 4: Since August, the right has now been dropped one point
Speaker 4: two five points, and this is welcome news for families
Speaker 4: and businesses. For people with mortgages, the impact will course
Speaker 4: depend on the size of their mortgage, whether they're floating
Speaker 4: or fixed, and what rates they're currently on. But to
Speaker 4: give one example, a family with a twenty five year,
Speaker 4: five hundred thousand dollars mortgage could expect to be about
Speaker 4: one hundred and eighty dollars a fortnight fetter off.
Speaker 2: The OCR is obviously just one snapshot of the economy, right,
Speaker 2: what other data have you seen recently that shows that
Speaker 2: it's doing quite well well.
Speaker 3: The OCR is very much the tool to try and
Speaker 3: influence the economy. What's going into the rest of the
Speaker 3: economy is we're just in a recession. We're quite late
Speaker 3: stage in a recession. It's this is probably the deepest
Speaker 3: and longest recession since the Global financial crisis, so you know,
Speaker 3: the pain that people are feeling, the kind of bloom
Speaker 3: that's out there entirely justified, but also as short lived.
Speaker 3: Once in a recession and the Reserve Bank is cutting
Speaker 3: interest rates, we know things will get better. So right
Speaker 3: now what we're seeing is people are spending the people
Speaker 3: are investing less. We're not buying in something houses so much,
Speaker 3: businesses are not investing so much, and they're not hiring
Speaker 3: so much. So that's the kind of the I guess,
Speaker 3: the anatomy of a recession. But once we kind of
Speaker 3: work through this painful part, what we tend to start
Speaker 3: to see is there is a return of hope. And
Speaker 3: once people see that customers are coming back, orders are
Speaker 3: coming back, we see the economy really starting to recover.
Speaker 3: And so to me, the big story of the economy
Speaker 3: right now is we're in the kind of late stage recession.
Speaker 3: And when I look forward to twenty twenty five, I
Speaker 3: start to feel quite optimistic that by the middle of
Speaker 3: next year we should start to see some really good growth.
Speaker 2: How concerning is it that we aren't actually spending as much?
Speaker 2: What are the kind of flow on impacts of us
Speaker 2: holding onto our money for so long.
Speaker 3: Look, I mean it's not surprising, right The psychology of
Speaker 3: not spending right now is pretty clear. You know, if
Speaker 3: you don't have enough money, of course you can't spend it.
Speaker 3: When you feel fearful of your job and career prospects,
Speaker 3: of course you're not going to go out and spend.
Speaker 3: If you can't borrow money or the cost of borrowing
Speaker 3: is high, you're going to be really careful. So right now,
Speaker 3: that reduction in spending and investing, that's really what a
Speaker 3: recession is. A recession is not really going backwards. It's
Speaker 3: all of us going I just don't feel comfortable going
Speaker 3: out making big decisions right now. And so that's really
Speaker 3: the impact right now of what people are behaving at
Speaker 3: And the consequence of that is the retailers or the
Speaker 3: businesses that rely on your spending your money with them,
Speaker 3: they're going, oh, we have fewer customers, our costs are
Speaker 3: still high, our profits are down. And that then goes
Speaker 3: into the kind of cycle of businesses why I'm down.
Speaker 3: They have fewer employees, they don't invest as much, and
Speaker 3: that's what the recession is. So we're kind of just
Speaker 3: describing I guess the current economy situation rather than anything else.
Speaker 2: But you say next year it's most likely going to
Speaker 2: be party time. Is that when we're all spending more money.
Speaker 3: Eventually, Absolutely, and that's because we'll probably have worked through
Speaker 3: this kind of this difficult economic period. We would have
Speaker 3: gotten hold of our finances. You know, right now people
Speaker 3: are really struggling with the financial situation. Right now, over
Speaker 3: forty percent of New Zealanders are saying, oh, my finance
Speaker 3: are worse today than they were a year ago, and
Speaker 3: a lot of that is cost of living, higher mortgage rates.
Speaker 3: But when you look forward to the next twelve months,
Speaker 3: you can see that inflation is not that much of
Speaker 3: a problem. You can see that mortgage rates are going
Speaker 3: to become cheaper, and we are going to see people
Speaker 3: with better finances. And when people have better finances, they're
Speaker 3: going to go out and do more. And that's really
Speaker 3: what the economy is about. It's more of us doing
Speaker 3: more things.
Speaker 2: AB's latest housing confidence survey shows a net twenty four
Speaker 2: percent of respondents expected house prices will rise in the
Speaker 2: three months to October, up from a net thirteen percent
Speaker 2: in the previous quarter.
Speaker 1: Is this good news for the economy, Well.
Speaker 3: Again, it's kind of people hoping that as the interest
Speaker 3: rates come down, things will get better. So it's good
Speaker 3: news and bad news, right, It's good news if you're
Speaker 3: selling houses, it's bad news if you're buying houses. Over
Speaker 3: the course of the last year and a half two years,
Speaker 3: banks have been really careful about lending money. There's actually
Speaker 3: not been that many mortgages being written, and a number
Speaker 3: of houses selling has been really quite small. And as
Speaker 3: interest rates become cheaper, as banks become more encouraged to
Speaker 3: lend money, we are going to see more money chaseeing
Speaker 3: those houses and that should drive prices high.
Speaker 2: A big draw card for voters was nationals tax relief policy.
Speaker 2: You kind of wrap up of tax bracket changes, family
Speaker 2: tax credits, things like that.
Speaker 1: Has this actually done anything for the economy?
Speaker 3: Look, I mean, we've still had a recession and households
Speaker 3: are still spending less. We can see that household spending
Speaker 3: is still falling and people are still struggling. I guess
Speaker 3: the counterfactual is they might have had even less money
Speaker 3: to spend, and they might have spent even less in
Speaker 3: the absence of the tax cuts. So it's a little
Speaker 3: bit hard to kind of look at it and go, oh,
Speaker 3: there has been no effect, but it's not clear that
Speaker 3: those taxs have actually made any difference to the current recession,
Speaker 3: because on the one hand, there is more money in
Speaker 3: consumers hands, but on the other hand, the government investment
Speaker 3: in government spending, which is also part of the economy,
Speaker 3: has been a lot less.
Speaker 2: And so do you expect that to perhaps change next
Speaker 2: year with the next budget, because there have been whisperings
Speaker 2: that this budget is going to be obviously economy focused
Speaker 2: and focused on building on that government spending.
Speaker 3: Not really. I don't think there's going to be much
Speaker 3: good news in the next budget either. So this government
Speaker 3: is very focused on fiscal austerity. That means they want
Speaker 3: to spend less money. And when the government spends less money,
Speaker 3: those parts of the economy that are reliant on government
Speaker 3: spending will be smaller. Now, the question is if the
Speaker 3: government spends less, will somebody else spend more money? Well,
Speaker 3: not in health or infrastructure or education, right, That's just
Speaker 3: not how it works. So my sense is that actually
Speaker 3: government will remain a bit of a headwind to the
Speaker 3: economy and the recovery next year is going to be
Speaker 3: much more about the private sector. It's in spite of
Speaker 3: the government, we'll have a recovery rather than because of.
Speaker 2: Would we see benefits to say, if we start partnering
Speaker 2: with private entities to build things like roads and bridges
Speaker 2: and such.
Speaker 3: Well, I think there are cases and stages when that's possible.
Speaker 3: So infrastructure investment is extraordinarily expensive, and a lot of infrastructure,
Speaker 3: like you know, like a normal motorway, it's quite difficult
Speaker 3: to get money out of it. Right. We don't pay
Speaker 3: tolls or anything like that, so it's not easy to
Speaker 3: get private money into that. But there will be other
Speaker 3: types of assets, like tolled roads or at least buildings.
Speaker 3: Those kinds of things are absolutely possible to be done
Speaker 3: with private money, and private money can do a lot
Speaker 3: of that, so the government can get on with doing
Speaker 3: all the other things that you and I want, right,
Speaker 3: we want to make sure we have good hospitals, good schools,
Speaker 3: good roads, good bridges and some of those things. I
Speaker 3: think there's only one buyer and that's the government, and
Speaker 3: there's a bunch of things where private sector can be involved,
Speaker 3: and we should free things up and let them at it.
Speaker 3: Particularly with kivsav I mean I'm a bit conflicted because
Speaker 3: I work for it. Keev server, but qvserver money could
Speaker 3: absolutely find quite a lot of the infrastructure in New
Speaker 3: Zealand and it's the perfect fit. Kiis saving for New
Speaker 3: Zealand's infrastructure.
Speaker 1: Why don't we do that already? Do you think?
Speaker 3: Well, I think it will happen, and it partly hasn't
Speaker 3: happened because one, we haven't had many government infrastructure assets
Speaker 3: that could be invested in easily. They're not kind of
Speaker 3: packaged up in a way that works well. And also
Speaker 3: the way that we have our rules and regulations set
Speaker 3: up for kivserver made it a little bit difficult for
Speaker 3: some for most to kind of justify doing that, and
Speaker 3: those rules are currently being looked at very closely by
Speaker 3: Minister Bailey and others. And so I think by the
Speaker 3: time we can roll around to twenty twenty five, we
Speaker 3: are going to see a lot of those barriers being removed.
Speaker 3: So you know, watch this space. My projection is over
Speaker 3: the course of the next ten years we will see
Speaker 3: a significant escalation in KEYVY servers investing in New Zealand's infrastructure.
Speaker 5: The most obvious takeaway from a double cut like this
Speaker 5: one of the back of all of the fast cutting
Speaker 5: that's already taken place in the last few weeks is
Speaker 5: that our economy is kind of stuffed. As Kiwibank points out,
Speaker 5: hardship withdrawals from Kiwisaver have spiked from ten million dollars
Speaker 5: in January last year to thirty eight million dollars in
Speaker 5: October this year. Now, those withdrawals are not easy to make.
Speaker 5: You don't just rock up to your Kiwi Saver provider
Speaker 5: and go you have some cash. Thanks. You've got to
Speaker 5: be in big financial stock and you've got to be
Speaker 5: able to prove it and only then do they give
Speaker 5: you the money.
Speaker 2: Last week, a group of economists, and I might say
Speaker 2: many of them left leaning, wrote to the Prime Minister
Speaker 2: and Finance Minister to critique the government's approach, mainly for
Speaker 2: drawing out the recession.
Speaker 1: Where do you stand on this, Well.
Speaker 3: I mean it's just evidence, right. So over the course
Speaker 3: of this financial year, so the year to June twenty
Speaker 3: twenty five, the government will be sucking out four percent
Speaker 3: of GDP through reduction and government spending. So the government
Speaker 3: is leaning against the economy. But we should not be surprised.
Speaker 3: This is exactly what the government stayed when they were
Speaker 3: out there looking to get elected. They said we will
Speaker 3: cut taxes and we will cut spending. That was the promise,
Speaker 3: and that's what they're doing. So I don't know why
Speaker 3: people are surprised by what the government is doing, because
Speaker 3: it's exactly as it was signaled. Now the impact on
Speaker 3: the economy is absolutely the government is taking money out
Speaker 3: of the economy, and that is making the recession deeper
Speaker 3: and longer. The econ one to one prescription during a
Speaker 3: recession is the government should pump prime the economy, especially
Speaker 3: by investing in infrastructure. We haven't seen that yet. The
Speaker 3: challenge here, of course, is that there's only a three
Speaker 3: year window for any government to do what it wants
Speaker 3: to do, and this government, again came on the back
Speaker 3: of a promise to reduce government spending, and you have
Speaker 3: to do it in those three year window in the window.
Speaker 3: So I think it's very much that it was a
Speaker 3: political reason in terms of why they're pursuing this policy,
Speaker 3: and the recession just happened to come at a time
Speaker 3: that was very inconvenient for their program.
Speaker 2: So the only reason you're saying that the government may
Speaker 2: be drawing out.
Speaker 1: The recession would be to look better in the end.
Speaker 3: They're doing it because they made a promise of what
Speaker 3: they wanted to achieve when in government, and they're doing that.
Speaker 3: So I think I don't think they're sitting there going, oh,
Speaker 3: we want to have a really terrible recession, because nobody
Speaker 3: wants that. But I think the motivation is political in
Speaker 3: that we promised that we would do this in terms
Speaker 3: of government spending, and that's what they're doing. So in
Speaker 3: my mind, it's not really an economic rationale or economic
Speaker 3: reason why they're doing this. It's a political rationale in
Speaker 3: terms of what they wanted to achieve in their term
Speaker 3: in government.
Speaker 2: Yesterday we also had news of more health and Z
Speaker 2: jobs cuts coming. That letter to the Economists spoke about
Speaker 2: the long term impacts of these public cuts on the economy.
Speaker 1: How worried are you about all of these cuts?
Speaker 3: Yeah? Look, it is always difficult, right because on the
Speaker 3: one you can have two truths that are together. One
Speaker 3: is that there can be public sector efficiency against and
Speaker 3: the other is we can cut in the wrong places.
Speaker 3: And so right now, what we've got as a reduction
Speaker 3: in headcount, and it's pretty broad. There is not a
Speaker 3: lot of thought around what type of capacity we're losing.
Speaker 3: Is it wasteful employment, wasteful spending that we're cutting or
Speaker 3: is it all kinds of spending, Because the reality is
Speaker 3: that we need to cut all types of spending. You
Speaker 3: are going to cut out some of the good stuff
Speaker 3: as well as the band staff. So to me, that's
Speaker 3: probably the bigger concern is the lack of deliberate identification
Speaker 3: of the kinds of things that you want to root
Speaker 3: out and the kinds of things you want to do
Speaker 3: more of. And our public sector is actually under quite
Speaker 3: a bit of strain. Particularly the health sector has been
Speaker 3: through a huge amount of disruption through the pandemic, and
Speaker 3: we are faced with a sector that we are still
Speaker 3: going to need. Right we have an aging population, which
Speaker 3: means that we're going to need lots more health services,
Speaker 3: and weakening or disrupting the health system really does expose
Speaker 3: us to a lot of future and long term risks.
Speaker 2: Well, the government keeps saying that all these cuts are
Speaker 2: coming from back room bureaucrasy.
Speaker 1: Do you not believe them?
Speaker 3: Well, again, it's I don't know what backroom bureaucracy is,
Speaker 3: because you know, health is not delivered just by doctors.
Speaker 3: It is a team effort. There is a whole apparatus
Speaker 3: that has to work together to deliver these things. And again,
Speaker 3: I think it's that being deliberate about really identifying It's
Speaker 3: too simple to just say these are good jobs and
Speaker 3: these are bad jobs. You have to be a lot
Speaker 3: more deliberate about identifying waste and getting rid of that
Speaker 3: and growing the stuff that actually delivers. There's good outcomes,
Speaker 3: good services that New Zealanders want and deserve. So now
Speaker 3: I do have some quite a lot of resistance to
Speaker 3: the idea that just cutting people from head office or
Speaker 3: support services is going to get better outcomes, because that
Speaker 3: is absolutely not true.
Speaker 2: We're coming up to the end of the year. What
Speaker 2: does twenty twenty five look like to us. You've said,
Speaker 2: get ready for a party.
Speaker 3: I think a bit of a cul shower first before
Speaker 3: the party. But absolutely, look, I think the Christmas period
Speaker 3: is still going to be a bit hard, So please
Speaker 3: look out for each other, look after yourself, because I
Speaker 3: think Christmas period we put a lot of pressure on
Speaker 3: ourselves and there's a lot of demands to spend money
Speaker 3: and do things, and you really got to be really
Speaker 3: I think, confident and take a lot of care in
Speaker 3: what you do. But once we come out to the
Speaker 3: other side, I think we'll start to see some of
Speaker 3: those positive signs starting to build, but it will take
Speaker 3: a little bit of time, so I don't think we're
Speaker 3: going to see those really good times really kicking in
Speaker 3: until the middle of next year. But once that starts,
Speaker 3: I think things will feel a hell of a lot better.
Speaker 3: It's been a long time coming. It's been a long,
Speaker 3: deep recession. But when that recovery comes, boy, we should
Speaker 3: all go out and enjoy it.
Speaker 1: Thanks for joining us, Shamabel, Thanks Chelsea.
Speaker 2: That's it for this episode of The Front Page. You
Speaker 2: can read more about today's stories and extensive news coverage
Speaker 2: at enzdherld dot co dot nz. The Front Page is
Speaker 2: produced by Ethan Sills and Richard Martin, who is also
Speaker 2: our sound engineer.
Speaker 1: I'm Chelsea Daniels.
Speaker 2: Subscribe to The Front Page on iHeartRadio or ref you
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Speaker 1: And tune in tomorrow for another look behind the headlines.