By Bernard Hickey
Finance Minister Bill English has said there are pros and cons from the New Zealand dollar's rise overnight to fresh record highs against the Australian dollar and Euro, saying it was good for households, but continued to prove a headwind for exporters.
English said he would not comment on calls for the Reserve Bank to cut interest rates, given inflation is near 0% and the New Zealand dollar has risen in defiance of the Reserve Bank's jawboning.
The NZ dollar rose last night to a fresh record high of 97.81 Australian cents and a new high of 70.65 Euro cents. It also rose to 76.52 US cents, which drove the old five currency Trade Weighted Index to an eight month-high of 80.62. The currency has risen 10.6% since the end of January in defiance of the Reserve Bank's repeated warnings of a significant depreciation.
Graeme Wheeler said this on March 12: "A substantial downward correction in the real exchange rate is needed to put New Zealand’s external accounts on a more sustainable footing." The TWI has risen 3.4% since that comment.
English said the rise in the New Zealand dollar was a "bit of a challenge for exporters to Australia."
"But we have got resilient exporters. They'll be adapting to it and of course some of them may end up shifting markets because we are weakening against the US dollar," he said.
English said he was not concerned about capital flows coming into New Zealand from those countries with much lower interest rates.
"Some of these things are symptoms of success. The fact that New Zealanders' purchasing power is improving relative to Australian dollar purchasing power in the long run is a good thing, but it does create a bit of pressure in the short run for our exporters," he said.
English was then asked if the Government was still committed to its target of lifting exports to 40% of GDP by 2025, given it fell to 28.7% in 2014 from 31.4% in 2011 and 32.7% in 2008.
"For four or five years until relatively recently there's been the headwind of the high exchange rate against the US dollar, which is the main trading dollar," he said.
"That's only come back in the last six months or so, although it has come back from highs around 88 cents to the dollar so it's been quite a positive development, but it'll take a while for the export sector to adapt to that. So, for example, you have some prices like dairy prices are down. If the US dollar was weaker then those prices would be different. These things take time, we think we are heading in the right direction, but there are headwinds."
The New Zealand dollar has risen 6.2% on a TWI basis since February 2 and is just 1.2% below its record high of 81.66 on July 7 last year. It has risen 5% against the US dollar since early February.
Asked if the Reserve Bank had held monetary policy too tight, he said: "That's a matter for the Reserve Bank, that's why they are independent. The Reserve Bank governor's got opinions about the currencies and he's got interest rates there as a tool that may have an influence on it, but he gets to make the judgment about how to use it."
Social housing reforms
Speaking to reporters for the first time since the Salvation Army ruled out buying state houses in the Government's social housing reforms, English downplayed the news.
He said he had been impressed by the levels of interest from community and other groups in the reforms, in particular the opportunity to access income related rent subsidies that previously only Housing New Zealand could use.
"We’ve just been around the country talking about the policy and have been pretty impressed actually with the level of interest and engagement," he said.
He pointed to more information being released on socialhousing.govt.nz about the reforms and said Ministry of Social Development would be publishing its purchasing strategy soon for selection of those accessing the Income Related Rents (IRRs).
"So they control the rental subsidies and they’ll be putting out a lot of information about where they expect to allocate those rental subsidies and that’s going to be a pretty critical piece of information,"he said, adding it would include information on long term contracts, payment mechanisms and how they will be calculated.
"These community groups are asking questions that the government and New Zealand have never had to answer, so we are working through it together and they are bringing all sorts of issues to the fore which, as we resolve them, are going to improve our social housing system," he said.
"Groups like the Salvation Army and plenty of others are sitting down doing their analysis and they are telling us things about our asset that we either didn’t know or which they have highlighted are important to them, even if they haven’t been important to the government."
Slower house building?
Asked if this would slow down down the building of affordable homes, English said the Government had a "number of processes for speeding that up."
"We are getting Housing NZ more actively redeveloping their houses – because they still own 68,000. They are the biggest, by far, the biggest operator and through into the Budget we will be taking some measures that will speed up the redevelopment of under-utilised land particularly in Auckland," he said.
English, who is Housing NZ Minister, said he was concerned about deferred maintenance at Housing New Zealand in the wake of comments by Community Housing Aotearoa yesterday that Housing New Zealand had deferred maintenance of NZ$1.2 billion.
He agreed the Government would have to invest to rectify that in the long run.
"But it won’t be $1.2 billion this year. Part of this process is that the government has to make sure there is a reasonable standard for all social housing," he said.
"Housing NZ is subject to a lot of different political pressures and there was a phase under the last government when they said ‘we don’t want to do maintenance, we want to spend the money on building new houses’ so that meant the maintenance fell behind."
Asked if the Government should reinvest profits from Housing New Zealand, rather than pay out dividends, he said: "We have to have some kind of a performance expectation of Housing NZ. It’s got to control its costs, it can’t just have an open chequebook to do what it likes, have whatever costs it likes. So the dividend is a bit of a discipline on them, but it’s a very small dividend relative to assets. It’s NZ$18 billion of assets and the dividend has been something around NZ$100 million, so they have the capacity to do both."
English said Housing NZ was performing better.
"They are getting more maintenance down, they are getting vacancy rates down, they are shortening the vacant days for the houses, they are getting more development down in the pipeline, so they are really picking up performance," he said.
Little criticises Government on housing
Labour Leader Andrew Little said the Government kept blowing its promises on social housing.
"Bill English and Nick Smith and Paula Bennett allowed the Prime Minister to give a State of the Nation speech laying out the grand plan for the great state house sell-off, saying that the Salvation Army would be rubbing their hands with glee. In fact the Salvation Army was rubbing its hand in despair, which they have now disclosed to us so they don’t want a bar of it," Little told reporters.
"They don’t want a bar of it because it doesn’t stack up financially, and they don’t want a bar of it because they are saying it is bad for state house tenants," he said.
"The government has got this wrong, totally wrong and so it doesn’t surprise that they are now back to square one. They should fix up the houses and get people in them to reduce those waiting lists and get people out of the cars and garages that they are living in because the state house system has broken down. This government has got it wrong, they have been exposed now, so they have got to go back, repair their housing stock."