CTU Economic Bulletin No. 28

The July 2002 CTU Economic Bulletin includes the economic policies of Labour, PCP, Greens and United Future and comment including CPI, tourism, interest rates, bank profits, rural economy, work stoppages.

Comment

In this slightly longer comment than usual, I set out for your information, the economic policies of Labour, PCP, Greens and United Future.

United Future

The United Future Party economic policy statement supports market-oriented policies to support economic growth, balanced by social responsibility. It says they aim to promote a free and open market to provide business with the best opportunity to move New Zealand forward in a positive and prosperous direction.

Their objectives are to reduce impediments to business performance, promote an export friendly economy, encourage innovation, and support a taxation system that takes into account the costs of raising a family.

In terms of specific policies, the policy statement says that United Future will:

-reduce tax, as economic conditions allow, with the goal of establishing a tax rate which is comparatively flat and internationally competitive, abolish fringe benefit tax and phase out the remaining excise duties

- reduce company tax to 30%

-streamline tax compliance and penalties regime

-support competition in the provision of ACC services

-review the Employment Relations Act, to allow for greater flexibility and stability

-implement a stable population and immigration policy with the objective of increasing economic growth by 0.5%

-improve links between research and commercial application and increase the amount of private sector R & D to 1.5% of GDP by 2010

-introduce a watertight tax deductibility scheme for research and development projects

-support free trade agreements

-introduce income splitting for families

-introduce a home carers allowance for parents at home caring for children under the age of five

- increase tax rebates currently available on child care costs, and increase personal tax rebate on donations to charitable organisations from $500 to $5000.

The Green Party

The Greens did not release a new economic policy statement but referred to a previous document which had been updated. The Green Party supports:

-ecological taxes of $300m per year on diesel and a "low-level" carbon charge of $10/tonne of CO2

-landfill taxes, natural resource rentals, and a levy on hazardous substances and pesticides, in proportion to their toxicity

- an Ecological Tax Reform Commission

-and modified national accounts that include unpaid work and deducts for pollution clean-ups, accidents etc.

The Greens want to see the removal of all income tax on the first $5000 of income in three stages over the next three years. They also support local eco-development and the creation of green jobs in areas such as:

-house insulation
-energy efficiency and solar energy
-erosion control, development and production of sustainable technologies
-organic growing and marketing
-waste reduction
-recycling industries
-restoring native vegetation
-restoring historic buildings
-building cycleways
-local tourism
-urban beautification and planning crafts and the arts.

Jim Anderton's Progressive Coalition Party

Jim Anderton's Progressive Coalition Party promised to:

-replace regressive taxes with a very low Financial Transactions Tax
- co-ordinate government policy towards sustainable economic growth by working towards a "one-stop-shop" for development work and assistance and create a "one stop shop" for inward investment work (coordinating the work of the Ministry of Economic Development, the Ministry of Foreign Affairs and Trade, TRADENZ, InvestNZ and Industry New Zealand).

They support the expansion of Kiwibank's services to provide banking services for small businesses, and want to re-negotiate the Policy Targets Agreement for the Reserve Bank to better allow growth without interest rate rises, or significant changes to the NZ$ exchange rate.

They also promise to invest in regional transport, communications and educational infrastructures so that regions have access to all modes of transport at reasonable cost, to high-speed broadband communications and to education/training facilities, continue the successful work of Industry New Zealand in finding and encouraging new industries, expanded beyond existing businesses to include the funding and encouragement of community-based enterprise through grants, mentoring, facilitation and scholarships, develop a new productivity enhancement service in Industry New Zealand and invest as much as is reasonable of the Superannuation Fund within New Zealand.

Labour

Labour has promised to renegotiate the policy targets agreement so that it makes clear Labour's intentions with respect to the flexible management of monetary policy consistent with the maintenance of price stability so as to be supportive of maximising sustainable economic growth.

Labour will also initiate discussions between business, unions, and relevant government agencies to identify ways to lift the rate of productivity growth and to monitor and measure changes in productivity.

Labour will revise the methods used for establishing how much the government spends each year, consistent with meeting broader spending, operating balance and debt goals, continue to develop public-private partnerships for the financing of infrastructure improvements, focus on simplification of the tax system, especially for small business, extend the use of longer term funding paths in social policy areas to ensure both more certainty and a better capacity to reconfigure service delivery in more cost-effective ways, operate a public sector investment programme that develops and maintains infrastructural capacity consistent with the needs of a modern, sophisticated, growing economy.

Labour will encourage the development of employment based, but portable retirement savings plans as a cost-effective way of leveraging higher levels of new saving, and examine the introduction of a dedicated health tax to replace an equivalent amount of income tax.

Of course there are many other policies on health, education, social development, employment relations, trade, the state sector and so forth that are relevant to economic policy.

The above shows considerable overlap between PCP and Labour except for the Financial Transactions Tax. There are big differences in quite a number of areas with United Future. There are some differences also with the Greens but their policy statement is fairly closely aligned with some of the economic policy directions we saw emerging through for instance the Labour-Alliance Government policy mix on the Kyoto Protocol which included a carbon charge.

Consumer Prices

The Consumers Price Index (CPI) rose by 1.0% in the June 2002 quarter. On an annual basis, the CPI is 2.8% higher than a year earlier.

The forecast by most economic commentators averaged 1% for the June quarter so there was no real surprise in the figure. This quarterly increase follows rises of 0.6% in both the March 2002 and December 2001 quarters. The increase of 1.0% in the June 2002 quarter reflects higher prices for petrol and international air travel, partly offset by falls in food prices, especially for fresh vegetables. Transportation prices rose 3.3%, driven by 9.9% price increases for both petrol and international air travel. Petrol price rises recorded early in the June quarter were partly offset by decreases in the second half of the quarter. A rise in international air travel prices is usual at this time of year. Household operation prices rose by 1.3% in the June 2002 quarter, driven by increases of 1.9% in electricity prices and 3.1% for furniture prices. Most electricity retailers increased their tariffs and there were changes from summer to winter rates in some areas.

Housing prices rose by 0.7% in the June 2002 quarter, driven by an increase of 0.6% for the purchase and construction of new dwellings. The rising cost of construction materials was widely reported as a contributing reason for the new dwellings increase. Rents increased by 0.7% and real estate services rose by 2.2%. The only downward contribution to the CPI in the June 2002 quarter came from a fall of 0.5% in food prices.

This movement was mainly due to lower prices for fresh vegetables, which fell by 7.4% after adjusting for normal seasonal change. (The food price index for the month of June, showed a reduction of 0.3%). Food prices rose by 3.0% in the June 2002 year. The CPI table is attached as an Appendix and I have already circulated an updated real wage calculator but it is also available on request.

On the Farm

Average dairy farm revenue increased by 15% in 2001/2002 compared with the previous season, which itself was up 37% over the year before. However, the average farm revenue is forecast to drop 18% in 2002/03. Fonterra suppliers have been advised that the forecast milk payout for this season has been reduced from four dollars to $3.70 per kilo of milk solids. Fonterra has posted a deficit of $50 million.

The predicted lower pay out is due to a further fall in world dairy prices and the stronger dollar. The revised figure is a bit lower than they anticipated. Many were expecting the bottom line to be about $3.75. A Ministry for Consumer Affairs inquiry into milk prices noted that Dairy Board, now merged into Fonterra, suffered from foreign exchange hedging last year, increasing the costs of supply. It said that "to recover costs, it may be that a portion of this loss is being passed on to consumers".

It has recommended a wait and see approach to the issue of whether milk prices for domestic users should be falling given the reduced payouts predicted and the spot prices in international markets. Meanwhile sheep and beef farms last year enjoyed a 20-year high in gross and net income. And sheep numbers are up for the first time in 13 years (by 1.6%), to 44.7 million or about 11 sheep for every 1 person in the country (for the benefit of those who are interested in such ratios)!

Tourism

Total international visitor growth to New Zealand for the first half of 2002 up to 5% overall. Since January 2002, International visitors from the United Kingdom have increased by 15%, the United States by 7%, Korea by 26%, China by 49% and Japan by 2%.

Trade

A rising dollar means falling export returns, but also lower import costs. Based on the Trade Weighted Index, the New Zealand dollar is 5.8% higher in the June 2002 quarter than the March quarter. So the trade balance still shows a surplus and a current account deficit below 3% of GDP is anticipated for the June 2002 year. The updated value of merchandise exports for May 2002 is $3,074 million which is $26 million lower than the early estimate released on 28 June 2002. Compared with May 2001, the main decreases in commodity value are for milk powder, butter and cheese (down $183 million) and casein and caseinates (down $65 million).

Prices of milk powder, casein and caseinates have fallen to approximately the same levels as two years ago. The main increases in commodity value are for fruit and nuts (up $63 million, mostly due to kiwifruit) and logs, wood and wood articles (up $45 million, mostly due to increased volumes of sawn timber). Kiwifruit quantities and prices for this early part of the kiwifruit season are at a higher level than a year ago.

For the year ended May 2002, the updated merchandise exports value is $32,489 million, up 2.7% ($847 million) from the May 2001 year. For the year ended May 2002, the updated trade balance is a surplus of $304 million. For the previous May year a deficit of $76 million was recorded. The early estimate for June 2002 merchandise exports is $2,630 million, giving a merchandise trade surplus of $293 million for the month. The surplus is 11.2% of merchandise exports, the largest for a June month since 1994.

As for imports, the seasonally adjusted value of merchandise imports increased by 0.5% in the June 2002 quarter. This follows an increase of 1.4% for the March 2002 quarter. The seasonally adjusted value of imported consumption goods increased by 2.9% in the June 2002 quarter, compared with the previous quarter. The value of capital transport equipment also increased, up 18.2%, due largely to the import of a Seasprite navy helicopter. Intermediate goods increased by 1.4% while passenger motor cars decreased by 8.2%.

Interest Rates

Influenced by a rising NZ dollar and what it thinks is a more "fragile" US recovery the Reserve Bank of New Zealand has, according to some economic analysts, "sharply changed direction". This is because although Governor Carr increased the official cash rate 25 basis points to 5.75% on 3rd July he also signalled that "further increases were now rather less likely" than was indicated in the May Monetary Policy Statement.

This could be interpreted as meaning that there will likely be a two or three month pause before the next increase, and that 6.0% or 6.25% by year end is more likely than the higher figures suggested by the May statement.

Power prices

Electricity sector analyst Simon Terry said consumers were paying $200 million a year more than they should because of the methods by which many line companies had increased the book value of assets. The Commerce Commission is holding a hearing of on what criteria it should take into account when deciding whether a lines company is charging too much.

Bank Profits

The foreign-owned bank sector is enjoying very significant increases in profits in New Zealand. The BNZ has declared an after tax profit for the six months ended 31 March 2002 of $317 million, up 43% from $221 million the year before. For the six months to March 2002, the National Australia Bank declared a profit on its New Zealand retail banking operations alone of A$197 million - or about NZ$231 million at todays exchange rate.

That is an increase of 30% over the six months to March 2001. WestpacTrust has declared a profit for the six months to March this year of NZ$231 million, up by 7% from a profit of $216 million for the same six months last year. For the year ended 31 March 2002, ASB Bank declared a net profit of NZ$208 million, up nearly 17% from $178 million the year before. The ANZ announced a profit on its New Zealand subsidiary of $198 million for the six months to 31 March 2002, up nearly 6% from $187 million in the same six months the year before. The National Bank has disclosed an after tax profit for the three months ended 31 March 2002 of $120m, up from $107 million in the same three months last year.

Retail sales

Sales overall fell 1.2%. The consensus forecast was for a 0.6% fall. Excluding motor vehicles servicing and retail sales, the decline was only 0.8%. But the decline was widely based, and suggests rising interest rates and a rising NZ dollar may be beginning to have some impact on household spending.

Migration

There were 92,700 permanent and long-term arrivals in the year ended June 2002, up 23,200 on the June 2001 year. In contrast, there were 18,900 fewer permanent and long-term departures in 2002. The overall result was a net migration gain of 32,800, compared with a net outflow of 9,300 in the previous year. There were net inflows from China (13,800), India (5,800), the United Kingdom (4,900), South Africa (3,200), Fiji (2,400), and Japan (2,300), in the year ended June 2002. Conversely, there was a net outflow to Australia of 13,700, less than half the net outflow of 31,000 in the June 2001 year.

Work Stoppages

Seven work stoppages ended in the March 2002 quarter, involving 4,258 employees. In the December 2001 quarter there were six stoppages involving some 14,947 employees. The 41 stoppages that ended in the March 2002 year was higher than the previous years total (24 stoppages), but remained under 50, as recorded over the past four years. It is also lower than many years in the 1990s.

For instance there were 72 stoppages in 1996. Twenty-six private sector stoppages and 15 public sector stoppages ended in the March 2002 year. This compares to 13 private sector and 11 public sector stoppages in the March 2001 year. Looking more specifically at sectors, the 41 stoppages were made up of: 16 manufacturing, 4 transport/storage, 3 property and business services, 5 education, 4 health and community services, 3 personal and other services (and 6 in other industries not specified).

Building Consents

The total number of new dwelling consents issued rose by a stronger-than-expected 6.2% in June, following a 6.0% decline in May. The number of dwelling consents issued was 13.6% higher than a year earlier. While the annual growth rate in permits has been moderating, the average value of consents has continued to rise at annual rate of around 13%, mainly due to larger homes being built rather than construction cost inflation.

Gas

Consideration of what to do when gas runs out as an energy source will be of mounting concern as the years roll by. Predictions are for natural gas resources to run out sometime between 2005 and 2011 (although some scenarios think that more sources can be found until 2020). Gas accounts for 23.5% of our electricity generation, compared with 63.9% hydro, 7.1% geothermal and 2.2% from coal.

Rural Skills Shortage

Representatives from agriculture and horticulture industry associations and other related agencies met in Rotorua from 23-24 July 2002 to consider how they could best address the issue of labour and skills shortages in their sector. The meeting was sponsored by the Ministry of Agriculture and Forestry.

The consensus of workshop participants was that a co-ordinated approach across the sector was preferable, to reduce duplication and to prioritise where resources could best be directed. There was strong support for the establishment of a formal labour and skills co-ordinating group.

For further information contact Peter Conway at peterc@nzctu.org.nz or 04 802 3816

ANNUAL INCREASES IN C.P.I.

:

-Year to March 1987 - 18.3
-Year to June 1987 - 18.9
-Year to September 1987 - 16.9
-Year to December 1987 - 9.6

-Year to March 1988 - 9.0
-Year to June 1988 - 6.3
-Year to September 1988 - 5.6
-Year to December 1988 - 4.7

-Year to March 1989 - 4.0
-Year to June 1989 - 4.4
-Year to September 1989 - 7.2
- Year to December 1989 - 7.2

- Year to March 1990 - 7.0
- Year to June 1990 - 7.6
- Year to September 1990 - 5.0
- Year to December 1990 - 4.9

- Year to March 1991 - 4.5
- Year to June 1991 - 2.8
- Year to September 1991 - 2.2
- Year to December 1991 - 1.0

- Year to March 1992 - 0.8
- Year to June 1992 - 1.0
- Year to September 1992 - 1.0
- Year to December 1992 - 1.3

- Year to March 1993 - 1.0
- Year to June 1993 - 1.3
- Year to September 1993 - 1.5
- Year to December 1993 - 1.4

- Year to March 1994 - 1.3
- Year to June 1994 - 1.1
- Year to September 1994 - 1.8
- Year to December 1994 - 2.8

- Year to March 1995 - 4.0
- Year to June 1995 - 4.6
- Year to September 1995 - 3.5
- Year to December 1995 - 2.9

- Year to March 1996 - 2.2
- Year to June 1996 - 2.0
- Year to September 1996 - 2.4
- Year to December 1996 - 2.6

- Year to March 1997 - 1.8
- Year to June 1997 - 1.1
- Year to September 1997 - 1.0
- Year to December 1997 - 0.8

- Year to March 1998 - 1.3
- Year to June 1998 - 1.7
- Year to September 1998 - 1.7
- Year to December 1998 - 0.4

- Year to March 1999 - -0.1
- Year to June 1999 - -0.4
- Year to September 1999 - -0.5
- Year to December 1999 - 0.5

- Year to March 2000 - 1.5
- Year to June 2000 - 2.0
- Year to September 2000 - 3.0
- Year to December 2000 - 4.0

- Year to March 2001 - 3.1
- Year to June 2001 - 3.2
- Year to September 2001 - 2.4
- Year to December 2001 - 1.8

- Year to March 2002 - 2.6
- Year to June 2002 - 2.8