CTU Economic Bulletin No. 47

April, 2004

Comment

The Budget on 27th May promises to deliver a significant boost to those on low incomes with a new package worth at least $1 billion a year. The Government is aiming in this package for a trifecta - helping those on low incomes, increasing labour market participation, and stimulating the economy next year at a time that a slowdown is predicted. The Government has already said that the Budget will "significantly increase direct income support and incentives to move from welfare benefits into paid employment, and will make housing more affordable for low income families and single adults". But many details are not known - the exact overall size of the package, phasing-in, childcare support, accommodation allowance, the linkage to employment etc. What we do know however is that the December Economic and Fiscal Update showed new spending of $13.3 billion over the next 3 years from July 2004. This is double the provision in the 2003 Budget which was for $6.6 billion new spending over 3 years. I am sure there will be a lot of debate about the nature and details of the package. What is clear though is that it represents a stark contrast to the National Party in the 1990s which amassed Budget surpluses which were then given in tax cuts favouring those on high incomes.

Recently the Growth and Innovation Advisory Board released a survey on "growth culture". Their main conclusion is that "Values (quality of life, environment) plus value-add (innovative technologies) produce value (economic growth) for New Zealand. The survey findings would not have surprised unionists. We have said for years that the so-called "trickle-down" economics of the late 1980s and 90s was more trick than treat. The "business knows best" approach towards economic growth saw many business leaders capture large fortunes while poverty and disparity grew. Any new formula for growth has to be based on sustainable development, and values such as fairness and opportunity for all.

Meanwhile, most economists are mystified by the behaviour of our labour market. Why have wages not responded to persistent labour and skill shortages? I mentioned this in a previous Bulletin and suggested that the absence of widespread collective bargaining is a significant factor. Way back in December 2000, the Reserve Bank noted that there was " evidence of a tight labour market and prospective wage pressure is to be found in reported skill shortages in the economy. Historically, wage growth rises about a year and half after an increase in the reported difficulty of finding skilled labour". Well it has been three and a half years and there is still no sign yet of a significant wage response to a tight labour market.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.4% in the March 2004 quarter and were up by 1.5% annually. Food prices rose by 1.5% in the March 2004 year. Unemployment is at 4.6%. The minimum wage is $9.00 for those aged 18 years and over and $7.20 for 16/17 year olds and trainees. Meanwhile, ordinary time wages as measured by the Quarterly Employment Survey for December 2003 were up annually by 2.7% in the private sector and 4.6% in the public sector. The Labour Cost Index (December 2003) showed private sector wages up 2.1% for the year, and public sector by 2.8%. The key statistic for unions to note probably is that the LCI shows that for those firms where there were wage increases in the last measured quarter, the average rate of increase was 3.9% and the median increase was 3%. Economic activity (GDP) increased by 0.6% in the December quarter 2003 quarter and 3.5% for the December 2003 year. The official cash rate set by the Reserve Bank is 5.5%.

Consumer Prices

Consumer prices increased by 0.4% in the March 2004 quarter. Annual CPI is therefore 1.5%. The main increases in the latest quarter were in housing, petrol, vehicle insurance and tertiary tuition fees. The main increase annually has been in housing and construction (up 8.7% for the year). The quarterly increase was a bit lower than what was forecast and indicates that inflation has been well-anchored at around 1.5% for a year now. There is some suggestion that it will trend up from here (particularly given the fact that the June 2003 quarterly figure was zero and that falls out of the annual statistic next time so the quarterly increase next time will go straight on top of 1.5% and could easily hit 2% or more). Food prices for March were up by 1% mainly due to the flood effect on fruit and vegetable prices. The annual food price increase is 1.5%. I have already sent out a table of CPI changes since 1987 and an updated CTU Real Wage Calculator.

Government Finances

In the 8 months to end of February, the operating balance was $5.5 billion, which was $1,081 million higher than forecast. There was higher-than-forecast investment income of $307 million, reflecting an appreciation in investment asset values held by GSF, ACC and EQC, tax revenue which was higher-than-forecast by around $154 million, and total Crown expenses which were lower-than-forecast by $424 million - mainly timing delays in implementing planned programmes. Gross debt was 28.7% of GDP, compared to forecast of 29.1%. Net debt was 12.3% of GDP, compared to the forecast of 12.8%.

Employment

On an annual basis, newspaper job advertising in March was 11.2% higher than the level prevailing in March 2003. Internet advertisements were 23.2% higher than March 2003. The ANZ commented that "This is good news for job seekers. But it continues to cause difficulties for many businesses, with skilled labour shortages remaining a problem throughout the economy. This was reinforced by the NZIERs March quarter survey of business opinion, wherein 23% of respondents suggested that labour shortages were the most significant factor limiting their ability to increase production or activity - the highest proportion in almost 30 years. These difficulties are undoubtedly playing a role in underpinning the job ads series, by forcing employers to re-advertise positions in an attempt to attract appropriate candidates." Meanwhile a recent survey noted that one in four of those aged 65-69 are in paid employment - up from one in ten in 1986.

New Provisions for Insolvency

The Companies Amendment Act 2004 and Insolvency Amendment Act 2004 both got assent on 30th March so come into effect on 1st June. The Acts were from the Status of Redundancy Payments Bill and include the new requirement to lift the limit for wages, holiday pay from $6,000 to $15,000 and include redundancy payments.

Work Stoppages

Twenty-eight work stoppages, comprising 21 complete strikes and 7 partial strikes, ended in the year to December 2003. Thirteen work stoppages, comprising 11 complete strikes and 2 partial strikes, ended in the December 2003 quarter. Manufacturing, and health and community services had the highest number of stoppages for the December 2003 year. Manufacturing also had the highest loss in wages and salaries ($4 million, or 94% of the total loss), and person-days of work (17,806 person-days, or 92% of the total loss), over the same period. Health and community services had the highest number of employees involved (approximately 59% of the total) in stoppages for the December 2003 year.

Interest Rates

The Reserve Bank has lifted the official cash rate to 5.5%. While this will only have a marginal effect, it will end up adding to the cost of borrowing. For first home buyers things just get tougher and tougher. After a 21% rise in house prices last year, the cost of borrowing is also rising. So that means bigger mortgages and/or longer terms and higher interest rates. Although the New Zealand dollar has been heading down, so has immigration. The economy looks set to slow next year and inflation is still predicted to be well-inside the 1-3% band. So there was no need to lift rates. But the Reserve Bank is obviously focussed to a significant extent on the impact of a lower dollar and concerns that the housing sector while slowing is still creating inflationary pressures.

Trade

The seasonally adjusted value of merchandise imports rose 7.1% in the March 2004 quarter. Annual imports increased by over 10%. Meanwhile, commodity export prices rose by 5% in March - a combined effect of a lower NZ dollar and improved prices. In general what we are seeing is an improvement in export volumes and prices, but also a high level of demand for imports.

Student Debt

After 12 years of the scheme, student debt has now hit a massive $7 billion.

Pay Disparity in the home of the brave, land of the free......
I noticed recently a survey by consulting firm Towers Perrin, showing that the pay of chief executives (in the USA) was, on average, 531 times that of their lowest-paid rank-and-file workers.

Industry Training

Total numbers in industry training during 2003 reached 126,870 trainees, a 19% increase on the number participating during 2002, and a 56% increase over the number in late 1999. The number of employers involved in the industry training programme also increased, with 29,206 firms (up from 24,576 in 2002).

Housing

The national median price rose from $231,000 in February to $240,500 in March. Consents were issued for 3,037 new dwelling units in March 2004. Although at historically high levels, particularly due to apartments, the number of dwelling consents per month is slowing. Consents for 31,423 new dwelling units were issued in the year ended March 2004, up 11% when compared with the year ended March 2003. For the year ended March 2004, the total value of consents for all buildings was $9,682 million, up $1,630 million (20%) when compared with the year ended March 2003. Meanwhile dairy farm selling prices went up to $2,075,000 in March - well up on the previous March figure of $1,700,000.

Migration

Net migration is slowing. In the year ended March 2004, there was a net migration gain of 28,000 - 33% lower than the net inflow of 41,600 people in the previous March year. This resulted from 87,500 permanent and long-term arrivals (down 11,200), and 59,500 permanent and long term departures (up 2,400) in 2004. There were net inflows the United Kingdom (10,300), China (7,400), India (4,100) and Japan (2,100) in the year ended March 2004. There was a net outflow to Australia of 11,000 in the March 2004 year, compared with net outflows of 11,300 in the March 2003 year and 16,100 in the March 2002 year.

Living Standards Survey

Unions will be interested to get the results of a new survey. Over the next six weeks, 5000 New Zealanders will have the chance to take part in a nationwide survey of Living Standards. The Ministry of Social Development is undertaking this survey to measure how living standards have changed, and why people experience different standards of living.

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