It's just a thought...
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Posted by Iain on March 12, 2021, 11:18 a.m. in New Zealand Economy
A few years ago I got the most intelligent question ever from a potential client. He asked me what I believed was the greatest challenge NZ faced twenty years in the future. I had to think about it for a few minutes and after thinking about the many possibilities I said ‘Wrinkles’.
If you ever watched the movie Blade Runner, it speaks of a time on an over populated home planet where once humans get to a certain age, they are ‘dispatched’, permanently, to cut down on those needing to be looked after. Humans have a ‘use by’ date, strictly enforced.
A work of fiction but it raised a very interesting question - in a world of finite resources and ever increasing demands upon them, a deteriorating natural environment and an inability of natural systems to support ever increasing national and global populations, might it be an idea that people need to consider, however unpalatable?
Viruses as we have seen can only do so much of that work (but potentially a lot more of it in future).
I was pondering New Zealand’s ageing population dilemma following the New Zealand Government’s announcement its Skilled Migrant Category review is ‘priority’ and my business partner Myer’s thoughtful piece last week on the reliance by Australia on more and more young(ish) people going to Australia to keep the demographic triangle from ‘inverting’. That is to say more young people and a wider tax base funding the care of all, but not least, the elderly.
At the same time statistics revealed that in New Zealand our birth rate has fallen to 1.6 children per woman. It’s the lowest in 20 years (clearly not as much pandemic lockdown cuddling as many expected) and reflects a long term trend of fewer children. I understand 2.1 children per woman is the minimum ‘replacement’ value of a population.
This means New Zealand’s future now looks more like Japan and parts of Europe.
And that future is rapidly approaching - I’d suggest in 5 years we won’t need as many Primary school teachers as we do today, in 13 years fewer High school teachers, in 20 years, fewer University lecturers. Fewer IT workers. Fewer Accountants in 50 years. Fewer sales and marketing people in the middle as older people spend less and consume far less than younger people do.
At the same time we will need more aged care workers, qualified nurses, Doctors and mental health specialists (dementia and other aged related conditions will be numerically greater) and dare I say it Funeral Directors.
I wonder what, if any, planning for this ‘older’ future is in the minds of our immigration policy wonks and politicians. Will a rapidly ageing population play any role in the thinking going into this year’s Skilled Migrant Category review? Does any Government anywhere outside of China, let alone ours, really ever look that far into the future?
We are heading for an aged population and we cannot ignore the fact that planning for it needs to start now.
I look across the Tasman Sea for an example of how Australia is(n’t) dealing with it.
Australia has for the past 50 years adopted an economic policy largely centred around the two ‘Ms’ of mining and migration.
Immigrants consume so they are great for economies. Houses, cars, flat screen TVs, lounge suites, services - all add to GDP and employment of locals.
At the same time however the wealthy west is facing the very real dilemma of ever reducing resources, living with greater environmental damage and I’d suggest at some point ever diminishing economic returns while trying to support ever larger populations (and yes none of us know what might be invented or created in 5, 10 or 20 years time that might allow greater human carrying capacities but I’d suggest we might just have quality of life issues regardless).
Australia has an ongoing and critical shortage of water for example. Not because it doesn’t rain but it doesn’t rain enough where people live. Sure, you can desalinate salt water at incredible cost or build a pipeline from Darwin to Adelaide. But you need the energy and money to doit. Right now Australia is the world’s largest exporter of coal and is heavily reliant on fossil fuels for its local energy needs. They believe they must export coal to support local jobs and keep the dollars flowing into the country. And by doing so they are contributing to their, and the world’s, demise through climate change, pollution and environmental degradation - all in large part to employ and meet the demands of an increasing population - many of whom they ‘imported’. Doesn’t make a lot of sense.
I have always thought any strategy that brings in more and more younger people to offset those that are ageing has one serious flaw. Young people have a bad habit of becoming old people. At some point the day of reckoning will arrive.
In New Zealand the Government announced the week before last the 12 month overdue Skilled Migrant Category ‘first principles’ review is now priority (not I imagine for any reason other than it should have been done last year but the Government didn’t get around to doing it and some Mandarin from the public service has been in the ear of the Minister).
The Minister of Immigration, in what is possibly not accidental additional commentary, did what all politicians do around here - made noises that future migrant numbers will be lower than they have been and New Zealand employers need to get used to employing locals. Which is requisite political posturing - they all say that every time the word immigration comes up.
All well and good if you think immigration is bad, but what numbers and what occupations might you cut when you currently operate a labour market driven residence programme where for the most part migrants are highly qualified and highly skilled and are not taking jobs away from locals? To get a resident visa migrants must convince often sceptical local employers to play the visa game, a game in my three decades helping migrants negotiate this process 90% simply will not play. ‘Go and get a work visa and come back and see me’ they say. But you can’t get the work visa without a job…all that means migrants don’t take a job when a Kiwi can fill it.
As a nation we do not train and educate the numbers that we need to fill the vacancies being created. Every year we create tens of thousands of low, semi and highly skilled jobs that we simply cannot fill for all sorts of reasons. Our Universities produce half the number of Engineers and ICT workers we need to fill existing vacancies. Currently 45% of employers are telling the Government - we’d love to employ Kiwis but we cannot attract any to apply for the jobs we are advertising. Fruit growers are still begging for locals to come and help pick fruit.
Unless and until we train up those we need to fill the more skilled vacancies we are always going to require a skilled migration programme (and until we make the young, fit and healthy move to fill the less skilled roles) so we have a few stark choices:
• Import the skills until we produce what we need - and if those people are not given the opportunity of staying permanently many will decide to vote with their feet and go to a country where they can e.g. Canada. Migration is competitive.
• Reform welfare to force those able to get into training or study, to study. The Government keeps raising the minimum wage (closing in on $20 an hour) which is actually a disincentive to hire young people and train them (how about the first $18,000 of cinome being tax free instead?)
• Stop subsidising the education of those skills we are never short of (law and marketing and the like…) and provide greater subsidies for those we believe we will always need - nurses, teachers, software developers and engineers
Of course who is to say with any precision what skills the country will need in 5, 10 or 20 years? Or 50….?
One thing is for certain, like all developed countries (the US is the one possible exception) we have a rapidly ageing population. If the Government doesn’t start making wiping bums and showering old people in retirement villages popular and affordable for locals we will be forced to import the skills to do it.
No politician wants to have to try and sell an immigration policy that says we are letting in 50,000 Filipino aged care workers over twenty years to work with our dementia patients and the elderly but that is exactly where New Zealand is headed. And in time, Australia. Japan is already there.
I had an interesting discussion last year with David Seymour who leads the third largest party in the current Parliament. He’s a nice guy, very intelligent and my local MP and I voted for him. He is implacably opposed to any sort of population policy because, as he rightly points out, who can know for sure what skills we will need in one, two or three decades time? On that score I believe him to be right. But on a national level one thing is certain - if we do not want to follow Australia’s model (and I don’t think it’s smart in a world of finite resources where we need to cut our personal rates of consumption) and we do nothing to even think about our future workforce needs, we are going to become a nation where the tax base shrinks and the number of older people needing to be supported by younger people will increase.
The population ‘triangle’ is going to invert. Australia is heading down a blind alley in terms of its population. New Zealand doesn’t use immigration as a consumptive tool even though most smart politicians recognise immigrants do add to economic activity. In my view though that should not be the reason to let someone join us. It should be based on what skills we need. If they buy a flat screen TV along the way, huzzah!
Do we face a Blade Runner type decision some time in the not too distant future or will the politicians ‘de-politicise' immigration, start thinking about what skills and labour we need to cater for this ageing population and put in place a bi-partisan 20, 30 and 50 year plan to deal with an ageing population encompassing immigration settings, education, aged care and health funding?
Given my age I don’t much fancy the Blade Runner option so I’d like to think the politicians start choosing their words when it comes to immigration policy reviews a little more carefully.
And intelligently. Stop thinking about next year and start thinking about next three decades.
Until next week
Posted by Iain on Aug. 7, 2020, 1:21 p.m. in New Zealand Economy
New Zealand awoke to the most bizarre news this week - in the June quarter the unemployment rate fell. That’s right, it went down from 4.2% to 4%. Economists had been predicting it would increase to 8.3%.
It was I suspect a classic case of lies, damned lies and statistics.
Upon closer examination the picture, whilst still a heck of a lot better than the Economists were picking (why do we ever actually listen to those people?), was a little different to the headline number.
The number of people in the labour market fell from around 70% of those of working age (15 to 65) which was pre-Covid, at a record high, to around 69% suggesting several thousand people had fallen out of the labour market over the three months being measured. They were not looking for jobs. Anecdotally, a lot of older people who had been working have been selling up and heading out of Auckland. They are no longer counted among the ‘unemployed’.
That makes the ‘real’ unemployment number around 5%. Still, not too shabby.
The next quarter and beyond will be the more telling. With the Government wage subsidy still supporting 460,000 jobs, some of those will surely be gone when the subsidy goes.
I can only offer anecdotal observations of our clientele who do seem to be more educated and skilled than the average migrant or the average New Zealander and how they are fairing in the early days of this recession.
I can literally count on one hand the number who have lost their jobs through this recession. While many had hours cut when the country returned to work after lockdown or had salary cuts, more and more are having their hours and original salaries returned to pre-Covid levels.
In the wider economy we are told however many are not, so while many people still have jobs, and far more than the readers of the economic tea leaves were predicting, it is true I think that many people are earning less now than they were at the start of the pandemic.
I note, with a degree of unabashed satisfaction, the articles in the Australian Financial Review, a national business paper to which I subscribe which had been for the past three months patting themselves on their national backs over their’ better handling’ of the economic response to the pandemic than New Zealand and having claimed NZ went too hard for too long on our lockdown our economy would be the worse for it. With the virus seemingly out of control in Victoria and in danger of getting more than a foothold in other states the Aussies have shut down Victoria, my colleagues are now in a NZ style lockdown for six weeks and the Victorian economy will be in tatters. Given Victoria represents around a quarter of the nation’s GDP; I’ve noticed a distinct lack of comparing themselves to NZ in recent weeks.
It isn’t all beer and skittles here. The mood among my contemporaries is of caution and a deep concern about the next year or two in business. While New Zealand continues to keep the virus at the border, most are starting to question just what our Government intends doing when or if there is no vaccine any time soon (as there almost certainly will not be).
The calls are increasing from high profile politicians and business people for the government to start opening up the border but in a managed and sensible way with the requisite 14 days of isolation and or quarantine for those returning. This week the former Prime Minister (and chief mentor to the current PM) joined the chorus. Helen Clark has called for public/private partnerships to massively expand and manage these facilities and free up inward travel in a carefully controlled way. If we do it right, and at the risk of sounding like a smug Aussie, we have done a lot right, we will be able to capitalise on all the opportunities both social and economic that being covid free offers New Zealand.
Six weeks out from the election the Government has seemingly closed its ears to these calls. Under the smokescreen of keeping New Zealanders ‘safe’, they are clearly scared witless of the political damage community transmission would do here to their electoral chances. It could cost them the election if this virus escapes the isolation centres so rather than move quickly to establish a secure border, with a greater number of isolation rooms available in what would be the single most important process that will minimise the economic damage to the country, they will wait.
While they have over the past four months scaled up isolation facilities to 32 hotels, it is a half or a quarter of what is required to deal with the numbers of New Zealanders returning (they must now join a queue to return), highly skilled migrants being stuck offshore when they have critical roles to fill, partners and children of New Zealanders or migrants being forced apart for months and months and we are losing all those potential business opportunities that a Covid free country presents (think film crews apparently screaming to get in here to make movies and TV shows because we don’t need to socially distance).
On the skilled migrant visa processing front as the Government shuts down all offshore visa processing for three months, there’s possible light at the end of that long dark tunnel for those sitting in the (mis)managed queue who do not meet the very limited criteria to get priority processing.
We learned this week following an Official Information Act request that there is around 499 ‘priority’ resident visas awaiting processing. There is around 70 officers to process them. That would suggest that queue will be largely dealt with by the end of this month. In the non-priority queue, the oldest case (meaning none receipted since then has been allocated to an officer) was receipted by INZ in December 2018 (not 2019).
Despite the Minister saying both priority and non-priority queues were moving, that is a lie at worst, a gross distortion at best. The only non-priority cases that have been allocated for processing are those that have been able to be ‘escalated’ through an opaque and anything but transparent system. I am advised there has been approximately 325 of those and I presume it is them the Government was referring to when they lied about both queues moving.
The excuses trotted out by INZ and the Government for those of you that don’t warrant ‘escalation’ or are not ‘priority’ is about to end. I was told by a senior manager (who should know) last week that they ‘hope’ to start hitting that non-priority queue by ‘the end of September’. I can’t believe they say they ‘hope’ - they don’t know? How can they not know? They have 70 officers to process 499 priority cases. If it takes one working day to do one case (they should be able to do double that in 8 hours) and there are a handful of cases being ‘escalated’ a week, that priority queue should be gone within a week.
But they’ve given themselves two months in yet another example of backside covering.
Still no word on when selections from the skilled migrant pool will resume but my pick is nothing is going to happen this side of September’s election. If they do, the backlog will start to grow again. What I cannot understand is why Government is still allowing people to part with $530 to file an Expression of Interest when it has given no indication of when they will resume pool draws. Isn’t that fraud?
Another interesting week then here in New Zealand. Evidence the recession may well not be as bad as many had thought (but being Mr Glass Half Empty I’d caution it is very early days), the government is coming under increasing pressure from its own political elders to get the border opened to more people more quickly than it has been and INZ is about to run out of excuses on not processing non-priority skilled migrant visa cases.
Until next week
Posted by Iain on Jan. 11, 2019, 3:17 p.m. in New Zealand Economy
Happy New Year to one and all.
What does 2019 hold for immigration to New Zealand?
Worsening skills shortages and dealing with it will dominate as the Government recognises we simply do not have the people or skills to fill the tens of thousands of jobs that continue to be created here every year.
The immigration year began, as it usually does, with the perennial whining of Immigration New Zealand about backlogs in processing everything from visitor, student and work visas to the allocation and processing of skilled migrant resident visas.
I’d suggest to INZ management that rather than tell us when there is a backlog, make it news by telling us when there isn’t one.
Media reports of people waiting 4 hours (!) to speak to someone at Immigration New Zealand Zealand to ask a question are making the news. The Department has been moaning it cannot find people to fill its call centre. Welcome to the world of all local employers, INZ.
These backlogs in processing are caused in part by increases in applications for work visas caused by employers needing to source skills and labour from offshore or from visitors in NZ on tourist visas. It is also caused by INZ not being able to recruit half decent people to replace the one third of its staff who leave every year leading to a workforce of inexperienced officers.
In a labour market with 3.9% unemployment and virtually no skilled unemployment, finding even half decent people to join most companies is currently nigh on impossible. That is also at the heart of INZ’s own problems - they too recognise and grapple with the fact that anyone with half a brain or a desire to work is working.
The fact that in the end, most half decent immigration officers leave once they realise the type of culture that exists within the department, results in an organisation bottom heavy with types you’d not usually employ in your own business - English language proficiency being one of the greatest issues. A few good people work their way up the food chain and are conspicuous in their small number. I thank my lucky stars we get access to them or our work would become intolerable.
As always, rather than Government asking themselves if they are part of the problem and looking for better ways to assess and process visas (like, for example partnering with reputable private sector immigration consultants - still standing by!), we have yet another round of proposed changes - this time to work visa policy. It is as if changing rules is the answer to the ills that beset not for profit organisations with no competition.
Obviously, markets and conditions change and policies need to catch up. But that’s the problem - in my 30 years of having input into immigration policy reviews, all Governments seem to be 12-18 months behind the labour market and what is trending.
Are the current work visa settings not working? I’d argue they are. Any change that might discourage employers from employing non-residents would be a disaster for an economy with so much job creation going on and so few people to fill jobs.
If I could be bothered making a submission to Government on this latest proposed round of changes to work visas, I’d tell those looking at making change that change for changes sake is not a good reason to do anything. Work visa policy by and large is well designed, well thought through and working - the issue is the bureaucrats, not the rules.
Every new Government wants to make its own mark and let us all know how the ‘previous administration failed’. This one said so in its press release This Government, and particularly the current Minister of Immigration, has an itch over ‘migrant exploitation’ and comes from a union background so tends to believe, it seems, that employers see staff as commodities rather than the only real asset that they have that need to be cherished, nurtured and made happy.
‘Consultation’ then on changes to work visa process have been announced.
This appears, at least at face value, to be a tidying up of the current settings as opposed to anything more radical. No wholesale changes are on the table.
It is true that there are many different ‘flavours’ of work visas that have evolved somewhat piecemeal down the years but the foundation of all virtually all work visa policy has long been to ‘protect employment opportunities for locals’ (as it is in every country in the world).
What is being proposed is for all employers to in effect become ‘accredited’ with INZ following some no doubt painful exercise in form filling and evidence gathering on a range of issues from human resource policy and processes, track record with employees (disputes, etc), one suspects possible input from Trades Unions (if employers can find a relevant one), a commitment to training and up-skilling locals and efforts to recruit and/or greater use of regional labour market shortage lists. I wouldn’t be surprised to see us going down the (dumb) Australian pathway of forcing employers who want to bring in migrant labour to pay money into some sort of training fund. To be controlled by another Government bureaucracy no doubt to offset any political blowback about not doing enough for the locals.
The Government has signalled a carrot and stick approach with more bureaucracy up front for employers but with the promise of less later - presumably for the employers who need to fill more than one position and have regular need to supplement their local work forces with foreign help. I am less certain about the employer that needs to fill one critical role. Experience tells me tat if the employer wants someone badly enough they’ll play the game.
Much is left to be explained but these changes are not designed to cut numbers.
Interestingly, while the usual political noises about getting young people into work and training and better aligning job vacancies with welfare policies and education outcomes (are we producing enough of the right skills of our own?), the very brief release also seemed to recognise that we have an economy which is pretty much at full employment and everyone who wants to work, is working. Everyone who wants to be in training, can be. Everyone who wants to increase their skills, has the opportunity. Government has legislated for a higher minimum wage (increasing to $20 per hour in about a year from now). It is clear there is no economic evidence to suggest locals are missing out on anything to foreign workers.
One concern I have is with the new proposed ‘Regional Skills Shortage Lists’. Bureaucrats love lists because it means, in theory, they don’t have to think quite so hard. We have had skill shortage lists in one form or another forever - certainly the 30 years I’ve been doing this work. They are supposed to serve two purposes - to tell immigration officers what skills there is a shortage of and therefore, in theory, streamline the visa application process (never seen much evidence it actually works that way) and to send signals to migrants of what we need (never seen much evidence that works either). The lists are seldom accurate and almost as soon as they are released they become obsolete given the wheels of this Government Department turn at glacial pace and by the time an occupation gets on a list the labour market may have moved on. I note for example that despite Auckland needing 900 teachers this year we still don’t see Teachers on the critical shortage list. It’ll get there eventually, possibly when we still need Teachers.
Who will provide these lists? What methodology will be used? How regularly will they be updated? I have lots of suggestions…
Another piece of advice to the Government, as any migrant coming and looking for jobs will tell them, is there is little to no appetite among 99% of employers to employ migrants when there are locals available. What employer in their right mind would jump through all the hoops they must (eased of course for those that retain us to manage the process) if there are locals qualified and available? The answer I can tell the Government is zero. I’ve never met one. Kiwis first. They don’t need Government to tell them to look local - they want local.
Employers overwhelmingly recognise that migrants present a potential risk - whether that is through language differences, cultural fit, transferability of qualifications and skills to local market conditions and norms, commitment to staying long term with them (is the migrant only accepting the job to get their residence and then they will leave is a real question we get daily) and grab the local where ever possible.
This is why our clients are all fluent in English, a good cultural fit and why the outcomes for our clients with work visas and residence is overwhelmingly positive for both migrant and employer.
Although I know I am screaming into a hurricane force wind I would also like to see a Skilled Migrant Residence policy that takes into account the ‘chicken and egg’ that exists in the real world between getting work visas and jobs and break that cycle for the select few we allow to stay permanently in the country. I wrote a blog on this a few months ago. You can read it here.
This Government and the Minister in particular has long railed against ‘migrant exploitation’ as if it is commonplace. It isn’t, but as in any labour market there is no doubt that it exists on some level but it is known to INZ what sort of jobs and what sort of industries it takes place in and an entire system doesn’t need to change. Government knows that on the whole it is migrant employers that exploit migrants from their own ethnic or national group. The law was changed a few years ago to come down hard on such employers and there has been some very high profile actions taken against such people resulting in massive fines, loss of property and assets and imprisonment. Employers can in fact lose their own NZ residence if they are found to be exploiting others.
What we need is a system that makes it easier to secure work visas based on the real world and not some political construct predicated on ‘all employers are out to exploit so called vulnerable migrants’ which exists only in the minds of politicians and paranoid bureaucrats (one often reinforces the other in a not very virtuous circle).
In the end the Government can make whatever rule changes they like - I can with a great degree of certainty reassure our clients that it will make little to no difference to them or their chances of securing work. Employers will face greater scrutiny but that is not new, they do today.
If there is one thing this Government knows - we have chronic and worsening skills and labour shortages within this strong and growing economy and with job creation continuing to run into the thousands of new jobs every month, most of which can no longer be filled locally, they are not about to mess with that.
So, look out for change but, change ‘light’.
All the best for 2019
Until next week
Posted by Iain on Aug. 17, 2018, 5:06 p.m. in New Zealand Economy
Iain MacLeod, Southern Man
Posted by Iain on Aug. 3, 2018, 12:35 p.m. in New Zealand Economy
The greatest fear of most South Africans leaving behind an increasingly beleaguered economy and job insecurity is how they might fair financially when they get to New Zealand. They fret that they might be jumping out of a financial frying pan and into a fiscal fire.
This tale of two currencies, two economies and two brothers tends to suggest that sucking up any short term exchange rate pain can lead to long term gain if you only have the courage to brave the immigration waters.
I know the brothers that feature in this article so have not used their real names to protect their privacy.
Around 15 years ago, Peter, then aged around 50, moved to New Zealand with his School Teacher wife and two teenage sons from Durban. We processed their application under the skilled migrant category and they moved to NZ around 2003. He was a Manager of a small business with around 10 staff in South Africa. I don’t know what he was earning, but I think it likely it was not significant, and he was earning enough that with his wife also working they were living comfortably but certainly not extravagantly. His School Teacher wife would have been similarly modestly remuneration given how poorly teachers are paid in South Africa. They lived a fairly ‘average’ middle socio-economic existence in Durban North.
The second brother, Paul, was a few years older, lived up the road, worked in the same business, was also married and had two children of similar age to Peter. Today both Paul and his wife continue to work fulltime, and I imagine earned back in the early 2000s a very similar income to Peter.
On paper then, in 2003 they were likely in a very similar financial position.
Fast forward to 2018. Peter and his wife recently hit the retirement age of 65. They had in the time they had been in Auckland bought and paid off a home, supported their two children through university and managed to help take care of the wife’s mother (insofar as the NZ state did not after she too moved to NZ).
The couple recently sold their Auckland home, purchased another home in Mount Maunganui (adjacent to Tauranga in the Bay of Plenty) and given one of the sons had secured lucrative employment and settled with his family in Queensland, they recently purchased a second home near them. Their NZ pension pays out $630 per week (after tax) and they have decided to spend ‘winter’ in Queensland and summer in New Zealand. The wife has said as and when she requires or fancies it, she will top that pension up by doing relief teaching in Australia and New Zealand which is very lucrative. Peter has said he will do some Uber driving work to give him some extra pocket money to supplement the couple’s pension.
Meanwhile, back in South Africa, although he is a few years older than his younger brother Paul continues to work in the family business, not I suspect because he wishes to, but because he has to. These folks rarely go on holiday and are it seems part of the new struggling white minority (not that whites have a monopoly on struggling in South Africa).
In New Zealand, Teachers earn well when compared to their South African counterparts. A Bachelor of Education qualified teacher with 8 years’ experience can expect to earn around NZ$72,000 which is around R650,000. Those with additional responsibilities can earn another $20,000 per year. I might add the wife in this story was probably earning over her 15 years somewhere between $55,000 and $60,000 per year before tax given teachers in the public sector (over 95%) are paid better today than they were when she arrived in NZ. Her husband would have been earning something around $70,000-$75,000 gross per annum I suspect for the majority of the 15 years.
How is all this possible?
While you cannot exclude the massive increase in house values in Auckland over that 15 years it goes beyond that because Durban house prices have also increased in value in the areas these two brothers lived, although to be fair, not to the same extent as Auckland.
As we go to great lengths to explain to prospective migrants, New Zealand provides almost all public and social services out of the taxes paid by the citizenry. Taxes are not high by developed world standards and interest rates are about 60% lower than they are in South Africa. With ‘only’ 4.7 million people it can be done. It is a hard concept for middle class South Africans to get their heads around given they pay high taxes and then have to pay for healthcare, education, retirement and other social services on top. Their Government bleeds them dry. In New Zealand someone earning the minimum wage of $38,000 per annum (which is a pittance) is topped up by Government to $60,000 (that’s R550,000).
In NZ, around 95% of education costs are covered by the state, no child is charged for Doctors visits until they are 14 (planned to become 18), nor for Dental care (but not orthodontics which is very costly) till they are 18 and we don’t pay through the nose for security services to keep us safe. The first year of university is now ‘free’ and subsequent years continue to receive a 75% subsidy (or put another way, one’s taxes have already paid for it or others are subsidising your children’s study might be a better way of putting it).
You don’t even have to save for your retirement as the state pension is paid out at 65 irrespective of your wealth i.e. there is no means testing. It is always my suggestion that migrants should put something aside in a private fund for their retirement given this too is boosted by ‘free’ government money (taxes). You get both when you retire. If you are bond (mortgage) free at 65 you have a good shot at a dignified retirement especially if you sell up and move out of Auckland. If you saved some extra, you’ll enjoy a quality of life and standard of living those you left behind in South Africa cannot imagine.
I suggest that those of you reading this who are married, mortgaged, middle class with two children (our ‘every client’) and who are asking yourselves whether you’ll be better off financially in New Zealand rather than staying in South Africa should take note of this story. The rand has depreciated by so much in the 26 years I have been travelling there that increasingly there are those that are currency prisoners and simply cannot afford to leave. They are trapped. It is hard to see it ever recovering to the parity it once enjoyed with the NZ dollar back in the early 1990s.
I am often asked to write a piece about the cost of living in NZ but that’s just too hard because of the different lifestyles people are used to, their expectations and of course where they live. I do hope though that this piece offers some insight to you about the diverging paths of two economies, two currencies and two brothers.
Until next week,
Posted by Iain on Dec. 9, 2016, 4:16 p.m. in New Zealand Economy
As the Prime Minister passes the baton to his long time Deputy and the year starts to draw to a close, it is a good time to take stock of what the economy holds for New Zealand over the next three years.
The Ministry of Business, Innovation and Employment forecasts another 183,000 jobs in that time, which is not far off that of the past three years. That’s pretty impressive and promising if you are contemplating a move to New Zealand, given about half of those jobs are estimated to be skilled or highly skilled. I have no doubt the mismatch between the skills we have and are creating at home will mean that’s around 50,000 jobs that migrants will have to fill.
Government coffers are set to swell on the back of 3–3.5% predicted growth in the economy over that time.
Treasury is forecasting surpluses over the next three years of around $11 billion (around $8 billion three years out). The Government is already in surplus, dented somewhat by the cost of the latest infrastructure bill from the earthquake of last month.
Things then are looking pretty rosy. We have to hope Donald trump doesn’t go and do anything too stupid as it only ever takes one shock (natural or man made) to put a dampener on any predictions.
For those of you thinking of timing a move, those that stare into their crystal balls believe we are going to start to see interest rate rises next year as all this good economic news starts to feed through into inflation in late 2017. Right now it is sitting at 0.2% but with unemployment predicted to fall to around 4.5% over that time (with skilled unemployment even lower) inflation is going to start to reappear we are told.
That has today seen a jump in the value of the dollar as markets start to build in such expectations.
What challenges lie ahead:
All in all it’s been a good year for the country and the people. Things for the most part continue to get better for the significant majority. The economy is in good shape, the people have made clear they don’ want tax cuts with these surpluses but improved Government services, more money to go to health and more to education. I am with them. Our collective hard work, creativity and tolerance has built the foundation for a very prosperous few years.
If the rest of the world can hold it together and there are no major economic shocks all should be well as we kiss goodbye to 2016 and welcome in 2017.
Until next week
Posted by Iain on Dec. 2, 2016, 3:06 p.m. in New Zealand Economy
I love and detest statistics. They can often tell any story you want.
Apparently me and my fellow New Zealanders are now the fifth wealthiest people per adult in the world. Beats being last I guess.
The annual Credit Suisse Global Wealth report 2016 has seen weeny New Zealand leap frog over the British, the Singaporeans (mugs – you work so hard and such long hours!) and the Belgians.
The world’s wealthiest citizens remain the Swiss at US$562,000 per adult, followed by Australians (US$376,000), the United States (US$345,000) and Norway (US$312,000).
In at 5th comes New Zealanders at a whisker under US$300,000. This is up around US$34,000 over the previous year and has been put down to capital appreciation and an improvement in exchange rate (our currency has been going up against most others making us wealthier).
Interestingly, when you look at median wealth, New Zealand goes up one place to 4th whilst the US falls to 23rd.
I have no doubt New Zealand and New Zealanders are getting wealthier in both real and nominal terms.
The economy is growing well, is diversified and we are working far smarter across many more industries and sectors than we ever did. We have benefited from free trade agreements with a number of countries and accept that the world owes us nothing and we need to get out and sell our products and services.
At the same time tourism is booming as more and more people crave, if even for only a few days, the natural beauty, space and fresh air of New Zealand.
This at a time where if you can believe other statistics we have more children living in relative poverty than ever before. While our levels of inequality are far lower than comparable western economies and I’ll wager most Kiwis are feeling secure in their work and comfortable financially, these sorts of reports are flattering but should be no cause for complacency in our continued drive to ensure inequality does not start to widen (we do a pretty good job I think of keeping the gap reasonably narrow).
As with all statistics however there is a hidden story and I suspect it applies as much to Australia as it does to New Zealand.
Of all western economies in the OECD our economy has been growing strongly in recent years and is growing at around 3.5% and is in line with the US. It is far ahead of Europe and for most of the time, better than Australia.
With strong inward migration and rising house values, particularly in Auckland, I’d be interested to know if this increase in wealth is more paper wealth than realised wealth. I suspect the former given house values in Auckland in particular moving up by a further 9.3% over the past year. I am sure however that we have leap frogged the UK as its currency has plummeted post Brexit, making Brits poorer than they were at the beginning of the year. For most however I’d suggest their fall in wealth is likely also only on paper although higher import process might start to make it more real than imagined.
New Zealanders tend to have the significant majority of their wealth tied up in property and few venture outside this passive wealth accumulation through investing in higher risk and real wealth generating assets. So while it is nice to know we are all wonderfully rich (ha!) if our property bubble in Auckland was to burst I suspect we would fall several places from almost podium finish to top ten.
I am not sure it would make us feel any different. I confess I had no idea I was living in the country with the 5th wealthiest people this year. I knew we are pretty well off but wouldn’t have thought higher than the UK to be sure.
I do feel there is a message in there though – and it applies to where I am sitting this week – Singapore.
My one frustration about this place is how many people bemoan that New Zealand tax rates are higher than Singapore’s. Yes, they are, I confirm, but surely what counts at the end of each month after you have toiled away, paid your taxes and then paid your bills is how much you have left over.
New Zealand’s approach of socialising risk through tax payer pre-school day care, education, health and social security has not stopped us as we are still the 5th wealthiest bunch on the planet and is testament to how higher taxes might actually increase wealth. The fact that we don’t have to pay for private schools, private health insurance, our (complete) retirement and other social services to the extent that people in economies like Singapore do; we seem to be wealthier. On any happiness index we are certainly happier which to my mind doubles the wonderfulness.
Nice to know then I am apparently wealthier than last year, but to be honest, I don’t feel it. I live in the same house I have lived in for 20 years, I drive the same car as I did last year and I don’t see a whole lot of money piling up in my bank account.
But I am content and once again thank my lucky stars I was born in the country I was. This report is further independent evidence for those looking to decide whether life and the standard of living might be better or worse in our cool little country if they choose to join us.
Until next week
Posted by Iain on July 22, 2016, 8:52 a.m. in New Zealand Economy
In what can only be described as ‘long overdue’, the Governor of the Reserve Bank has signalled significant changes to lending criteria to try and pop the Auckland region house bubble.
Although the Governor gave the banks six weeks warning, all four major banks immediately signed on for the new lending criteria. The major changes see investors only allowed to borrow 60% of the value of the second property (one they don’t live in).
The rules apply nationwide and not only to Auckland as the rampant Auckland market spills over to surrounding regions and sees property values in places like Tauranga and Hamilton spike over 20% in the past twelve months.
Signals are also being sent that loan to income ratios will shortly follow. Right now the average house price is about ten times the average Auckland salary. Clearly unsustainable.
The Reserve Bank is being forced to take what is fairly drastic action now as did the Central Bank in Singapore a few years go. I was consulting with a Singaporean Real Estate agent a couple of days ago and she told me these similar rules have caused the market here to slow down dramatically.
The Reserve Bank of NZ is grappling with having to keep interest rates higher than they otherwise would be as they have tried, unsuccessfully, to contain house price inflation. The downside of this is a dollar at a three year high against the US dollar, virtual parity with the Australian and while exporters (like me!) have kept their heads above water there is real downside economic risk in constantly squeezing exporters margins.
The upside of these moves are that the markets are now pricing in two 25 basis point cuts, i.e. 0.5% over the next few months which will bring fixed mortgage rates down to around 3.5% and floating to perhaps 4.5%. Good for the productive economy.
While this all goes on we wait with anticipation for the release of the Auckland Unitary Plan which I am more convinced than ever will confirm a mix of Auckland growing out beyond its current boundaries and a degree of intensification.
I believe the Government is likely to confirm that it is maintaining the status quo in available resident visas over the next two years. A bold call when many are openly calling for a cut back or slow down in migrant numbers.
Wise move by the Government – there is scant evidence permanent migrants (of which there were around 45,000 last year) are fuelling house price inflation. While some will buy homes most are not adding to house price inflation but are victims of it - particularly in Auckland because they cannot afford to buy homes. This house price inflation is largely home grown with a degree of onshore investors buying into the market. I can only offer praise to the Government for standing firm against the calls of those that do not understand the needs of employers in New Zealand and the importance of migration to the strength of the economy.
More houses are being built but the speculation needs to be reined in.
The Reserve Bank is now getting tough and more power to it.
Until next week
Posted by Iain on May 20, 2016, 11:46 a.m. in New Zealand Economy
Over the past week three simple yet powerful statements have passed the lips of the Reserve Bank Governor, Minister of Housing and most importantly, the very powerful Minister of Finance in regards to the Auckland housing market.
The first said that the continued rise in house values in Auckland has become a ‘threat’ to the national economy.
The second told the Auckland Council it ‘must’ move to free up more land to increase supply of housing and speed up the building consent process.
The third, most ominously, came out yesterday and warned without any veil, ‘Auckland Council is on notice’.
Auckland Council has been considering for the past few years through its ‘Unitary Plan’ whether this already sprawling city should grow up or out or both as it contemplates another one million residents in the next 40 years.
After political pressure was brought to bear by a bunch of selfish ‘NIMBIES’ many Councillors kicked for touch some time ago and appointed an ‘independent committee’ to take submissions and come up with recommendations on the proposed Unitary Plan which had among other things called for more building out rather than up by freeing up land. This was to be achieved by re-zoning existing land within the metropolitan city limits. It was, in my view, thoroughly irresponsible and cowardly to back away from the immodest intensification opportunity. These people, locally elected to work on local issues, didn’t have the stomach to take on the vested interests.
I have argued before that Auckland must be given greater opportunity to grow up rather than out. The cost of increasing storm water, sewerage and transport infrastructure makes it a no brainer in my book. The most ‘liveable’ cities in the world (of which we aspire to be the top rather than our currently ranked number three) are a mix of medium density housing and recreational spaces.
As migration numbers surge with fewer NZers leaving the country, more Australians joining us and the same number of ‘other’ migrants being approved residence to fill gaps in our labour market, Auckland is growing at something like 40,000 people a year. Over the next five years we need to build around 80,000 dwellings. Over the past year 9000 odd consents have been issued. We are way behind the 8-ball.
So we have a real supply problem but more than that we have a political problem.
For anyone that sits in our traffic jams in the morning or on their way home at night it is clear that as fast as we widen freeways, build new tunnels, under passes, overpasses, bi-passes and cover this city in tarmac the faster they clog up again.
While Auckland’s public transport is, when compared to many similar cities very good, it too cannot keep up. One of my sons regularly catches a bus to work. Although they come every 5 minutes in peak time it is not unusual for him to watch 3, 4 or more fly past him full to the brim and unable to take on more passengers.
What a lack of housing adds up to we know is more than a lifestyle issue, there is a clear and present threat to the national economic interest if you listen to what these economic and political leaders are telling us. Their comments over the past week seem to me to be easily interpreted as code for ‘bubble’. We all know what happened across the western world in 2007-2008 when we last had one of these.
The average property in Auckland at around $900,000 is now some nine times the average Auckland salary of $75,000 making this town one of the most expensive in the world relative to incomes.
No wonder these senior Ministers and economic leaders are concerned and starting to pour the acid on the feckless Auckland Councillors.
Interest rates could be even lower for all New Zealanders if it weren't for what is happening in Auckland. That would suggest a lower exchange rate which would make life even better for all of us involved in exporting goods or services.
I am in my late middle age (hopefully) and my side of my suburban street was designated in the proposed unitary plan to go from a single unit site to low rise apartments at 3-4 stories. I do not fully understand the economics or commercial viability of going up on our piece of land but if it were possible, I’d do it in a heart beat.
Not because I think I could make a lot of money (if I bought into the hype around here about what these 200 square metre homes on 750 square metres of dirt were worth today I could make a lot selling now and think about going fishing…), it is far more than that. I want my own children to be able to afford to buy a home within a reasonable distance of the city centre.
The Auckland Council has helped to create a time bomb. Not all their fault - no one could see the economy doing so well that fewer kiwis would go in search of opportunities elsewhere; no one foresaw the number of New Zealanders pouring back to New Zealand from Australia and further afield and we continue to need all the skilled migrants we are letting in to fill skill gaps we cannot create the skills for ourselves. Coupled with the lowest interest rates in living memory it has been in some respects the perfect storm.
The piece of the machine that has failed to deliver is demonstrably the Auckland Council.
Leadership is about making tough calls at times. The proposed plan (rejected by the cowards at Council under pressure from a few selfish greybeards) is coming to a head. The Unitary Plan would see see some neighbourhoods change and the single unit dwelling replaced by low rise apartments.
With an ageing population and rampant house inflation who in their right mind could see this as a bad thing?
I am increasingly advising my clients, particularly the cash strapped South Africans not to settle in Auckland. Whilst the Singaporeans, Brits, French, German, Americans and others from relatively strong economies can afford the eye-watering house values here, many migrants will have to look further afield if they are to own their own homes. With average national house prices not far off half the value of Auckland, many will be left with no choice but to find work and settle elsewhere (not that that is a bad thing those of you reading this living outside of Auckland will be thinking).
New Zealand is increasingly being viewed by many wealthy around the world as having the triple advantages of being far away from the worlds dramas and hotspots; politically stable and economically free without rampant corruption. They are moving here as the world continues to look less and less stable, not least economically (we are not alone in this housing bubble).
In the end, short of global financial meltdown the wealthier are going to continue to seek out the country as it has so much to offer over and above generally solid economic performance and management (at a national level - we are over 90% self sufficient in renewable energy, no national shortage of water and we produce nine times more food than we consume).
While they will not all settle in Auckland, many will.
In some respects the Council is fighting a losing battle but they could quite easily, if they had a backbone and a sense of vision of what makes real cities great, come up with a plan that offers the best of both worlds - starting with growing up before we grow ‘out’.
Until next week...
Southern Man - Letters from New Zealand
Posted by Iain on March 25, 2016, 6 p.m. in New Zealand Economy
Statistics released this week continue to add to the good economic news that New Zealand has been for at least the past four years.
Unemployment has fallen to 5.3% - once it hits 5% (which it is estimated to do within the next two years) experience suggests skills shortages will become acute. The Reserve Bank is picking 4.9% unemployment by 2018.
There is no doubt that there are chronic skills shortages already across many sectors.
Strong net inward migration is helping to boost Gross Domestic Product. GDP is up by 2.3% over a year ago taking NZ close to being a $250 billion economy. The two go hand in hand - the more jobs that are created, the more economic activity there is and the more people wishing to come and live here or come home (most long term migrants are Kiwis ditching Australia and heading home).
We have now had 11 straight quarters of positive GDP growth.
The Reserve Bank is forecasting positive economic growth for every quarter in 2016, 2017 and 2018 with the March 2016 quarter projected to grow by 0.7 per cent, the next two quarters by 0.8 per cent each and the December 2016 quarter by 0.7 per cent.
This in the middle of a dairy slump (traditionally one of our top two exports).
Tourism continues to surge ahead to the point where infrastructure is groaning at the seams. In the past year we have welcomed over 3.2 million visitors.
Construction in all sectors is booming. Commercial, residential and industrial. Critical shortages of those involved in the sector exist, particularly the hands-on building and fitting out tradesmen. If anyone is looking to build in Auckland or the Bay of Plenty most people are waiting a year or so for their builder and team of choice to be available.
A shortage of houses, particularly in Auckland continues to see record prices. I would suggest that is great if you own a home, not much good if you are a young person looking to buy or a migrant from a country like South Africa. The British, American, Singaporean and other migrants find it affordable as they enjoy the twin benefits of strong currencies and off the chart house values as well.
Evidence suggests Aucklanders are starting to cash up and move south - a $1.5m home in Auckland can be replaced like for like in cities like Tauranga, Hamilton or in the Hawke Bay for half that number leaving a tidy little nest egg for those close to retirement. Property values in those areas are up around 15-20% in the past 12 months.
Services and manufacturing continue to expand.
All of this might make some (particularly South Africans) wonder why a small percentage are still being stopped from boarding flights or being hassled on arrival when they are coming over on their Look, See and Decide (’LSD’) trips in order to see if they like NZ and can find skilled employment so as to become part of the Government’s Skilled Migrant programme. A senior immigration official said to me privately a couple of weeks ago that the ‘disconnect’ between what the Government wants in terms of skilled migrants and those responsible for securing our border is real and the official expressed frustration at the blinkered approach taken by border staff; particularly in respect of South Africans.
It is interesting - I have obtained figures under the Official Information Act that show that as of about four weeks ago there were 122 South Africans unlawfully in the country versus 1300 Chinese, 600 Indian and over 300 British. Given the thousands of South Africans who visit here there is scant evidence of any great risk to the integrity of the immigration system or the border.
It makes me wonder why South Africans are being singled out as they undoubtedly are. It isn’t in my view ‘anti’ South African sentiment per se - those at the border really do believe South Africa is collapsing; passports are freely for sale through Home Affairs and there is a risk that we end up with some here we would prefer did not come. As I remind the Department constantly however - these are clearly two sets of people with quite different profiles to IMMagine’s clients.
I have been given encouragement to begin some work on tweaking the Skilled Migrant rules so that this disconnect could become a thing of the past.
In the meantime we are going to have to live with border officials prejudging the reasons South Africans are visiting and presuming they are coming to find work (which is not illegal by the way and these border guards have been told that over and over again). I cannot fathom what is so hard for these officials to comprehend - coming here to look for work is not a crime...coming here with a job offer in one’s back pocket and applying for a work visa is.
We are going to have to live with new Zealand employers missing out on some very good skills sets as a consequence - what I term a clear sabotaging of the skilled migrant programme by the Government’s own officials through little more than ignorance of their own rules.
Clearly the Government is right to be concerned about economic and potential social meltdown in South Africa but as long as they demand the majority of skilled migrants get skilled jobs first and work visas second, migrants are going to have to continue to run the gauntlet. Most will get through (around 95% are not stopped or questioned). All will be put through unnecessary trauma along the way, however.
I am hoping my work with officials over the next few months might result in a more certain pathway not just for South Africans wanting to be part of the skilled migrant programme but many other nationalities as well.
This economy has a big problem now - we do not produce the skills needed to fill the tens of thousands of jobs we are creating - IT, Engineering and Trades to name three - we rely on migrants to fill them.
If we stop the immigrants that we need to fill these vacancies being able to get here for interviews then the skilled migration programme could be in big trouble indeed.
If that is allowed to happen our stellar economic performance that so relies on these immigrants might stutter and stall.
Until next week
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