Archive | Forward thinking

Populist politics, the backlash of unfettered globalisation

Opinion, by Denis McMahon, chair of the Tauranga-based syndicator & funds manager PMG Ltd

Denis McMahon.

2 weeks into the 2019 financial year, there are some very important trends emerging & playing out in the world which I believe will be affecting our lives, and investments, for some years to come.

The US got off to a good start in January, with most forecasters predicting a good year but not a stellar one. There has been a good deal of exuberance in the US stock market and many commentators are expecting earnings to grow, despite recent volatility.

The World Bank is predicting global growth of 3.1% – again, not spectacular, but something we need to get used to in a global environment of low inflation.

There are housing bubbles in Canada, Australia, China and, as most argue, in New Zealand (specifically in the main centres), although China appears to be stalling at present. Property bubbles are always a cause for concern as they always involve leverage and, as 2007-09 showed only too clearly, once people are unable to service the debt, the dominoes start to tumble.

But for me, the biggest threat to stability & progress around the world is the spectacular rise in populist politics. A lot of this is a backlash against decades of globalisation, as evidenced by the rise in protectionist policies. Ironically, this is happening at a time when the US is stepping back from its traditional role of global leader & guarantor of what is being called the Pax Americana.

Since the end of World War 2, the world has had the US enforcing the spirit of free trade, but I suspect those days are gone. The benefits of globalisation have not been evenly distributed and we are now seeing the backlash.

Globalisation has, since the 1970s, seen the transfer of millions of jobs from the US to emerging countries and that has changed the relative value of capital & labour the world over. One of my favourite historians, Niall Ferguson, has said that around 40 million Americans lost their jobs in the global financial crisis and the backlash is starting to be felt.

The same story is playing out in Europe, where populism is on the rise as a backlash against the EU, who have completely ignored the massive concern shown by many member states over both the EU’s mismanagement of the financial crisis and its apparent failure to stop over a million people entering its member states in an uncontrolled fashion.

As examples:

  • Austria has elected a 31-year-old anti-immigration candidate as chancellor
  • Italy’s populist & digitally progressive Five Star Movement won the most votes, nearly 33% in the 4 March election
  • German Chancellor Angela Merkel won the election but it took 5 months of negotiations & compromises for her to be able to form a government because of the strong showing by the populist Alternative for Germany party
  • Our own elections in September, showed an increasing number of people wanted change to the existing National establishment. Although National received the most votes, Labour’s new young, female leader saw support for Labour rise rapidly in the few short weeks leading up to the election.

Ferguson believes it is the beginning of the end for the EU and I suspect he’s right. So, when you start to see the rise in populism coupled with a rise in protectionism, you can well expect disruption in the markets.

Meanwhile, back in “Shortland Street”, business has typically not reacted well to the election of a

Labour-NZ First government, with polls showing a sharp drop in business confidence. To be fair, this is nothing new, as 2000 was a particularly bad year for business following on from the election of the Clark-led government in 1999.

What was different then was that they then had 7 years of arguably the best economic times in decades to mitigate the perceived negativity. They will certainly not have that this time around. With so much uncertainty and a low inflationary environment, it’s hard to see any current justification for a hike in interest rates. However, with Labour clearly signalling their desire for higher wages, this will feed through into the economy and generate some inflationary pressure, possibly resulting in interest rate rises.

We’re certainly seeing some very interesting trends, which all point towards increased market volatility and, in my view, reinforcing the need for a defensive portfolio approach & diversification in your investment strategy.

I’ll watch with much fascination to see what unfolds here & overseas in FY19.


Mr McMahon has been working in, managing & investing in property for 33 years, starting in Auckland, where he managed a property portfolio (including 2 retirement villages) for a local council body, which led to a position as manager of property & legal services for the Tauranga City Council in 1990. This work included rationalising the newly amalgamated authority’s property portfolio over a 2-year timeframe.

He set up Property Managers Ltd in 1994, introducing investors to property syndication. In 2014 with Phil Tushingham, he co-founded Pacific Property Fund Ltd, PMG’s first managed property fund.

In 2013, Mr McMahon became chair of PMG, following the appointment of Scott McKenzie as chief executive.

The portfolios PMG manages include Pacific Property Fund Ltd, which invests in geographically & category-diverse properties; 2 funds which invest in category-specific properties, PMG Direct Office Fund & PMG Direct Fund; and a private equity fund, PMG Capital Ltd.

Disclaimer: The Bob Dey Property Report & Bob Dey Publishing Ltd do not have a policy on opinions & their slant, other than that they ought to relate to property. Bob Dey believes nobody is right 100% of the time, including himself. Opinion pieces such as Denis McMahon’s are presented to you unedited, apart from fitting the website’s style.

Attribution: Denis McMahon.

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Twyford introduces law to ban letting fees

Housing & Urban Development Minister Phil Twyford introduced legislation to Parliament yesterday to ban the charging of letting fees to tenants.

The Residential Tenancies (Prohibiting Letting Fees) Amendment Bill to Parliament will amend the Residential Tenancies Act.

Mr Twyford said: “Around half of all Kiwis now live in rented homes. This bill could put up to $47 million into the pockets of Kiwi families each year. This could make a real difference to struggling families.

“There are significant costs associated with moving to a new rental property, which many families are now forced to do every year. When moving into a new rental property, tenants can face up to 4 weeks’ bond, 2 weeks’ rent in advance – and one week’s rent as a letting fee – in addition to moving costs.

“With homeownership rates at a 60-year low, this bill recognises that we need to take action now to make rent more affordable so people can save to buy their own home.

“Banning the charging of letting fees to tenants is a good first step in improving the life of renters, while we continue our broader review of the Residential Tenancies Act. This review will examine a range of changes to make life better for renters and will include looking at limiting rent increases to once/year. It will also consider other initiatives to improve security of tenure and better allow tenants to make their house a home. The review is expected to result in legislation being introduced to Parliament early next year.

“Ultimately the best way to put tenants in a better situation is to increase the supply of housing, and end the shortage that is driving rents up. The Government’s KiwiBuild policy & urban growth reforms are designed to increase supply.”

Ministry page on proposed law
Regulatory impact statement [PDF 133KB]

Attribution: Parliament, Twyford release.

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Regional fuel tax law introduced

Transport Minister Phil Twyford introduced legislation yesterday to allow regions to apply for a regional fuel tax, initially for Auckland.

The Government’s programme should allow the bill to come into force before Auckland Council’s next budget takes effect, on 1 July.

Mr Twyford said in a release yesterday: “The Land Transport Management (Regional Fuel Tax) Amendment Bill will enable Auckland Council to seek funding for specific transport-related projects. It would allow funds raised in Auckland to be spent only in Auckland.

“Auckland is at a standstill and the Auckland Council understands the frustration of its ratepayers who are spending hours of their day stuck in traffic.

“Auckland has gone through massive population growth in recent years and its current infrastructure can no longer support the city. Improving infrastructure in Auckland is vital for its businesses & its people for whom just getting to work, school & about their daily activities can be a struggle.

“Solving Auckland’s traffic gridlock is also important for the rest of New Zealand, with congestion in the city between 2015-17 estimated to have cost the economy $1.3 billion/year in lost productivity.

“Under the bill, Auckland Council must first consult with residents on the proposed projects it wishes to fund. It must then obtain Government approval before the regional fuel tax can be implemented.

“The bill will go to a select committee for public submissions. We expect the law to be passed in June, ready for potential implementation in the Auckland region from 1 July.

Goff sees $1.5 billion for transport infrastructure

Auckland mayor Phil Goff said the timing would allow the council to put the fuel tax in place when the 3-year interim transport levy expires: “A fuel tax will provide up to $1.5 billion to invest in critical transport infrastructure in Auckland.

“Aucklanders understand that, with huge population growth and hundreds of extra cars on the road every week, the response of doing nothing simply leads to more congestion & gridlock, and billions of dollars in lost productivity.

“A fuel tax is cheap to administer, contains a user-pays element for road usage and raises twice as much money as the interim transport levy, which expires on 30 June this year.

“It can only be spent on transport infrastructure and people prefer that transparency around its use.

“The equivalent rates increase needed if there were no fuel tax would be an 8-9% rates increase on top of the general rates increase of 2.5% plus any other targeted rate.

“Aucklanders can’t expect other New Zealanders to meet our share of the contribution towards solving our transport problems.

“During the mayoral election campaign, I told every meeting that if people wanted a solution towards stopping greater congestion they would need to contribute towards it. I strongly advocated for a regional fuel tax and said that if people thought they could get something for nothing they should consider voting for someone promising that, but that I did not believe that was honest.

“Council is currently consulting on its 10-year budget and half of public submissions on the regional fuel tax so far received support it.

“Aucklanders will soon get another chance to have their say on how we tackle congestion in Auckland when we consult with residents on the proposed transport projects we want to fund.”

Link: Land Transport Management (Regional Fuel Tax) Amendment Bill

Attribution: Twyford & Goff releases.

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Council considers green bonds for infrastructure funding

Auckland Council said on Wednesday it was considering issuing $NZ green bonds and intended to be the first council in New Zealand to establish a green bond framework.

Mayor Phil Goff said the prospect of green bonds was prompted by the significant investment the council needed to make in infrastructure to lower emissions and to adapt to climate change.

Green bonds are vehicles for raising funds which are invested in assets & projects which have positive environmental & sustainability impacts. They’d allow the council to diversify the pool of funds available to it by tapping into investors who wish to fund ‘green’ infrastructure assets & projects, but otherwise might not invest in infrastructure.

“We are investing significantly in our water infrastructure, to clean up our harbours & waterways, and in public transport infrastructure to reduce emissions & decongest our roads. These projects are an attractive investment opportunity for investors who are allocating larger segments of their portfolios to climate change & green investment activities.”

Attribution: Council release.

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Early leaders win in 3 by-elections

Josephine Bartley (Labour) was confirmed yesterday as the new councillor for Auckland Council’s Maungakiekie-Tamaki ward, replacing Denise Lee, who was elected last year as National MP for the Maungakiekie electorate.

In 2 local board by-elections to replace 2 other new MPs, Dave Pizzini (Manurewa Action Team) won in Manurewa and Denise Roche (City Vision) won in Waitemata.

24.85% of electors voted in the ward, 19.13% in Manurewa, 18.43% in Waitemata.


Maungakiekie-Tamaki Ward:

Josephine Bartley (Labour), 7225 votes
Josh Beddell (C&R/Future Auckland), 5648 votes

Manurewa Local Board:

Dave Pizzini (Manurewa Action Team), 5038 votes
Brooke Loader (Labour), 3411 votes
Michael Bailey (independent), 1384 votes
John Hall (independent), 967 votes
Jokaveti Nakabea Bai (independent), 378 votes

Waitemata Local Board:

Denise Roche (City Vision), 2993 votes
Greg Moyle (Balancing the Board), 2744 votes
Allan Matson (independent), 1970 votes
Chang Hung (independent), 1140 votes
Morgan Avery (independent), 1020 votes

Earlier story:
19 February 2018: Bartley in clear lead for council seat

Attribution: Electoral office.

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Bartley in clear lead for council seat

Maungakiekie-Tamaki Local Board chair Josephine Bartley had a clear lead at the weekend in the election to replace Denise Lee on Auckland Council’s governing body.

In 2 local board by-elections, Dave Pizzini was well ahead in Manurewa and Denise Roche in Waitemata.

The council posted progress results on Saturday, to be followed by preliminary results today and final results on Wednesday after special votes have been counted.

Ms Lee was elected to Parliament last year as National’s candidate in the Maungakiekie electorate.

Ms Bartley is in her third term on the Maungakiekie-Tamaki Local Board, and is currently the chair, but Chris Makoare is due to take over that role in April.

The leading candidate in the Manurewa Local Board by-election, Dave Pizzini, retired as a detective senior sergeant with Counties Manukau police in 2014 and has since been working as a self-employed private investigator.

He’s set to replace Simeon Brown, who was elected as the National MP for Pakuranga last year.

The leading candidate for the Waitemata Local Board, Denis Roche, was the Auckland City councillor for the Hauraki Gulf islands from 2007-10.

She was the Green Party candidate for Auckland Central in the 2008 parliamentary elections and was elected to Parliament in 2011 as a list MP, but wasn’t re-elected last year.

Dr Mark Davey resigned from the board last October, after a year, due to increasing overseas business commitments.

Greg Moyle, defeated at the 2016 board elections, was in second place, and heritage campaigner Allan Matson in third.

Progress results:

Maungakiekie-Tamaki Ward:

Josephine Bartley (Labour), 7073 votes
Josh Beddell (C&R/Future Auckland), 5580 votes

Manurewa Local Board:

Dave Pizzini (Manurewa Action Team), 4930 votes
Brooke Loader (Labour), 3369 votes
Michael Bailey (independent), 1369 votes
John Hall (independent), 962 votes
Jokaveti Nakabea Bai (independent), 372 votes

Waitemata Local Board:

Denise Roche (City Vision), 2917 votes
Greg Moyle (Balancing the Board), 2706 votes
Allan Matson (independent), 1936 votes
Chang Hung (independent), 1133 votes
Morgan Avery (independent), 1011 votes

Attribution: Electoral office.

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Ardern announces pregnancy

Prime Minister Jacinda Ardern announced this morning that she & partner Clarke Gayford are expecting a baby.

“We’re both really happy – we wanted a family but weren’t sure it would happen for us, in fact, we had been told we would need help. That has made this news unexpected but exciting.”

Ms Ardern said she’d put a programme in place to take a 6-week timeout for the birth, putting Deputy Prime Minister Winston Peters in charge of the country: “I have used the last few weeks to get on with making a plan. Yesterday I met with Deputy Prime Minister Winston Peters, to share the news and to ask him to take on the role of acting prime minister for a period of 6 weeks after our baby is born. Just like when I am overseas, Mr Peters will take on all the functions of prime minister, working with my office and staying in touch with me. I fully intend to be contactable & available throughout the 6-week period when I’m needed.

“Mr Peters and I have a great relationship and I know that, with the help of the rest of the team, we will make this work.

“After 6 weeks, I’ll be back on deck. Clarke & I are privileged to be in the position where Clarke can stay home to be our primary caregiver. Knowing that so many parents juggle the care of their new babies, we consider ourselves to be very lucky.

“I am so looking forward to having an extra role this year, but I am also excited about all of the plans we have as a government to make New Zealand an even better place. That includes work on health, housing, education & child wellbeing (just like the priorities in our 100-day plan). I am looking forward to leading that work, and having a slightly expanded family join me on that journey.

“But for now, bring on 2018!”

Ms Ardern, 37, became prime minister on 26 October, heading a government of Labour & NZ First MPs with support from the Greens.

Attribution: PM’s release.

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Collins raises scare about “road tax” diversion, but government fund already $½ billion in red

Former Cabinet Minister Judith Collins, now the National Opposition’s transport spokesperson, raised a scare this week that the new government would divert National Land Transport Fund money from major road projects to rail.

2 things she neglected to mention:

1, while the fund’s income comes largely (but not entirely) from road users, it has always referred to its “land transport” programme rather than to “roads”.

2, it will be a long time before the fund has any money to spend on anything. Its annual reports for the last 2 years disclose that the fund’s liabilities exceeded its assets by $497 million at June 2016, rising to a $528 million deficit at June 2017.

It had budgeted for a $40 million surplus at June 2017.

The fund’s 3 biggest spends in the last financial year were on the accelerated Auckland transport programme ($236 million), public-private partnerships (for highway development, $557 million) & Tauranga’s eastern link toll road ($107 million).

The fund’s income is derived from “all revenue from fuel excise duty, road user charges, motor vehicle registration & licensing fees, revenues from Crown appropriations, management of Crown land interest, and tolling”.

The fund uses this income to manage the funding of the road policing programme, the national land transport programme & activities such as transport planning.

The fund’s last annual report says: “The National Land Transport Fund has a negative general funds balance due to the programmes that were accelerated and current funding was sourced from the Crown. The funding received has been recognised as long-term payables, which are not due until 2-27 years from balance date.

“The fund has the option to slow down expenditure on the national land transport programme, or utilise the short-term borrowing facility of $250 million if required to meet obligations as they fall due in the short term.”

Congestion issues

Auckland – a region where traffic grinds to a halt daily – has a serious, and growing, campaign to get more people to commute by rail, reducing road traffic, but it still has to work out how to handle freight much more efficiently.

The biggest proposal for improving freight movement, the East-West Link through Penrose & Onehunga, won consent from a board of inquiry in November, confirmed by its report & final decision on 21 December. But, by then, the incoming government had canned the project.

Collins on Labour’s “pet” obsession

Ms Collins said in a release on Monday the new government’s transport minister, Phil Twyford, “has confirmed the government is considering diverting taxes paid by motorists who want better roads to rail instead, while insisting to media this won’t happen.

“This is an important principle, adhered to by successive governments, ensuring the specific taxes paid by motorists are invested in newer, safer & better roads – helping keep New Zealanders connected & safe. Road users pay taxes which are directly returned to them.

“But this now appears under threat, because of the Labour Party’s obsession with light rail in Auckland. Mr Twyford has written to stakeholders saying a number of changes to the government policy statement (GPS) on land transport are being considered. Among the proposals is ‘exploring how rail investment is incorporated within the GPS & the National Land Transport Fund’.

“This is in spite of his office telling media last week that funding for road upgrades would not be redirected to rail.

“In his rush to erroneously claim that a number of roading projects aren’t under threat because of the Government’s obsession with Auckland rail, Mr Twyford has been saying different things to different people.

“This desperate grab for more taxes is the result of this free-spending government realising how much it’s going to cost to build its pet rail line from Auckland’s cbd to the airport – so it’s looking to divert funding from regional roads as a result.

“The National Land Transport Fund is paid for by road users to be invested in improving New Zealand’s roading network and it should remain that way. The Government needs to check its priorities and ensure the taxes paid by road users are invested back in the roads they are using.

“Last week, National launched a series of petitions aimed at saving those regional roads that the Government is looking to slash funding for. Given this duplicity from the Government, I want to again encourage everyone to sign the petitions to save our roads,” Ms Collins said.

Twyford signalled his intention

Mr Twyford wrote in a column for Contractor magazine last week: “To achieve our vision for transport, change is necessary. I am interested in how we can best use existing funding tools – like the National Land Transport Fund & the Government Policy Statement (GPS) – to support a more multi-modal approach.

“The traditional way in which we finance & fund infrastructure needs to change if we are going to address the multiple challenges of urban growth, replacing ageing assets, meeting higher environmental standards & improving resilience. We believe we need to be smarter about how we use the Government’s balance sheet.”

Mr Twyford wrote that the challenges of population & freight growth in the “golden triangle” of Auckland-Bay of Plenty-Waikato “will not be solved solely by investment in the roading network. All modes can be complementary to each other.

“For example, the Government is committed to implementing a rapid transit system for Auckland, which will include light rail from the cbd to the airport and to west Auckland. Such an investment will not only make it easier for people to get around town, but it will also free up our roading network to improve freight efficiency.”

The National petitions

National MPs began launching their petitions a fortnight ago.

Whangarei & Northland MPs Shane Reti & Matt King’s petition calls for the Auckland-Whangarei 4-lane “road of national significance” to proceed as the previous government planned it.

In Auckland’s eastern suburbs, MPs Jami-Lee Ross (Botany), Simeon Brown (Pakuranga) & Denise Lee (Maungakiekie) launched their petition to support the East-West Link.

They commented: “After a decade of planning & $50 million of investigative spending, you would expect that there was a clear direction on the project. This project has been through a fine-toothed procedural process like no other. It is supported by council, iwi, and has been approved by the Environmental Protection Agency’s board of inquiry.

“The current gridlock is a major barrier to commerce. This is making it difficult for people getting access to their basic daily goods. It is quite literally the bread & butter of transport projects.”

Contractor, 15 January 2018: Infrastructure & transport
National Party petitions: Save our regional highway projects

Attribution: National Party releases, Contractor.

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Infrastructure funding requires most scrutiny in mayoral budget

Auckland Council moves forward on Monday with approval for public consultation of the mayor’s budget & long-term plan proposals, as altered in a committee meeting then signed off by the council’s governing body on Monday afternoon.

The documents still have some way to go before being implemented, which will happen on 1 July 2018, days after the final council signoff.

The mayor, Phil Goff, unveiled his proposals a week ago and the detail is all contained in the agenda for Monday’s finance & performance committee.

I’ve entered the many links below, including:

  • the proposals for improving water quality – forever underbudgeted
  • how he proposes to tax non-hotel short-term accommodation providers
  • a proposal to eliminate Auckland Council Investments Ltd, one of the council-controlled organisations devised when then-Act Party leader Rodney Hide, as local government minister, looked for ways to separate council & policy from commercial business management
  • waste management service charges, and
  • finance growth infrastructure.

Auckland Council Investments (ACIL) owns Ports of Auckland Ltd on behalf of the council, and also holds the council’s 22.3% shareholding in Auckland International Airport Ltd. Mr Goff says in his proposal the council could save $1 million/year of opex, but would first need to clarify port company & council roles.

Growth infrastructure funding requires careful scrutiny

The most startling event in all of this comes under the low-key title of “finance growth infrastructure”.

A better system than the old one-off local authority bond issues came in 2009, when the Local Government Funding Agency was formed, and it now has billions of dollars of bonds listed on the NZX to support activity by various councils.

Even so, Auckland Council has been hamstrung for the last 2 years after getting perilously close to its debt ceiling, but with no solution in sight to mounting infrastructure requirements.

The previous government helped out with its Housing Infrastructure Fund, but that never looked like an ongoing, considered solution.

In the mayor’s proposal now, the specific example given for support through the infrastructure partnership model (with the Government) is Watercare’s $1.1 billion Central Interceptor wastewater project, which would facilitate isthmus intensification while also reducing overflows into the harbours.

As with some other mayoral proposals, targeted rates are a preferred option. Making land more useable is one reason for a targeted rate, but making the harbours cleaner redirects the benefits.

This makes it critical that Auckland residents examine how & why funding should be provided, and whether people targeted with project-specific rates will have an option to contest imposition of both the bill & the project.

Agenda items, Auckland Council finance & performance committee, Monday 11 December at 9.30am, Town Hall:
9, 10-year budget 2018-2028 – process overview
10-year Budget 2018-2028 – roadmap
10, 10-year budget 2018-28 – mayoral proposal items for consultation
Mayoral proposal – 20-year budget 2018-28
Transport funding
Transition policy [published separately]
Water quality improvements programme
Natural environment initiatives & funding
Rating of online accommodation providers
Auckland Council Investments Ltd review
11, 10-year budget 2018-28 – other matters for consideration
Waste management service changes
Regulatory fees & charges
Land advisory fees & charges
Business improvement districts (bids)
Rodney Local Board transport targeted rate
Panuku programme options
City centre timing & 2021 events
Non-strategic asset sales
Coastal management
Financing growth infrastructure
12, Local rates pilot

Attribution: Council committee agenda.

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Goff focuses on infrastructure – traffic, housing, and including water quality

Auckland mayor Phil Goff unveiled his proposed 10-year budget yesterday to a mostly welcoming council chamber.

He’s focused on increasing infrastructure spending to ease traffic congestion, improving housing affordability and cleaning up water quality in streams and on beaches.

The average rates increase would be 2.5% for each of the next 2 years, rising to 3.5% for the following 2 years.

“This 10-year budget will see Auckland Council’s transport infrastructure spend increase to $11 billion over the next decade. The investment is critical to ensure our city, with increasing population and cars on the road, doesn’t grind to a halt.

“We’re working with Government to introduce a fairer revenue source in the form of the regional fuel tax. This means we can remove the $114 interim transport levy, which doesn’t raise enough money and is unfair in how it impacts on retired folks and others who make less use of our roads.

“Accelerating investment in our transport network is critical to address congestion and to allow the development of brownfield & greenfield sites to increase the supply of housing.”

The budget proposal will go through 2 council workshops before approval on 11 December of the document to go out to consultation. The consultation period will run from 28 February-28 March, the final budget will be endorsed by the council at the end of June and it will come into effect on 1 July 2018.

Link: Auckland Council’s 10-year budget proposal

Attribution: Council committee meeting & council release.

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