Sir John Key ON : The ECONOMIC CHALLENGES New Zealand is facing…

I want to ask you, bringing together your acuity, your knowledge, your research, you're constantly learning and growing, plus your gut feeling, where are we sitting right now? New Zealand, in terms of the economic cycle, where are we headed? What have we got to brace for?

Yeah.

So if you go back to, say, 2020, you know, Covid comes along, I was really, really economically negative. I just thought, God, you know, I mean, I couldn't even envisage a world where you had a tourism business and no tourists could turn up. You had a coffee shop, no one could come to the shop, you had any business. I didn't even think we could run Anz bank with a $200 billion balance sheet from someone's bedroom, which is essentially what we've been doing. I mean, run it from home. I just didn't see that world. And so why was it that we didn't have these terrible scenarios? I'll tell you the reason why. And that was that massive amounts of government transfers. So they. It wasn't anything new. And I'm not taking away from it. I'm just saying that what we did in Christchurch, where we paid people for 10 weeks and all that sort of stuff, and let businesses try and get back on their feet and pay their employees and stuff, they just copied that playbook and that was a good thing to do. And so where people had very low levels of expenses because you couldn't go out, you couldn't do anything, you couldn't actually spend money, you can't order takeaways, you can't go out to nightclubs, you can't do anything.

Max's girlfriend at the time, who was actually a hairdresser, she made really good money through Covid because they came and moved into our house before it all started. They didn't spend a single cent. And the government paid her more net than she was probably getting as a hairdresser. So they made money. And then the second thing was interest rates cratered. And so the Reserve bank pumped money in the system, government printed money, and. And you're left with interest rates 1%. Now, as we know, that led to all these kind of slightly weird outcomes in a way, but skyrocketing house prices and all these different things. So if I look at it today, the reason I'm a bit more nervous today now. I mean, I was nervous then and wrong, but now I'm nervous and I suspect I'm probably right, is that I do really worry that, just to give you an example, 40% or. Well, it's actually technically 57% of all of Anz's company customers who have a mortgage with us have a mortgage that starts with a two or three in front of it and in the next six months they've got to roll that over and that will have a five in front of it. We think floating interest rates are going to 9%, we think mortgages are going to 7. So there's a huge amount of money coming out of their household. And just to give you an example.

When petrol prices go up, right, it doesn't take very long for talkback to ring up and go, well, yeah, in real simple terms, if the government's getting 15 cents a litre and fuel's A$15, they've made 15 cents and they've only paid a dollar and now it's doubled to $2, they're getting 30 cents, you know, so they should cut GST or cut excise, right, on fuel, because for nothing different, they're making more money. That is. Right, right. I'll tell you what's interesting, though. The GST tax taken those times stays exactly the same. Do you know why? Because people trade from steak to sausages. So they spend more money on fuel, they spend less money at the supermarket, less money going out to dinner, or less money on something else, right? And what that tells me is the vast bulk of people spend 100% of what they earn. Relatively low saving rates consume everything they get.

And the maths in New Zealand broadly are a third of all people own a home with a mortgage, a third of people own a home with no mortgage and a third of people rent. So that you. And rents are going through the roof, interest is going through the roof. So at least for two thirds of the community, they are paying a lot more.