CTU Economic Bulletin No. 48

May, 2004

Comment

I have already sent out a separate Budget report. The CTU has welcomed the Working for Families Package despite the long delay before it is fully introduced. We have pushed hard for income redistribution in favour of those on low incomes. However we have also noted that there are limits to how far a Government could or should go in subsidising low wages rather than increasing minimum pay rates, improving collective bargaining mechanisms, and addressing pay equity issues. Michael Cullen in a Pre-Budget speech to Chen and Palmer on 18th May noted that the package "may take some of the pressure off wages, although that is not its primary intent".

The new In-Work payment will be available to over 100,000 low-and-middle income working families. The average gain for families from the overall package is $66 per week. Households in the $25,000 to $45,000 a year income range will benefit on average by around $100 a week. Comparing this package with cutting taxes, the Government has noted that a family earning $55,000 a year with four children would gain only $39 dollars a week even if tax rates were slashed to 20%. Working for Families will provide that same family with an extra $70 dollars per week from 1 April next year, building to nearly $110 per week on 1 April 2006 and nearly $150 a week from 1 April 2007. Needless to say a 20% tax rate would provide huge gains to higher income earners.

One of the issues that lies behind the Budget package is a belief that real incomes will rise through higher labour market participation. In New Zealand, labour market participation is at 66.6% with a male rate of 73.7% and a female rate of 59.7%. Compare that with Sweden where there is a 79% participation rate with 80.9% for males and 77.1% for females. The difference between male and female participation rates here is 13.9% compared with 3.8% in Sweden. The Government seems to be thinking that if there is better paid parental leave, free early childhood education, higher levels of childcare subsidies, including out-of-school care, and support for low-income families with parents in paid employment, then maybe we will see a rise in female labour market participation, and therefore higher household incomes.

Meanwhile, the inflation outlook suggests a higher CPI in the coming period. Higher petrol prices and a lower dollar could offset the effects of lower migration. Oil prices have hit a 21-year high and diesel prices in NZ are up by 30% since November. In any case, the next quarterly figure comes on top of the current 1.5% as that statistic includes a zero increase for June quarter 2003. That zero if replaced by 0.5% means a CPI of 2% by mid July. Most predictions are between 0.5% and 0.8% which imply a CPI in the 2.0% - 2.3% range. Inflation expectations for the March 2005 year sit at 2.6%. The pressure is on the Reserve Bank to raise interest rates to 5.75% on 10th June although opinion is divided over whether a further increase to 6% will be made this year.

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 1.7% in the April 2004 year. Unemployment is at 4.3%. The minimum wage is $9.00 for those aged 18 years and over and $7.20 for 16/17 year olds and trainees. Ordinary time wages as measured by the Quarterly Employment Survey for March 2004 were up annually by 3.1% in the private sector and 3.9% in the public sector. The Labour Cost Index (for March 2004) showed private sector wages up 2.1% for the year, and public sector up by 2.7%. 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 3.7% and the median increase was 3%. Economic activity (GDP) increased by 0.6% in the December 2003 quarter and 3.5% for the December 2003 year. The official cash rate set by the Reserve Bank is 5.5%.

Wages

As noted by Deutsche Bank, "although the labour market has remained tight - there is little evidence of broadening wage inflation pressure". The Quarterly Employment Survey (which does not correct for compositional effects such as a higher wage due to the employment of more people in higher paid jobs) for March 2004 shows that private sector ordinary time wages increased by 0.2% in the March quarter and 3.1% in the March 2004 year. In the public sector the quarterly increase was 0.6% and annually wages rose by 3.9%. The average ordinary time hourly rate for the private sector was $18.43 and for the public sector it was $24.77. Overall the average wage is $19.81 an hour. Remember this is an average so is skewed upwards by those on very high wages. The median is more likely to be around $15.00 an hour. The female hourly rate was $18.18, which is 86% of the male rate of $21.15. The Labour Cost Index shows that private sector ordinary time wage rates rose by 0.5% in the March 2004 quarter and 2.1% in the March 2004 year. Public sector ordinary time wages rose by 0.4% in the March 2004 quarter and 2.7% in the March 2004 year. The average increase (for those workers who got an increase) in the March 2004 quarter was 3.7% and the median increase was 3.0%. Meanwhile, a survey by Strategic Pay found that public sector employers are struggling to attract and retain staff in the face of private sector offers. The key findings of their Report were that wage movements are modest at around 2%-3% and that there is greater use of performance bonuses to combat retention difficulties. Another survey by Kelly Services found that 32% of NZ employees are on some form of performance pay compared with 12% in Australia.

Unemployment

Unemployment has now fallen to 4.3%. This is 87,000 people. There is a further 85,400 people who are underemployed (seeking more hours). The number of jobless people (which includes the unemployed and those discouraged from seeking employment or not available for work at this time) is 166,200. M?ori unemployment has fallen to 9.4% and for Pacific peoples, the rate is 7.9%. The Government has noted that in May 2004 there were 67,804 people receiving a statutory Unemployment Benefit - down 53% on the 143,818 people receiving the same benefit at the same time in 1999. The ANZ Job Series Survey for April 2004 shows an increase of 9.6% in newspaper advertisements from April 2003. The Quarterly Employment Survey showed a quarterly increase of 0.9% in employment with annual growth of 3.2%. All of the quarterly growth was from full-time employment with part-time employment unchanged.

Trade

Exports have shown some recent signs of improvement with April sales up 8.6% despite the NZ dollar being 6.7% stronger than a year earlier. Some are predicting an expansion in export volumes of about 5% for the June 2004 year. Meanwhile imports are up by 13% annually. The April merchandise trade balance showed a deficit of $134 million with strong oil imports largely to blame for the worse than usual April balance. For the year ended April 2004, the provisional value of merchandise imports is $32,722 million, up $806 million or 2.5% when compared with the year ended April 2003. The estimated annual value of merchandise exports is $28,830 million, resulting in an estimated annual trade deficit of $3,891 million, or 13.5% of exports.

Housing

A survey by KPMG shows that loans for residential mortgages made up 51% of all lending in 2003 and the amount banks lend to home buyers grew by nearly 14% last year. The national median house price in April was $242,000, up from $240,500. However, median prices fell in five regions with a $20,000 drop in Nelson. Consents for 31,677 new dwelling units were issued in the year ended April 2004, up 12% compared with the year ended April 2003.

DHB Deficits

The combined deficit of DHBs was $13.3 million for the March 2004 quarter, down $26 million from December.

Migration

In the year ended April 2004, there was a net migration gain of 25,700. This is 39% lower than the net inflow of 42,000 people in the previous April year. This resulted from 86,200 permanent and long term arrivals (down 12,000), and 60,500 permanent and long term departures (up 4,400) in 2004. Compared with the April 2003 year, New Zealand citizen arrivals and New Zealand citizen departures were both up 600. In contrast, non-New Zealand citizen arrivals were down 12,600 and non-New Zealand citizen departures were up 3,800. In the year ended April 2004, there was a net inflow of 9,900 from the United Kingdom, up 28% on the April 2003 year figure (7,700). There was also a net inflow from China of 6,700, reduced from a net inflow of 15,400 in the April 2003 year. Overall, net inflow from Asia has reduced considerably, from 32,100 in the April 2003 year, to 16,500 in the April 2004 year. Conversely, there was a net outflow to Australia of 11,400 in the April 2004 year.

Retail Sales

Retail sales surged by 2.3% in March, with a quarterly increase of 2.8% and an annual increase of 8.4%.

Capital Goods Price Index

Capital goods prices rose 0.9% in the March 2004 quarter and 2.5% in the March 2004 year. The most significant contribution to the overall increase for the March 2004 quarter came from a 1.9% increase in the residential buildings index. The main reasons were the rising costs of subcontractors charges, construction materials and labour. In the year to the March 2004 quarter, the residential buildings index rose by 8.8%.

Leaving (and coming) on a Jet Plane

There were 184,400 short-term visitor arrivals in April 2004, up 23% on April 2003. New Zealand resident departures on short overseas trips hit 144,100, up 37% on April 2003.

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