LabourGreen power plan will increase prices

The LabourGreen plan to power us back to the socialist seventies will increase the price of power - and at least one of their MPs knows it.

Electricity consumers should be under no illusion that the Labour-Greens power plan will hit them in the pocket, says Energy and Resources Minister Simon Bridges.

“Harking back to the 1970s with a half-baked nationalisation plan will ultimately cost consumers as it returns the country to the days of supply constraints, power blackouts and ultimately higher prices.

“David Parker himself said this in advice to the Cabinet in 2006.

“As Minister of Energy he said that “a single buyer would likely result in higher capital and operating costs”. He went on to say that: “The risks involved in changing arrangements could be significant. The resulting uncertainty could lead to investment proposals being put on hold. Direct implementation costs could be large.” And, he admitted that “The single buyer would be relatively poor at sustaining pressure on operational costs.”

“Competition is by far the best tool for delivering electricity at competitive prices,” says Mr Bridges.

“Our 2010 reforms mean that there is more competition amongst generators and retailers than under Labour. We are seeing more innovation and efficiency with 800,000 smart meters operating in New Zealand homes without any need for state intervention.

“Kiwi consumers have the power in their own hands. They are switching in their thousands for a better deal from suppliers and saving hundreds of dollars a year in the process.

“The Labour-Greens policies will actually result in higher prices over time because we’ve seen before that politicians and central bureaucracies do a bad job of setting prices and ensuring supply. Anyone who remembers the power blackouts of the past will know this.

“So does David Parker.”

The Cabinet papers are here.

Parker said publicly on more than one occasion that he stood for Labour because of Max Bradford’s power reforms.

He also said publicly that Labour hadn’t made any major changes to them because it couldn’t.

The Cabinet Papers back that up and show the LabourGreen plan won’t work.

 

Labour’s desperate attempt at sabotage

Labour is making a last-ditch desperate attempt to sabotage the partial sale of Mighty River Power.

Shares in Mighty River Power go on sale today, but Labour is warning potential investors it plans to makes changes in the electricity sector if elected next year. . .

He won’t say what the changes will be, only that is was fair to warn potential investors.

“What we’re most concerned about is the rise in power prices and the fact that when these assets are sold the likelihood is that power prices are going to go up and that the companies are going to be increasingly held in foreign hands.” . .

The Labour leader is playing at being David Shearerpisos again.

There are no details on what they’d do because there is nothing they could do. If he’d asked his Finance Spokesman, David Parker, he’d know that.

Power prices went up far more steeply in the nine year’s when Labour was last in government than they have since National took over in 2008.

At a public meeting, when he was a Minister, Parker was asked about power prices and said he’d joined Labour because of Max Bradford’s electricity reforms.

In response to a question about why Labour had done nothing to reverse the changes or moderate them he said it was too late, there was nothing the government could do.

Shearer’s latest release is empty rhetoric. It displays the party’s contempt for, and ignorance of ,business and provides another reason to ensure they won’t be leading the government after next year’s election.

School closure investigation overdue

Chief Ombudsman Dame Beverly waken is investigating the way in which the Ministry of Education conducts consultation on school closures and mergers.

. . . Dame Beverley will be looking in some detail at a number of closure and merger consultations carried out in recent years, including the process that is currently underway in Christchurch

“I will assess whether the consultation processes operate in a manner that adequately ensures fair and meaningful participation by affected parties and, if they do not, how they could be improved”, says Dame Beverley. . .

Such an investigation is long overdue.

School mergers and closures are always fraught and the Ministry has been handling them poorly for years.

North Otago was one of the areas into which then Minister of Education Trevor Mallard strode in clodhopper boots demanding mergers and closures nearly 10 years ago.

There was little if any consultation and very poor understanding of communities of interest and other factors which ought to have been considered.

The Minister got the blame and three MPs who lost their seats in the south – Mark Peck in Invercargill, David Parker in Otago and Jim Sutton in Aoraki – could lay some of the responsibility on this issue.

But then, as now, most of the blame ought to have been laid at the Ministry’s door.

It didn’t learn from the mistakes made before the 2005 election and repeated them with bells on in Christchurch where even more sensitivity was required.

Changes in population result in changing educational needs. New Schools will be needed in areas of growth, old ones will need to close or merge in areas of decline.

Handling that is core Ministry business for which it ought to follow best practice. Instead it appears to follow the process which didn’t work nearly a decade ago and from which it seems to have learned nothing.

I wish Dame Beverley well in her investigation and hope her findings lead to much needed improvements for the sake of schools, pupils, staff and their communities.

IMF says NZ has right balance

The International Monetary Fund has given New Zealand’ policies a tick of approval:

Finance Minister Bill English has welcomed the International Monetary Fund’s conclusion that the Government’s deficit reduction programme strikes the right balance between supporting growth and limiting public debt.

In its Preliminary Concluding Statement the IMF says New Zealand’s macro-economic policy stance is appropriate and that the monetary policy should continue to be the first line of defence against adverse shocks.

And it notes that economic growth appears to have strengthened in the last few months of 2012.

The IMF says: “We regard the planned pace of deficit reduction as striking the right balance between sustaining output growth and limiting public debt growth, and consistent with a policy setting where monetary policy plays a primary role in managing aggregate demand. The benefits of the plan are many.”

Mr English says the IMF’s assessment reflected the balanced and pragmatic approach the Government had taken with its economic programme over the past four years.

“The IMF notes there are many benefits to the Government’s plan. It is withdrawing fiscal stimulus at the right time by making room for private sector and earthquake-related reconstruction spending.

“It has also improved the macro-economic policy mix by reducing pressure on monetary policy. The programme also allows New Zealand to deal with aging and healthcare costs, and to cope with any future shocks.

“Finally, as the IMF concludes, the programme could help to increase national savings, reduce the current account deficit and limit the increase in New Zealand’s foreign liabilities.”

This was the subject of questions in parliament yesterday:

Hon STEVEN JOYCE: The IMF identifies two main near-term risks to the New Zealand economy. These are potential weaknesses or a worsening in the financial conditions in the world economy. The IMF also identifies risk in the New Zealand housing market, noting that supply bottlenecks persist and prices remain elevated. The IMF notes that New Zealand has room to respond to shocks with its monetary policy, and the level of public debt leaves room for fiscal policy response. The floating New Zealand dollar is also seen as an effective buffer. The IMF also says that our fundamentals have improved since the global financial crisis. Household and business balance sheets have strengthened, and banks have reduced their foreign funding and been assisted by a strong growth in deposits and slower growth in credit.

Maggie Barry: What does the IMF say about the value of the New Zealand dollar?

Hon STEVEN JOYCE: The IMF shares the Government’s view that the dollar is at a high value, largely because of factors outside our control. In particular, the strength of the New Zealand dollar is determined by the relative weaknesses of other currencies and other economies, many of which are printing money. As it says, if global monetary policy were to become less stimulatory, the exchange rate would likely depreciate over time. The IMF also notes that the Government’s return to surplus is easing pressure on the exchange rate by boosting national savings.

Hon David Parker: Does he agree with the IMF that “… New Zealand has run persistent current account deficits resulting in net external liabilities which are high by international standards. The deficit is expected to widen this year despite relatively strong terms of trade …”?

Hon STEVEN JOYCE: Yes, and I would note that those were largely due to the previous Government when the balance of payments deficit rolled out to over 8 percent of GDP. I really think the member should stop this line of questioning because all he does is point out that the Opposition are lousy economic managers.

Quite where the deficit would be had a Labour-led government still been in power is a very scary thought.

Minimum wage not so low

The campaign for a living wage has led to discussion on the minimum wage.

No-one is calling $13.50 high, but it’s not so low in relation to the average wage by world standards.

Hon STEVEN JOYCE: The minimum wage is currently $13.50 an hour in New Zealand, which is half the average hourly wage of $27. The OECD’s database shows that this proportion is, in fact, the highest in the developed world, and that, on this measure, our minimum wage is, therefore, the most generous in the developed world as a proportion of the average hourly wage. In all other countries the minimum wage is under half the average wage—for example, in Canada, it is 40 percent of the average wage; in the UK, it is 38 percent; and in the US, it is 28 percent.

John Hayes: Do any industries stand out as having higher than average wage increases?

Hon STEVEN JOYCE: Yes, a few industries do stand out. One of them is the manufacturing industry, where average weekly wages rose 4.1 percent over the last year, and that is actually not a short-term thing. Over a longer period wages in manufacturing have also grown faster than average. Over the last 4 years average weekly wages in the manufacturing sector have risen 18 percent, compared with 13 percent in the economy as a whole. No doubt, that fact has been brought up and discussed at the Opposition’s manufacturing inquiry. 

Hon David Parker: Has the wage gap between New Zealand and Australia grown larger over the last year; if so, will he be providing milestones for National’s promise to close the wage gap with Australia, given that it is growing rather than closing?

Hon STEVEN JOYCE: I do not have that information to hand, but I do know that the member is very careful to talk about the wage gap, rather than the after-tax wage gap, which people actually experience. But again, if the member wants to talk about the differences between here and Australia, fundamentally, the main difference is the investments made in Australia in the resources sector over the last few years. That is the fundamental difference. If the member would like to reverse his party’s ambivalence towards the investment in the resources sector in the New Zealand economy, I am sure we could have a good discussion. . .

Comparing wage rates between countries isn’t simple.

There are a lot of variables including tax rates but there is no doubt that the mining industry in Australia has a very strong influence on wage rates there and the government’s attempts to encourage mining here are met by little or no enthusiasm from the opposition.

 

Old Year Honours

The Homepaddock panel has awarded the 2012 Old Year Honours:

Dotbomb Award - The media for far exceeding the bounds of public interest with positive stories on Kim Dotcom. The man himself gets an honourable mention in this category for believing the stories.

Icarus Award -Russel Norman. Buoyed by hopes of being named Opposition MP of the Year and a future Finance Minister he flew too close to the sun with his plan to print money.

Political Amnesia Award – The Labour Party for forgetting it’s supposed to be opposing the government not itself.

Toastmasters Recruitment Award – David Shearer for failure of fluency when it was most needed.

Humpty Dumpty Numbers Award – David Parker for thinking numbers could mean whatever he wanted them to when costing his party’s housing policy.

Mirror Mirror Award – David Cunliffe for failing to convince enough of his colleagues he’d be the fairest leader of all and sabotaging his party’s conference in the process.

Once Was Warrior Award – Winston Peters for doing very little.

 

 

 

 

And they think they’re ready for government?

Labour’s finance spokesman David Parker can’t count.

Backbencher David Clark doesn’t understand the difference between revenue and profit for tax purposes.

And now Phil Goff doesn’t understand the role and responsibilities of a non-beneficial trustee.

. . . “By attacking Mr Kiely without checking the facts Mr Goff has impugned the reputation of a highly professional individual without any justification.

“Central to Mr Goff’s allegation is that Mr Kiely held shares in shipping company Sofrana at the time PFL, of which he was a director, was considering an offer from Sofrana.

“Mr Kiely has never owned shares in Sofrana. The shares referred to by Mr Goff were held by Mr Kiely as a non-beneficial trustee for a Sofrana employee. Practising lawyers like Mr Kiely commonly hold shares for clients as non-beneficial trustee. If Mr Goff had asked he could have been told this.

“There was no obligation for Mr Kiely to disclose such matters to the Ministry when he was appointed a director. Only personal interests must be disclosed. There has never been a requirement for lawyers to disclose clients’ interests.

“Furthermore, when Sofrana expressed interest in PFL, Mr Kiely ensured that the PFL chairman was made aware of the non-beneficial trustee holding, and took the further step of ceasing to act as trustee. This is more than he was obliged to do. I have sighted the relevant documentation today. . .

And they’d like to think they’re ready for government!

The series of errors reflects on the MPs’ competency.

Goff was trying to embarrass the government because of Keily’s links to the National Party.

Instead he’s embarrassed himself and reminded voters again that a party that can’t perform in opposition is far from ready for government.

Does anyone in Labour understand the numbers

Labour’s Finance spokesman got the numbers around the party’s building policy wrong in trying to score a point in parliament:

 . . . Finishing off the session, Labour Party finance spokesman David Parker decided to question Heatley’s figures.

“I would ask, Mr Speaker, whether the Minister checked his arithmetic coming to the House. Because by my reckoning, if there was going to be one house built every hour, for every hour of the day, seven days a week for ten years, there would be a build of 613,000 houses, not the 100,000 houses that the Labour Party says we’re going to build,” Parker said.

Parker now probably wishes he hadn’t brought it up. Heatley said he supposed the press gallery would go and determine who was correct.

There are potentially two answers, given the way Heatley worded the equation:

Twenty-four houses built every day over ten years (and excluding any leap years – 24 x 365 x 10) gives 87,600 houses. About 13,000 short of what Labour was proposing, and in line with Heatley’s math.

Another way of doing it would give 87,360 houses: 1 x 24 x 7 x 52 x 10. Pretty much the same.

Either way, quite a bit off Parker’s 613,000.

If the finance spokesman can’t do fairly basic calculations, with or without a calculator, it’s no wonder the party’s policies don’t add up.

 

Bradford vindicated?

The opposition to power reforms of the 1990s and their architect Max Bradford were a significant contributing factor to the loss of the seat of Otago for National’s Gavan Herlihy.

David Parker, who won the seat, told a pre-election meeting in 2002 that they were one of the factors which motivated him to stand for Labour.

But were they really so bad?

Kiwiblog has a graphic, originally from the ODT, which shows they did work as intended:

Regulation and re-regulation aren’t the only factors which affected prices.

The reliance on hydro generation puts pressure on supply and therefore price if there is a drought which reduces the water flow into the lakes behind dams.

But prices went down when retail competition was introduced and went up again when Labour re-regulated the electricity market.

 

Labour is getting its policies from . . . ?

Those of us who’ve wondered where Labour is getting its policies from have an answer:

David Shearer: Is the Prime Minister aware that Kurdistan recently postponed selling its state-owned mobile network, Russia recently cancelled three State privatisations, Hungary is preparing to renationalise a gas company, and Croatia has cancelled selling off its State bank?

Rt Hon JOHN KEY: No, but now it is all starting to become clear where Labour is getting its economic policies from!

Those who wonder why the government wants to sell minority shares in a few energy companies also got an answer:

Michael Woodhouse: Why is it important that the share offer programme goes ahead?

Rt Hon JOHN KEY: It is important, firstly, because the Government can use the proceeds of the share offer to invest in new public infrastructure without having to borrow so much to do so. This is exactly the same situation as in 2005 when the previous Government took $600 million from the sale of publicly owned asset Southern Hydro and used it to invest in roads. The share offer also gives New Zealand savers the opportunity to invest either directly or indirectly in big New Zealand companies, and being publicly listed will be good for the companies themselves. . . 

I do believe bringing these companies to the market through the mixed-ownership model is a good, sound economic approach, and actually I think it will deliver a better result for New Zealand without having to borrow more money. . .

Those who wonder who will benefit from the investment got an answer too:

David Shearer: Is it his aim in selling off assets to maximise return to the New Zealand taxpayer or, given that the value of shares is likely to slump as result of the sales, is it to give enormous bargains to those buyers rich enough to buy shares?

Rt Hon JOHN KEY: The member will be aware, because of the Securities Act, that I cannot offer a comment on whether the share sales are likely to be successful or not. What I can say is that if one goes and looks at TradeMe as an example, they will see it was brought to the market under what can really only be described as the mixed-ownership model, and that has proven to be very successful. I think if one also looks at the number of KiwiSaver accounts, the New Zealand Superannuation Fund, the other pension funds in New Zealand, and mums and dads looking for investments, they will find those to be attractive investments. . .

And those wondering about alternatives to the partial sales also got an answer:

Michael Woodhouse: What reports has he seen on any alternative approaches to paying for new public infrastructure?

Rt Hon JOHN KEY: I am aware of a couple of approaches. One is simply to go out there and print money in the misguided belief it will make a country wealthy. Today I have with me actually a $500 million Zimbabwean note. Members might be interested to know that when this was issued in May 2008, you needed 100 of these to buy—

. . .

Rt Hon JOHN KEY: As I say, one option is to print money, and you would have needed 100 of these when it was printed, 100 $500 million notes, to buy an egg—poached, boiled, fried, scrambled, or any other way. The other option—

. . .

Rt Hon JOHN KEY: The second approach I have seen is to go out and borrow $5 billion to $7 billion, at a time when countries around the world are trying to reduce their debt. We know that that policy belongs to the big spending, big promising Labour Party.

We’ve sold non-core assets several times to allow us to reduce debt or reinvest in core assets. It’s normal and sensible business practice in countries with free markets.

The concept might be harder to grasp for those who get their policies and business practices from places still struggling from the aftermath of communism.

 

 

Spot the contradiction

Did anyone notice the contradiction in two of Labour’s policies?

Last week Dunedin North MP David Clark was trying to get support for his Bill to increase the minimum wage.

At the same time list MP David Parker was, and still is, trying to get the government to meddle with the exchange rate to decrease the value of the dollar which will in effect cutting the real wages of all New Zealanders.

Both policies are misguided and one contradicts the intent of the other.

One effective way to take pressure off the value of the dollar is tighter fiscal policy but Labour has fought tooth and nail against every policy National has introduced to cut costs in the public sector.

Plain English on exchange rate

Labour’s David Parker thinks the government should meddle with the exchange rate:

Finance Minister Bill English has a much better strategy:

We are focused strongly on the competitiveness of our businesses. It is difficult, if not impossible, to manage our exchange rate to a significantly lower level, so we are focusing on helping our exporters to be profitable, regardless of what the exchange rate is.

Parker had another go later in Question Time:

4. Hon DAVID PARKER (Labour) to the Minister of Finance: How many export and import substitution jobs does he estimate have been destroyed in 2012 as a result of the exchange rate, which has been at 70 or above on the Trade Weighted Index for every month of this year?

Hon BILL ENGLISH (Minister of Finance): There is no officially accepted measure for what the member is asking for. What I can tell him is that total goods and services export receipts have increased 15 percent, from $52.9 billion in the year to March 2010 to $60.9 billion in the year to March 2012, and a net 57,000 more people have jobs than 2 years ago. The economy is dynamic, and jobs are constantly shifting as innovation, investment, and demand change. I would be suspicious of any measure that attempted to pick out one factor, when there are many factors in a company making a decision to export or to hire another worker.

Hon David Parker: Does he agree with the Prime Minister’s statement of January 2012: “We are concerned at the level of the exchange rate because we think that above $0.75 [U.S.]it’s very difficult for our export sector.”?

Hon BILL ENGLISH: Yes, I do agree with that. The export sector has shown itself to be very resilient and capable of increasing exports and production when it is backed by stronger policies on competitiveness. If the member is suggesting that there is some way to choose an exchange rate, then I would be keen to hear from him on that, but of course he needs to keep in mind that even if he could choose the exchange rate, reducing it would reduce the standard of living of all New Zealand households.

Hon David Parker: Does he agree with the Prime Minister’s statement of August 2012 that continued currency appreciation would make the economy at some point “splutter and stutter and probably stop”?

Hon BILL ENGLISH: It is possible that that could happen. As it has turned out in New Zealand, although we have had a high exchange rate now for a number of years, a relatively high exchange rate, our export sector has continued to expand. I think the member is getting at the issue of whether we can choose an exchange rate. It would be nice if we could, but there is no known method for picking the right exchange rate in the first place, and, secondly, there simply are not the tools to hold the exchange rate at whatever desirable level there is.

Hon David Parker: If China is running a programme of competitive devaluation of its currency, as are the US, the UK, and the EU, if Switzerland is defending a cap on its currency, which is the opposite of what the Minister just said could be achieved, if Singapore is managing within a range, if Brazil and Chile are intervening in capital flows, and if Japan is printing money too to protect its exporters, why should New Zealand exporters be slain and New Zealanders lose their jobs because his Government refuses to move on the primacy given to inflation targeting? [Interruption]

Mr SPEAKER: Order! It is a serious question.

Hon BILL ENGLISH: The member’s analysis is simply wrong. We could go through all those countries, but the countries that are actually defending a fixed rate, Singapore and Switzerland, both have very large reserves, and, in the case of Switzerland, they are building up huge imbalances in defending that rate, and one has yet to see whether the experiment is going to work. In the case of the UK and the US, they are printing money because they have zero interest rates. The fact that they are printing money is a sign of deep distress in their economies, not success. I would not like to be in that position. It would be bad for New Zealanders, bad for their incomes, and bad for their job prospects.

Rt Hon Winston Peters: Given his professed concern and that of his Prime Minister about real employment and real growth, has he asked Treasury and the Reserve Bank to calculate the damage, as the primary question asked, in terms of jobs and exports from an overvalued exchange rate; if he has not, why is he giving answers that say that nothing can be done about it or nothing can be quantified?

Hon BILL ENGLISH: Well, the calculations on damage would depend entirely on your assumption about what the alternative was. Would the alternative be, you know, the Zimbabwe exchange rate, or the Japanese exchange rate, or the Aussie dollar exchange rate? I mean, it is a meaningless calculation. I mean, members of the Opposition are—

Rt Hon Winston Peters: I raise a point of order, Mr Speaker. The question asked him as to why he has not asked the Reserve Bank or Treasury to do these calculations. I am not interested in his ideological views; I am interested—

Mr SPEAKER: No, no. Order! I have heard the member’s point of order. He is now going on to debate it. The Minister is answering the member’s question absolutely explicitly. The member asked why he has not asked Treasury to carry out these calculations. The Minister is explaining why he has not—that he believes such calculations are meaningless because of the difficulty in establishing the base level for the dollar to commence the calculation. That is his answer as to why he has not asked Treasury to do that. [Interruption] Order! He has answered the question. Does the member wish to ask a further supplementary question?

Rt Hon Winston Peters: Well, whilst most other Ministers of Finance in the developed world, in countries doing far better than New Zealand, are implementing policies to manage their exchange rates—policies endorsed by the IMF and leading international economists—why do he and his colleagues keep on saying again in the House today, as they have for months, that they can do nothing?

Hon BILL ENGLISH: We have not said we can do nothing. What we have said is that we can use the tool that is likely to be effective and sustainable for New Zealand, and that is to improve the competitiveness of our exporters. There is no free lunch around the exchange rate. Any attempt to move it comes with large costs and large risks. New Zealand has been down that path before. It found that it was not sustainable, and for the last 25 years it has maintained a policy of a floating exchange rate, with the capacity to intervene in extreme circumstances. We do not intend to change that policy, because we have not yet seen from the members a viable alternative way of managing an exchange rate.

Hon David Parker: Does he agree that the—[Interruption]

Mr SPEAKER: Order! I want to hear the Hon David Parker.

Hon David Parker: Does he agree that the current policy settings, which give primacy to inflation targeting over the exchange rate, are not working, and is he ready to conclude, after a four decade- long current account deficit, that inflation is not the pressing problem for growing jobs in the economy—it is the exchange rate?

Hon BILL ENGLISH: No, I am not going to agree with that. The challenge here would be that even if you could change the Reserve Bank of New Zealand Act to tell the Reserve Bank to target the exchange rate, no one knows how it could do that in a sustainable manner that would significantly shift the exchange rate track. Oh, it is all in the book the member is waving about; it is all in the little red book. The fact is if the member looks at those countries which say they are doing it, such as Chile, Brazil, and Japan, it is highly arguable whether they are making any headway at all, given the large risks they are taking.

That’s the plain English answer and it’s also good economics.

New Zealand used to have a managed exchange rate and the people it benefitted most were currency traders who gambled on it.

Those calling for the government to meddle are showing their economic ignorance.

Businesses should treat the value of the dollar like the weather. Sensible ones take account of it but put their energy into factors they can control.

Parker and Peters singing same silly song

New Zealand First leader Winston Peters used Question Time yesterday to take patsy questions about his Reserve Bank Amendment Bill from one of his MPs.

He then filibustered to keep the Bill alive.

He’s singing the same silly song as Labour’s David Parker who also thinks the Reserve Bank has failed.

. . . The RBNZ had failed to stop the credit boom of the mid-2000s, despite raising benchmark interest rates to a high point of 8.25 percent before the global financial crisis in 2008. . . .

Is this the same David Parker who was not only an MP but a Minister in the government in the mid-2000s?

That’s the government which contributed to high interest rates with high public spending and policies which fostered debt-fuelled consumption.

Both Peters and Parker want a lower exchange rate.

Both are wrong in thinking mucking about with the bank’s role in targeting inflation will achieve that without creating a whole lot of other problems.

The Visible Hand in Economics explains a persistently high real exchange rate isn’t the fault of monetary policy and the RBNZ:

 A persistently high real exchange rate tells us something structural is going on in our economy – it could be a sign of a government sector that is “too large”, poor domestic competition, a excessively low savings rate relative to investment opportunities in a country, or some mix of similar issues.  As a result, this has to do with competition policy, tax policy, government transfers, and the allocation of government services – but nothing to do with the Reserve Bank keeping price growth at 2%pa.  Remember, it isn’t just an issue of too much credit being offered – but too much being borrowed by people domestically who wish to investment and consume.

Remember the exchange rate is a price – it is a “signal” of real imbalances rather than the cause.  Remember, it hasn’t been the “consumption” of cars, TV’s, and baseballs that has been excessive – it has been our “investment” in housing stock prior to the crisis.  Remember that working for families was a large transfer to the middle classes – which helped to smooth income inequality, but also would have pushed up house prices and could have lifted the real exchange rate by increasing demand for non-tradables … in fact the more effective the programme has been, the larger this impact would have been.

The high $NZ – $US exchange rate does erode returns for exports but neither Peters nor Parker have the right prescription for helping that.

Snake oil salesman can’t sell two exchange rates

People calling on the government to do something about the exchange rate only look at only the benefits, without acknowledging the costs.

But as Economic Minister Steven Joyce explains we can’t have one exchange rate for what we sell and another for what we buy:

  A lot of exporters – I mean every exporter let’s face it, likes a lower dollar.  What they would love really is to have a lower dollar which they’d sell stuff, cos they’d sell their stuff for more, and they’d like a higher dollar for the stuff they buy.  They’d like two exchange rates.  And I understand that, cos I’ve been involved in an export industry myself, and you’d always love two exchange rates.  Unfortunately the world only gives you one, that’s right.  So their input costs are significantly lower.  So if you take oil and gas and a lot of those things that come in on world prices, the input costs are lower.  And yes it’s more challenging with some of the export costs or the sales costs, sales revenues that you get, but it is a mixed story. A lot of manufacturers are doing very well, some struggling, particularly the more commodity based ones. . . .

There is no question exporters would get better returns if the dollar was lower but everyone would also face higher costs for everything we import. That’s not just luxuries like electronic toys, it’s necessities including fuel, machinery, medicines and medical equipment and a lot of food.

. . .  Well fundamentally the real opportunity at the moment, and everybody knows this, is that it’s the Australian dollar, and we’re currently at quite low levels against the Australian dollar, about 78 cents, and you can’t have things changed, different exchange rates for different countries as we know.  If we went down further against the Australian currency, which is what for example Mr Wally recommends.  He suggests that there should be a 20% devaluation in the New Zealand dollar, 25% I think he’s looking for, but that would put us at 58 cents Australian which is just ridiculous.  And also it would put us against about 60 cents US, which people would say well that’d be nice.  But then of course you’d actually be talking about very substantial rises in living costs for New Zealanders.  So unfortunately you only have one exchange rate.  The exchange rate is the assessment of what people things of the future of the New Zealand economy.  The quickest way to get it down would be to do some very reckless things that would actually put our economy at risk.

The interviewer, Rachel Smalley then asked him about Winston Peters’ Reserve Bank Amendment Bill.

StevenWell with the greatest respect to Winston, he’s been around for 27 or 30 years. . . . he’s never come up with a solution.  If there’s a problem in this country he’s part of it, because he’s been around for such a long time.  He had a time as Treasurer and never promoted these views as Treasurer, so now because he’s worried, and because he’s rightly worried about you know the big commodity manufacturers, and I am too, he’s promoting a snake oil solution that would achieve nothing. Because here’s the deal…

RachelOkay, his Amendment Act does have the support though in part, in general by David Parker, the Labour Finance Minister.

StevenWell I’m sorry that gives me no comfort whatsoever.

RachelHe says we face competitive devaluation abroad and we ignore it at our peril.

Steven Well I’m sorry, it’s truly ludicrous, and fundamentally it is a snake oil salesman solution, and Parker was called on the left this week by his own supporters on the left, who said what he’s arguing for, is he’s sitting in front of exporters and saying I want to make life easier for you, and then he’s turning around to New Zealanders and saying it will have no impact on you.  And fundamentally that is not the case, it’s dishonest and you can’t say it.

The dollar’s value is making business harder for exporters but the snake oil Peters and Parker are trying to sell would make life much more difficult for everyone – unless they can find a way to have two exchange rates.

Can’t deliver two objectives with one instrument

 Quote of the day from Don Brash:

. . . The Reserve Bank has got only one instrument, and that’s monetary policy. You can’t deliver two objectives with one instrument, and David Parker at least should have the brains to know that. Apparently not.

He was responding to comments from Winston Peters and Parker who are both trying to get the Reserve Bank to control both inflation and the exchange rate.

The high exchange rate against the US dollar, pound and euro is making business harder for exporters but that is far more a reflection on their weaknesses than our strength.

But the exchange rate with Australia isn’t too bad and that’s our major trading partner.

Exports would be earning more if our dollar was lower but imports would cost more too.

That wouldn’t just mean luxuries but also necessities like fuel, machinery and medicines.

And a high dollar is far better than high inflation or any of the other consequences of tinkering by politicians.

Criticised for following law?

What is David Parker saying? (starts at 1:01)

. . . it was that it was a legal decision not the right decision. The Court found that the Minister acted within his powers to approve the sale of the Crafar Farms to the Pengxin Shanghai syndicate but not that he acted reasonably because that’s not their mandate?

Is he criticising Land Information Minister Maurice Williamson for following the law?

If he had acted illegally would that have been reasonable?

It might be on Planet Labour. But in New Zealand under National the government follows the law.

Which is Labour’s real view on land sales to foreigners?

Last week Labour was opposed to any land sales to foreigners.

Kiwiblog reminds us that last year the party was  opposed to any land sales to foreigners unless they invested in significant further processing of related primary produce and related jobs.

This week, the party has two different views on the issue following news that Canadian James Cameron has spent $20m buying a couple fo farms in the Wairarapa.

At least one MP has a softer line than last week’s position:

If a foreign purchaser of New Zealand land is going to live here and not “bugger off” back overseas, then the Labour Party is not opposed to the sale, the party’s finance spokesman David Parker says.

David Shearer is still opposed to any sale to foreigners:

Labour leader David Shearer continued his hard line on foreign buyers saying “New Zealanders do not want to be sharemilkers on foreign-owned land.”

I probably know a lot more sharemikers than he does and the nationality of the landowners doesn’t seem to be an issue with them.

I also know people from France, Wales and the United States who own farms here, make a vvery good job of running them and also play significant roles in their communities.

Shearer might like to tell the people who sold the farms what’s wrong with their actions.

Then he could explain which policy is the official one – last year’s, last week’s which is still his this week, or this week’s new one from Parker?

Complimenting, complementing or competing?

Is it a a compliment to Finance Minister Bill English that Labour has not now has a Finance spokesman and four associates opposing him?

The four could complement the work David Parker will do but Dene Mackenzie points out they will also be competing with him:

Labour finance spokesman David Parker faces a daunting task of not only taking on Finance Minister Bill English in the House but in also keeping his four associate spokesmen in line. . .

While it can be argued Mr Shearer sees finance as the main focus of his new line-up, Mr Parker will need to rein in the substantial egos of the four other men. It could also be seen  as a lack of confidence in Mr Parker, that he has four associates to back him up.   

Mr Cunliffe was defeated as leader and is unlikely to have  too many warm feelings for Mr Parker. Mr Jones completes his rehabilitation back to the front bench and will want to make his mark during debates in the House.   

Mr Cosgrove, although defeated in his treasured Waimakariri      electorate, is not short of confidence.   

Mr Mallard, who actively worked with former leader Phil Goff and former deputy Annette King to have Mr Shearer elected,      has worked in associate finance roles previously, with former finance minister Michael Cullen.   

Mr Parker will find himself competing for speaking time with Messrs Cunliffe, Cosgrove and Jones.

He’ll also be competing with Finance spokespeople from other opposition parties and his leader didn’t give him a ringing endorsement when announcing the caucus line-up:

“. . . I’m not saying it will be better or worse, I’m saying it will be very different. . . “

Different but not necessarily better on top of the imposition assitance of four associates is no compliment and it’s hardly a ringing endorsement of Parker when the associates are less likely to complement him than compete with him.

Events overtake prediction

One of the problems of a deadline several days in advance of publication and even longer before what’s written is read is that events can overtake predictions.

So it was with Jane Clifton’s post-election postmortem in the Listener in which she writes of Labour’s leadership contest:

As has been wittily remarked, it’s a case of too many Davids and not a single Goliath. Although it’s true the biblical David was the winner, as yet none of the three –  Parker, Cunliffe or Shearer – shows signs of having a magic slingshot. If, as appears most likely, David Parker gets the job . . .

Sometime between Clifton’s deadline and publication Parker announced he was pulling out of the race.

I must admit my political bias made me hope he’d become the leader.

There is nothing to stop a list MP becoming Prime Minister. But a man who lost a seat after one term, was rejected even more firmly in the next election then managed to gain only 3,751 votes out of the 36,929 cast in this one would have had to work very hard to broaden his appeal with the electorate.

Today we’ll find out which of the other Davids will get the job.

Given the difficulty the both appear to be having to convince both caucus and the wider party membership to reach consensus on which it should be and the challenges facing the party, the winner might find this was the contest to lose anyway.

Cunliffe’s secret diary

Steve Braunias channels David Cunliffe:

Monday

Rode into town at first light. The streets were empty. Vultures lined up on telephone lines. Smashed glass littered the length of the pavement. Black smoke from Saturday’s blaze curled in the air from the ashes of the bank, the hardware store, the barbershop, the media training office.

Hitched my wagon in front of the saloon and walked in.

Jacinda Ardern was slumped on the stairs. She didn’t look so good in the morning light. No-one did. A few gamblers were hunched over their cards. There was a priest murmuring into his glass of whiskey. The barman ran a filthy rag over the counter.

I struck a match on his head and lit my cheroot. “Ain’t no smokin’ in here, pardner,” squeaked a high girlish voice in the corner.

“Shut it, Parker,” I said.

He sprang to his little feet just as the saloon doors swung open with a crash. Spurs scraped across the wooden floor. “Shearer,” Parker piped. The room went quiet.

Parker looked at Shearer, and Shearer looked at me, and I looked in the mirror. . .

It continues  here.