May 31, 2008

Early Election: No Way

This is a bit of a brave call as we haven't seen the One News and TV3 polls that are due out tomorrow (a surge in labour support could change things) but we are surprised at the number of people who have talked to us in the last three days about an early election being called over the failure of the climate change legislation.

We don't see any strong argument in favour of Labour going early (unless there is a surge in support indicated by polls). Imagine the optics of holding a poll while the electricity isn't working? Parker has made this scenario a real possibility.

No, 18 October and 1 November and 15 November are far more likely dates than anything soon.

1 October sees two important developments - tax cuts and the entry into force of the China FTA. These are good news stories that the Government will want to play upon. By election day people will have actually seen extra money in their bank accounts. Exporters will be smiling and import prices on some goods from China will be even lower.

And don't forget by October we might also have seen an interest rate cut.

With regard to the climate change legislation we see a real chance that it will pass. We can't see the Greens voting against the legislation at the end of the day. Winston will still be on the lap, and the Maori Party may join in (having chosen not to listen to Maori business). In some ways this will be good. When the elderly realise how damaging the ETS is for their interests, and when they remember that Winston voted for it, they will exact revenge at the ballot box - no more Winston.

But it does mean that when National take over in December, they will face the difficult job of changing the ETS into a model that actually works for New Zealand.

If the PM senses that there is a risk of defeat over the legislation she won't allow a vote to occur. The Bill will just be left sitting, along with many others that won't see the light of day this side of the election.

Indian Trade Minister Casts Doubt On 2008 End For WTO Negotiations

Press reports from India today are quoting Indian Commerce Minister Nath as saying that he has doubts about the possibility of finishing off the WTO negotiations this year

Commerce minister Kamal Nath said he's disappointed that World Trade Organization talks are being held up and raised reservations about completing the Doha Round of negotiations by the end of the year. "We are deeply disappointed to note that one major developed country has again succeeded in holding up the process because of its desire to protect its WTO-inconsistent measure of zeroing in on anti-dumping" measures, Nath said in a release issued in New Delhi on Friday, without naming the nation.

This report from the Guardian explains who the WTO member is.

The Hive is becoming increasingly convinced that the US does not want to end the Doha Round this year.

Greens Above 5% Threshold

We were shocked to watch One News tonight and to see the Green Party's total disregard for the environment by allowing Rolland Sapsford to wastefully light a candle at the start of their conference today, and allow the candle to burn throughout proceedings. Yet another outburst on Fonterra confirmed the party's intention to try to wreck the economy. Unfortunately One News let slip the bad news that the Greens are on 7% in their latest poll which will be announced in full tomorrow evening.

Weekend Humour

A rather shallow feature on Judith Tizard in today's Dom Post.

No doubt the sight of Judith with this bat will excite some readers. Sorry to hear that Judith has been unwell.

Peters And Labour

I enjoyed reading Colin Espiner's article today about Labour's fear of a Ruth Richardson/Winston Peters combination at the top of National. Winston of course will never rest until he is National Leader. Why can't he accept that it will never happen. We can't have another Muldoon. He was a disaster, politically and economically.

The March

Today's march through Wellington by the Vietnam veterans was quite moving. The number of people marching was impressive and it was good to see a number of former colleagues marching. I had not realised that a number of younger people who I have worked with were children of Vietnam vets. it was good to see them marching as well. Obviously those at the front carrying portraits of those who did not return alive from the war was the most moving scene. I was pleased to see so many other Wellingtonians lining the march route and clapping. You could see that this had a big impact on those marching.

The timing of this apology and march was interesting and really drove home the fact that we are at a point of generational change. The current head of the airforce and a few serving officers were marching, but they are almost the last veterans of Vietnam still in uniform. Seeing how aged the vets were was a bit of a sobering experience also.

The march was not without it moments of humour. Almost being run over by a running Mark Sainsbury was funny. I don't think Mark has run that fast - to get to the front of the march again - for quite some time.

China-Taiwan Negotiations To Resume

Regular direct flights between Taiwan and China are moving closer to becoming a reality. We see that the two sides have agreed to negotiations beginning 11 June in Beijing. Direct flights will be a huge productivity gain to both sides and could be combined with a decision by Taiwan to open up its market to Chinese tourists. This will further boost the Taiwanese economy. We hope New Zealand exporters are thinking about how to exploit new opportunities that might be opened up by these developments. The most obvious opportunity would appear to be in the sale of food and beverages to the Taiwanese hospitality sector.

The Apology

We are just off from our house to do our own thing to recognise the Vietnam Vets and their march to Parliament this morning.

Fran O'Sullivan looks at the PM's apology this week and compares it to PM Rudd's apology to the stolen generations. She suggests that the pM could have done better and that should have included more of a personal touch.

Tourism: Reserve Bank And Forex Markets Should Worry More About This Than Dairy Payout

Some years tourism is our biggest export industry - bigger even than dairy. And the signs are extremely worrying.

This article from the NZ Herald suggests that we aare looking at a downturn far greater than the Asian Crisis of 1997.

While this article from Liam Dann says

The tyranny of distance looms large again.
Our tourism industry is bracing for what could be the biggest and ugliest effect of the US credit crunch to hit the New Zealand economy.
The financial crisis in New York and London has had its flow on to the NZX but the real shock will come if US (and British and European) travellers put their passports away.
After a decade long boom, tourism is now this country's biggest earner of foreign dollars.
There is no historical precedent for exactly what sort of slowdown to expect or how dramatically it will impact on jobs and earnings. But the industry is clearly worried.

The WTO Dilemma

This report from the IHT suggests that all the negative comments being made about the WTO texts is actually a sign that progress is being made.

But seasoned diplomats cautioned that the rhetoric should be taken with a pinch of salt. They said the revised texts had helped put WTO's Doha round of negotiations within sight of an agreement.
"The more pleased you are, the less pleased you must sound," said one diplomat from a major developed country.

We agree, sometimes this might be true.

However this Xinhua article highlights one of the problems we must resolve to achieve agreement.

"I was quite transparent in saying that this farm bill is not sending a great signal that the U.S. are serious about reducing their trade-distorting subsidies," WTO Director-General Pascal Lamy told a European Parliament committee after meeting visiting U.S. lawmakers in Brussels.

"The only chance you have to trump up this farm bill is the WTO deal which will then necessitate a reform of the U.S. system," Lamy said.

Does anyone have enough confidence in the US system to gamble that the US will allow an agreement reached in the WTO, an agreement which gives US manufacturers very little and services exporters nothing, to override the Farm Bill and see it being re-written? Don't forget that Bush has failed to change it already?

We say the answer to the question is NO. So why would anyone reveal their true negotiating positions and settle now? Lamy is dreaming if he thinks that there is a 60% chance of achieving a deal this year.

Should Parker Shoulder All The Blame?

A reader has suggested that we post a comment we made yesterday to this question from a reader


Hive Re Parker - the question is how has the Cabinet allowed itself to be led into so many policy disasters?Hodgson showed that climate change was a powder keg, surely after the 'burning cheque' there was huge incentive to watch this issue like a hawk?It's all very well to blame Parker, but he is still relatively junior. So who has been counselling him on his policy ambitions and watching the political impact?If no-one has, you can hardly blame him alone - the blame surely lies much further up. insider

Our answer

This has bothered us also. Part of the problem is that we have officials telling Government what they want to hear as opposed to the truth. The problem seems to be that Parker has been driving the officials to deliver a particular outcome and they have delivered. Trouble is they haven't properly considered the politics around likely outcomes. That is not their job, that is Parker's. The other problem is that this issue is incredibly complex. We are almost full time on it now so understand most of what is going on. But for Helen and Heather and Cullen this has until recently been just a fraction of what they do each day. Helen has sent Maarten Wevers in to find out what is going on and Cullen has involved himself more. They were a bit worried about Parker's handling of this issue but the Select Committee evidence panicked them. No one had told them the likely consequences.The other problem is that they put together a pack of yesmen (with a couple of yeswomen) in the form of the climate change leadership forum to advise government on the issue. So again the forum has been largely (with a couple of exceptions) been telling the government what it wants to hear. There is a huge disconnect between the forum and the select commitee evidence.We agree this is a systemic problem but Parker will be the fall guy. The whispering from level 9 has already begun. Just wait for the first powercut. Our guess is that Charles Chauvel [current chair of the F&E select committee handling the ETS issue] will get both energy and climate change portfolios in about 5 weeks.

May 30, 2008

Damaged Goods?

We did not post on this article by John Armstrong on Thursday as we had wanted to ponder the full implications of the Prime Minister's unusual hanging of Maryan Street out to dry. This would have been difficult for the PM as she and Maryan are good friends and, of course, the PM's senior press secretary and Maryan are even better friends, so normally this would not have happened. So clearly the PM was pretty worried about political implications of the Housing Corporation's ineptness, and about how her Minister had chosen to deal with the matter.

As readers might recall from earlier speculation about a possible move by Cullen (which seems not to have been Cullen's idea, but desperation/revenge by a couple of disaffected MPs) we, and several other bloggers, rate Street very highly and see her as potential Deputy Leader material. Will this mistake in judgement and public ticking off from the PM (combined with the stress on her inexperience) count her out in February?

Our conclusion is that it might. That is a shame.

As things stand we have Goff squaring off with Cunliffe for the leadership (Goff will probably win this 27 to 2 - 100% more support for Cunliffe than we would have judged likely two months ago). Cunliffe won't really be suitable as #2 - two males from Auckland will not be the best look. So who will the Labour Deputy leader be? The chances for a female from Christchurch or Wellington now look much better.

As for Cosgrove and Parker - we think Cosgrove will be one of the few Immigration Ministers to survive reasonably unscathed (indeed we think Cunliffe has more to worry about than Cosgrove). Parker is toast.

What do you think?

Today's NBR

Today's National Business Review is again worth a read:

Business New Zealand's take over of Export New Zealand gets coverage. We haven't seen much elsewhere

Rob Hosking has an interesting article about Reserve bank concern over stagflation (a concern we have here at The Hive also)

There is an Editorial and article about the oil price bubble and the impact speculators are having on current prices.

We had missed this in our readings of the Australian press - it seems that the Productivity Commission has joined the critics of the Rudd Government's mandatory renewable energy target (why doesn't Treasury have the balls to do the same here???)

Mark Peart, one of the country's few journalists with expertise on trade policy writes two articles. One looks at Obama's very disturbing trade policy. The other picks up the concern of the new Zealand services sector with the latest Doha text.

More Concern From Major Electricity Users

The Major Electricty Users Group offers an excellent service toNew Zealand through its monitoring of the current storage levels and estimating the chancs of blackouts ocurring. It produces a weekly scorecard which is available on its website (the latest scorecard is unfortuunately not up yet but we did get a copy e-mailed yesterday). This is the conclusion to yesterday's e-mail

We are now in the 7th week following the breach of MINZONE on 14th April. If the 1992 inflow sequence continues then black-outs might start in about 5½ weeks time, ie 7th July. There remains a chance of significant rainfall, but that looks less likely as we enter winter.

Blackouts Likely Without Savings

The Domion Post's James Weir continues his excellent coverage of the electricity crisis in today's Dominion Post. Today he reports the views of the EMA

Blackouts are "very possible" in the North Island and probable in the South Island if huge power savings are not made now, according to a business group.

The EMA is encouraging members to start savings now.

5 Weeks Annual Leave For Public Service

When the Government made it mandatory to give 4 weeks annual leave a couple of years back we were told that this wouldn't mean that those on 4 weeks would get 5 weeks. Then we discovered that Treasury and some other departments had moved people onto 5 weeks. Now, just before the election, all public servants who have worked 5 years will get 5 weeks leave.

The Government has been very worried about the poor support levels in Wellington for some weeks (Wellington and South Auckland won Labour the last election). This is clearly part of the response.

This from the Dominion Post.

China FTA Already Delivering A Dividend

There is an interesting article in today's Dominion Post by Dan Eaton, one of the few journalists covering yesterday's evidence to the select committee on the China FTA. Fonterra's Phil Turner told the commitee that a $300 million contract was the direct result of the FTA having been signed.

Turner said the "commercially very valuable" deal came within weeks of the signing of the agreement in early April, locking in a schedule for eliminating tariffs on nearly all exports to China by 2019.
Tariffs on nutritional milk powders for infant formula, pregnant mothers and young children are to be eliminated by 2012.
"We've been able to conclude a deal recently on the basis of the FTA being signed, which results in a considerable volume of business and processing being done in New Zealand that would otherwise have gone offshore, in this case to Singapore," Turner said.
Fonterra's written submission said the deal would generate more than $300m in revenue over four years.
"These value-added dairy products will be manufactured in New Zealand factories, using New Zealand milk, capital, labour and technology," it said.

Budget Fails To Do The Trick For Labour

Well not according to the NZ Herald - DigiPoll

The economy has moved into top spot as the issue most likely to influence voters in this year's election, just nudging out tax cuts, which is the second most important issue.
Labour has moved down one point to 36.2 per cent but National has also moved down fractionally, by 0.6 to 51.5.
The gap between the two main parties has barely budged from last month's poll: 15.3 points, compared with 14.9 last month. National would still be able to govern alone.

The poll indicates that Winston Peters' personal popularlity has almost doubled but unfortunately this doesn't seem to have helped his party much

If anyone received a lift from the Budget, it was New Zealand First leader Winston Peters, who claimed significant gains for the elderly.
His personal ratings as preferred prime minister more than doubled to 6.7 per cent.

But that boost has not been replicated in support for his party (1.9 per cent, up 0.4 points).
On those figures, unless Mr Peters won Tauranga or another electorate, NZ First would not make it back into Parliament.

May 29, 2008

Green - Labour Friction Grows

1. JEANETTE FITZSIMONS (Co-Leader—Green) to the Prime Minister: Does she still aspire for New Zealand to be carbon neutral and “the first nation to be truly sustainable”, as she said in her statement to the House in February last year?
Hon Dr MICHAEL CULLEN (Deputy Prime Minister) on behalf of the Prime Minister: Yes.
Jeanette Fitzsimons: Why, then, was there no mention at all of carbon neutrality in either her speech on the Budget, or the Budget speech made by the Minister of Finance last week, in contrast to the numerous mentions by both of them of tax cuts?
Hon Dr MICHAEL CULLEN: The Minister of Finance’s excellent speech referred on a number of occasions to sustainability issues, including some excellent initiatives that have been agreed between the Government and the Green Party.
Hon Dr Nick Smith: How is it credible for her to maintain the fa├žade of carbon neutrality, and world leadership in sustainability, when during the last 9 years emissions have increased by 14 percent, one of the highest rates in the developed world; when 75 percent of new electricity generation built has actually been thermal, resulting in the largest drop in the proportion of renewables of any Government in New Zealand history; and when the last 4 years has seen a massive loss of forest area and the first years of deforestation since records began in 1951?
Hon Dr MICHAEL CULLEN: As the New Zealand economy has grown faster than almost any other developed world economy over the last 8½ years, it is not surprising that the emissions have grown, Of course, one of the reasons for wanting to see the emissions trading scheme in operation as soon as possible is to start reducing that growth in emissions, and, indeed, to reduce emissions over the longer term. Some of the thermal new build, of course, was to retire existing thermal capacity. I well recall the National Party calling on many occasions to accelerate the building of thermal power stations in the past—Mr Gerry Brownlee most certainly did—in order to ensure security of supply. In 2008, of course, there has been a very significant drop in the rate of deforestation because of the emissions trading legislation, which is due to come into force in the forestry sector, back-dated to 1 January.
Jeanette Fitzsimons: While it is significant that in the Minister’s answer he claimed as the Government’s contribution to sustainability only those things that have been put forward by the Green Party, how can the Prime Minister continue to say that she is committed to carbon neutrality, when earlier this month she further delayed cows, cars, and coal having to pay for their emissions, leaving the taxpayer to pick up the bill and for the climate to suffer?
Hon Dr MICHAEL CULLEN: To correct the member—and I do not want to appear crotchety on these matters—I did not say in my answer that all the sustainability issues were those from the Green Party. Indeed, it is fair to say that the initiative around the buy-back of the rail system was very much one of the Minister of Finance’s, but he is too modest to say that himself. On those other matters, it is clear that there are pressures around petrol prices. Consumers are very worried about that. Petrol prices have doubled in the last 6 years at the pump, and that is already achieving significant gains. One might note recent reports, for example, about people buying smaller cars rather than larger cars, and reducing their consumption in that regard.
Jeanette Fitzsimons: How can the Prime Minister claim to be committed to sustainability, let alone our being the first sustainable nation in the world, when the Department of Conservation has just sacked 60 staff, greenhouse gas emissions have continued to rise, water quality of our rivers and streams is often not safe for kids to swim in—and is getting worse—the Government takes pride in its largest road-building programme that this country has ever seen, Hector’s dolphins waiver on the edge of extinction, no preparations have been made for an end to cheap oil, and the gap between the rich and the poor in this country has widened, undermining our sense of community and our commitment to the common good; is this what she meant by “truly sustainable”?
Hon Dr MICHAEL CULLEN: No, not at all. Indeed, the member is wrong. In the more recent measures around the gap between rich and poor, the surveys that were done discount most of the recent moves around Working for Families, for example, and do not take those properly into account. In the case of the Department of Conservation, it outspent its budget. It failed to control properly its expenditure. It does not get rewarded for that by increased spending to continue to maintain the levels at which it was overspending. That is not sustainable Government spending.
Jeanette Fitzsimons: Given that the Prime Minister said last year that sustainability and climate change have become the compelling issues of our times, can we take it that her Government’s abandonment of those issues illustrates that for her Government this time is now up and it is no longer fashionable?
Hon Dr MICHAEL CULLEN: I realise that we are starting to approach the election period, when a great deal of political positioning begins to take place, but a Government that is supporting the Waste Minimisation (Solids) Bill in the name of Mr Nandor Tanczos, a Government that is attempting to pass the Climate Change (Emissions Trading and Renewable Preference) Bill, a Government that has bought back the rail system, in part for environmental reasons, and a Government that has a Water Programme of Action, has not abandoned sustainability. We will never meet the high standards of the member in that regard, because I have a suspicion that they would be like Sir Roger Douglas’ standards in economic growth—if one met them, they would change upwards yet again.

New Zealand Sets New World Record

Dear Dr Bollard

You might find the following report of interest.

New Zealand consumer confidence in the economy plunged 18 points from the second half of 2007 to the first half of 2008, according to a global online survey by The Nielsen Company.
This was the biggest drop in consumer confidence of any country in the world monitored, with the United States and the Baltic nation of Latvia coming a close second with a drop of 17 points. Only a handful of countries reported gains in confidence, with the greatest increase (5%) taking place in The Netherlands, followed by Czechoslovakia, Russia, and Portugal (each up 3%).

Read the rest of the report here


The Hive

(consumer confidence is a factor in determining voting behavior so Helen Clark and John Key might like to have a read also)

WTO: Progress Hampered By US Farm Bill?

Concern over the US Farm Bill has started to affect the already troubled WTO negotiations on agriculture. This report from Reuters quotes New Zealand's WTO Ambo Rambo Falconer

"A few of them had a go at the new farm bill," said New Zealand's WTO ambassador Crawford Falconer, after WTO members met to review the revised proposals he issued last week for a farm deal in the WTO's Doha round. The countries criticising the $289 billion U.S. farm bill, passed last Thursday and overriding a presidential veto, included Burkina Faso, speaking for cotton producers, Canada, Paraguay and Bolivia.
Falconer said the new bill did not directly affect WTO negotiations, but agreed it would have a negative affect.
"It's another factor which complicates everybody's life, there's no doubt about that politically," he said.

Major Electricity Users Still Worried

Imperfect market and risk of black-outs
“The increasing risks of black-outs and ever rising spot prices have highlighted two market imperfections”, said Ralph Matthes, Executive Director of the Major Electricity Users’ Group (MEUG).
“Firstly there are inadequate price signals to most consumers to save power. Second, unnecessarily high spot prices derived from the cost of diesel used as fuel at the government’s Whirinaki power station.
Lack of price signals to households
“Most of the meters for New Zealand households do not allow consumers to see the current extreme spot prices that large commercial and industrial consumers face every half hour. If households did see those prices, we are sure these dramatically increased prices would be an incentive to conserve power. In the absence of strong price signals MEUG suggest retailers should immediately commence advertising campaigns seeking voluntary savings or providing financial invectives for communities to save power.
“All consumers are wary of the ability of electricity suppliers simply to recover any shortfalls they may incur now by raising retail prices later in the year. Nevertheless we think it prudent for households to conserve power use whenever sensible to do so because:
§ It will reduce the risk households will have to endure blackouts later;
§ It will reduce the risk that their place of employment might not be open because they cannot afford power or are affected by rolling blackouts; and
§ It will reduce the need for increases in retail tariffs later.
“Improving price signals to individual households will take time and hence seeking voluntary savings or electricity retailers offering community incentives to save is appropriate. The sooner retailers start these campaigns the better.
“MEUG suggest that the Minister of Energy and the Electricity Commission support the immediate initiation of a savings campaign. The Government and Electricity Commission have previously acknowledged the market isn’t perfect and therefore they have a role to assist educate and communicate to households that prudent savings now will help them and the economy as a whole.
Distortion to spot prices due to Whirinaki using diesel
“The second distortion to the market is that spot prices are being set just high enough to ensure governments Whirinaki power station is dispatched. In 2003/04 the market was about to build additional gas fired back-up plant to manage dry year risk. Instead Government proceeded to build Whirinaki and choose to fuel it with diesel. It is worth noting that a gas pipeline passes the Whirinaki site.
“The marginal cost of running gas fired back up plant would be far lower than the average daily spot price at Haywards yesterday of 40 c/kWh. Forty cents is more than four times the value of the energy component in an average household power bill (note the average retail price to households is approximately 20 c/kWh. Netting off distribution costs, meter costs and transmission costs leaves approximately 10 c/kWh to cover wholesale cost and retailer margin).
“The current high spot prices linked to burning diesel at Whirinaki exacerbates the concerns users have with this imperfect market”, concluded Mr Matthes.

Has Winston Scored Another Own Goal?

Readers will be familar with the recent attack on John Key by Labour lapdog Winston Peters over the staff levels in Key's office. This has stimulated an interesting analysis by David Farrar

Now what were staff numbers in 1999 and how have they changed in eight years?
Managers - up from 23 to 28 (22% increase)
Communicators (spin doctors) - up from 26 to 45 (a whopping 73% increase)
Portfolio Advisors - up from 62 to 111 (a 79% increase)
Political Advisors - up from 25 to 35 (40% increase)
Administrators - up from 52 to 67 (29% increase)
Total Staff - up from 188 to 286 (52% increase)
So under Labour they have increased total staff in Ministerial Offices by 52%, and spin doctors by 73%.
Oh and in case you were wondering about numbers in the Opposition Leader’s Office, a handy reader also has a July 1999 staff list for Helen Clark’s office. And Helen had 30 staff for 37 MPs. That is 0.81 staff per MP. While that terrible John Key has 36 staff for 38 MPs which is 0.75 staff per MP.

We suspect that Labour will be doing a little squirming over these figures and will not be thanking Winston for having raised the issue.

Select Committee Given Extra Week On ETS

In an attempt to but further time the Finance and expenditure Select Commitee has been given an extra week to report back to Parliament on the proposed emissions trading scheme.

Commie Claire In Trouble?

Is Benson-Pope going to ruin Claire Curran's chances of winning Dunedin South? Might the National candidate come up through the split Labour vote to triumph? Might Winston Peters try and start his new crusade from a southern base and exploit Labour's difficulties? All kinds of possibilities spring to mind when reading this post on Kiwiblog.

Hong Kong Next Cab Off FTA Rank

Having been lobbied intensively in recent days in both Auckland and Wellington on the subject Phil Goff is under no illusions as to the strength of business expectation on the importance of reviving the stalled FTA with Hong Kong. The Government wimped out on the deal in the days before the FTA with China was considered a possibility because of concerns that Chinese goods would sneak into New Zealand through Hong Kong. Now that we have an FTA with China, these concerns are no longer valid. Goff is meeting his Hong Kong counterpart at the APEC Trade Ministers' meeting in Peru in the next day or so and the expectation is that the issue of reviving this negotiation will be the top of the agenda. Observers have noted that MFAT may not have been as enthusiastic about reviving these talks as the private sector.

The Consequences Of Not Heeding Calls For Fiscal Restraint

Brian Fallow reminds us today of the consequences of a rating downgrade - much higher interest rates. He quotes the warning from S&P just after the Budget

"It is critical for New Zealand to maintain fiscal restraint given the uncertain global financial conditions and the imbalances in its own economy. The large current account deficit leaves New Zealand vulnerable to foreign investors losing confidence in its ability to meet its obligations and this could lead to a sharp reversal in capital flows."

Fallow's review of IMF advice is also a bit worrying -

The IMF has studied 109 episodes of strong capital inflows (its tactful term for current account blowouts) among developed countries and what happened when the inflows slowed.
The implications are sobering.
New Zealand's latest episode was unusually large and long-lasting. Deficits of 8 per cent of GDP are 3 to 4 percentage points larger than the norm for this country.
In other countries a correction of that size has meant GDP growth 2 percentage points weaker over the following two years, and domestic demand 4 percentage points weaker.
In short the IMF seems to be warning us to expect two years' worth of what we are going through now - treading water, and frigid water at that. If the adjustment is smooth.
In the context of global financial market turmoil and heightened levels of risk aversion, it might not be.
"Future disruptions could take the form of a global credit squeeze, as seen recently, or could be a more specific loss of investor confidence in New Zealand," it said.
But the IMF goes on to assure us that "a complete loss of access to foreign funding, however, is unlikely given the good credit rating of New Zealand banks".
That credit rating is backed by New Zealand's strong fiscal position, sound monetary policy framework, and flexible exchange rate and labour market, it says.

The Hive is firmly of the view that lower interest rates in the short term are essential if we are to avoid even more serious economic problems. Lower interest rates should mean a lower exchange rate. As Fallow notes, this means higher prices for imported products such as fuel, but the upside is where we want to be, an export led recovery. Lower interest rates are not going to happen anytime soon if Government (or the opposition) spend too much, or release too much through too generous a tax cut. If National is to trump the Government's tax cut, it is going to have to make commensurate savings. If they don't or if the Government goes crazy on expenditure pledges pre-election, we will have a serious problem, the consequences of which we don't want to contemplate. In this context Fallow's piece today is both well timed and should be essential reading for all parties.

May 28, 2008

When Will The Oil Price Bubble Burst?

Yesterday we drew attention to Boeing's view.

Today we read that oil prices have dropped to US$128.62 - like Poneke we are awaiting a price drop here soon.

Does anyone else think that the price bubble will burst?

We have a view from Canada.

And then there is a fellow called Soros.

Power Cuts 3 Weeks Away

Good to see that Minister Parker is being realistic - but isn't it a bit late???

Foreign Minister Resigns

Unfortunately in the wrong country - Canada.

Lets hope our Ministers are more careful with their girl or boyfriends. We wouldn't want any confidential documents left in the wrong places. Nor would we want any of our Ministers to be sleeping with anyone with strong gang/organised crime connections.

You can tell this relationship was going to end in disaster. This is what Maxime chose to wear for the official Ministerial swearing in ceremony last year

Where is the leather jacket?

Is The Government Being Honest Over Impact Of ETS?

There is intense activity involving all parties on the Emissions Trading Scheme. Yesterday the PM tried to shame the Greens into supporting the scheme, making the assessment that at the end of the day the Greens cannot afford to be seen to be the Party that scuppered the scheme. In other discussions NZ First and Maori are being reassured about the impact that the scheme will have on their core constituency. But is the reassurance based on the correct facts. The Hive has argued for some time that the Government is intentionally understanding the impact of the scheme (and the New Zealand liability) by using a price of carbon that is far too cheap. Government uses a range of figures for this price - last week the windfall gain from the SOE electricity generators was based on $15 a tonne. The budget and other recent analyses have used $22.50, $25 and $30 a tonne. But is $30 realistic?

This should not really be an issue, there is a market for carbon in Europe and we know what prices are today and what they are expected to be. So what will the price of carbon be in 2012 when most of the NZ economy is integrated into the scheme (agriculture comes in in 2013)? NZ$22.50? NZ$25? NZ$30? Well the European price for 2012 credits suggests these estimates are wide of the mark. The price today is $37 a tonne.

So NZ First and Maori parties. Make sure the Government are telling the truth about the impact that the scheme is going to have on your constituency. We wouldn't want you to be thrown out of Parliament because Labour hoodwinked you.....

WTO Sevices Text Falls Flat In Wellington and Around the World

Services industries around the world are expressing real disappointment in the latest WTO text on services. As noted by The Guardian below, this reaction highlights what trouble the WTO Round is now in.

The New Zealand position is quite typical:

“The draft text demonstrates how little progress has been made in the services negotiations. Language calling for new market access and bindings of existing market access are missing from the text because it is still subject to further discussion,”
“It is unacceptable that text that reflects the spirit of the Doha mandate is having to be put in square brackets. This bracketed language must be made an integral part of the final services text.
“Services negotiations have the potential to break the current Doha Round impasse. For key countries to agree to liberalisation of trade in difficult areas such as agriculture there will need to be some progress in areas where they seek changes, such as trade in services.
The services sector is also crucial in their own right as the services sector is increasingly important to the New Zealand economy.

The Global Services Coalition has also spat the dummy according to The Guardian

"This version illustrates that members are still 'consulting' and demonstrates how little progress has been made in the services negotiations," the group said.
The coalition includes service industry groups from Australia, Brazil, Canada, the European Union, Hong Kong, Japan, Taiwan, the United States and other countries.
Its harsh reaction to the services text unveiled on Monday by Mexico's ambassador to the World Trade Organization, Fernando de Mateo y Venturini, is another sign of trouble in the long-running Doha round of world trade talks.
The coalition members complained that negotiations on services still lag badly behind those on agriculture and industrial goods, even though though the nearly 7-year-old talks are suppose to open markets in all three areas.
"The three are inextricably linked, and the round will only be brought to a successful conclusion when there is substantial progress in all three," the coalition said.
It called for a text that makes clear countries must maintain current service market openness, as well as provide new market access opportunities.

WTO Text Opens Up North-South Divide

It looks as though the last meeting on the non-agricultural market access text in Geneva was a fun one with the US and EU squaring off against India, South Africa, Argentina and Brazil. Chances of a Ministerial meeting being called in June are diminishing by the day.

Government Ignoring Risk Of Blackouts?

We are not sure the voters will forget them if they occur...

James Weir has an interesting article on page C3 of the Dominion Post (which we can't find on Stuff) suggesting that the Government has ignored the warning signs of another power shortage.

Growing Influence Of The Blog

David Farrar again achieves recognition in this NZPA story picked up by the Dominion Post. Well done David. The impact the EFA is having on Labour is really fun to watch. What a great shame that David Cunliffe has had to shut down his website.

Armstrong On National's Latest Gaffe

John Armstrong analyses the Wilkinson misspeak yesterday and looks also into the vulnerability that National causes itself through having so little policy out in public, a vulnerability that the Government is beginning to exploit.

This was poor politics from National. But this sort of error is inevitable if policy remains so tightly held by so few within the caucus. It does also raise a question or two about the depth of talent within the Parliamentary team. 20 or so of this team might be Ministers in November.

Wellington Behind Closed Doors: Fran O'Sullivan Gives Us A Peek

How has ideology cost us the chance to buy back the railways for a net $0? And why was Treasury not involved in negotiating the Toll purchase? Who was?

The answer seems to be that Cullen - working through his senior official Chris McKenzie - is in the box seat. Ontrack has a raft of consultants: PricewaterhouseCoopers - Brian Roche, Rob Cameron and Russell McVeagh are in the frame, according to Cullen's office.


We agree fully with the point of Fran's article

The point is to ram home the absurdity of Governments wedding themselves to a "don't sell" position out of sheer political blindness.

We think that partial sell downs of SOEs is sensible policy. Not only will it free extra billions for essential infrastructure investment, it will open the SOEs to healthy scrutiny by the analysts. Air New Zealand has clearly benefited from this scrutiny. Other majority state owned enterprises should be run on similar lines. Sure, Government can keep control but 51% of the shares are all that are needed to do this. It is a great shame that National's policy for the first three years of office - should it make it - is almost as dumb as Labour's.

May 27, 2008

PM Accepts That ETS Legislation May Have To Be Delayed

The PM was very sensible on Checkpoint tonight when confronted by the Green's blackmail attempt on the ETS. She reminded the audience of the assurances that had been given to agriculture about 2013 and said that if she did not have the numbers she would delay the vote on the ETS. The interview is not yet up on the Radio NZ website but should be soon.

Greens Try And Open Up A New Front On Agriculture

Not content with yesterday's attempt at destroying the agriculture sector the Greens are now saying that an earlier - pre-2013 - entry of agriculture to the ETS is their price for supporting the Government's legislation. So much for all the assurances that the Government has given the sector and the planning undertaken on the 2013 entry!!

WTO Services Text Undershoots

The Chair of the WTO Services negotiations released a draft negotiating text overnight. This has not been well received in Washington and EU capitals. With the non-agricultural market access text having gone so far backwards the only hope for some balance to the agriculture concessions expected of the US and EU was a good outcome on services. The current text is still very weak and does not reflect the interests of US and EU industry. A strong and very negative statement is being circulated around services players in OECD capitals for release in the next few hours.

Political Interference In The Justice System?

Some strong words are being directed at the Prime Minister. This from Stuff....

When Will Oil Bubble Burst?

This will really annoy the peak oil believers. Current prices for oil are not going to be permanent. There are several analyses out there but this one from Boeing is picking that the current bubble will burst and that the long term trend is for prices of the order of US$70-$80 (not today's $130 plus).

Should the bubble burst sometime soon, we will, of course, need to recalculate our Kyoto liability upwards...

This article is from Stuff...

Regular Power Cuts Coming?

The blackout that struck central Wellington yesterday may be a regular occurence unles we have a deluge down south. Major users are talking about contingency plans for their companies running a 9 working day fortnight later in the winter. Maybe small and medium enetrprise should be making similar preparations. Lets hope they get that generator fixed in Parliament. This from James Weir....

Colin James On The Greens

Colin James writing in today's NZ Herald has a look at the space occupied by the Green Party. He suggests that there is too strong a leftist component to the Green membership to allow a post election accommodation with National. Interestingly he also suggests that Winston Peters might want to support the ETS because of his Foreign Affairs portfolio. Will it really be an embarrassment for New Zealand to be seen not to rush into a new policy? Or would it be a bigger embarrassment to be the laughing stock of the international community for rushing and making huge mistakes?

May 26, 2008

New NZX Website Launched

Some months ago we suggested that the NZX needed a new website.

A few weeks later we were invited to the NZX AGM.

Today we received an e-mail saying that a new website had just been launched and that the NZX would welcome feedback.

Initial feedback - thanks for being so responsive NZX. Very impressive.

The new website can be accessed here...

Goff v. Peters

The Inquiring Mind reports on this morning's speech by Phil Goff....

WTO: Mandelson Seen To Be Wanting Deal At Any Price

Fascinating article in Reuters about how EU officials and member states are becoming increasingly worried about Mandelson's stance in the WTO negotiations. We hear knives sharpening throughout the Union.....

Greens Try to Destroy The New Zealand Economy

The Greens are beginning to make us REALLY angry. This almost takes the cake for stupidity. Fortunately we know enough about the WTO to know that this stupidity from the EU will have zero effect. But as for our Geen friends - do you really want us to become the first country to transition from first world to third world (some might say Argentina already did this - interested in TVHE's view on this)?

Goff Fires Shot Across Peters' Bow?

MFAT is chattering today over pointed comments made today by Phil Goff when opening the FTA roadshow in Wellington. Readers might recall our reporting of growing disquiet by Goff over what he is seeing with MFAT management of the trade policy work. Today he apparently made a pointed comment about the new monies that had been voted to MFAT and his hope that the bulk would be channelled to trade policy and the trade negotiating teams. We were not there by we know Adam Smith of the Inquiring Mind was. Looking forward to your first hand account Adam. Readers will know that the negotiating teams have been expressing disquiet over MFAT plans to squander the extra money on the non-negotiating areas. Some of those in the room from MFAT were straight on the phone back to head office.

Watkins On Cullen

Tracy Watkins writes an interesting analysis of the politics around the budget on page B5 of the Dominion Post (it is not up on Stuff yet). We tend to agree with pretty much everything she is saying. We agree particularly on the surprise "surprised" reaction from the markets when Cullen delivered a tax cut of exactly the size that the RB had been predicting. Likewise we agree fully that it was Cullen's intention to move the debate back to spending cuts, government debt and asset sales.

Northern Nats Gather

Paula Oliver reports on the National Party's northern and central regional conferences over the weekend. It seems the party faithful are in high spirits - lets hope they don't think they can sleepwalk to victory.

Paula analyses some of the speeches. Do they give clues to National's eventual policy?

The Tertiary Education Commission and Ministry of Education came in for strong attack in Key's weekend speeches, and the extra $621 million Labour is pumping into the Ministry of Foreign Affairs and Trade over the next five years is clearly under threat if his party wins power.

We were particularly pleased to read that John Key is pushing his speech notes to one side and ad-libbing more.

Good Advice For National

The NZ Herald today devotes its Editorial to National's policy. It calls for National to get a move on and declare its hand on key policy such as tax and government expenditure.

Not In My Back Yard

Does anyone have any sympathy for someone who buys an apartment across the road from a cathedral who then complains that the cathedral rings it bells on a Sunday? We don't. And we don't have sympathy for lifestylers who move to the country, maybe just for weekends, who complain about agricultural machinery noise, frost fighting, or bird deterrent measures.

For this reason we probably wouldn't be putting a story about the cathedral bell complainants on the front page of a national daily, unless of course it was to ridicule. We are not sure that this is the point of today's Dominion Post front page.

May 25, 2008

Wine Review: Church Road Reserve Hawkes Bay Chardonnay 2006

We still haven't found that perfect New Zealand wine blog we are looking for - the one we found died in about a week. So we will do our own thing.

This should be a great wine at RRP $32-35 (on sale at New World this week at around $29). This a high price for New Zealand Chardonnay.

Clearly this was a challenging season - sugar levels being allowed to over ripen to compensate for high acids is a sign of a colder season in NZ wines. There may be some stress factors in this wine also - were there some frosts?? It reminds us of a lot of the Martinborough wines from 2006 that we have tasted because of the same fault - too much alcohol. This was is declared at 14% (which we think is too high for a top notch Chardonnay). But we suspect it could be even higher. The wine is totally dominated by this factor. In the mouth it is far too hot, and it also dominates the nose. What a shame as there are some nice fruit flavours in there, stone fruit with a hint of butterscotch. The oak is quite pronounced suggesting that there was plenty of new oak thrown at this wine. A bit of a waste really....

"Fearing" For Obama's Security

We are a little surprised at the controversy that has erupted over Hillary Clinton's honesty over why she is staying in the race as long as possible - the chance that what happened to Bobby Kennedy might happen to Obama. Certainly this explanation for Clinton's strategy is being talked about daily here in Wellington by the political, foreign policy, diplomatic circle, and we know that, behind the scenes anyway, the theory has huge support in the US. This from the New York Times...

UN Climate Change Process Going Backwards

We understand that New Zealand's Climate Change Ambassador Adrian Macey held a briefing for stakeholders on the UN negotiations on an agreement to replace Kyoto I. (Regular readers of The Hive will know that we are somewhat critical of the way in which Kyoto I was negotiated by New Zealand. Adrian Macey was not involved in anyway in this negotiation. Of all the officials around the climate change space in Wellington right now Macey is the one we rate most highly).

The last round of negotiations was in Macey's old stomping ground Bangkok. They did not go well, indeed Macey's assessment was that things had gone backwards. Surprise, surprise, it looks even more unlikely that the UN negotiations will meet the timetable set at Bali late last year.

This is a pity as the climate change problem can only be solved by international action - NZ, at less than 0.2% of global emissions can't solve things unilaterally. It is for this reason that we favour increased resources going into the international process.

This likely delay in the international process is a further reason why we think we should take the foot of the emissions trading regime accelerator and introduce a carbon tax. Once the outcome of the international process is known then we can resume efforts to design a domestic regime compatible with the new international norm.

How To Run A Cafe: Salvation Coffee Hataitai

We went through the tunnel to Hataitai today to try out Salvation Coffee. It had come highly recommended by a friend who is also a fussy coffee drinker.

Today's experience was in sharp contrast to yesterday's at Edwards Jones in Miramar. Today the service was slick and incredibly polite. Coffee was in front of us within two minutes even though every table was full and there was a steady stream of takeaway coffee orders. What is more my long black was excellent.

Edwards Jones might like to do some industrial espionage and study how their Hataitai competitor runs things.

Realistic Assessment On WTO From PM Clark

We have been doing some work around the PM's post-budget speech in Auckland on Friday and have just read her speech. It contains a refreshingly accurate assessment of prospects for the Doha Round. We quote in full:

Of course the biggest game in town for agricultural market access and trade policy is still the WTO’s Doha Round. But after 6½ years, it’s struggling. Our government has made the judgement that we need to get on with direct negotiations for market access with others, while also driving hard at the WTO Round.
There had been hopes of progress in the Round this month – to the point where a ministerial meeting could have been held to crunch a deal.
I am now told that that is unlikely.
A ministerial meeting is still possible by mid-late July, but if one is not held by then, the general view would be that it will not be possible to finish negotiations this year. By the time a new Administration of either party gets settled in the United States in the course of next year, the Round would have a lot of catch up to do.

Further Goff Trade Policy Triumph

We are told that Phil Goff's meetings with his Indian counterpart in Auckland late last week were more sucessful than hoped for. An FTA with India is moving closer with negotiations possibly beginning early next year. We provide the link to Goff's press statement on his meetings as this has not really been picked up by the media.

Roughan On Goff

The Inquiring Mind has a post up on an article written on Phil Goff by the Herald's John Roughan. Like Adam we thought the article a bit strange and put it to one side yesterday pending some further investigation on Monday.

Since in Wellington anyway it is pretty miserable and cold, we thought we would rise to a challenge from Adam and have a go at answering the three questions at the bottom of his post. Our answers might warm things up a little in some locations.

Can we begin though by stating that Roughan's central thesis, that Goff doesn't want the Labour leadership is wrong. We know this to be incorrect for reasons that we will not explain here, take it from us, Goff wants to be leader very much.

Can we also say that we know that over the past six weeks or so, a pro-Cunliffe campaign has been started. Cunliffe is clearly involved and so is the 9th floor. We cannot explain the timing other than to try and turn anti-Cunliffe sentiment around in the caucus before the election and to scare Goff off. We believe that Goff's honest answers on Alt TV were his response.

We also know that there are business leaders/groups in Auckland and maybe nation wide that don't mind the idea of Cunliffe being Labour leader. Likewise there are business groups in Wellington anyway that are becoming overtly pro Goff (while not in anyway wanting to be anti-Clark - this is all about what happens post election should Labour suffer a loss). The Inquiring Mind was about the only blog in the country to actually pick up a sign of this last Wednesday, but perhaps everyone became distracted by the Goff gaffe that wasn't a gaffe. Those watching the TV news on Friday night might have picked up a clue as to who might be getting in behind Cunliffe.

So with this background we guess answers for Adam's three questions.

Does Roughan think that Goff has done his chips? It would appear so.

Is someone whispering in Roughan's ear? Some or all of Helen Clark, Heather Simpson, Kathryn Street, and David Cunliffe

Who does Roughan see as future leader? David Cunliffe

Ralston: Cullen's Strategy Might Work

Bill Ralston's column today lays down a challenge to National - explain how you will be able to afford big tax cuts or risk losing the election. We believe that it is relatively easy to meet this challenge but like many we are wondering why National is making such hard work of this task.

Budget Won't Help Labour's Electoral Chances

There is a rather strange Editorial in the Herald on Sunday this morning. It essentially suggests that people will laugh at their tax cut. And that Cullen has bequeathed National guaranteed criticism because of programmed cuts in Government expenditure. The conclusion is that this will be a good election to lose.

We have made similar comments to this conclusion in the past so take no issue with it, but do suggest that if the HOS is right, then the financial markets have the budget very wrong. They are overimpressed by Cullen's generosity and underimpressed by suggested belt tightening within Government (as are we).

Why No Figures On Fiscal Drag?

Fran O'Sullivan has a look at the fiscal drag effect on the Government coffers and suggests that the cupboard may no be as bare as Dr Cullen's figures suggest. What is alarming is Fran's account of what Treasury has been allowed to model and publish and how enquiries have being handled.

May 24, 2008

EU Beginning To Back Down On Enthusiasm For WTO Deal

It took us just a skim read to see that the Non-Agriculture text was a big step backwards. Industry around the worl is beginning to agree and the EU in particular is feeling the heat. This from Reuters....

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Edwards Jones, Miramar: How Not To Run A Cafe

Poneke last week had a cautionary tale about the new cafe on Karori Park. We thought we should share an experience from earlier today at another establishment.

On the way back from the California Garden Centre this morning, and with time tight, we decided to give Edwards Jones another go. Last time we visited (maybe a month ago) the experience was OK (coffee and food were served reasonably quickly - but service at the till was awful - EFTPOS transaction did not connect but having passed the machine over the staff member disappeared into the kitchen leaving me holding a non-responsive EFTPOS gadget for 3 minutes waiting for help. Eventually the owner jumped up from the table at which she was eating to offer help and was apologetic).

Today, on arrival, instead of taking our order at the till as was the case on all previous visits we were instructed to find a table and told that someone would be around soon to take our order. I said we just wanted coffee and a pastry but the staff member repeated that we should go sit down and she would be over soon.

We followed orders. 12 minutes pass. Four customers are allowed to place orders at the till on arrival . We suspect that the constant steam of new arrivals was part of the reason for our non-service but there was plenty of chatter going on with the "barista" in between customers.

After 12 minutes we decided to depart and because of other commitments went without our morning caffeine fix. (We would have gone earlier if it had not been very a very interesting conversation at the next table about New Zealand politics. Very anti-Labour but unsure what to do with their votes. Two were convinced that they should give Key a go. One was a bit worried by recent TV performances, and the final participant asked the question "but is he strong enough to keep Winston Peters under control?" No one seemed to have an answer. I was too polite to join their private conversation.)

The staff at Edwards Jones are young and inexperienced so we give them some latitude, but the owner of this establishment should really be emphasising the importance of customer relations. No one should have been subjected to the treatment we were given today. It was plain rude.

We will go back in a month to see if there has been any improvement.

What We Would Cull, That Cullen Wouldn't

The excellent South Island blog Home Paddock has reminded us that in farming, when feed gets short, a sensible farmer starts culling. Home Paddock suggests some areas of Government activity that the Government should go further than John Key's suggestion that there be no increase in core bureaucrats and consider culling: Ministry of Women's Affairs and the Families Commission are cited as targets for the initial cull. Unfortunately this will not save that much.

So here our our suggestions:

Abolish the Ministry for Economic Development (keeping NZTE which would become a standalone department) saving - around $63 million

Abolish the Ministry for Environment (disaster zone. Anything important can be done by Treasury or MFAT) saving - around $43 million

Cancel the $165.2 million earmarked in this budget to strengthen New Zealand's presence in the international community (until MFAT and NZTE have been reformed)

Freeze Arts and Culture expenditure at 2007/08 levels - saving $124.4 million

Freeze NZAID monies at 2007/08 levels pending review and reform of NZAID - saving around $100 million

Cancel plans for the New Zealand Fast Forward Fund and redesign saving $700 million

That is $1.2 billion and who will notice? Will there be any reduction in quality of delivery of core services such as education or health? Have other social services been cut?

We would like to say sell the railways but who would pay $1.5 billion for them?

Now if Cullen had announced changes such as the above at the same time as his tax cuts would interest rate cut have been delayed? No. And would Labour have had a bigger chance of winning the election? Yes. Could Cullen have given an even bigger tax cut? Yes.

Why Are The Greens Not Up In Arms?

Of all parties the Greens have been most forthright in calling for increased investment in improved rail services. We actually agree with them. Why are they not up in arms then over the pittance given to improvement when compared to the fortune being invested in the transfer of ownership of rail from Toll to the Government? We read today thanks to Colin Espiner that the cost of the purchase is now going to be $1.5 billion. This money is a complete waste. The $1.5 billion should be develoted to more electrification, some new alignments, solving the problems with the Kaiwharawhara throat, more rolling stock, better access to ports etc. Where are you Greens, or is your far left ideological wing dictating policy in this space?

More Money And Staff Not Always The Solution to Improved Delivery

We in principle accept the case that has been made to Government that the Ministry of Foreign Affairs and Trade has been under-resourced. We therefore support the principle that more resources should be allocated to it. We also believe that these resources should be focused the increasingly fertile field that is bilateral and regional trade negotiation and on the international process around climate change - the Kyoto liability is partly the result of bad advice from domestic policy departments and extremely poor negotiation by MFAT. There was no comparison between the Australian and New Zealand negotiating efforts during Kyoto I. Australia gave the task to the "A" team under Meg McDonald and got a fantastic result. New Zealand dropped the ball. We are disturbed to hear suggestions that the new money that is being given to MFAT in this budget is not being used quite as were were hoping it would be. The suggestion is that it will be going to bilateral divisions and wasted efforts such as the UN as opposed to the trade and environment negotiating teams. We certainly would not be opening an Embassy in Sweden unless of course were were planning to copy their very successful school fee voucher programmes. Why MFAT needs to be in Brisbane and Melbourne we do not know.

Even more disturbing was hearing from Fonterra sources the other day that MFAT has told the GCC that New Zealand can't meet for the next round in the important free trade agreement negotiations with that area because New Zealand can't find anyone to lead the negotiation. I beg your pardon??? This while people with exactly the required skill set are wasting their time preparing for a WTO Ministerial meeting that may not be held and which will almost certainly fail. Why can't MFAT prioritise? If the trade negotiations team want to stay self deluded on the WTO why not think laterally. The current Ambassador in Riyadh is a very experienced trade negotiator. Why can't he lead the negotiation? What about the HC in Singapore?

Of course one issue in the trade field is that there has been no leadership since before Christmas (Leask's pre-posting calls don't count). How MFAT can have allowed Falconer to string it along for so long should be an issue being given close scrutiny by the media and Ministers. It certainly hasn't gone unnoticed by key stakeholders - Fonterra etc.

We know that Minister Goff has got wind that things are going wrong in various parts of MFAT but unfortunately Peters is the responsible Minister. As far as he is concerned MFAT is wonderful. They constantly achieve the impossible - they make him look good and non-stupid when meeting the world's leaders. He isn't going to rock their boat. Unfortunately there is going to be no change from within. With Murdoch having signalled his departure the senior managers are all in butt lick mode vis a vis the perceived replacements. Everyone is wanting to have time with Maarten Wevers and be seen to checking policy with him. No doubt Rosemary Banks in New York is finding new friends she never knew she had before also. The result is unfortunately going to be that Murdoch bequeaths a Ministry even more oriented to the generalist when it should be moving as fast as possible to bolster the resources available to the specialist.

Unfortunately change in MFAT might have to wait for a change in Government.

The Labour Leadership

Phil Goff's ambitions are the subject of an opinion piece by Fran O'Sullivan in the Herald and the Editorial in the Dominion Post. Both see Goff's Alt TV performance as being aimed more at David Cunliffe than signalling an imminent challenge against Clark. We wouldn't have thought that Goff would need to worry too much about the seriousness of a Cunliffe challenge, but as everyone watching the TV news last night would have seen very clearly, Cunliffe is very much glued to the PM's side at Auckland. Word is out that Cunliffe is the choses one and some lobby groups and the media are treating him with increased respect as a result. If The Hive was as politically aligned as some suggest we would be quick to endorse Cunners as next Labour leader. But because we believe in strong and effective leadership for the country and because we don't want to make things too easy for National we will keep pointing out the obvious weaknesses of a Cunliffe leadership bid.

Some immediate reactions to some of the themes in Fran's piece and the Dom Post Editorial.

How important is Clark's endorsement? Well this isn't the first time that Clark has been whispering the name of a possible replacement. First it was Maharey, then it was Mallard. Where has this endorsement got these two gentlemen (well in the case of Maharey the VC job at Massey is one of the better jobs in the country, but we were thinking politically)?

Would Cunliffe represent generational change? We don't think that an age gap of 5 or six years makes that much of a difference. Politically, while Goff was more actively engaged on them, Cunliffe would have been exposed to exactly the same forces that helped shape Phil Goff in his formative years. True generational change would see one looking more in the direction of Grant Robertson (watch this space everyone) - not yet in Parliament. [update - we have had time to check and the gap is 10 years, but we still think they are the same generation - indeed we sometimes think Cunliffe is the older of the two]

What is the battlefield for this leadership contest going to look like? The probablility is that Labour is going to have suffered a huge defeat. Helen Clark will have to take responibility. Her political mana will have been substantially erroded. Would you really want her endorsement?

Finally, there is the key factor. Most of his colleagues don't like Cunliffe. Because the PM seems to be favouring him people are treating him with a bit more public respect, but the favoritism probably makes them hate him even more.

There is also a bit of a grwoing smell around Cunliffe. We don't yet know how much he knew about the immigration service mess, and there are many unanswered questions around the Hawkes Bay DHB. The current Government has been playing every trick in the book to supress the full story but should we have change expect to be reading many articles on the subject. These factors again work against Cunners.

So our conclusion is that it has to be Goff in 2009. The best thing for Labour would be uniting behind Goff now, as opposed to have this silly behind the scenes positioning that can only add further weakness during an election campaign. Cunliffe would probably be best to signal now that he will not be competing for the leadership in 2009.

Of course, this analysis pre-supposes that Labour loses in October/November. It also ignores Cullen. We hear that he was given a chance yesterday to deny any leadership ambition but that he chose not to reject the analogy with Walter Nash - interestingly Nash was exactly the same age as Cullen when he too delivered his 9th budget in 1944.

Should Helen Clark still be PM post election then we will all need to reassess.

May 23, 2008

Cullen Lunchtime Talk

We hear it was a full house today at Cullen's luncheon speech including many of the key players from the Press Gallery including 3 TV channels. Adam at the Inquiring Mind has kindly written a full account. It seems that Cullen did well.

National Maintains Huge Lead In Morgan Poll

The latest Roy Morgan poll is out. It shows National (49%) 14 ahead of Labour on (35%).
More worrying than the result for Labour is this result. According to Gary Morgan

“Helen Clark’s Government has been well behind the National Party for more than a year and the plunging Government Confidence (down 11pts to a record low 93.5) shows electors are losing confidence in Clark.
“The record low
Roy Morgan New Zealand Consumer Confidence Rating at 85.6 (down 7.1 pts in 2 weeks and down a massive 40.7pts since 2007) is a huge negative for the Labour Government seeking re-election.
“Helen Clark’s Government is running out of time to prevent Electoral defeat later in the year with “terrible” poll numbers indicating New Zealanders are ready for a change.”

Not Only Does McCain Have A Great Trade Policy He Is Funny As Well

Some of you will have seen a clip on the news of future President McCain on Saturday Night Live. Kiwiblog has the full clip which shows how multidimensional McCain's character is.

The Budget Only Refers to 90 Day Rates

Yes but .....

Today's NBR

We also encourage readers to go out and buy today's National Business Review.

There is excellent Budget coverage including the pointing out of one of Budget gems (see page 69 of the budget - penultimate bullet point - that Treasury isn't expecting any cut in the OCR until March 2009).

Tim Groser has an excellent piece on the role that food security concerns are having in smoothing the way for progress in trade liberalisation negotiations. Stuart McMillan also looks at food security but is concerned that this might lead to increased protectionism. Mike Moore still doesn't like subsidies (clearly he hasn't gotten his head around the Government's proposed ETS). Mike Peart suggests that the US Farm Bill veto is going to fail, thus imperilling the already tenuous hopes of concluding a WTO Round. But most interesting of all is an article out of Taipei suggesting that the new Government there is hopeful of pursuing an FTA with New Zealand "sooner rather than later".

Yesterday's Trans Tasman

We continue to encourage our readers to subscribe to Trans Tasman. Yesterday''s edition (which because of the budget we only just got around to reading) is a particularly good one. The lead story is on the Goff "gaffe". This is followed later on by an analysis of why Alt TV leaked the interview. This agrees with our view that there was more to it than meets the eye.

Like The Hive TT is also positive about the Japan FTA progress and Helen Clark's trade policy record (which some of our readers believe is very right wing).

TT seems more optimistic about the Doha Round than we are. We hope they are right to have this optimism.

But best was a front page column sharing some home truths about NZ that no one is brave enough to utter - Phil Goff's comments this week were cited as an example. We don't dare repeat the other examples but we agree with each - particularly that about the Kyoto Protocol.....

TT is a bit light on MFAT posting gossip only reporting what is in the public domain - yesterday it reports on John Mataira's posting to Los Angeles to replace our a former star of The Hive - Rob Taylor who is going to work at Government House. Clearly Rob is not happy with the furnishings. We see that there is a largish sum included in the Budget to pay for an upgrade. Ian Wishart could have a field day on this if only he caught on.

Budget Reaction Wrap Up

As QB's hands are still recovering from the cold/wet experience delivered by the morning post bus walk along Lambton Quay to work we shall simply refer readers to an excellent compilation of views on Kiwiblog. We could not do better.

We will link later on today to the report from The Inquiring Mind on the Cullen lunch speech. It will be interesting to see how Cullen reacts to all this reaction. We hope someone enquires about the ETS windfall - "mother of all taxes" as we call it - see below.

India Rejects WTO Texts

We have not yet had time to get a read out on yesterday's talks with Indian Trade Minister Nath in Auckland but this formal statement suggests that he was rather negative about the chances of forward movement in Geneva......

Has Parker Thwarted Cullen's Plan?

Dr Cullen has been quick to point out that the cupboard is bare and that there is no scope for National to offer even deeper tax cuts.

Perversely we see the possibility for David Parker to pull off an incredible double - first to steamroller a policy on an ETS that is so unpopular that he causes a spectacular loss for Labour (including his own position) and he gives National an extra $1 billion a year to pay back as increased tax cuts. As we reported yesterday, Dr Cullen on Wednesday confirmed that the ETS is going to take in $500 million a year up until 2013. From then until 2030 it will take in a further $21 billion. Now these figures were based on $15 a tonne a figure that is incredibly low. Most analysis from Government talks about $25 a tonne. Most private sector commentators see the price as being far higher $30-$60 depending on the value of the NZ$. Using the mid point estimate of $45 this would mean that the ETS will generate close to $1 billion a year up until 2013 over the current budget estimates and $42 billion in the 2013-2030 period.

Because the tax cuts would match the amount paid to the Government by industry and agriculture to buy permits the tax cut each year would not be inflationary, an added bonus. Thank you Minister Parker.

Hive to 9th floor. Do you really want to rush this legislation through?

By the way why does the budget use $25 a tonne when Cullen's Wednesday confession uses $25 a tonne?

May 22, 2008

Budget To Delay Interest Rate Cuts?

The linked article suggests the answer is yes. It will be political suicide if it does. Yes, the budget is inflationary. But the RB was forecasting cuts of about this dimesion in the short term. We see no reason why Bollard will not cut in July (or September at the latest). But we do believe that the scope for cutting may be delayed beyond then.

We believe that the Government is banking on an interest rate cut in September followed by the first pay packet in October (the first at the new tax rate) to see them through. By 18 October people will be feeling a whole lot better. By 1 November they might be realising that things are not as good as they might have seemed. For a start, even floating rate mortgages may not have moved.

This is going to be very interesting to watch.

The Budget

What type of budget would you produce if you were desperate to win, but thought that the chances were that you would be well beaten? You would try and deliver for your core constituency while leaving empty coffers for any incoming Government. Michael Cullen has delivered an A+ budget when marked against these criteria.

This is not a business budget and we have been amused to observe how the lobby groups have responded.

Will this budget turn the tide for 2008? No. Will it perhaps make Labour more likely to win in 2011 - perhaps. Indeed we wonder why National would want to govern in the circumstances that are about to be bequeathed?

Free Trade With India

India has been sitting out there as a potential FTA partnner for a year or so. Last year it was agreed that terms of reference would be drawn up for a study on a pssoble negotiation. We haven't seen these emerge yet. But we are pleased that this is going to be the #1 issue on the agenda today in the meeting between Phil Goff and India's trade minister Kamal Nath. The meetting will also be interesting in terms of the WTO Round. Will India be prepared to give more on NAMA?

WTO Talks As Good As Dead?

We have now had a chance to read the two texts that have been put on the table. We provide links here- agriculture and NAMA.

Agriculture is not too bad - 10 times too many square brackets for a Ministerial meeting but officials could possibly whittle these down to 2 or 3 which would make a Ministerial outcome possible.

But non-agricultural market access is a shocker. It has gone backwards. No wonder the US and EU are spitting the dummy. They are expected to give on agriculture and they get nothing back in manufactures. There is no text on services (one is rumoured to be coming out Friday) but this will have even less liberalisation than NAMA.

The Hive will be putting the resource currently devoted to assisting the WTO process into assisting the McCain campaign. President McCain is the only short term hope for world trade.

More Evidence Of Economic Slowdown

At The Hive we don't want to talk up chances of a recession, but we do want to talk up chances of a cut in the OCR as this will help keep growth in the economy occurring. To achieve this one needs evidence that inflationary pressures on the economy are easing.

Two more pieces of evidence of reduced inflationary pressure have appeared -

First we have a fall in retail expenditure on electronic cards in April - people are tightening their belts, just what Bollard wants to see.

Second we have the National Bank regional trends survey which suggests that the economy may have contracted 0.6% in the first quarter. We read this in the Dom Post but can't find a link on Stuff. It doesn't matter however as it is covered in full by the IHT under the headline National Bank of New Zealand: Recession looms as economic growth contracts, demand softens.

Cullen Admits To ETS Windfall

As we all brace ourselves for the unusual experience of tax cuts being announced today we have been surprised that the media has not picked up on a confession by Government yesterday that the ETS will be a huge revenue spinner for Government. A paper tabled in Parliament by Cullen yesterday suggested that the original proposal would have generated $34 billion by 2030. The revised scheme now on the table will generate $21 billion between 2013 and 2030. Revenue before 2013 will be a relatively modest $500 million a year twice as much as would be raised by the $3 a tonne carbon tax that we are advocating.

These numbers do not include the gain that Government will receive from increased profits in the electricity sector (largely Government owned). These increased SOE profits from the ETS in the first three years would be $160 million a year based on a price of $15 per tonne (we think the price in reality will be at least three times as high).

We have never quite understood how National, a party that says it can't support any new taxes, says it supports an emissions trading regime. A carbon tax would be far more transparent, impact far more certain (Government sets the rate as opposed to inevitable price fluctuations in a carbon permit trading market), and far more easily revenue neutral (what comes in as carbon tax could be offset against general taxation).