If I was John Key, I’d be rarked up too with Reserve Bank governor Alan Bollard raining on my parade by saying the most New Zealand could expect was “crumbs from Australia’s table”.

I’d be even more pissed off because this was a week in which Key did Bollard a huge favour.  He let his prime ministership take a battering, largely thanks to his government adopting policies that Bollard, and his predecessor Don Brash, have wanted for years.

That is: a big stick for beating house prices down.

The Real Estate Institute of New Zealand statistics released this morning show that, in January, home sales figuratively ground to a halt.  Nationwide, 3666 homes changed hands, only the second month in the last 20 years to record fewer than 4000 transactions.  That phenomenon coincided with the release of the Tax Working Group report that threw into doubt the tax climate for residential property investors.

In the heady month of January 2004, when unsolicited credit cards still fell from the letterbox like autumn leaves, more than twice that many houses were sold.  The Reserve Bank was certainly banging on about the local love affair with property investment then, but did Michael Cullen do anything about it?  No.  He was too busy spending the Budget surpluses.

Now, the government has scared the be-jesus out of the investment rental property market, and just in time.

As ASB economist Jane Turner observed of the REINZ stats this morning: “The pick up in house prices of the second half of last year was surprisingly strong and did present a risk of reigniting unsustainable credit growth and consumer spending, at a time when a focus on increasing savings was needed.

“Fortunately … the Government looks likely to step in and help even the playing field. Changes to the tax policy around housing will reduce the amount of work monetary policy needs to do to bring inflation pressures back under control.”

In other words, Key is doing something “bold” – the operative over-used word this week – to change investment behaviour.

After all, if ending depreciation deductions on investment properties shaves 10% off the $200 billion national cache of such assets, he will be the first National Party Prime Minister in living memory to intentionally destroy $20 billion worth of wealth.

Muldoon did that sort of thing by accident and with the best of intentions.

Most of that wealth destruction is on paper, of course.

But it’s still a big call to make such a dent in so many aspiring middle class retirement plans.

You’d need to be very confident you could make up for that with economic growth.  The question remains: can Key do it?

Well, this is a reasonable start. For a start, the government is deliberately making property investment look more risky, like lots of other more productive investments, so that more people with money will at least consider those other options rather than buying a bedsit rental in Kingsland and hoping for a capital gain to fund retirement.

In doing so, Key is delivering another long overdue piece of the economic medicine: “giving monetary policy mates” – an idea first zealously espoused by Jim Bolger’s first Finance Minister, Ruth Richardson, in the early 1990′s.

Then there is the tactical element.  Key is trying simultaneously to kick-start an economy and to send a rather chilling message to the property-owning classes.

If the housing market can just go quiet – property values need not fall much but they have to stop rising for a while – that will take the pressure off interest rates.

The RBNZ’s need to lean on inflation with higher interest rates will fall away if the property market behaves.

Across the Tasman, and elsewhere among major trading partners, interest rates may rise. The question of “normalising” monetary policy is pressing globally.  That could create short term export opportunity for New Zealand through a lower dollar.

For the longest time, New Zealand and Australian monetary policy settings have been in rough lock-step, meaning little improvement in New Zealand exporters’ competitiveness in Australia, our largest high value manufactured products market.

If the Aussie economy keeps spurting, while the New Zealand economy pauses for a structural adjustment in property prices, it’s a fair bet our interest rates will be lower for longer than Australia’s,

Since most of the wealth Key destroyed this week is only destroyed on paper, and actual export receipts arrive as cash on a SME business payment cycle – say 90 days – there are some of the pre-conditions for a jobs-rich, export-assisted recovery to offset wealth effects from property tax changes.

Add to that the fact that personal tax rate cuts are likely to advantage natural National voters anyway, and there is the bones of a plan to go into election year with the economy coming back to the boil.

In other words, this week, Key gave his very own Don Quixote over at the Reserve Bank the spoke in the property market wheel that’s been necessary for so long.

A quip that belittled his big political idea, which is what happened when Bollard dissed Key’s goal of catching Australia, was bound to irritate.

(BusinessWire)

Early reports from the hui of Maori and national leaders at Waitangi suggest a typically turbulent exchange, piqued this year by signs of how the John Key-led National-Maori Party government continues to change the way politics could be played in New Zealand.

Friday’s Waitangi hui took place against a journalistically tasty backdrop of leaked and overt criticism over the role of the Iwi Leadership Group, an opaque but powerful initiative that is suddenly thrusting the foreshore and seabed into the public domain in the classically messy tradition of Maori – if not all – politics.

The issue became media property with the release of a marketing document from Excelsium, the PR firm run by lobbyist and political commentator Matthew Hooton, which argued the government is heading for the same political debacle as its predecessor on the foreshore and seabed issue.

Unless, that is, it restores the right of Maori to take their claim through the courts, like anybody else would expect to be able to do.

That right was extinguished in the first post-colonial land-grab of the 21st century by Labour’s Helen Clark-led government in 2004.

The leak on blog sites this week of comments highly critical of the ILG has already reportedly caused consternation among Ministers and officials heading for Waitangi – what with diplomats turning up for the first time since 1995 and everything.

The Exceltium document describes northern tribes, who host the weekend’s Waitangi Day celebrations, as particularly critical of the ILG, whom Hooton identifies as led by leaders hailing from three powerful, non-northern iwi: Ngai Tahu, Ngati Tuwharetoa, and Ngati Porou.

This is an allegation which already mightily embarrasses Tuwharetoa, an iwi virtually land-locked and claiming “no formal involvement” in the foreshore and seabed negotiatons.  Rather, Tuwharetoa’s interest is in another such Iwi Leadership Group, which is working on freshwater allocation issues.

As you’d expect for an iwi whose only shores of significance are those of Lake Taupo, governed by fee simple title, Tuwharetoa is pursuing those issues with other iwi with freshwater interests like Tainui from the Waikato, Whanganui, and Te Arawa.

But what it also shows is that there is a whole new layer of activity occurring between iwi and this government, which is willing to take risks, have Ngai Tahu muck it up for the rest, and create forums in which real conversations between iwi with real concerns and a government serious about killing some old issues, can be had.

That’s the Pollyanna version, anyway.

And whether Hooton has over-stated Tuwharetoa’s role is perhaps insignificant.

The reality remains that the leaked document contained deeply critical comments from a Ngai Tahu Corp. staffer about the ILG dealing with foreshore and seabed issues that are dear to both Ngai Tahu and Ngati Porou.

Given the prominent role of Ngai Tahu operative Sacha McMeeking, this should concern Ngai Tahu.

“The precise role of the ILG is murky, as are its inter-relationships with the Maori Party, the National Party and government officials,” says the Exceltium paper.  “The ILG does not claim to speak for Maori but is nonetheless seeking to influence the new foreshore and seabed policy framework so that it ‘better accounts for the rights and entitlements of iwi/hapu’.

“The new government’s approach to the issue initially had elements of commendable openness, transparency and good faith,” says Hooton.  “However, once again, pivotal decisions appear set to be made by a small, informal group of iwi leaders, who names are not readily available and who do not even claim to represent Maori generally, but who appear likely to determine the Maori Party’s position on the issue.”

The paper draws on polling by Curia Research, the National Party’s pollster, and Excelsium’s analysis of an issue which precipitated the collapse in Maori electorate support for the LabourParty, the formation of the Maori Party., and almost certainly sealed the fate of the Helen Clark Labour-led government.

“Once again, pivotal decisions appear set to be made by a small, informal group of iwi leaders, whose names are not readikly available and who do not even claim to represent Maori generally, but whoo likely to determine the Maori Party’s position on the issue,” Hooton says.

Exceltium gained exposure to this group of iwi’s influence through its activity in the forestry sector, including as a PR adviser to Rank Group, owner of the Carter Holt Harvey forestry business.  An ILG involving Ngai Tahu, Tuwharetoa and Ngati Porou was heavily involved during last year’s development of the Emissions Trading Scheme, which included $25 million in compensation for Ngai Tahu and other iwi whose Treaty settlement forests stood to be devalued by the application of ETS rules.

The Minister of Treaty Negotiations and Attorney-General Chris Finlayson ordered a review of the Foreshore and Seabed Act last year, and announced in mid-2009 that there would be a response within six weeks, with repeal likely.

However, the issue remains the subject of Department of Justice policy work and what Finlayson’s spokesman described today as “ad hoc consultation” with entities such as port companies and “regular consulation with iwi”.

A further round of public consultation will occur on a draft proposal before final decisions, he said.

The three person Ministerial review recommended a “mixed model” approach to dealing with the issue, “combining either a national settlement or regional iwi negotiations, with allocations of rights and interests, local co-management and an ability gain more specific access and use rights”, says Exceltium.

However, Hooton argues such a deal will not only involve backroom deals, but is more likely to spark a replay of the racially divisive debate that occurred when Labour extinguished Maori rights to access the courts in cases involving claims to the foreshore and seabed.

Polling of 750 people nationwide by Curia found solid support for both a reconsideration of the Foreshore and Seabed Act and opposition to the extinction of judicial rights, although less sympathetic wording showed only one-third of those polled agreed that “the Foreshore and Seabed Act was unfair to Maori as it took away their right to go to court”.

Hooton argues the judicial rights path is the only politically winnable and honourable path to choose, even though it would make a quarter of National voters less likely to vote National (and 14% of Labour voters more likely to vote National), according to the Curia poll.

“The National-led government can – just – build a majority around the judicial option.  In contrast, any negotiated solution which emerged from a process involving the ILG, the Maori Party and National which is not based on any judicial decision, would lack transparency and integrity.”