CTU Economic Bulletin (1/01) No. 11
Comment The process of economic adjustment continues with improved export receipts, but still a reasonably flat domestic economy judging by retail sales. However manufacturers are reporting an improved outlook with better than expected sales on the domestic market, and growth figures out late last year were also encouraging (0.7% for September quarter and 4.5% for the year). The major issue of course is the impact of a slower US economy. This has already affected the Reserve Bank which left the official cash rate at 6.5% in late January and if anything will decrease rates this year on current predictions. This is a very different scenario from that set out by most commentators in December when most picked increases over 2001 of 0.75% in the official cash rate. This was also factored into Treasury forecasts.
The 4% hike in consumer prices is a worry as it illustrates the squeeze on real wages. September 2000 annual wage increases were only 1.5%. However, the spike in inflation is predicted to fall rapidly throughout the year.
Compared with 2000, this year has started with a welcome absence of business sector hysteria, improved investment intentions, and good news on the export front. However, in addition to the impact of the US economy, there are still many structural difficulties in the NZ economy with high private sector debt, a high current account deficit, skill shortages, and infrastructural underdevelopment. This means that the programme by the Ministry of Economic Development and Industry New Zealand, and the various reviews that impact on education, skill development, and tax on research and development are key issues for the year.
Minimum Wages Rise The adult minimum wage rises from 5th March 2001 by 2% to $7.70. The age of eligibility for the adult minimum wage will reduce to 18 years at that time. The youth rate for 16/17 year olds will rise to $5.40 (70%) on 5th March 2001 and will rise to 80% in March 2002.
Price Pressures Consumer prices rose by 1.2% in the December quarter. This was well above market expectations of a 0.8% increase but was anticipated in the November 2000 CTU Economic Bulletin. This took annual inflation to 4%. We have seen annual (all-groups) CPI increase over the last three quarters from 2.0% to 3.0%, and now 4.0%. Much of the latest increase came from higher food and transport prices, which together contributed 0.5 percentage points of the 1.2% quarterly increase. Transportation costs rose 1.8% in the December quarter, after a 3.3% jump in the September quarter. A 5.6% lift in international air travel costs was the main factor. Food prices rose by an average 1.4% in the quarter (after a 1.2% increase in the September quarter), with groceries and restaurant meals showing modest increases but the meat, fish and poultry group up 2.4% and fruit and vegetable prices hiked up by 5.5%. Petrol prices were not a direct contributor to the December quarter rise. While still up 23.1% over the past year, they fell 0.1% in the December quarter (after five consecutive increases). Diesel prices, however, rose by 15.3% in the December quarter despite falls in the final month. Inflationary pressures have become more broadly based, reflecting the passing through of higher costs for petrol, diesel and imported goods. 64% of items increased in price in the December quarter, compared with 48% in June quarter and 54% in the September quarter. Many are picking that inflation will fall significantly over this year. The next quarter will reflect the lower state housing rentals, and perhaps lower fuel costs, along with cheaper imports (due to the stronger currency). These factors could combine to see an actual reduction in the CPI for the March quarter.
GDP GDP (production based) increased by 0.7% in the September quarter 2000 and 4.5% in the September year after recording 2.2 percent growth for the year to September 1999.
Economic Activity A National Bank Survey released in December showed that 12 of 14 regions reported an increase in economic activity for the September quarter. Urban economic activity rose by 1.2% (Auckland, Wellington, Christchurch) compared with 0.4% for the rest of the country. Meanwhile the NZIER Survey of business found a net 31% of respondents positive up from a net 45% who were pessimistic 3 months earlier. It also indicated a further rise in the skill shortage indicator.
Unemployment and under-employment The last CTU Economic Bulletin noted that unemployment has fallen to 5.9%. This is welcome news but we do have to remember that when we add in those who are seeking work but are not registered (jobless) the figure rises to 9.4% and when we add in the under-employed (part-timers seeking additional hours) we get 15.0% This is much lower than the 21.6% in 1992 but well up on 9.1% in 1987 when unemployment was at 4.0%, the jobless rate was 7.2% and under-employment was 1.9%. There are various statistical issues that impact on the measurement of unemployment, but these figures do illustrate that, in human terms, there is still a long way to go in terms of employment creation.
Official Cash Rate Unchanged The Reserve Bank on 24th January decided to hold the cash rate at 6.5%. This is despite predictions in December (and factored into Treasury forecasts) of a 0.75% increase over 2001. Now with the slowdown in the US economy and cuts in interest rates there, if anything we can anticipate a cut in the OCR sometime in the next few months.
Superannuation Submissions on the New Zealand Superannuation Bill are due by 9th February 2001. Note also that the age of entitlement to NZS is 65 years (applicable from April). Also, the level of NZ Superannuation appears to have hit the top of the inflation spike and will be adjusted based on CPI for the December 2000 year meaning a 4% rise.
DEFU and BPS The DEFU, otherwise known as the December Economic and Fiscal Update, was made along with the Budget Policy Statement on 19th December. This year's bond tender programme has been increased by $800 million to $3.65 billion due to defence costs and the Government directly picking up hospital capital costs. The Treasury believes the economy will expand 3.7% in 2001/02 and 2.6% in 2002/03. This follows estimated growth of 2.2% in 2000/01. Total growth over the forecast period is similar to that projected in the June Budget. A weaker short term prognosis has been offset by stronger growth in the "out years". Treasury now anticipates fiscal surpluses of $765 million for the year ended June 2001, $2.2 billion in 2002 and $2.8 billion in 2003 (0.7%, 1.9% and 2.3% of GDP respectively). This compares with Budget forecasts of $1.0 billion, $2.0 billion and $2.7 billion respectively. The Government has allowed $640 million of extra spending in 2001 Budget and $615 million in 2002. What is particularly interesting in the BPS is that the net debt to GDP is forecast to fall to 16.7% by 2003/04, well below the 20% net debt to GDP objective. This suggests that if these forecasts are met, (and those figures allow for substantial prefunding of superannuation) there is room for higher levels of Government expenditure in key social areas, the state sector, economic development. and so on.
Imports and Exports The Overseas Trade Index show that merchandise export prices rose by 10.9% in the September 2000 quarter, whereas import prices were up by 5.1%. Trade figures released in late January 2001 show that the deficit for the year to December 2000 was $1.562 billion. This compares with a year earlier when the comparable figure was a $3.573 billion deficit. In the last year, the cost of crude oil imports increased by $1.4 billion. The value of exports in December was 28.8% higher than a year earlier, while exports for the three months to December were 31.6% higher than a year earlier. One estimate puts export prices in the December quarter 2000 of around 22% higher than a year earlier, implying growth in export volumes of around 8-10% compared with a year earlier. The estimated level of imports in December was 13.7% lower than a year earlier, while imports for the three months to October were 4.5% higher than a year earlier. Both these comparisons are impacted by "lumpy" imports of capital transport and military equipment (aircraft and a frigate). Excluding these items, `core' imports in December were 15% higher than a year earlier. The current account deficit for the September 2000 quarter was $2.1 billion. The deficit for the year to September 2000 was $6.9 billion, around 6.5% of GDP.
Salary Increases The six monthly Cubiks Survey released in late December indicates that top executives' base salaries and total remuneration have both increased by 5.7% over the past 12 months. General staff base salaries rose by 4.2% but total remuneration rose by 2.4%. Cubiks also found in the companies surveyed that 85% of those firms employed part-time and temporary staff, and 71% employed contractors.
Poverty Taskforce, Child Poverty Action Group and Poverty Measurement The Christchurch City Council has established a Poverty Task Force comprising the Mayor, Garry Moore, Paul Dalziel Professor of Economics at Canterbury University, Carole Anderton, the chairwoman of the City Council's Community Services Committee, Mark Solomon, Ngai Tahu, Dr Sue Bagshaw, and Major Campbell Roberts, Salvation Army commander. A report by the Child Poverty Action Group said half of all Pacific Islands children, a third of Maori, and one in ten others are sometimes short of food because of a lack of money. The group said the government should raise the tax ceiling for the 15 per cent tax bracket from $9500 to $12,000. Meanwhile, The Minister of Social Services, Steve Maharey, said the Government wanted an index of living standards that would help it measure levels of poverty and deprivation. He said research already indicated that between five and fifteen percent of people lived in circumstances that some researchers define as poverty. Mr Maharey said the Ministry of Social Policy was developing the new measures, and it would help the Government chart social wellbeing alongside economic indicators like inflation.
Hong Kong Closer Economic Partnership Talks on a "Singapore-style" free trade agreement with Hong Kong move up a gear in February with further talks between Government officials from NZ and Hong Kong. The CTU continues to raise major concerns about the consultation process, inclusion of labour standards, rules of origin issues, the impact of changes to rules on services and a range of other aspects.
Work Stoppages In the year to September 2000, 26 work stoppages ended compared with 30 in the September 1999 year. This is the lowest number of work stoppages that have ended in the September year in the last decade. However, the number of employees involved, and losses of person-days of work, and estimated wages and salaries, were up on the September 1999 year. Sixteen public sector stoppages and 10 private sector stoppages ended in the year to September 2000. In the September 1999 year there were 14 public sector stoppages and 16 private sector stoppages. In the September 2000 year, there were eight work stoppages recorded in health and community services; there were five in transport, storage and communication services; and there were four in education. The remaining nine were in all other industries combined. Work stoppages in transport, storage and communication services contributed 45 per cent of the estimated $4.5 million in wages and salaries lost during the year to September 2000.
Building Activity The number of new dwelling units authorised in December was the lowest monthly total for almost nine years, and 40 per cent down on the figure from three years ago. Although December is normally a low month, the figure of 1285 units was significantly lower than the mean of 1720 for the same month since 1990.
Tax Review The Tax Review 2001 is seeking the first round of submissions by 16th March 2001. For Terms of Reference and submission details see www.taxreview2001.govt.nz or phone 04 471 5228.
Modern Apprenticeships There are 29 organisations in 8 industries which have been selected by Skills NZ to co-ordinate services for Modern Apprentices. The industries are boating; building and construction; dairy manufacturing; electricity/electrical; engineering; hospitality; printing; and telecommunications. With these industries, plus the pilot schemes which have been operating since July, the Government expects there will be 1,300 to 1,500 young people (16 to 21 year-olds) in Modern Apprenticeships by July 2001.
Rural Prices Boom Figures for December show rural property prices are now nearly 45 per cent higher over the year. The mid-range price for a property was $647,000, up from a median of $447,000 twelve months earlier.
Compliance Cost Panel A Compliance Cost Panel has now been announced by the Government. The CTU will need to "keep a weather eye" on proposals from this panel which could impact adversely on workers. The role of the Panel will be to provide advice to the Government on ways to reduce compliance costs to business arising from existing central and local government regulation. This doesn't include tax legislation which has its own separate review. The Panel will report to the Minister of Finance and Minister of Commerce by 30 June 2001. The panel is: Chair - Alan Dunn - Managing Director/CEO of McDonald's New Zealand; John Albertson - Chief Executive of the Retail Merchants Association; Andrew Fox - a sheep and beef farmer from North Canterbury; Chye Heng - Chief Financial Officer and Company Secretary of Beca Group Ltd, Consulting Engineers; David Hoskin - Managing Director of Dave Hoskin's Carriers Ltd, Wanganui and President of the Central Road Carriers Association; Claire Johnston - Head of MPI Clemenger BBDO, and formerly Chief Executive of the Wellington Regional Chamber of Commerce; Peter Mony - General Manager of Maxtel Software Ltd, Auckland; Clare Nolan - Manager of the Wellington City Council's Economic Development Unit; Vaughan Renner - Chief Executive of South Pacific Tyres Limited; Jerry Rickman - a Managing Partner of Beattie Rickman, Chartered Accountants, Hamilton; Helen Samujh - a Senior Lecturer at Waikato University, who has an accountancy and economics background and experience of running a small business.
Immigration In the year to the end of June 2000, there were 36,396 people approved for residence in NZ. The country of origin for the top ten were Great Britain (13%), South Africa (10%), India (10%), China (10%), Fiji (6%) Samoa (5%) Indonesia, Tonga, Philippines and South Korea each at 3%. The Government has established an Immigration Advisory Group to provide additional advice to the Minister on the community's views on immigration policy and practice. The group is William (Bill) Milnes, Dr Ashraf Choudhary, Parthasarathy Bhagavathula (Partha Sarathy), Samuelu Sefuiva, Patrick O'Connor, Trudie McNaughton and Karen Te-O-Kahurangi Grant. While welcoming reform of immigration rules the CTU needs to ensure that short-term measures to encourage skilled workers to immigrate does not conflict with the need for greater resources to be devoted to industry training and skill development.
Fire Service Levy The Fire Service Levy will increase from 1 March 2001 from 6.2 cents to 7.3 cents per $1000 of insured value. The maximum increase for householders is $11 annually. The increase for vehicle owners is from $4.96 to $5.84. -----Original Message----- From: owner-lbo-talk at lists.panix.com [mailto:owner-lbo-talk at lists.panix.com]On Behalf Of Doug Henwood Sent: Wednesday, 21 February 2001 9:55 a.m. To: lbo-talk at lists.panix.com Subject: RE: States (the Kiwi one in particular)
Bill Cochrane wrote:
>All is proceeding relatively splendidly - growth looks like averaging
>about 3% pa, unemployment is at 5.6% (lowest in 12 years), rural NZ is
>booming (nz $ is at about 43cents US) and while the Labour/Alliance
>government isnt going to establish a socialist utopia real soon they
>aren't doing to bad. We also have probably the funniest finance
minister
>in the OECD - Cullen is a hoot
>I can dig out facts and figures should anyone care
Well I care, since I've long had a soft spot for NZ, and because it's a major laboratory of neoliberalism.
So what did the L/A government do to turn things around?
Doug