Words and numbers

May 25, 2017

Finance Minister Steven Joyce says today’s Budget will have words and numbers.

Something to remember when looking at the numbers is that some of the surplus is money which has come from cost recovery and payment for services.

Most of it has come from tax.

That’s money which people have earned one way or another.

Government’s need that money to provide services, infrastructure and run the country.

Expected surpluses provide the opportunity for the government to do more of this.

They also provide the opportunity to allow people to keep some of the money they earn.

That’s not giving more, it’s taking less.


From $4.25 to $6.15

May 25, 2017

A year ago Fonterra announced an opening forecast milk payout of $.425 for the 2016-17 season.

The forecast has gradually crept up as world prices increased and yesterday the co-operative announced a forecast payout of $6.15.

Chairman John Wilson said the increase reflects the strong fundamentals supporting global dairy markets. “World dairy prices have risen in recent months and as we near the end of the season we have more visibility and certainty which makes us confident of our $6.15 position,” Mr Wilson said.

Fonterra also confirmed its forecast earnings per share range of 45 to 55 cents for the 2017 financial year, as it continues to target a full year dividend of 40 cents per share. “Some of the challenges we faced in the third quarter could continue, but the business is committed to a strong fourth quarter particularly in Ingredients sales. This means we have been able to confirm the earnings per share range.” Mr Wilson said.

“The higher forecast Farmgate Milk Price of $6.15 per kgMS and the target dividend of 40 cents per share gives a forecast cash payout of $6.55 for a 100% shared-up farmer which is good news for our farmers and their communities,” he said.

In a further signal of confidence in the market outlook for dairy, the Co-operative is forecasting an improved Farmgate Milk Price of $6.50 per kgMS for the 2018 season. The forecast earnings range for the 2018 financial year will be announced around the beginning of August.

“The increase in the forecast Milk Price for the current season and the improved forecast for 2017/18 will be welcome news for our farmers following two challenging seasons on farm,” Mr Wilson said.

“Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down 3% for the season, a much better outcome for our farmers than had been anticipated earlier in the year,” Mr Wilson said.

The last few seasons have been very tough, especially for those new to the industry who didn’t have the good payouts the preceded the downturn.

The increased forecast for the current season and an even better one for the coming season is very welcome.

It will be interesting to see if it has an impact on farm sales.

Some farmers, and some banks, have been holding selling farms until the payout increased in the expectation land prices  will too.


Do the bullies drink milk, eat ice cream?

May 24, 2017

The increasingly strident anti-dairy campaigns are hitting dairy farmers’ children:

Children of dairy farmers are being bullied at school, just because of the work their parents do.

This was revealed by DairyNZ director Ben Allomes, speaking at a dairy farmers’ forum in Manawatu recently.

Allomes says such behaviour is terrible, and it seems the campaign against dairying is being ramped up as the September election draws near.

Dairy farmers are becoming very sensitive to criticism and feel ‘got at’ by the mainstream media, he says.

“When we start hearing more of the negative media stories it impacts more on us and we are more critical of ourselves and more aware of the impact.

“When you read and hear nothing but negative media stories it brings you down and you are more sensitive to it.

“Farmers get out of bed to do their best for their family and the rest of their country but then get cut to pieces. It isn’t pleasant… especially for kids at school being bullied.” . . 

Do the children bullying dairy farmers’ children drink milk, eat cheese, ice cream or yoghurt?

Do the adults who swallow the anti-dairying messages eat dairy products and do they realise how much poorer the country would be and how much less there would be to spend on social services and infrastructure if it wasn’t for the billions of dollars in foreign exchange which dairying earns?

The economic contribution doesn’t excuse poor environmental practices.

But contrary to too much of the media coverage, most farmers are not environmental vandals and are working very hard to ensure are farming sustainably and, especially, that they are looking after water ways.


Brighter books

December 9, 2016

In 2008 when John Key first became Prime Minister and handed his deputy Bill English the role of Finance Minister, Treasury was forecasting a decade of deficits.

Eight years later, ss The PM steps down, the Finance Minister is about to step into his shoes and Economic Development Minister Steven Joyce is poised to take over the finances, the books are looking much brighter:

Treasury’s latest forecasts show the Government’s programme of responsible economic and fiscal management is delivering benefits for New Zealanders, Finance Minister Bill English says.

“Economic growth is expected to average around 3 per cent over the next five years – considerably stronger than forecast in Budget 2016 – supporting more jobs, falling unemployment and higher incomes,” Mr English says.

“The more positive outlook for the economy is driven by high levels of construction activity, exports (particularly tourism), a growing population and low interest rates.”

The 2016 Half Year Economic and Fiscal Update forecasts unemployment to  drop to 4.3 per cent by 2020/21. Over the same period Treasury expects another 150,000 jobs to be created and the average wage to increase by $7,500 to $66,000.

“While the recent Kaikoura earthquakes have had a major impact on affected families and businesses, they are not expected to disrupt the overall momentum of the economy,” Mr English says.

“However, the earthquakes do highlight the importance of paying off debt in the good times so that the Government can support New Zealand communities in challenging times.”

Treasury estimates the total fiscal cost of the earthquakes will be about $2 billion to $3 billion, some of which will be funded by insurance proceeds or existing funds. Net costs of $1 billion have been included in this year’s forecasts. 

The operating balance before gains and losses (OBEGAL) is forecast to be $473 million in surplus this year, rising to $8.5 billion over the forecast period.

The Half Year Update shows net debt peaked as a proportion of GDP in 2015/16 – a year earlier than previously expected – and is expected to fall to 18.8 per cent of GDP by 2020/21.

Mr English says the accompanying Budget Policy Statement confirms the operating allowance will remain at $1.5 billion for each of the next four Budgets.

The capital allowance for Budget 2016 has been increased from $900 million to $3 billion in Budget 2017 and to $2 billion in future Budgets to provide for a number of high quality infrastructure and investment projects.

Contributions to the NZ Super Fund are forecast to restart in 2020/21 once net debt falls below 20 per cent of GDP.

The Half Year Economic and Fiscal Update and Budget Policy Statement can be found here and here.

Summary of Economic and Fiscal Forecasts
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1.8b surplus with dairying in doldrums

October 17, 2016

Finance Minister Bill English presented the Crown accounts for the year to June, showing a surplus of $1.8 billion in 2015/16, up from $414 million in 2014/15.

The Crown accounts show core Crown expenses are under 30 per cent of GDP for the first time since 2006, net debt has stabilised to 24.6 per cent of GDP and net worth has grown to $89.4 billion in 2015/16.

Mr English says the $1.8 billion operating balance before gains and losses (OBEGAL) in 2015/16 – which compared to a forecast of $176 million in Budget 2015 – is a significant turnaround on the $18.4 billion deficit in 2011 following the Global Financial Crisis and Canterbury earthquakes.

“Government surpluses are rising and debt is falling as a percentage of GDP which puts us in a position to be able to make some real choices for New Zealanders,” Mr English says.

“The New Zealand economy has made significant progress over the past eight years. This delivers more jobs and higher incomes for New Zealanders, and also drives a greater tax take to help the Government’s books.”

Core Crown tax revenue was $1.6 billion higher than forecast in Budget 2015.

“We’ve also been getting on top of our spending, exercising fiscal restraint while still investing responsibly in our growing economy and public services.

Core Crown expenses were $73.9 billion in 2015/16, below the forecast of $74.5 billion at the beginning of the year.

“We’ve focussed on results and are starting to address the drivers of dysfunction by investing in better public services. We remain committed to maintaining rising operating surpluses and reducing net debt to around 20 per cent of GDP in 2020.

“If there is any further fiscal headroom, we may have the opportunity to reduce debt faster and as we’ve always said, if economic and fiscal conditions allow, we will begin to reduce income taxes.

“The outlook for the economy is positive, the Government’s books are in good shape and we are addressing our toughest social problems. However, we also need to bear in mind that there are a lot of risks globally and that is why it is important to get our debt levels down. 

“Budget 2017 will make positive long-term choices to strengthen the economy and our communities.” . . 

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Eight years ago, outgoing Finance Minister Michael Cullen was forecasting a decade of deficits and that was before the GFC and earthquakes.

This turn around is the result of careful spending with the focus on its quality rather than quantity; and policies which promote growth.

That the surplus was achieved in a year when one of the country’s biggest export earners, dairying, was in the doldrums and the sheep industry was only marginally better makes it even more of an achievement.

 

 


More money where it matters

October 7, 2016

Good news from Statistics NZ:

Median weekly earnings from paid employment rose $44, to reach $924, between the June 2015 and June 2016 quarters, Statistics New Zealand said today. This increase of 5.0 percent was the largest annual increase since the June 2007 quarter. Paid employment includes both wage and salary earners and self-employed people.

“A rise in the proportion of full-time wage and salary earners, and the number of hours being worked, together pushed up median earnings for workers,” labour and income statistics manager Mark Gordon said. Full-time workers (working 30 or more hours) typically have higher weekly and hourly earnings than people in part-time employment.

Workers living in Auckland, Waikato, Gisborne/Hawke’s Bay, and Canterbury received significantly higher median weekly earnings from paid employment than a year ago. In the North Island as a whole, earnings increased 7.0 percent (up to $944 a week), compared with 2.0 percent (to $880 a week) in the South Island.

“While the increase in weekly earnings is similar to that before the 2008 economic downturn, increases in hourly wages were more modest,” Mr Gordon said. “Median hourly earnings from wages and salaries increased 2.9 percent, similar to increases in the past seven years, but well below the 6.1 percent increase 10 years ago.” 

A 2.9% increase when the CPI has increased only .4% still puts a lot more money where it matters – in workers’ pockets.

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NZ 3rd for growth but . . .

September 16, 2016

Good news on the economic front:

The third highest growth rate in the OECD shows the Government’s management of the economy is delivering more jobs and opportunities for New Zealanders, Finance Minister Bill English says.

Statistics New Zealand reported Gross Domestic Product grew by 0.9 per cent in the three months to 30 June 2016. This took annual growth to 3.6 per cent – putting New Zealand’s growth rate in the top three among developed economies.

“Despite the tough period the dairy industry has been through, we are in the unusual position of enjoying solid growth, rising employment and real wages at the same time as very low inflation.

New Zealand’s annual growth rate of 3.6 per cent is more than double the OECD rate of 1.6 per cent and compares with 3.3 per cent in Australia, 2.2 per cent in the United Kingdom, 1.2 per cent in the United States and 0.8 per cent in Japan.

The result means the New Zealand economy is now worth more than $250 billion for the first time.

Growth in the June quarter was led by construction which grew by 5.1 per cent over the quarter. Residential construction was up 10 per cent over the last year – reinforcing the fact that New Zealand is in the middle of a significant building boom.

Exports of goods increased 7.6 per cent for the quarter, the highest increase in 18 years. 

But there is a but:

“While this result is solid and the outlook is relatively positive, there are many risks around and we cannot afford to take our current economic performance for granted. That is why the Government is continuing to focus on building a stronger, more resilient economy.

The Opposition and the other wailers have plenty of other buts including too many people not benefitting from the growth.

You could look at it that way but a growing economy is not a magic bullet.

New Zealand has entrenched problems of dependency which leads to and/or exacerbates poverty with all its attendant problems.

There are myriad causes for that none of which have easy or fast solutions.

But the opportunities to address not just the problems but the root causes of them are greater with a growing economy.

That New Zealand not only has one but has the third fastest in the OECD in spite of the dairy prices in the doldrums, is very good news.

 

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