Get in behind trade

July 10, 2017

Export New Zealand is challenging all political parties to get in behind trade:

ExportNZ says all political parties should be supporting international trade.

ExportNZ today released a report analysing the benefits to all New Zealanders from freely traded exports and imports. The Benefits of Trade shows that New Zealand’s export sector directly and indirectly accounts for nearly three quarters of a million jobs, and that exports bring in 43 percent of New Zealand’s GDP.

“This is a massive chunk of our economy. Without exports we would literally be a third world economy,” said ExportNZ Executive Director Catherine Beard.

“New Zealand exporters – manufacturers, primary producers and technology and services exporters – earn the foreign exchange that pays for all the good things we enjoy. Without a vibrant export sector, we would not be able to afford the infrastructure, health, education and welfare services that are the mark of a first world nation.

Exports enable us to pay our way in the world.

We can’t afford imports unless we successfully export.

It’s not just luxury goods but basic requirements for first world living standards including health supplies, machinery and the food we can’t grow ourselves that we need to buy from other countries.

The money to buy those goods come from our exports and the freer we are to trade the better off we all are.

“We have a brilliant export sector keeping our economy afloat, and we should all be supporting it.”

Catherine Beard said with the approach of the 2017 Election, it was important to hear from all political parties on how they would support trade and free trade agreements with other nations.

“It’s time for all political parties that want a higher standard of living for Kiwis to get in behind New Zealand being a participant in high quality free trade agreements wherever in the world we can get them.

Catherine Beard says in a world of increasing protectionism it is important for all political parties to be united behind an ambitious free trade agenda, because the benefits to New Zealand are overwhelmingly positive.

“The data indicates that in a world where free trade was the norm, New Zealand’s GDP would be $18 billion higher, with an additional 62,000 jobs.”

Key points on the benefit of trade:

 The tradable sector directly and indirectly accounts for $85 billion (43%) of New Zealand’s real
GDP and almost three-quarters of a million jobs.
 Trade helps Kiwi households buy higher quantities of goods and services with their wages, and
lets them access a wider variety of products.
 The gains to New Zealand households from improved product choice from trade alone come
to $3.9 billion, or around $2,300 per household, based on estimates from the literature.
 One US study estimates that trade contributes about 30% of an average US household’s
purchasing power. In New Zealand this share would be far higher, given how trade-reliant we
are compared to the US.
 When tariffs were removed in the late 1980s in New Zealand, import prices dropped sharply,
boosting Kiwi households’ purchasing power by 2%.
 Further multilateral trade liberalisation would deliver huge benefits to New Zealand: the OECD
estimates that New Zealand’s real GDP would increase by $18 billion over the long run if G20
tariffs and non-tariff barriers were halved. This scenario would also create over 42,000 skilled
jobs and 20,000 low-skilled jobs.
 ‘Trade policy’ is now about much more than reducing border tariffs on trade in goods:
services, investment, global value chains, non-tariff measures, people movements and the
flow of technology are hugely important.
 Global services trade liberalisation has been estimated to potentially lift New Zealand’s per
capita GDP by over $1,000 by 2020.
 A comprehensive Trade Facilitation Agreement which reduces red tape associated with trade
could reduce trade costs by 14.5% globally and boost global GDP by between US$345 billion
and US$555 billion per year.
 The reduction of non-tariff measures could deliver significant gains for New Zealand. The cost
to New Zealand exporters of these measures in the APEC region has been estimated at $8.4
billion.
 Around 70% of the economic benefits accruing to New Zealand from the TPP are estimated to
come from a reduction in non-tariff barriers.
 There are some valid concerns about how the benefits from globalisation are shared, but its
positive impacts are undeniable: the World Bank states “The number of people living in
extreme poverty around the world has fallen by around one billion since 1990. Without the
growing participation of developing countries in international trade, and sustained efforts to
lower barriers to the integration of markets, it is hard to see how this reduction could have
been achieved”.
 Addressing New Zealanders’ concerns about globalisation and the future of regional economic
integration in will require more detailed research into the benefits and trade-offs involved in
‘new’ trade issues, and continued reminders about the costs to households of more
isolationist policy settings.

Anyone old enough to remember what life was like in New Zealand before the trade liberalisation of the 1980s and 90s won’t want to go back there.

Domestic goods were usually more expensive and of inferior quality to imports.

Imported goods were in short supply and usually had inflated prices owing to tariffs.

People didn’t travel as easily or often as they do now and when they did they returned laden down with goods which were not available or far more expensive here.

Any policies which limit trading opportunities for exporters or hamper the ready access to imports will hurt us all, and the people who will be hardest hit will be the poor.

With freer trade we all benefit and can even sell avocados to Mexico.


No use imposing pain for no gain

June 7, 2017

Why isn’t farming included in the emissions trading scheme?

Climate Change Minister Paula Bennett nails the answer:

Let me take this opportunity to clearly state the Government’s position: until there is an economically viable way of reducing agricultural emissions through technological advances or otherwise, I will not be bringing agriculture into the Emissions Trading Scheme.

In a Parliamentary debate on the recent Globe New Zealand report into climate change, Labour’s David Parker said “If we are elected, agriculture will be coming into ETS very fast. We have always said it should”.
Here’s my response to Parker.
We fully support our farmers here in NZ.
There is absolutely no point in cutting them off at the knees because more inefficient farmers across the world would pick up the slack and leave us worse off overall.
The greenhouse gas footprint from dairy here is less than half the global average.
We are a nation of four million feeding 40m – the world needs what our farmers produce
.

Imposing the ETS on farming now would cause financial pain to farmers and the country.

If there was an environmental gain that cost might be justified but it can’t be when less efficient producers elsewhere would step in to the gap left by lower production in New Zealand.

We should be backing our NZ farmers.
The actions farmers are already taking to improve water quality and reduce nitrogen fertiliser costs have climate change co-benefits.
Farms that are improving efficiency and productivity are also reducing emissions intensity.
Over the past 25 years farmers have improved the emissions efficiency of production by about 1% a year.
Without these gains, agricultural emissions would have increased by 40% to produce the same amount of product, rather than the current 15% increase in emissions.
We need to make sure actions to achieve these efficiency gains become standard practice and that we strive for further improvements that have both on farm economic and climate benefits.
A thriving and productive agricultural sector is pivotal to the health of NZ’s economy and farmers are natural environmentalists.
We’ll be working in partnership with farmers, not against them, to make the changes we need to make to reach our ambitious Paris Agreement emissions reduction target.
We continue to put about $20m a year into agricultural greenhouse gas mitigation and adaptation research.
It includes improving our national forestry and agriculture greenhouse gas inventory and reporting, understanding and adapting to the impacts of climate change, research on reducing methane and nitrous oxide and how soil can be used to store carbon.
The Primary Growth Partnership and the Agricultural Greenhouse Gas Research Centre are examples of government industry partnerships to find new technologies and production systems that will make farming more productive and sustainable.
Fonterra has formed a 10-year, $20m partnership programme with the Department of Conservation to reduce predators and improve habitats and water quality.
This project looks at how sustainable dairying can be part of healthy, functioning ecosystems, highlighting the important two-way relationship between environmental health and economic prosperity.
NZ is working with other countries on many projects related to agriculture and recently signed an agreement with China to share technical expertise on carbon trading and agricultural greenhouse gas mitigation.
The Government continues to fund forestry schemes which provide additional income from marginal land, help improve water quality and act as a carbon sink.
We provide start-up support for community irrigation schemes which must meet regional environmental requirements.
NZ has a great opportunity to demonstrate that we have that integrity and to market ourselves as a really superb grower of premium food.
I have never met a farmer who didn’t want to leave the environment in a better state than they found it, for future generations.
We all need to work together to embed and accelerate good management practice and connect better with our consumers, both here and overseas.
A thriving and productive agricultural sector is pivotal to the health of NZ’s economy and farmers are natural environmentalists.

Quite.

Farmers might be a small minority in New Zealand now but farming still makes a large contribution to the economy.

Contrary to the anti-farming rhetoric most farmers are also doing everything they can to repair the environmental damage for poor practices in the past and ensure their current practices leave as small an environmental footprint as possible.


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.

 

 


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