Groser Reiterates Tough Export Goal

We are pleased that John Key is planning to take personal responsibility for our major export industry - tourism and that national is continuing to strive to boost export performance. In a speech this lunchtime on China Tim Groser said the following:

What we know is that there is a virtual circle between higher participation in exporting and higher productivity. It is no coincidence that the first comprehensive study of total factor productivity that I became aware of ten years ago – the Diewart and Laurence study completed for the NZ Treasury – showed that in a 20 year period from 1978 to 1998 total factor productivity of NZ agriculture was almost three times higher than total factor productivity for the economy as a whole – and that included the contribution of NZ agriculture.

Why? Because NZ agriculture generally regards the NZ domestic market as an abstraction. 90 per cent plus of what NZ agriculture produces is for the world market, not NZ. NZ agriculture – and that is far broader than just our farmers since it includes our marketers, our scientists and our trade negotiators are involved in a virtual circle of innovation, product excellence and expanding market opportunities, or they fall away. Our objective is to move an additional 10% of GDP into that space. Or, technically expressed in terms of the National Party External Strategies Paper, our Government will aim to increase the ratio of exports to GDP by 10 percentage points by 2020. It is achievable.

I said earlier that the Labour Government lost office because it lost touch with New Zealanders about the issues that mattered to them in their daily lives – safer streets, stronger economy, better schools, putting the word ‘winning’ back into the NZ vocabulary. I do not expect that our people will use the language I am using here. There is unlikely to be a new NGO called ‘friends of total factor productivity’.

But what is at the end of the total factor productivity sausage machine is higher real wages. That is something every New Zealander can relate to. Every New Zealander knows we have a problem here: our real wages are too low. That is a principal reason why we are bleeding people. And not just bleeding over 80,000 New Zealanders a year – but bleeding young people. 80% of the people who left NZ last year were under the age of 40. Some 30% of our tertiary educated people do not live in their own country – an unprecedented proportion. We need to get NZ back, over the next decade or two, into the top half of the OECD where we were when I grew up. Frankly, it is where we belong. Raising productivity growth is central to that. Raising our exporting performance is an absolute key. And the Chinese market is a large part of that story.

We agree with all this but note that growing our exports as a proportion of GDP by 10 percentage points by 2020 will take a major change in performance and strategy. Instead of crowing about winning an award as the best Trade Promotion Agency in the World, NZTE should be explaining why our exports as a proportion of GDP have in fact been declining steadily since NZTE was established.

Having peaked at 37% in 2001 New Zealand exports as a percentage of GDP have fallen to 29%.

The reason we guess Groser is confident about achieving this goal is that we have dropped 8 percentage points in six years, so growing 10 over 12 should be achievable. We agree the logic but stress the need for major change if we are going to achieve this worthy goal.

New Zealand Financial System Holding Up Well

Some reassuring words from the Reserve Bank


New Zealand's financial and payments systems have held up well in the face of extreme disorder within the international financial markets, Governor Alan Bollard said today, when releasing the Bank's November
2008 Financial Stability Report.

"While we are far from seeing the final impact of the financial and economic disruption, New Zealand's banks, and the Australian parents of the majors, are well-positioned to withstand the economic downturn," Dr Bollard said.

Dr Bollard said that New Zealand's banks have not experienced the significant financial losses affecting financial institutions in the United States and Europe.

"Also, they have sufficient capital buffers to withstand the higher loan losses that will inevitably result from the economic downturn.

"However, recent global market conditions have affected the cost and accessibility of offshore funding that our banks - and the country - rely on heavily."

Measures undertaken by central banks and governments around the world have contributed to some improvement in market conditions over recent weeks. New Zealand has also adopted a range of policy measures to help reduce financial and economic risks.

Deputy Governor Grant Spencer said the retail deposit guarantee scheme that the Government announced in October assures New Zealanders that
their deposits are safe. The wholesale guarantee scheme announced in
early November is aimed at facilitating the re-entry of financial institutions to offshore wholesale debt markets.

"These schemes are a temporary response to exceptional circumstances.
While some distortions are inevitable, the Government has tried to reduce these distortions through the use of risk-based pricing and other features. The Bank will also monitor and supervise the guaranteed institutions more intensively, and will accelerate implementation of the new non-bank prudential regime.

"Recently we issued a consultation document on proposed new standards for the banks' management of their funding and liquidity. When finalised, this policy will reinforce incentives on banks to diversify away from short-term wholesale funding and reduce their vulnerability to credit market disruptions."

Mr Spencer said banks have been constructing Residential Mortgage Backed Securities following the Reserve Bank's announcement in May that it will accept these securities in its domestic market operations. "A number of banks now have these securities in place. This will enable us to maintain liquidity in the banking system if the offshore funding channels continue to be disrupted."

Dr Bollard noted that a slowing in the economy had been reflected in an easing in credit growth, and savings appeared to be improving, particularly in the household sector. Together with the decline in the exchange rate, this is expected to improve New Zealand's external balance and reduce the need for foreign borrowing over time.

"However, global developments have proven extremely disruptive and it will likely be some time before financial market conditions normalise.
The Bank will continue to adopt measures as needed to maintain the stability of our financial system as far as possible in these difficult times."

National's 10 Point Plan

W are largely happy with National's 10 point plan for immediate action, but we hope repeal of the Electoral Finance Act is not overlooked....

NATIONAL'S PLAN
1. Meet leaders of Act, United Future and Maori Party over next two days, with first caucus meeting tomorrow morning.
2. Get economic briefing mid-week from Treasury and Reserve Bank.
3. Legislate by Christmas for further tax cuts. Next tax cuts to be on April 1 next year, then two more rounds on April 1, 2010 and 2011.
4. Instruct by Christmas that breast cancer drug Herceptin be available for 12-month course.
5. Call in public service chief executives, instruct them to undertake a review of all spending with a focus on finding savings. Establish "razor gang" type group to oversee review.
6. Request full December fiscal update from Treasury.
7. Legislate - if necessary - by Christmas for transitional package to help people who lose jobs in economic downturn.
8. Quickly introduce bill to reform Resource Management Act, aim to pass it within six months.
9. Prioritise law and order legislation for first readings.
10. Send Emissions Trading Scheme back to select committee, pass revised version within 9 months.

ETS Architect Jumps Ship

Dave Brash, David Parker's right hand man on the design of the Emissions Trading Scheme has resigned from MfE and has joined the New Zealand Transport Authority as Group Manager Partnerships and Planning.

What does this say about Dave's faith in the ETS?

The resignation was in well before the election by the way.

Perceptive Comment from Australian Opposition

A little snippet from the Dominion Post

Australia's federal opposition says new Zealand's strong policy on climate change was a driving fcator behind Labour's loss. The coalition's infrastructure spokesman Andrew Robb said New Zealand had moved too far ahead of the rest of the world too quickly.

We agree

Well Done New Zealand

We needed a clean result.

Good luck National and ACT.

This is going to be a very tough 3 years.

Lets hope we can move to a true consensus on the response to the financial crisis and climate change. If it can work for foreign and trade policy why not other areas.

Why Labour Has Run Its Course

From today's NBR Editorial

"Instead of "transforming" the economy to make it leaner and fitter, Labour has pushed the economy to one of the most at-risk.

It condoned a housing bubble that in turn raised household debt in an unsustainable consumer boom.

Instead of greater prudence, lower taxes and savings policies not based on cash incentives, costs were allowed to rise on the back of a raft of local and central government impositions."

Fair summary. Who do you trust to manage the economy through tough eceonomic times?

Unemployment Closing In On 100,000

While better than some were expecting the Household Labour Force Survey has some worrying signs - negative job creation in Auckland and a big jump in unemployment for the quarter. 16,000 more people are unemployed than a year ago. Are they going to vote Labour?? Not what one would want to read two days out from a general election.

Swan Dive Or Belly Flop

We reported yesterday on the revised version of the think piece by Mark Weldon and David Skilling. We read this last night. Here are our views.

This is now a very significant document. It is an head on attack on some current elements of Government policy (eg the current R&D policy is described as "deeply flawed in design") and an endorsement of some of the ideas coming from John Key.

We agree fully on the need for an economic strategy. We have so called strategies right now but they are largely spin. It is great to see Weldon and Skilling try and and define essential components of that strategy.

Urgent Actions:

• We think that we should be cautious on fiscal stimulus. we think that tax cuts are a great way to get money flowing in the economy. We are less happy with expanded Government expenditure unless this can be linked to likely productivity growth - eg key infrastructure. We really need to focus on improving the quality of Government expenditure.
• We agree that RBNZ needs to keep cutting and like the goal of having our rates down to 2.5% to 3% above the Fed's rates.
• We agree with the recommendations on provisional tax- this is just common sense.
• Accelerated tax depreciation on capital investment is essential if we are to grow productivity.
• Still thinking about the proposed review of the imputation regime and suggestions re Deposit insurance.

Drive to increase local investment and performance

• We support debt financing of key infrastructure projects and agree with the note of caution. We like the idea of SOE bonds being offered to NZ investors and the idea of a 30-year NZ Government Treasury bond and long term infrastructure bonds.
• Reforms of the CCMAU process are fully in line with our own thinking.
• The idea of an ownership vehicle for the SOEs is also of some interest. We know the Singapore model well. It has made some mistakes though....
• We, like you, support the idea of having more coordination of the various NZ Government investment funds. We are comfortable with National's 40% vision in the short to medium term.

Improve growth environment for New Zealand business

• We support a compulsory savings scheme and agree that 2% is a good place to start.
• We are happy to see housing removed from the LAQC regime but would oppose a capital gains tax.
• Agree that we should try and develop an R&D scheme that works rather than one that creates more accountants jobs.
• Agree fully on the need to reduce corporate tax.

Win in the global economy

• We must get those well qualified and experienced Kiwis home.
• Very open to use tax incentives to attract firms to NZ. Also keen to go out and buy some with our investment funds - should they fit.
• Expanded investment offshore is critical. Integration with our FTA strategy is essential.

Public Private Sector Cohesion

In full agreement.

Summary

Thanks for doing this work. Lets hope that a new Government, whether it be Labour or National led picks up your ideas and runs with them.

New Version Of Swan Dive Or Belly Flop

The New Zealand Institute and NZX have produced a new version of Swan Dive and Belly Flop. We will read tonight and comment tomorrow (it will be better than watching the US election results come in - Democrats in control!! Sigh!).

It is on the NZX blog site.

Here is the media release summary

Today we have released round two of Swan Dive or Belly Flop? This version is very different, and, we believe much improved on, the previous version.
In terms of policy it has new ideas (e.g., lower corporate tax rate and the elimination of imputation, practical suggestions to improve public-private sector cohesion), significant refinements on previous ideas (e.g. refined proposals on provisional tax and depreciation), new analysis (e.g. on NZSF directing funds into the NZ economy in larger chunks, SOE performance, KiwiCo). Some of these were entirely “externally” generated via feedback, especially on this blog. All benefited from such feedback
In terms of “what next” Swanbelly outlines plainly the need for a broader economic strategy, of which SwanBelly, with its focus on the productive sector, could form a part. Most importantly, it lays out criteria by which the next government’s economic strategy can be evaluated, and concludes with a call to action for the new government to deliver a bold, clear economic growth strategy as a matter of urgency.
Over this process it has become clear to us, with Lloyd issuing his “goal for NZ”, the Unions and Bus NZ both putting out economic strategies, individuals working on detailed manifestos, as well as via the feedback from bloggers and well known civic leaders, that there is a deep need for urgent, cohesive, inclusive New Zealand response, and that this crisis may provide just the opportunity for us to create that.
Whoever the next government is, they should take on board, and ignore at their peril, that the public is thirsty to contribute, and has had enough of being ignored in policy formation, and the overall “direction of travel” of New Zealand. The opportunity, and the risks, are clear to whoever the next government leader is……
Post your thoughts and feedback on version two below. Don’t hold back.
Long term, we encourage you to continue to keeping visiting this blog and participating in an ongoing national conversations about the economic issues and opportunities facing New Zealand.
Download the Full media release here
Download Swan Dive or Belly Flop? - Version 2 Here

Crown Accounts Take A Battering

This just in from Michael Cullen

The Financial Statements of the Government for the first three months of the current financial year, released by the Treasury earlier today, reflect the period of disruption and weakness in global financial markets, says Finance Minister Michael Cullen.
"The operating balance deficit of $757 million reported at 30 September was $1.7 billion lower than the Treasury had forecast for the quarter in its Pre-election Economic and Fiscal Update," Dr Cullen said.
"The main contribution to this lower operating balance came from negative performances on investment portfolios, reflecting international financial market turmoil and weakening global economic growth in the period," Dr Cullen said.
Unrealised gains and losses on investments from Crown financial institutions such as the NZ Superannuation Fund, the Earthquake Commission and the Accident Compensation Corporation do not impact on the Crown's cash position.
“Over a longer horizon, since the New Zealand Superannuation Fund began investing in late 2003 until the end of September, the rate of return on taxpayers’ investment in the Fund stands at just over eight per cent on an annualised basis (8.04 per cent). That is 1.12 per cent above the rate of return that would have been achieved had the Guardians of New Zealand Superannuation instead invested solely in 90-day Treasury bills for a risk-free rate of return,” Dr Cullen said.
The Treasury reported today that the Crown's OBEGAL surplus stood at $891 million at 30 September 2008, around 110 per cent higher than forecast because tax revenue was above forecast across source deductions, GST and other individuals' tax. Corporate tax, however, was close to forecast while corporate income tax assessments were lower than anticipated reflecting multinational and finance sector companies' performance being adversely affected by the current international financial environment.
The Crown's gross debt stood at 17.8 per cent of GDP at 30 September 2008. The Crown's net financial asset position, inclusive of the NZ Superannuation Fund's financial assets, was plus 5.7 per cent of GDP.
"This strong balance sheet position vindicates the government's decision not to blow the surplus in the good times. As result, New Zealand is today in a better position to weather the current global economic situation than the great majority of developed countries," Dr Cullen said.

Government Expecting Bad News On Thursday

A significant jump in unemployment looks likely when latest statistics are released on Thursday, two days before the election. Brian Fallow looks at expectations from the market in today's NZ Herald

The unemployment rate is expected to jump when September quarter jobs data are released on Thursday, as the recession pushes more firms over the line from the desire to hoard labour to the need to cut costs.
Market economists' forecasts cluster around an unemployment rate of 4.3 per cent, up from 3.9 per cent in the June quarter. It would be the highest rate since December 2003.
Westpac economist Dominick Stephens said the seven-year run of strong employment growth had ended.
"So far most affected workers have found alternative employment, quit the labour force or emigrated. The rise in unemployment has been slow but steady."

Fallow On The Bank Guarantees

Brian Fallow looks at the latest bank guarantees in today's NZ Herald. He concludes

On the the face of it the designers have done their best to minimise the inevitable difficulties - boundary issues, moral hazard and the need for an exit strategy.
But there is no getting away from the fact that to the extent the facility is used, it heaps risk onto taxpayers and cost onto borrowers.

Should We Trust Labour With Economy Any Longer?

No, would be the answer if you believe the analysis from Doug Graham (brother of aspiring Green MP Ken) in today's Sunday Star Times (we don't read this publication anymore but a reader sent through the link)

Despite Labour coming to office in an economic upswing, nine years on, our score sheet makes sober reading. Of the 24 determinants of our living standards, most are in the low and deteriorating category. There are thousands more civil servants and to pay for them the personal income tax take increased 36% and corporate tax by a whopping 101%. So when other countries reduced the tax take we increased ours. Our total productivity grew only 0.4% per annum compared with an average of 2.3% per annum in the previous eight years. Inflation is over the top of the target band. Our GDP per capita growth is below all Australian states except Tasmania and we languish in 21st place out of 30 in the OECD. Our annual trade and services deficit has risen from 6% to almost 9% of GDP despite strong terms of trade, and the cost of servicing the extra borrowing to finance that increased from 17% to 25% of exports. Household debt interest payments have increased from about 7% to 14% of disposable income. Spending on welfare, despite low unemployment, has ballooned from $13 billion to about $17b. Our best people are leaving in droves.
Unfortunately we have failed to lock in the benefits of the good times and had a big spend-up. Now we face a severe world downturn. Labour invites us to "trust" it to get us out of it. The polls are suggesting not many will be accepting the invitation.

Labour's Redundancy Assistance Package Not as Generous As It Seems

So says NZ Herald columnist John Armstrong

So the two major parties are instead playing the political equivalent of poker by constantly raising the stakes by coming up with bigger and better rescue plans for the economy and assistance packages for those who will lose their jobs.
Labour yesterday promised an income-tested job search allowance equivalent to the unemployment benefit for up to 13 weeks for someone whose partner is working and who has been in the workforce for at least five years.
The move was a pre-emptive strike ahead of National's release today of its "transitional assistance" package, which will provide similar time-limited grants for those laid off.
National's initiative was designed to outmanoeuvre Labour which had previously gone one better than National by indicating it would bring forward "job rich" infrastructure construction projects to soak up the expected increase in unemployed.
Closer scrutiny reveals that Labour's redundancy help package is far less generous than appears at first sight. But you get the picture. Neither party is prepared to surrender ground.

Lloyd Morrison Shows The Way

Good on you Lloyd. Lloyd suggests we adopt a common purpose. We agree. In this post from 16 June 2008 we suggested how we might deliver on Lloyd's suggested goal.

Anyway here is Lloyd's message. If you agree pass it on.

New Zealand lacks a common purpose. No one knows exactly what we want. We hanker for a return to the times when we were one of the wealthiest countries in the world. We want everyone to be better off, knowing that individual wealth does not result in freedom from crime and the social fallout of excessive disparity. However, there is no clearly articulated goal we are pursuing and no solid plan of how we can get there.
As a result, there is no definition or accountability for policies or policy-makers. Policies are often clothed with loose positive objectives and ultimately ineffective aims. There is no co-ordinated accountability for these policies (or politicians) in terms of their ability to contribute towards a common measurable outcome. Consequently, we continue our steady decline. As the attached analysis shows, current forecasts have our GDP per capita slipping below Kazakhstan and Botswana by 2025.
I’ve been discussing this with colleagues and friends, and we believe that NZ needs to embrace a common objective that will provide the means to deliver what we are seeking as a nation.
Whatever the objective chosen, it needs to be simple, clear, measureable, understandable, aspirational and, most importantly, catalytic in terms of driving positive change that makes the outcome achievable.
We’d like to stimulate a broader discussion over what that goal should be for NZ. To kick-off the debate, here’s our starter for ten: NZ should aim to be back in the top 10 countries in the world based on GDP per capita by 2025. Not just the OECD, the world. Unachievable? No way. Ireland, Korea, Singapore and Taiwan all achieved the required level of growth over the last twenty years. It will take real collective commitment and more creative thinking about our economy – but that’s exactly what an ambitious goal will generate.
I’m hoping you’ll participate in a broader discussion about an aspirational, measurable goal for New Zealand. Please read the attached document. Pass it on to your friends. Participate in the debate by emailing measurablegoal@hrlmorrison.com or contributing to the forum on www.blog.nzx.com. If you agree with what we’re proposing, show your support. If you don’t, please share your ideas for a national goal. Together, let’s take the first step in defining and delivering a better future for New Zealand.

Cullen's Response To Financial Crisis?

Insulate more homes. That is what he told the Mood of the Boardroom meeting in Auckland this morning when taalking about bringing forward infrastructure spend. Where have we heard this before - oh yes, from Comrade Norman. The AXIS hydra is now using the same sound bites...

Mood Of The Boardroom? Dump Clark

90% of thosed surveyed in this year's NZ Herald mood of the boadroom survey want John Key to be PM. Last election only 78% wanted Brash in the job.

Carnage Again In Some Markets

But Wall Street stayed flat. Expect a rocky day on today's market as the NZX opens again. Latest business confidence survey data won't help sentiment.

This review of the internationaal markets from CNN....

Bloodletting that led to record breaking lows on shellshocked Asian markets eased Monday as Wall Street opened flat and Europe reined in earlier losses to contain the damage.

The main European markets enjoyed a mixed day with Paris' CAC 40 down 3.9 percent, Frankfurt's DAX 30 up 0.9 percent and London's FTSE 100 up 0.8 percent.

In early afternoon New York trading, the main U.S. indices were all within 1 percent of the open.
It was a contrast to Asia where a region-wide selling frenzy saw violent losses.

Hong Kong's major index closed down 12.7 percent, while Tokyo's bellwether Nikkei lost more than 6 percent, closing at its lowest level in 26 years. The index stumbled as the yen fluctuated near a record high against the dollar -- a condition that makes Japanese exports more expensive.

Mark Sainsbury Fucks Up

He just claimed on the small party Leader's Debate that NZ was second only to South Korea in Government expenditure to GDP

Here is the OECD list:

South Korea — 31.7
Australia — 34.0
Switzerland — 34.0
Ireland — 34.7
Japan — 36.5
United States — 37.4
Luxembourg — 37.8
Canada — 38.6
Spain — 38.8
Norway — 41.0
New Zealand — 42.3
Iceland — 43.1