CTU Economic Bulletin No. 81

June 2007

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Comment

After over 6 years of an employment law that promotes collective bargaining, the actual percentage of private sector workers covered by collective agreements is 9%. In the public sector it is 62%. There are several reasons for this result including strong growth in private sector employment in many new types of economic activity and the fact that only union members are in collective agreements. But union membership has been growing even in the private sector. The main reasons for low collective bargaining density lie elsewhere. Employers continue to resist collective bargaining, the transaction costs for unions engaged in enterprise bargaining are very high, and the law only weakly promotes collective bargaining. The law is strong on intentions and good faith rules – but low on structural and institutional support for collective bargaining.

Consensus forecasts¹ published by NZIER

The consensus forecasts were updated in June 2007.

Economic Snapshot

Consumer prices rose 0.5% in the March 2007 quarter, and were up by 2.5% annually. The next CPI update is on 16th July. Food prices rose 4.1% in the May 2007 year. Unemployment is at 3.8%. Maori unemployment is 8.6% and Pacific peoples’ unemployment is at 8.0%, compared with 2.9% for European/Pakeha. The minimum wage is $11.25 an hour for a person who is aged 18 or over and $9.00 an hour for those aged 16 or 17 years old or a trainee. Ordinary time wages, as measured by the Quarterly Employment Survey² (QES) for March 2007, were up annually by 4.6% (5.5% in the private sector and 1.9% in the public sector). The QES showed that the average ordinary time hourly wage is now $22.59 ($21.03 in the private sector and $29.00 in the public sector). The female rate of $20.84 is 86.8% of the male rate which is $24.02. The Labour Cost Index (LCI) shows that ordinary time wages went up by 3.2% in the March 2007 year (3.0% in the private sector and 3.7% in the public sector). For those workers who actually got an increase, the average increase for the year was 5.4% and the median was 4.1%. The next update of wages data is on 6th August, 2007. Economic activity increased 1.0% in the March 2007 quarter. In the year ended March 2007, the economy grew 1.7%, compared with 2.0% in the year ended March 2006. The Official Cash Rate (OCR) set by the Reserve Bank is 8%.

Paid Parental Leave

On 1 July 2007, the maximum parental leave payment increases by nearly $20 per week from $372.12 to $391.28.

Economic Growth

Economic activity increased 1.0% in the March 2007 quarter. Household spending grew 2.2% in the quarter with increased spending on durables accounting for more than half of this, including a 40% increase in expenditure on retail furniture and major appliances in the quarter. Investment in new housing fell 0.3%, following increases of 2.0 percent and 4.0 percent in the two previous quarters. Export volumes increased 2.0% in the quarter, reversing a 2.7% fall in the December quarter and primarily driven by a 10.5% increase in the volume of dairy product exports. GDP for the year to March 2007 was 1.7%, down from 2.0% for the year to March 2006 and 3.9% for the year to March 2005.

Interest Rates

Inflation in New Zealand is 2.5% and due to fall in July as an annual measure. In Australia it is 2.4%. Our cash rate is 8%. In Australia it is 6.25%. Although the most recent increase relied on the inflationary pressures anticipated from a large dairy pay out, it is still the housing market that is the main concern. But there are signs that the higher home mortgage rates are starting to bite. This factor should combine with conflicting surveys of business confidence, falling consumer confidence, lower GDP growth forecasts, as well as the damage being done to the export sector by the high exchange rate, to persuade the RBNZ to hold fire on any further increases. I noted in the April CTU Economic Bulletin that the RBNZ had implied that a couple of the conditions which would justify intervention to drive down the dollar had been met so I was not so surprised to learn that they did in fact intervene this month.

Trade

The monthly trade balance for May 2007 was a marginal surplus of $9 million (0.3% of exports). In the year ended May 2007, the trade balance was a deficit of $5.9 billion (16.7% of exports), down on the May 2006 year, which had a deficit of $6.9 billion. According to the Reserve Bank’s Trade Weighted Index, the New Zealand dollar remained static in May 2007 (compared with April 2007), but was 13.6% higher than in May 2006. Exports of milk powder, butter and cheese in May 2007 were lower than May 2006 (down $31 million), but this export group still recorded its second-highest value over the past five years.

Balance of Payments

The seasonally adjusted current account deficit increased $50 million in the March 2007 quarter, to $3,620 million. The deficit in the year to March 2007 was $13.9 billion (8.5% of GDP), compared with deficits of $14.5 billion (9% of GDP) for the year ended December 2006 and $14.9 billion (9.6% of GDP) for the year ended March 2006. This improvement for the year to March was due mainly to higher volumes and prices for dairy exports. However, as a nation "we" now owe $15 billion more than we did in March last year. New Zealand's net liabilities to the rest of the world now stand at $145 billion. And it is still important to note despite a small drop in income accruing to foreign firms based here, $11.8 billion of the $13.9 billion deficit (85%) is due to the investment income deficit driven by profit repatriation to overseas owned firms in NZ and the carry trade funding household mortgages.

Job Vacancies

There were 7,079 advertised job vacancies measured in May 2007 – almost exactly the same figure as that recorded a year ago. This was the first time job vacancies haven’t fallen since October 2005.  Despite the sustained fall in vacancies before the current month, there were still 28% more advertised vacancies in May 2007 than in May 2003. Meanwhile the Government has announced they are establishing a $10 million a year fund to enable Work and Income to purchase health services to "get some of the more than 120,000 people on sickness and invalid benefits into work".

Stats about Incomes from the 2006 Census

The median annual personal income from all sources for people who were aged 15 years and over and living in New Zealand on census night 2006 was $24,400, compared with $18,500 in 2001, and $15,600 in 1996. The median annual personal income from all sources for men aged 15 years and over was $31,500, and was $19,100 for women. Three-quarters of people whose personal income was over $70,000 a year were men, while 63% of people whose personal income was between $1 and $5,000 a year were women.

Government Accounts

Figures for the ten months ending April 2007 were released by Treasury on June 8th. These figures show an operating surplus of $6.78 billion, lower than the $7.16 billion forecast. The main contributors to this decrease were the continued implementation of the Working for Families package, and the exchange rate changes since April 2006. The OBERAC (Operating Balance Excluding Revaluations and Accounting Changes) stood at $6.99 billion and was also lower than forecast. The Governments net worth was down $0.4 billion to $88.5 billion due to the impact of lower than expected net investment returns and tax revenue.

Migration

In the year that ended May 2007, there were 82,400 permanent and long term arrivals, up 2,500 (3%) on the May 2006 year. Over the same period there were 71,700 permanent and long term departures, up 2,000 (3%). As a result, net permanent and long term migration was 10,700 in the May 2007 year, up from 10,200 in the May 2006 year. In the year ended May 2007, there was a net inflow of 9,700 from the United Kingdom, down on the net inflow of 10,400 for the year to May 2006. The Philippines was the second largest source of net migration to New Zealand in the May 2007 year, increasing to 3000 from a net inflow of 600 in 2005, to 1,200 in 2006. There were also net inflows from India (2,700) and Fiji (2,300) in the May 2007 year. The net outflow to Australia was 24,500 in the May 2007 year, compared with 20,400 in the May 2006 year. The highest net outflow to Australia in the past decade was 31,800 in the May 2001 year.

Household Energy Use

In 2005, households accounted for nearly 32% of New Zealand's total energy demand. Most of the energy used by households during this period was in the form of petrol for private motor vehicles (57%). The second-largest energy user was the transport and storage industry, which accounted for nearly 25% of total energy demand. From 1997 to 2005, New Zealand's total energy demand increased by nearly 22%, while economic activity, as measured by gross domestic product (GDP), increased by 28%. These results suggest that the growth of New Zealand's economy is becoming less reliant on energy use. However, the results also showed that New Zealand is still dependant on non-renewable energy sources (such as coal and petroleum) which supply almost 82% of total energy demand.

Research and Development Spending

The Statistics New Zealand Research and Development Survey has found a 10% increase in spending on R&D in New Zealand between 2004 and 2006 to a total of $1,826m. Of this, 41.8% is spent by the private sector, 25.7% directly by government and 32.5% by universities. Between 2004 and 2006 private sector spending increased by 12.7%, government spending increased by 1.8 per cent and universities' spending increased by 13.6%. In the private sector manufacturing R&D expenditure climbed 18.5% and service sector R&D rose 19.6%.

Notes

1The consensus is made up of the average of forecasts from NZIER, Berl, ANZ- National Bank, ASB Bank, BNZ Bank, First New Zealand Capital, Deutsche Bank, UBS, Westpac, Reserve Bank of New Zealand and Treasury. Because the consensus forecasts are done only every 3 months, some of the more recent forecasts will be more accurate.