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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Selwyn Pellett: Political debate is shifting from Tactical to Strategic responses

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Selwyn Pellett, Director of Imarda Pty Ltd, with his take on last weeks Budget and Labour's economic policy announcements.

Last week, I saw a tactical response to our economic problems from National in the form of their budget and yesterday, a strategic approach from Labour. Other commentators have already labeled National’s budget ‘a zero budget’, ‘a tinkering budget’, ‘a cut, sell and hope budget’ so there is little need to labour the point that their approach is very tactical.

The reality is any budget or policy has to be put in context and measured against strategic objectives. If we are to assume that catching up to Australia is still Nationals’ vision for us then the moves they have made and continue to make are strategically flawed. I’m not sure that is a vision but regardless the moves to date won’t take us there.

As a country, we are simultaneously fighting economic battles on three fronts with finite resources. The debate rages about where those resources should be deployed.

Economic Sovereignty

  • Having economic sovereignty will mean we no longer live in fear of a credit downgrade as our balance sheet and income statement will withstand any scrutiny and allow prudent borrowing at lower interest rates. This means addressing both our fiscal (government spending too much) and balance of payments issues (the public spending too much relative to export earnings).

Domestic economic recovery

  • We have to grow our domestic economy, to get people re-employed in meaningful jobs, that they have the skills, training and intellect to do and stop the drain of our best and brightest to higher wage economies.

Export recovery

  • New Zealand needs a fairer tax and monetary system that supports long-term economic growth rather than rent seeking, capital appreciation and speculative behaviour.

Of these issues, unsurprisingly, politicians typically make the domestic economy their top priority and that leads to the sort of tactical behavior we have seen and continues the spiral of economic decline and loss of economic sovereignty.

Let’s be very clear on this issue. The government has borrowed $16.7 billion (Treasury) in the year to June 30th and that is being put on the never-never. We do not get back into surplus until 2014 and that’s after selling 6-odd billion of government assets and budgeting great growth figures. That means, in 2014 we may have the ability to start addressing the mountain of debt that has been created in the preceding 7 years.

While our Government debt isn’t that high by global standards, the combination of Government and Private debt is. When you realize (as the rating agencies do) that the interest payers of both private and public debt are the same individuals, i.e. New Zealand taxpayers and citizens, then you start to see why this issue is so serious. As a nation, we are pushing debt into the future and pulling revenue-generating assets into the present, and selling them to fund our income gap.

So, selling assets to reduce the interest bearing debt mountain is Nationals’ tactical solution. But, as citizens of New Zealand, we will pay the cost in one form or the other. So, yes, the governments’ interest bill might go down a touch but the cost of power won’t and so it’s a tax of a different kind but it still leaves salary and wage earners with no money to spend, save or invest. This is the cycle that has to be broken if we are interested in nation building, catching and then passing Australia. Regardless of how popular Nationals policies are they don’t change the underlying ability of New Zealand to compete with the world.

In strong contrast, Labour has adopted a strategic approach. Based on policies they have announced they are clearly focused on stimulating a diversified export recovery that will in turn lead to economic sovereignty and rating upgrades.

This means not pushing debt into the future and not stripping future cash generating assets into the present and selling them (announced). Despite every criticism I have had with the last Labour government they did pay down government debt to net zero, they did create the Super Fund that this year generated 20.8% return taking the fund to $18.8 billion and they did give birth to both Kiwi Saver and Kiwi Bank.

Labour still, however, have to manage structural changes to the tax system. This will probably mean implementing all or most of the recommendations of the tax working-group (not announced but hinted at). The tax changes we have seen to date are re-distribution rather than structural in nature. A partial reversal of some of the tax cuts (hinted at) that now cost us $130 million a week with the zero growth must surely be on their agenda. As an option, I’d rather pay more tax than sell off our assets. I make the distinction of selling off our assets from investing in them.

I would support a partial float of Kiwi Bank as it will create real shareholder returns by eating into the $3 to $5 billion profit made here by the Aussie banks and that’s investing. Floating 49% of a company and the government (rather than company) receiving that cash is selling 49% of that asset.

Labour have taken on sacred cows, like farming, by simply saying to them, “Pay your fair share” in tax. Not more, just the same as others (announced). It’s a brave move but in essence they are just bringing forward Nationals policies two years earlier. So the policy is Nationals the timing would be Labours.

It also means modifying the Reserve Bank Act to include growth and employment objectives as well as controlling inflation (announced). This is so critical and its impact has been lost on the media and therefore the public.

Labour is committed to reducing speculative capital flows through controlling demand with such additional tools as Loan-to-Value ratios and counter cyclical use of Adequacy Ratios (announced).

It is committed to reintroducing research and development tax incentives at 12.5% of spend (announced) so that New Zealand’s export economy can diversify as Denmark’s has. Like Denmark we need to build new exports on our agricultural base.

I have been scathing of both major parties for a lack of vision and leadership. However, the policies announced from Labour in the last year and, specifically over the weekend, point to long-term structural change that will support both the diversification and stimulation of the export economy and that is what is required to actually turn our economy around.

It is very interesting that last week the Australian banks had a credit downgrade because of Australia’s reliance on commodities. New Zealand has zero growth in the middle of the highest commodity prices we have seen. What state would we be in right now if the commodity cycle were in a trough instead of a peak? That is why we need diversification of the export economy and that seems to be where Labours’ policies are targeted.

tags: budget 2011, selwyn pellett, economic sovereignty, asset sales, reserve bank act


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