David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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Balancing the books but not the economy

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The Budget has targeted balancing the books but missed out on balancing the economy by sparking growth in the tradable sector say the New Zealand Manufacturers and Exporters Association (NZMEA). The Budget focused on cutting costs through cuts to Kiwisaver and Working for Families, but had little detail on how to increase growth or shift the balance of the economy towards savings and exports as the Government has talked about.

NZMEA Chief Executive John Walley says, “Rebalancing rhetoric is almost a fixture in New Zealand politics, it is effective rebalancing action that is absent. We have a one-dimensional text book on monetary policy driving a volatile and overvalued kiwi dollar and fiscal policy that rewards investment in assets, not activity in the tradeable sector. Until that is fixed high growth will be just be a forecast not a reality.”

“The Budget noted that higher growth rates had been seen prior to 2005 and the growth forecasts are reliant on these conditions returning and it is debatable if the higher growth back then was all that real.”

Traded/Non-traded Sector Growth

Budget 2011

“This graph from the Budget document shows that the tradable sector has contracted since 2005. This changes the outlook for growth as there is unlikely to be much export pick up with the exchange rate where it is at the moment.”

Real Exchange Rate Index

Budget 2011

“My question is unless we get more investment in the tradable sector where will this growth come from? Lower these forecasts to the average post 2004 growth rates and we will not see a surplus this decade without significant cuts in the future.”

Real Gross Domestic Product Growth (percentage change)


“The allocation of an earthquake fund and the changes to foreign bank taxation will deliver some benefits, but reducing incentives to save seems to act against the Government’s stated intentions. The partial asset sales of Solid Energy and Air New Zealand will also help but the sale of natural monopolies is more debatable. In any case the $5 to 7 billion quoted is fairly immaterial against GDP over the forecast period.”

“Cost cutting is part of solving the deficit problem but earning more should be a priority.”

To achieve higher growth the Government needs to:

  • Stabilise the high and volatile New Zealand dollar;
  • Reform the tax system to promote investment in the tradable sector over speculative investment in land and buildings; and
  • Introduce productive investment incentives.

“Much more effort in these three areas would start to address New Zealand’s economic underperformance,” says Mr Walley. “The OECD, the IMF and the Government’s own working groups have agreed that a step change in policy is needed; tinkering will not get the job done.”

tags: budget 2011, rebalancing, exchange rate, bill english


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