CTU Economic Bulletin No. 86
November 2007
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Comment
After 8 years of Labour-led Governments there is by now a long list of achievements that indicate a ‘worker-friendly’ approach. Such a list would include 4 weeks annual leave, 14 weeks paid parental leave, scrapping the Employment Contracts Act, lifting the minimum wage by over 60 percent, KiwiSaver, higher pay for teachers and nurses, the ACC scheme brought back into complete public ownership and so on. As a union movement, we have been prepared to acknowledge these gains while continuing to push for further improvements. But this Government has also been a ‘business-friendly’ government. Recognition of this has been hard to discern. For instance, in 2005 the business community hardly acknowledged $977 million over 4 years in the Budget to allow for higher depreciation. Companies are due to receive a tax cut of nearly 10% in April next year, the first cut in company tax since 1989. The tax credit of 15 percent for research and development expenditure is another major boost for business. There is also expanded export market development assistance. From an initial funding pool of $6.7 million in January 2005, the scheme has grown to more than $50 million annually. The annual value of support for business under just these four initiatives (depreciation, tax cuts, and export assistance) adds up to over $970 million a year. There is heaps more. A firm with 5 workers is entitled to claim $1250 a year as a subsidy for using payroll agencies to assist with PAYE. Fringe benefit taxes on cars were reduced. A $100 million Venture Investment Fund has been established. A $100 million contingent liability has been established for exporters needing bonds and/or working capital. And there are dozens of smaller programmes like the Seed Co-investment Fund which pays out around $8 million a year. NZTE programmes to support business have also been expanded. Meanwhile compliance costs for small business have fallen to $2,384 from $3,353 per full time employee in the last year and New Zealand has retained second place ranking in the World Bank's Doing Business survey – an international benchmark for ease of doing business across 178 countries. Add to that - amendments to the Resource Management Act to provide faster decisions on resource consents, massive investment in infrastructure, buying back the rail track, rescuing Air New Zealand, doubling funding for industry training, reducing tax on active income earned overseas, ongoing commitment to the coordination of trans-Tasman business law and to reduce impediments to trans-Tasman commerce, funding for Buy Kiwi Made, changes to tax treatment of savings vehicles at a cost of $180 million over 4 years, and so on. It is a very long list! Of course, some in the NZ business sector will argue that the ‘worker-friendly’ policies are bad for business. But they cannot argue that this Government is not ‘business friendly’. Hundreds of millions of dollars in tax cuts, tax credits, incentives, grants and investment to support business are testament to the lengths to which Government has gone to support the business sector. Meanwhile on 18th December, the Government will present the Half Year Economic and Fiscal Update (HYEFU) for 2007 and the Budget Policy Statement (BPS) for 2008. Expect careful analysis of the BPS for any signs of the size of the tax package in the 2008 Budget.
Consensus forecasts1 published by NZIER
The consensus forecasts were updated in September 2007. March Years % 2007 2008 2009 GDP 1.7 2.4 2.0 CPI 2.5 3.0 2.8 Wages (QES) 5.3 4.0 4.0 Employment 1.7 1.2 0.7 Unemployment 3.8 3.9 4.2
Economic Snapshot
Consumer prices rose 0.5 percent in the September 2007 quarter, and were up by 1.8 percent annually. The next CPI update is on 17th January 2008. Food prices rose 0.6 percent in the month to October 2007, and 3.6 over the past 12 months. Unemployment is at 3.5 percent. Maori unemployment is 8.0 percent and Pacific peoples’ unemployment is at 5.5 percent, compared with 2.4 percent 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 Survey (QES) for September 2007, were up annually by 4.0 percent (3.7 percent in the private sector and 4.9 percent in the public sector). The QES showed that the average ordinary time hourly wage is now $23.06 ($21.53 in the private sector and $28.92 in the public sector). The female rate of pay is $21.32, compared to the male rate of $24.49. The Labour Cost Index (LCI) shows that ordinary time wages went up by 3.1 percent in the September 2007 year (3.3 percent in the private sector and 2.9 percent in the public sector). For those workers who actually got an increase, the average increase for the year was 5.5 percent and the median was 4.1 percent. The next update of wages data is on 5th February. Economic activity increased 0.7 percent in the June 2007 quarter, compared with 1.2 percent in the March 2007 quarter. In the year ended June 2007, the economy grew 2.2 percent, the same as the 2.2 percent growth recorded in the June 2006 year. The next GDP update is on 21st December. The Official Cash Rate (OCR) is 8.25 percent.
Wages
The Labour Cost Index (LCI) shows that ordinary time wages went up by 3.1 percent in the September 2007 year (3.3 percent in the private sector and 2.9 percent in the public sector). For those workers who actually got an increase (57% of the workforce), the average increase for the year was 5.5 percent (5.6 percent in the private sector and 4.8 percent in the public sector) and the median was 4.1 percent (4.2 percent in the private sector and 3.7 percent in the public sector). However the increases in the latest period (20 percent of workers got an increase in the September quarter) are at a lower level than the annual figures indicating a dip in the overall level of wage increases. The quarterly figures show an average increase of 4.6 percent (4.9 percent in the private sector and 3.6 percent in the public sector) and a median increase of 3.7 percent (3.8 percent in the private sector and 3.0 percent in the public sector). However the experimental unadjusted labour cost index shows a quarterly wage increase of 1.7 percent (highest since September 2005) and an annual figure of 4.8 percent compared with the adjusted figure of 3.1 percent. Ordinary time wages, as measured by the Quarterly Employment Survey (QES) for September 2007, were up annually by 4.0 percent (3.7 percent in the private sector and 4.9 percent in the public sector). The QES showed that the average ordinary time hourly wage is now $23.06 ($21.53 in the private sector and $28.92 in the public sector). The female rate of pay is $21.32, which is 87.1 percent of the male rate of $24.49. Meanwhile a recent survey by Mercer found that in the last year private sector pay packets rose 6.3 per cent -- a larger increase than the public and government sector at 4.8 per cent. And the annual employers' National Wage & Salary Survey was released in November, and shows that for skilled people, pay is rising over twice as fast as that for semi-skilled or unskilled people. Though the average wage increase in the survey was 4.5 percent for the year ended August, (3.8 percent in 2006) wage increases for unskilled employees averaged only 2.4 percent. The survey also revealed that 8.5 percent of workers are getting five weeks holiday; 2.4 percent get more than five weeks and 89.1 percent of employees get four weeks holiday.
Unemployment
Employment decreased by 0.3 percent over the September 2007 quarter but increased 1.5 percent over the past year according to the Household Labour Force Survey (The QES showed a 2.5 percent annual increase in full-time equivalent jobs). In the September 2007 quarter there were 7,000 fewer members of the workforce than at the June quarter, lowering the labour force participation rate slightly, to 68.3 percent. The number of people unemployed decreased by 2,000 over the quarter, and this resulted in a decrease in the unemployment rate point to 3.5 percent, now the lowest rate ever recorded. This is the 5th lowest rate in the OECD and well below the average of 5.3 percent. Maori unemployment is 8.0 percent and Pacific peoples’ unemployment is at 5.5 percent, compared with 2.4 percent for European/Pakeha. Unemployment among those aged 15-19 was 14.8 percent, 5.4 percent for those aged 20-24, compared with 2.1 percent for 50-54 year olds. The number of jobless (which includes those available for work but discouraged from seeking work or temporarily unavailable for work) decreased by 2.8 percent in the September 2007 year, down from 155,600 to 140,300. There were 78,100 underemployed (largely part timers wanting more hours) up from 69,600 in June 2006.
Women a high proportion of those in multiple jobs
In the year to March 2006, 5 percent of wage and salary workers had more than one job at any one time. Females made up 64.9 percent of wage and salary workers with two jobs, and 71.8 percent of those with three or more jobs. However, Statistics NZ report, they tended to earn less than males for each job regardless of how many jobs they held.
Manufacturing Sector falls to second place
Jobs in the property and business services numbered 238,200 during the September 2006 year overtaking the manufacturing industry with 237,000 jobs. A fall in textiles, clothing, footwear and leather manufacturing jobs was the key reason for the decline in filled jobs in the manufacturing industry.
Public Sector Workers
As at 30 June 2007, the Public Service employed 44,335 staff (full-time equivalent of 42,047) up by 5% on 2006 mainly due to more IRD staff for KiwiSaver and more staff in prisons and the Community Probation Service. The median public service salary in June 2007 was $48,343 ($45,900 in 2006) and the average salary was $56,619 ($53,948 in 2006).
Household Expenditure Survey
Every 3 years Statistics NZ releases a major survey of household income and expenditure. The latest details came out on 30th November and were for the 2006/07 June year. These data showed that household spending was on average $956 per week, up from $888 in 2003/04. Housing costs took up 23 percent of spending, compared with food at 16 percent and transport at 14 percent. For those with a mortgage, 22 percent of their total net spending was on mortgage payments. Those renting paid 28 percent of their net spending on rents. Gross annual income per household in 2006/07 was $67,973 ($1307 gross per week) up by 10.2 percent from 2003/04 with wages and salaries per household up by 17.7 percent (this includes more jobs per household, more hours worked per household as well as higher pay and is not adjusted for inflation). The top 20 percent of households had income of $98,800 and over. The bottom 20 percent had income less than $25,800. Average annual income per person for those aged 15 and over was $32,833 up by 10.5 percent from 2004. Median income per person was $25,367 up 15.2 percent from 2003/04. Statistics NZ note that "the average annual income for males increased 5.6 percent, from $37,408 in 2003/04 to $39,491 in 2006/07. The average annual income for females increased 18.2 percent to $26,593 in 2006/07. The increase in male income was primarily due to a $3,612 increase in wage and salary income, while for females the increase was driven by wages and salary income (up $3,781), investments (up $510) and other government benefits (up $362). Likely contributors to this increase in female income were increased female labour force participation, and the introduction of the Working for Families package".
Health costs, prescription charges
A recent article in the New Statesman noted that the cost of 90 Lamisil tablets for a fungal toe infection in good old U.S.A. is US$1379.99 or around $NZ1840. This compares with a maximum of $15 and as little as $3 in New Zealand for the same prescription. While most Americans have health insurance, over 48 million of them do not. One has to wonder about a government that gives tax cuts to the wealthy when the health system is in such disarray. Total health care spending represented 16 percent of the gross domestic product (GDP) in the USA and is expected to reach 20 percent by 2015. In 2006, employer health insurance premiums increased by 7.7 percent – two times the rate of inflation. The annual premium for an employer health plan covering a family of four averaged nearly $11,500. The annual premium for single coverage averaged over $4,200. Over 60 percent of Medicare funding spent on prescription drugs becomes profit for the pharmaceutical companies. And manufacturers of pharmaceuticals, medical devices and other health products spent nearly $182 million on federal lobbying from January 2005 through to June 2006. Add in all the donations to political parties and you can see how such vested interests continue to skew the health system to benefit private profits rather than act in the public interest. This does not mean that health costs are a non-issue in New Zealand. Michael Cullen noted recently that "Since Labour was elected in 1999 the health budget has increased by 99 per cent. Treasury estimates that continuing on the recent path of annual increases of 8 per cent would lead to public health expenditure increasing from 6 per cent of GDP to around 33 per cent by 2050. This is not sustainable". But compared with USA, our system shows that we get better and more equitable health care at a much lower cost with more emphasis on public funding rather than a health system manipulated by health insurance and pharmaceutical corporates.
Price Indices
The Capital Goods Price Index (CGPI) rose 2.3 percent in the last year. Meanwhile, output prices rose 2.1 percent and input prices 1.7 percent in the Producers Price Index (PPI) for the September 2007 year.
Housing and Property
REINZ figures show that the median house price in October was $350,000, up 8.02 percent for the year, down from 12.3 percent for the September year. Quotable Value reported a 12.7 percent growth in national property values over the past year, down from 13.2 percent for the September year. The average sale price for New Zealand residential properties increased to $406,176. There were 2,085 new housing units authorised in October 2007, 292 fewer units than in October 2006.
Trade, Balance of Payments and International Investment Position
The monthly trade balance for October 2007 was a deficit of $690 million (20.1 percent of exports). The trade balance for the year ended October 2007 was a deficit of $5.8 billion (16.4 percent of exports). Using the trade weighted index, the NZ dollar was 6.9 percent higher in October 2007 than a year earlier. October exports were boosted not just by the dairy sector (up 58 percent from the previous year) but also oil exports from the new Tui field meaning a new level of $314 million for the month compared with $63m of a year earlier.
Government Accounts
Figures for the three months ending September 2007 show an operating surplus of $2.14 billion, $704 million more than forecast in the Budget. Core crown expenses were $257 million below forecast while profits from crown businesses were $134 million below. The OBEGAL (this stands for Operating Balance Excluding Gains and Losses and replaces the OBERAC) stood at $1.52 billion, $363 million higher than forecast. The cash position was $98 million ahead of forecast with a deficit of $347 million.
Retail Sales
Retail sales were up in the September quarter by 1 percent compared with June 2007 quarter and 5.1 percent for the year. But sales volumes were up only 0.2 percent after a 0.7 percent decline in the June quarter. Higher interest rates, tighter credit conditions, the housing slowdown and higher food and petrol prices appear to be the main factors affecting sales volumes.
Birth Rate Up
There were 2.1 births on average per woman in the September 2007 year, the highest rate since 1992 but well down from 4.3 in 1961.
Migration
In the year ended October 2007, there were 82,700 permanent and long term arrivals, up 1 percent from the October 2006 year and there were 75,100 departures, up 10 percent. As a result, net migration was 7,500 in the October 2007 year, down from 13,800 in the October 2006 year. There was a net inflow of 7,700 from the United Kingdom, down from 11,100 the previous year. There were also net inflows of 3,300 from both India and the Philippines, and 2,400 from Fiji in the October 2007 year. The net outflow to Australia was 26,500 in the October 2007 year, compared with 20,700 in the October 2006 year. The worrying aspect of this increase is that whereas in recent decades we have had significant variations in the level of net migration to Australia, this is starting to look like a longer trend. Looking at recent decades, the net loss to Australia was higher than 2007 in 1979, 1980, 1981 and 1989 (March years). So this level is not new. And in 1981 when the net loss was 28,418 (and by the way the top marginal tax rate was 66 cents in the dollar) the population of NZ was 3,175,737 whereas today it is 4,247,400. So net migration to Australia in 1981 was 9 people in every thousand compared with 6 in every thousand in the last year.
Working for Families
By September 2007, 290,000 New Zealand families were receiving Working for Families tax credits. It is predicted that by the end of the tax year, 360,000 families will benefit from the tax credits, which is three out of four New Zealand families with children. For further information contact Peter Conway on 04 802 3816 or at peterc@nzctu.org.nz or Josephine O’Connor at josephineo@nzctu.org.nz.
Notes
1 The 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. They are done every 3 months which means that we sometimes have actual figures for some of the forecasts.
