CTU Economic Bulletin No. 51

August, 2004

Comment

It is time for a further move on retirement savings. This time it needs to focus on the private sector (although the state sector scheme needs to have wider coverage also). In the last few years the Government has increased superannuation payments, established a fund to help meet future NZ Superannuation costs, reduced Prospectus requirements for superannuation schemes, lowered tax on employer contributions, and introduced the new state sector scheme. A Government-established Savings Product Group has just reported to Government. It was required to give advice on the design and implementation of guidelines for generic work-based savings schemes that could be widely adopted by employers. If a simple, easy to administer scheme can be designed, then it is reasonable to require employers to make deductions. There has been some public comment on the concept of enrolling workers in a scheme and then allowing them to opt out, rather than offer them the chance to opt in. The psychology of this is that people are much less likely to opt out than opt in. Some US research supports this contention.

The problem is that quite a number of factors have to come together before the proportion of workers in employer-based retirement savings schemes can increase. Wages need to rise. Retirement savings need to be further up the agenda in union claims. Employer contributions would make a huge difference to getting support for a scheme. The tax advantage that those on over $60,000 get (33 cents on employer contributions compared with 39 cents on wage/salary) only helps a small proportion of workers, so further change there by cascading down the 6-cent advantage to lower rates would help.

The economy is growing strongly, there is a tight labour market, and profits are booming. In theory this is a good environment for wage increases and other improvements in conditions. And if wages increase alongside productivity and higher levels of retirement savings, no one can argue about wage rises being inflationary. For instance, we know that 40,000 core public service and (compulsory sector) education workers had to save an extra 1.5% of their wage/salary to qualify for the new state sector scheme.

In Australia, the combination of an Accord, centralised wage bargaining and a Government that looked at tax, inflation, wages and superannuation all at once resulted in employer contributions being introduced. We are in a very different situation. But that is no reason why the Government could not look at some form of incentive for workplace retirement savings. It would have to be carefully designed to ensure that low-income workers (who find it hard to save) would also benefit. This would not be easy. But the Government has shown a willingness to crunch some of the big issues on superannuation so it will be very interesting to see how they respond to the report of the Savings Product Working Group.

Economic Snapshot

This is a snapshot of key indicators for unions. Consumer prices rose by 0.8% in the June 2004 quarter and were up by 2.4% annually. Food prices fell by 0.1% in the July 2004 year. Unemployment is at 4.0%. 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 June 2004 were up annually by 4.2% in the private sector and 4.1% in the public sector. The Labour Cost Index (for June 2004) showed private sector wages up 2.2% for the year, with public sector wages up by 2.6%. 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 4.1% and the median increase was 3%. Economic activity (GDP) increased by 2.1% in the March 2004 quarter and 3.4% for the March 2004 year. The official cash rate set by the Reserve Bank is 6%.

Wages

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 the June 2004 quarter shows that private sector ordinary time wages increased by 2.6% in the June quarter and 4.2% in the June 2004 year. In the public sector there was a quarterly decrease of 0.8% but annually wages rose by 4.1%. The average ordinary time hourly rate for the private sector was $19.02 and for the public sector it was $24.57. Overall the average wage is $20.20 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 $16.00 an hour. The female hourly rate was $18.54, which is 86% of the male rate of $21.57. The Labour Cost Index shows that private sector ordinary time wage rates rose by 0.6% in the June 2004 quarter and 2.2% in the June 2004 year. Public sector ordinary time wages rose by 0.5% in the June 2004 quarter and 2.6% in the June 2004 year. The average increase (for the about 15% of workers who got an increase) in the June 2004 quarter was 4.1% and the median increase was 3.0%.

Employment

Unemployment is down to 4%, which is the lowest rate for 20 years. This means there are 84,000 people officially unemployed. Five years ago in June 1999 it was 130,000. The number of jobless (148,100) was down from 168,800 in March. The number underemployed (80,400) was down from 86,900 in March. The P?keha unemployment rate is 3% with the M?ori rate at 8.8% (compared with 18.2% in 1999) and Pacific peoples at 7.4% (compared with 12.8% in 1999). The unemployment rate for 15-19 year olds was 14.5% (7.2% for 20-24 years) compared with 1.9% for 50-54 year olds.

Housing/Building

The rate at which house prices are rising is slowing with 1.9% for the quarter ending June 2004 down from 5% for the quarter ending March 2004. Although quarterly growth slowed, the annual growth rate to June 2004 of 22% was still an increase from the 15.5% annual growth rate to June 2003. The national median house price for July 2004 is 17.86% up on July 2003. Meanwhile, the latest figures from the Property Council of New Zealands Investment Performance Index survey show commercial property investors have received an average return of 14.04%. The value of all building work put in place was $2,359 million in the March 2004 quarter, up 17 percent compared with the March 2003 quarter. After adjusting for price changes, the value of all building work put in place increased 7 percent from the March 2003 quarter to the March 2004 quarter. The trend for consents is indicating a slowing down but 32,577 new dwelling units were issued in the year ended July 2004, up 3,620 (13 percent) from the year ended July 2003.

Sky High Profits

Business is generally enjoying a period of very high profits (despite their constant complaints about the business environment). For the June 2004 year Sky City made a profit of $121.1 million - up 13% on the 2003 result. And Air New Zealand made a $243 million profit - up 10% on 2003. Auckland International Airport managed a 22.8% increase in their after tax surplus to reach $94.3 million. ABN Amro Craigs calculates the latest average adjusted net-profit rise for listed companies is 14.6%. And although there is re-investment, dividends are on average 13% higher than ABN Amro Craigs was picking.

NZIER Predictions

The NZ Institute of Economic Research in its latest quarterly predictions picks GDP growth of 4.3% for March 2005 year and 2.5% for the March 2006 year. They believe that annual CPI will hit 3.5% by March next year with average wages rising by 4% over the next 18 months.

Food Prices

Food prices declined by 0.3% in July 2004 and by 0.1% in the July 2004 year.

Producer Prices

Output prices rose 1.3% in the June 2004 quarter and 1.9% for the June year. Meat prices were up 7.4% for the June quarter. Input prices were up 1.6% in the June quarter and 1.5% for the year.

Capital Goods Prices

Capital goods prices rose 1.5 percent in the June 2004 quarter compared with the March 2004 quarter. On an annual basis, the rise was 3.6 percent in the year to the June 2004 quarter.

Retail Sales

Retail sales increased by 1.3% in June with a rebound from -0.7% and 0.0% in April and May. Total actual retail sales for the June 2004 quarter were $13,160 million, 7.7 percent higher than for the June 2003 quarter.

International Investment

The current account balance showed a deficit of $5.7 billion (4.2% of GDP) for the March 2004 year. The balance on goods was -$597 million. The balance on services was $1.19 billion. The balance on investment was -$6.482 billion. Net international debt was $107.6 billion, which is up by $7.1 billion on March 2003. Australia, the USA and the UK were the source of 63.3 percent of the $193.6 billion of foreign investment in New Zealand as at 31 March 2004.

Trade

The July trade balance was a deficit of NZ$373million. Exports showed a fall in prices, as did imports. Export returns were affected by a higher dollar and a lower rate of growth in volumes. On the imports side, car imports are slower, plant and machinery imports are strong and oil imports are up by 16% in value for the July quarter 2004 compared with the same quarter of 2003. Annual growth in exports for the year fell to just 8.2% from 19.4% in June despite a 16.5% increase in commodity export prices over the period. Merchandise import growth also fell to 2.8% in the year to July 2004, from 23.9% for the June year.

Tourism

Visitor arrivals for July were up 19 percent on July 2003, from 145,600 to 173,300. There were more visitor arrivals from Australia (up 18,800) and China (up 3,200) compared with July 2003.

DHB Deficits

The combined deficit of New Zealands 21 district health boards was $58.2 million for the June 2004 year. This was a $111.4 million decrease on the $169.6 million deficit recorded in the June 2003 year, and is $229.0 million lower than the June 2002 year deficit.

Migration

In the year ended July 2004, there were 83,500 permanent and long-term arrivals, down 13,300 (14 percent) on the July 2003 year. Over the same period, permanent and long-term departures increased by 8,200 (15 percent) to reach 63,000. The overall result was a net migration gain of 20,600 in the July 2004 year. This is 51 percent lower than the net inflow of 42,100 people in the previous July year. In the year ended July 2004, there was a net permanent and long-term inflow of 9,500 from the United Kingdom, up 7 percent on the July 2003 year figure (8,800). There was also a net inflow from China of 4,700, down from a net inflow of 14,300 in the July 2003 year. Overall, net permanent and long-term inflow from Asia has reduced considerably, from 30,100 in the July 2003 year, to 13,100 in the July 2004 year. There was a net outflow to Australia of 12,700 in the July 2004 year. Of the 7,300 permanent and long-term arrivals in July 2004, there were 2,400 permanent migrants, and 3,600 long-term visitors. A further 1,400 arrivals were classed as long-term New Zealand residents.

NZ helps China Dairy Capacity

Already this year more than 22,000 cattle have been shipped from NZ to China for breeding and milk production.

Poverty in the "Home of the Brave, land of the free"

The U.S. Census Bureaus annual report says the percentage of the U.S. population living in poverty rose to 12.5 per cent from 12.1 in 2002. This put the ranks of the poor at 35.9 million.

More Households on the Way

Between 2001 and 2021 there is estimated to be a 26% growth in the number of households with the Auckland Region increasing by 189,000 (45 percent), from 419,000 in 2001 to 609,000 in 2021. Other high growth regions are expected to be Bay of Plenty Region (up 38 percent), Tasman Region (up 34 percent) and Nelson Region (up 28 percent).

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