Speaker by Various Artists


Saudi sheep: Misappropriating taxpayers' money

by Rob Salmond

Last week, the government dumped 900 pages of Saudi sheep documents on the media and opposition. The record shows a Minister looking to mislead absolutely everyone in order to make an illegal $4 million payment to a foreign farmer. David Parker is calling for the Auditor-General to investigate; I can see why.

The reason we should care about this actually has nothing much to do with Mr Al-Khalaf, or sheep, or Saudi Arabia. New Zealanders deserve to be able to trust their government is spending their money within the law. We should have no tolerance for breaches of that trust.

Here’s what the issue boils down to: 

First, Murray McCully wanted to pay compensation to Hamood Al Ali Al Khalaf, who used to import live sheep from New Zealand before the practice was banned, and now objects to a New Zealand / Saudi FTA. McCully hoped that compensating Mr Al Khalaf would mean he stops objecting to the FTA.

From the documents, a February 2013 Cabinet paper recommends a payment of $4 million to Mr Al Khalaf partly for “the settlement of the long-running dispute.” That sounds a lot like compensation, even though McCully is at pains to ensure the payment should not appear to be compensation. Here’s an MFAT note of McCully’s comments in 2012 [with my emphasis]:

he would not want any (financial) contributions to be treated as compensation as this would involve a plethora of lawyers and bureaucrats.

The fact that proper authorities might scrutinise a multi-million dollar government payment isn’t a proper reason to hide the payment from them. That’s simply astonishing.

Second, there’s no legitimate reason to compensate Mr Al Khalaf. New Zealand didn’t break any law by changing the rules around sheep exports, meaning there’s no legal reason to pay compensation.

From the documents, the only “legal advice” about whether Mr Al Khalaf had a legal case came from Mr Al Khalaf’s lawyers. Not exactly an independent party! This is a far cry from John Key’s inferences in Parliament that New Zealand’s legal advice was that we were exposed.

Also, Mr Al Khalaf made it clear to McCully that he had basically no intention of going to court anyway, telling McCully in February 2012: “Under our culture when someone opens a door to you for many years, you do not take them to court at the end of your stay.”

Third, and not surprisingly, the government has no legal authority or money to pay  this kind of compensation, that is compensation to people they don’t actually have to compensate. That kind of pot is usually called a “slush fund,” and we try not to have those in New Zealand.

Fourth, that’s why Murray McCully dressed up Mr Al-Khalaf’s compensation payment as something else, over the objections of top government officials.

Working together, Al Khalaf, McCully, and MFAT concocted a scheme where Al Khalaf would provide ill-defined intellectual property and networking services to New Zealand – otherwise known as “being you” – which were magically valued at exactly the $4 million elsewhere suggested as the right amount for compensation. This, McCully thought, would allow the money to come from a part of the foreign affairs budget (Vote: Policy Advice and Representation – Other Countries) that has no authority for use as a way to settle legal disputes.

The Auditor-General took a different view, saying the business case for the joint New Zealand / Al Khalaf venture was “weak,” and raised concerns about the procurement process.

In fact, the MFAT Chief Executive even met the Auditor-General to plead that this isn’t a normal commercial deal, but rather a “diplomatic settlement” of a “unique nature,” and therefore should get special treatment.

This last part is really crucial. It both exposes the lie that this is a purely commercial solution, and also shows that MFAT – and by extension their Minister – were well aware that there were non-commercial (i.e. compensation) payments hidden among the accounts here. It indicates an intent to be deceptive with this payment, and to spend taxpayer money outside of its lawful appropriation.

Seeing the documents, it is clear Murray McCully personally directed his officials in such a way that they broke the law. He ignored advice, misappropriated funds, and misled his Cabinet colleagues and the public in order to illegally sent $4 million of taxpayer funds overseas. He should be gone.

McCully, and Simon Bridges and Judith Collins before him, have run roughshod. They ignored both the rules of government and their officials’ advice, and did exactly what they pleased with the taxpayers' money, regardless of whether their actions were appropriate, in the taxpayer’s interest, or legal. This, apparently, is what John Key meant by “higher standards of government.”


The documents I rely on in this post are currently available in hard copy only. Hopefully some enterprising soul will put them all up online soon, so the public can see exactly what Murray McCully has been up to.


Why we need to stop talking about inequality

by Kirk Serpes

Progressives in NZ, as well as in the UK and Australia, have got ourselves stuck in a strategic dilemma.  Frustratingly, it appears that while the vast majority of people in our respective countries share our concerns on social and environmental issues, they somehow keep voting in the people who make those things worse.

And with that comes a chorus of calls from pundits that “Labour needs to shift to the right” because apparently that’s what voters want. This is a great idea except for the fact that with, say, every step to the right by Australian Labor, Tony Abbott moves two steps further right towards crazytown. I’m not going to waste any more time talking about how bad an outcome this is!

Reality is, of course, far more complicated. Even in purely PR terms it’s possible to appear moderate or “centrist” while implementing whatever policy you want (as demonstrated by Key & Crosby Textor).  There is a certain art to communication that we are simply not getting right at the moment, and that’s what causing the massive disconnect between what people are concerned about and what they actually vote for.

Luckily for us, there’s some outstanding work being done - both here and overseas - in cognitive linguistics, which might just have some answers.

Let’s start by looking at how we currently communicate about inequality.  Most of what you hear is about how bad it’s getting, how “the gap between rich and poor is widening”; the top 1% and their ever-increasing share of the wealth, and so on.

This is problem-focused messaging that’s aimed at “raising awareness of the problem”.  Of course, simply making people aware of a problem doesn’t mean they will want to take action to fix it, and it definitely doesn’t mean they will automatically connect the dots and come up with the appropriate solutions to the problem. And even more controversially, do we have to wait till everyone in the country is aware of a problem before we do something about it?

The solutions to complex socio-economic problems aren’t self-evident, especially to the average punter.  Yes, if you’re reading this blog you’re probably in the top 5% of well-informed citizens, and you’re well aware of most, if not all, the systemic drivers of inequality, and why rebalancing things will require collective efforts. But when people who aren’t political nerds are faced with a complex problem, they look for narratives (or frames, as is the technical term) to simplify that problem into something they can relate to.

The idea that a lot of people are living in poverty right now can be explained via two different and competing frames. The progressive one that we believe (but that we don’t talk about enough) is that the problem is systemic and requires a collective response in which government plays a major role, but the not the only role.  However, the more common frame people hear is the one about personal responsibility, in which some people are lazy while others are disciplined and work hard. The ones that work hard get ahead and that’s why society is unequal.  Simple.

The story of the individual (in success or in failure) is a lot easier to understand than the one about systemic drivers.  And we don't do ourselves any favours by focusing on explaining the problem without telling compelling stories about the solutions.  Compare that to the political right, who are so very good at consistently promoting their solutions and frames that any one of us could comfortably write their press releases.

A good recent example of this was the child poverty campaign before the 2015 NZ budget.  Several large non-profits as well as the major left-leaning political parties spent several months asking the government to do more about child poverty.  Yes, there was some mention of the solutions in the fine-print; but the headlines – the thing most people actually read or hear – concentrated on establishing the problem.

What happened was easy to predict: the government threw a small amount of money at one part of the problem (without doing much to fix any of the drivers that are making people poorer in the first place). They walked away looking compassionate and pragmatic with the voting public, and the progressive movement didn’t do much to change the story from one of personal responsibility to systemic causality.  It was a tactical failure – but also a failure in strategic messaging.

Now that doesn’t mean you should stop donating to charities; we should definitely be helping those in urgent need. Compassion is a great kiwi value, and it’s a strong trait across the political spectrum. But the idea of relying on private charity as an alternative to collective action to rebalance the economy is not only unjust, it’s also not going to fix the problem in the long term.

The good news is that there are some great examples of progressives doing it right, when it comes to establishing compelling frames. One is the Living Wage campaign. From the name onwards, it’s clear this is about solutions and not the problems. The name alone forces the other side to defend why they aren’t paying humans a living wage.  And this immediately opens the door to deeper questions about systemic imbalances in how our economy is currently geared.

I also really love how it manages to be policy-focused without using dull policy speak like “earned income tax credit”.  Getting the name of your campaign right is a powerful tool in cutting through the noise when people are getting bombarded with thousands of messages from all sides, all day every day.

Marriage equality is another good example.  For years, it was framed as “gay marriage”,  which subconsciously implied giving something special to a “special interest group”.  The dominant value of equality wasn’t obvious in the name. Talking about “marriage equality”, on the other hand, sounds like it’s about expanding existing rights to include everyone.  Now, that may seem like a subtle difference – but it’s all about what people actually hear, not what you say.

If you’re sceptical about how much of a difference fiddling with a few words can make, then that’s a good thing.  It’s healthy to be sceptical of a couple of examples of campaigns, given the many non-messaging factors at play.  So here’s an example from a more controlled experiment on how “playing with words” can shift mindsets.

In a 2011 Stanford University study, Paul H. Thibodeau and Lera Boroditsky looked at the role that metaphors played in how people respond to a given problem - in this case, crime and prison reform. They asked people to read a passage that described a city with a crime problem, and to then suggest solutions they thought were necessary. Here’s the passage they used for one of the tests.

Crime is a {beast/virus} ravaging the city of Addison. Five years ago Addison was in good shape, with no obvious vulnerabilities. Unfortunately, in the past five years the city’s defense systems have weakened, and the city has succumbed to crime. Today, there are more than 55,000 criminal incidents a year - up by more than 10,000 per year. There is a worry that if the city does not regain its strength soon, even more serious problems may start to develop.

Only one word was changed in the sample text: beast vs virus as the metaphor for crime. The responses were categorised into two broad themes, based on whether participants proposed systemic solutions (like after-school programs, more jobs, etc) or solutions that focused more on the individual (harsher penalties, etc).

The results were startling. When the virus metaphor was used, significantly more people offered systemic solutions - these responses were higher by 17% (71-54). Thanks to the power of one word!

The best part: when the researchers asked respondents to point to which part of the paragraph had convinced them to propose their solution, 97% of the subjects pointed to the crime statistics. Words influence how we make decisions without us even knowing it.

Framing is a powerful and under used tool for shifting public debate, and it isn’t limited to just inequality, poverty and crime.  Frames can change how people see the world.  Using frames that give people a more accurate model of reality means that they can make smarter decisions about where we as a society should be going.  They change how people think, not what they think.

Reframing an issue can be a powerful tool in creating lasting change, but it doesn’t come easy, as it involves extensive analysis via focus groups and surveys to test the difference in how people subconsciously react to different words, metaphors and messengers. And I could count the number of people I’m aware of who actually know how to do this on one hand (that’s in the world).

Luckily for you, one of them will be coming to New Zealand. Anat Shenker-Osorio is one of the leading experts in framing and she’ll be speaking at Step it Up 2015 on 1 December.  Tickets are already on sale, and if you can’t afford a full-price ticket, discounts are available to grassroots campaigners in volunteer organisations.

I know I haven’t quite answered how to reframe inequality.  The bad news is that there’s no simple answer. From the research I’ve seen, you can’t simply swap it for some other word like the other examples I’ve shown. It’s far more complex of an issue.  The good news is the research does have some solutions; you’ll just have to change how you think about inequality.  And wait till my next post.  You might also be keen on this event with Max Rashbrooke in Auckland on 13 August.

Follow me on Twitter @kirkserpes

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A minor change to existing provisions!

by Elinor Chisholm

Something crazy happens at the moment. A tenant takes her landlord to the Tenancy Tribunal because it’s below legal standards: it’s damp, for example. The Tenancy Tribunal concludes, “yes, that’s illegal”. The Tribunal can order the landlord to bring the property up to standard. But the landlord can decline to do so. In that case, the adjudicator orders the landlord to compensate the tenant.

That’s great for that tenant. But not so great for other tenants. Even though the Tribunal has just ruled that the house is below standard, it can be put on the market again in the same condition, and rented out by other unsuspecting tenants.

The new tenants live in the horrible conditions. And maybe, eventually, if they are aware of their right to a home which meets a certain standard, and if they have the confidence and the time and the energy, they go to the Tenancy Tribunal. The process starts again. They get compensated, they move out, the house is rented out to others.

This process is not fair to tenants, and it’s a grand waste of the court system’s time.

(I wrote about this situation in more detail here – I learned about it in Lyndon Rogers’ excellent Paper Wallsreport).

The good news is that the government is taking action on this as part of the changes to the Residential Tenancies Act announced a couple of weeks ago. There’s far bigger changes, of course, and I’ll write about them in the future, but I wanted to draw attention to this one, as it’s easily overlooked.

It’s way down on page 7 of the Cabinet Social Policy Committee Paper, under the modest title “minor changes to existing provisions”:

j. Currently the Tenancy Tribunal can order a monetary payment as an alternative to a work order (s 78 (2)). Remove this provision in relation to work orders for compliance with smoke alarm and insulation requirements, as well as compliance with the requirements prescribed in the Housing Improvement Regulations (for example functioning sanitation).

This means that in the future, the Tenancy Tribunal has to force the landlord to bring his or her property up to standard. For example, if it’s a damp house (and it’s illegal to rent out a damp home under the Housing Improvement Regulations, as Bierre, Bennett and Howden-Chapman recently pointed out), the dampness problem has to be resolved.

This is really great news.

However, it will be interesting to see the detail of this change. As Lyndon Rogers points out, it’s strange that at present, compensation and a work order are the two alternatives available to an adjudicator. In reality, they’re different things: “compensation is about harm done, while the work order [is] about ensuring that it does not happen again…” [p.20].

Let’s hope that the future, improved s 78, which will ensure that a house’s problems are fixed, will also provide the adjudicator with the option of ordering compensation to the tenant for the harm done by living in a home below standard.

This blog post is republished from the original at Elinor Chisholm's website One Two Three Home.


Buying a fight with democracy

by Rob Salmond

Last Thursday, Labour and National presented their thoughts on the 2014 election to Parliament.

On Labour’s side, there was an inevitable and welcome move away from linking enrolment and benefit eligibility. Good, and phew.

On National’s side, the disturbing suggestions coming from Greg Hamilton are quietly dangerous for freedom of political expression in New Zealand.

First, on the supposed problem of people enrolling shortly before they vote:

National recommended that only people who were enrolled before the advance voting window should be able to vote ahead of election day.

Anyone who enrolled during the advance voting period should have to cast their vote in the polling booth on election day, Mr Hamilton said. 

This, National says, is to prevent the problem of political parties not having sufficient time to do “proper scrutiny” of the roll. That’s a pretty icky sounding phrase.

What it actually does is place extra, purely administrative barriers between citizens and their right to vote. Democracies should not do that. The citizens’ rights are more important than the administrative wants of the State or of political parties. If a person is eligible to vote and goes to a proper polling place, they should be able to cast their vote. No ifs, buts, or maybes.

In the US, the Republican Party has been using these same administrative procedures to try and put a chill on voter participation, especially among people on low incomes who are also either young or from an ethnic minority. (Horror example 1. Horror example 2. Horror example 3.)

It’s no great surprise that those targeted by the Republicans tend not to vote for right-leaning parties. It’s deeply anti-democratic, and it’s a real shock to see National copying from their playbook.

If there were any doubt about what National is trying to achieve, have a look at what National suggests to combat the rise in electoral fraud rate from 0.002% to 0.004%:

National wanted voters to be required to present official identification or sign a statutory declaration at polling stations to cut down on electoral fraud.

That’s right, more pointless administrative hurdles! For the other 99.996% of us, there will be new barriers standing between us and the voting booth.

For most Kiwis, presenting a driver’s license or signing a form isn’t a big deal. But it becomes a big deal for people with low levels of formal education, or recent migrants, or those concerned about what else the State might do with their statutory declaration.

People in those groups (surprise, surprise) don’t tend to vote National. So National wants to make it harder for them to exercise their democratic rights.

Yes, the barrier is the same for everyone. But it appears higher for the people on the lower rungs of the ladder. And National knows it. It’s disgraceful.

What positive impact on the supposedly burgeoning electoral fraud rate would we see if we went with National’s suggestions?

[National’s] deputy manager Cam Cotter conceded that he could not cite instances of electoral fraud in relation to their concerns ...

Get that – no positive benefit at all. None.

But, conveniently, a side effect of the new requirements would be to make it disproportionately harder for poor folk, young folk, and recent immigrants to exercise their legitimate democratic rights.

How about freedom of political speech during an election campaign? Surely that’s sacrosanct, right?

Hamilton also proposed a shorter advance voting period of 10-14 days and tougher restrictions on campaigning where early voting is taking place.

Oh, I guess not. National wants less flexibility in how people vote, and less freedom of political speech during the final few weeks of an election campaign.

The health of our democracy depends on freedom to talk about politics. Anything that limits that freedom threatens the quality of our democracy.

I’m genuinely shocked that the National hierarchy would propose these chilling, Republican-style affronts to our democratic engagement at election time.

And I’m confident people of conscience in National - including David Farrar who laudably proposed the antithesis of Hamilton’s ideas, asking to liberalise some rules about campaigning on election day – will be quietly aghast as well.

Making suggestions for improving elections does not have to be hyper-partisan. I support David Farrar’s proposals around election day online activity, and I was grateful to have his support at the Select Committee for my suggestions to give full electoral roll access to registered third parties as well as political parties.

But if National is going to try bringing the thuggish Republican-style intimidation of left-leaning voters to our shores, they’re buying a fight against everyone who values our democracy, and the easy exercise of our rights to choose our leaders.


House prices and the "Magic Money"

by David Hood

At any one time, some people take out loans to buy houses, some people work paying off mortgages, and some people sell houses, possibly paying off mortgages. And the housing market reflects that behaviour.

At least, that is the traditional model of the housing market. A model that applied in New Zealand, a model that still applies in overseas countries – but not a model that applies any more in New Zealand.

Because I really, really strongly believe that informed debate involves giving people access to the data and explaining your working, I have done two versions of this post. This Public Address version is the easy-to-read one that draws a cloak over the technical steps. The Github version shows the exact computer code used.

Declaring my sources for this right at the outset, the data file used is compiled from the Reserve Bank of New Zealand. The Housing Value (in billions) is available in time units of quarters in the RBNZ housing data. I have converted the billions to millions to make the units consistent with debt. The Household Debt (in millions) comes from the Reserve Bank series C6. As C6 is in time units of months I have converted it to quarters by taking the average debt of the months in the quarter, as this is what the Reserve Bank does in the shorter time series C6a. that is my raw data. I have also added the CPI for normalising the data against from Stats NZ - Infoshare Group: Consumers Price Index - CPI, Table: CPI All Groups for New Zealand (Qrtly-Mar/Jun/Sep/Dec). Arguably the Capital Goods might be better, but it really doesn't change the final results and from a people perspective you need to buy food etc. So that is the data.

People make a graph like this showing the relationship between Debt (red) and Price (blue). Which I have done in Figure 1. People go run linear relationship models on that and conclude it fits wonderfully.

It doesn't.

There are a few things wrong with this graph (the stretchy axes are a bit of a problem), but the main thing is that it has not taken into account the "stuff increasing over time" issue – that both Housing Value and Household Debt are governed by "the amount of money" factors like inflation. There is an entire website of spurious correlations of this type.

Now, because we are not blind monkeys mooshing keyboards, but instead have some understanding of the "stuff increasing over time" issue, we will take the difference between quarters.

This is a very standard approach to things that happen over time, and we have evenly spaced time periods so it all works nicely. From each quarter you subtract the value for the previous one, so that you are left with how much things change by. This lets you compare the amount that things change together, and doesn't have any "over time" issues as they are all the same short block. Making the similar graph similar to the previous one, but this time using the Quarter on Quarter information and locking down the vertical axis we get Figure 2.

We can do a linear regression of these two things, which suggests people getting mortgages are weakly matching money being paid for houses. But even that a bit rubbish because it doesn't take into account the possibility that things have changed over time, and not being a blind monkey it is pretty clear that scale of movements in recent times is much more than earlier times (other sources suggest the pre-2001 pattern held going back through time).

I would also suggest that the upward trajectory since 2008 is not reflected by movements in debt. And further suggest that, as is the case in other countries, if people were buying houses in the traditional model the ratio of increase in value to increase in debt should be relatively constant.

At this point I have satisfied myself "something is up". To get a sense of the overall magnitude in a slightly speculative way, let's look at the cumulative differences.

First, by converting the lot to 2015 dollars based on the CPI. If, hypothetically, the early figures represent an internal economy with the traditional pattern sales are paid for by equity plus borrowing, and that the 90s is representative of that ratio, we can do a linear regression to get that relationship.

Calculating it with a zero intercept, because if there was no money people would not be buying houses, we get an estimate of 2.1915 added house value to added household debt. This gives us around an average 46% equity in the purchase of a house, which in the spectrum of new buyers to older people downsizing seems a credible average. This 2.1915 multiple gives us the expected component of added values which are paid for by people getting mortgages. So what does that mean cumulatively? Well, Figure 3 is what it means.

Keeping in mind that in the early 90s household debt matched house value, and it still does in other countries that are not open to buying from the world, the height of the blue line above the red line is the gain in value (in billions) that cannot be explained by household debt (and does not seem to be coming from any other sector of the economy). I realise I am now back to "stuff increasing over time", which means it is a problem comparing things of different periods, but the CPI was the best correction we have for that.

Because it can be difficult to read heights in a stacked graph, I have separated out the magic money section by itself in Figure 4.

Is all the magic money offshore capital? We just don't know. There is a lack of evidence of it coming from other parts inside the New Zealand economy, and given the hundreds of billions of dollars, a local source would be somewhat obvious. We also know that in other countries, with more internal housing markets, household debt does not just match the pattern of house value, the amounts add up to the same in gains. In New Zealand there is a 300 billion shortfall.

This is why I don't think supply-side solutions are going to do much – the supply-side solutions are couched in terms of supplying the demand from local people, but we have no idea how big the supply would need to grow to deal with the demand from sources invisible to the New Zealand economy.

And only after that demand is satiated will the magic money not be competing with local people wanting to buy houses. And if it is offshore capital, then local buyers are competing with anyone in the world for whom buying a house in New Zealand is a superior choice to buying local property.

Just to pre-empt a few common concerns:

House Sales are not the same thing as Housing Value. True. But based on REINZ data I have seen the value in sales tracks to the same pattern as the total Housing Value which is extracted from Sales, and it is the lack of pattern in Value compared to Debt that is the give-away. Also, in other countries growth in debt does actually match growth in value, so if you are asserting in New Zealand it should not, you should produce some actual evidence for why that would be the case. Even if it isn't actual sales, it is a measure of influence over the market, so for the magic money to be there a house must have been bought. 300 billion of the 800 billion in the past decade is quite an influence.

This doesn't prove it is overseas capital. True. But it isn't coming from mortgages, and given the sheer size of the values, that amount of money being diverted from elsewhere in the economy would show up on something. It has not shown up anywhere I have seen, and I have tested a lot. Once again, if you are asserting that you should bring some actual evidence to the table.

Authority X said it was supply constriction due to RMA restriction. I am sure they did. However, the initial launch point (third quarter 2001) precedes the RMA (and subtaintially precedes the time spent implementing it). But we come back to this: if around $300 billion in the $800 billion in Housing Value gains is not explainable by inside-the-economy debt (it has nothing to do with people, actual immigration is not a very good predictor of house prices) – how many houses do you need to build to satisfy that unknown demand?