First they came for the landlords

26/03/2021

Business NZ asks: will my sector be next?

BusinessNZ has warned a removal of tax deductibility on interest payments for residential property has other sectors worried whether they will be targeted, likening it to the uncertainty created by the 2018 oil and gas ban.

Kirk Hope, chief executive of the influential lobby group, also accused the Government of being “misleading” in the way it is describing the issue as a “loophole”, because in all other sectors of the economy business expenses are tax deductible.

Defenders of this policy change have tried to justify it by saying home owners don’t get a deduction for the interest they pay.

There’s a reason for that, they aren’t businesses and that difference applies across the board.

It’s just like farms or racing stables being able to claim vet bills as legitimate business expenses but no-one can claim a deduction for vet bills for their pets.

Hope said the move had clear and significant implications for property investors, but now people were left wondering whether it affected other parts of the economy and was likely to see investment decisions paused.

“They’ve removed deductibility [of interest payments] from this group of people. Would that happen for a different sector for a different purpose, in terms of businesses being able to deduct particular types of businesses expenses? 

Now the government has opened the door, what else might they shove through it?

“There are certainly going to be some people thinking about how they make investments, and it will have a stalling effect; there’s no doubt about it,” Hope said.

“The last thing we need right now is probably a stalling in business investment because of a decision made around housing.”

Investors would be worried about whether deductibility more generally was being targeted by the Government, given the lack of signalling on the issue.

“If there are other areas they really need to be upfront about that. There’s no doubt they should have signalled it in advance. It’s a really substantial change.”. . 

It’s a change to tax policy, it’s not as the government claims, closing a loophole.

Tax expert Robin Oliver, a former deputy commissioner at the IRD, described the Government’s move on interest payments by landlords as “out there”.

Oliver, who sat on the Government’s tax working group in the last term said he could not think of an example of a sector being unable to deduct an expense which was available to all other sectors of the economy.

It would amount to “a massive tax penalty on renting out property,” he said.

“You’re taxed on income that you don’t actually have, because your profit is your income minus your expenses, but they just ignore the expenses part,” Oliver said.

“You could have almost no profit, maybe a loss, but you still have to fork out thousands of dollars to the IRD. It’s not an income tax, it’s just a penalty.” . . 

It’s a penalty that will push up rents, hitting the poor the hardest and making it harder still for renters to save for a deposit to buy their own homes.

Bryce Wilkinson explains why the policy is shambolic:

Suppose you have an apple orchard. You hire labour to pick and pack your apples. You sell each box of apples for $40. You deduct labour costs of $30 and earn a profit of $10. After paying tax at 33 cents in the dollar, you have $6.70 per box to live on.

Now the Government announces that it is rushing legislation through Parliament to remove what it calls the wage deductibility tax “loophole”. After this Friday, anyone buying your business will pay tax at 33 cents on the dollar on the $40 per box revenue.

This raises the “income tax” on the business from $3.30 to $13.20. Costs now exceed revenue by $3.20 a box. You no longer have a buyer for your business. Worse, in four years, you will be in the same tax situation. Your business will be bust. Your workers will have to find other work or go on welfare. Your former customers will have to do without apples.

The government is pleased you are gone. Orchardists are speculators; they are hoping that the market value of their business will rise. Speculation is bad. Speculators should be driven from the apple market.

Does this sound far-fetched? Not if you are a landlord. This week the Government closed the “interest deductibility loophole” in rental housing for new investors, effective from this Saturday. For existing investors, it is being closed over four years. The Government explained that it wants to remove incentives for speculators, equating them with investors. . . 

He lists what’s wrong with the policy:

First, an income tax should tax income (ie profits), not revenue. Income is what is left of revenue after all business-related expenses have been paid. The apple orchard case illustrates why it is wrong to tax revenue. If there is little or no after-tax profit, there is no business.

In the extreme, if landlords cannot make an after-tax profit, there will be no houses to rent. Those who cannot afford to buy a house are at the mercy of the only remaining landlord – the government. Former East Germans have experienced that situation. . . 

Second, how can it be that landlords are speculators, but owner-occupiers are not? How many recent home buyers paying high prices have not been expecting prices to go even higher? Why discriminate against rental accommodation?

Third, the tax system was already seriously biased against the supply of private rental housing. Owner-occupiers do not pay any tax on the income they receive in the form of forgone rental payments. . . 

Fourth, speculation is a symptom, not a cause. The Reserve Bank has lowered interest rates and flooded the banking system with liquidity to an unprecedented degree. It has jawboned the banks to lend more freely since Covid-19. These actions must have boosted house prices. Imprudent borrowing is the only game in town, with the Government leading by example. . . 

Perhaps the worst aspect is the signal that the Government cares so little for sound income tax principles or prior public debate or scrutiny. If interest deductibility can be wilfully declared a tax loophole, what category of business expense is not a tax loophole?

This tax change will do nothing at all to address the cause of the housing crisis – a shortage of supply that has several causes, not lest of which is the long, slow and expensive consenting process which didn’t even get a mention in this week’s announcements.

It will also worry other businesses. Now the government has made landlords a special class by preventing them deducting interest costs from their income as all other businesses do, there’s very real fears over what other legitimate costs they might declare loopholes.

There is no good time for this sort of anti-investment tax policy and doing it when the country is in recession makes it worse.


Business confidence tanks

29/09/2020

Business confidence has plummeted:

The New Zealand Herald’s  2020 Election Survey has been released with top business leaders saying New Zealand’s Covid-19 recovery is in peril – and they want a decisive role with Government in the country’s future.

The annual boardroom barometer of 165 CEOs and high-profile directors has business confidence at the lowest it’s ever been in the survey’s 19-year history.

When asked to rate their level of optimism in the New Zealand economy the CEOs surveyed collectively scored it a 1.36 out of 5.

These are bigger businesses and predominantly urban.

I doubt if farmers are any more confident given the fear and uncertainty around added costs and complexities that are being imposed on primary production.

Westpac CEO David McLean says the future has never been so uncertain, but that means that the need for crisp and clear policies and plans has never been greater.

“We need to see pathways mapped, not just for how to escape from the current Covid-19 crisis, but to take us toward a better future by addressing some of the big challenges we face beyond Covid-19, such as increasing our productivity and tackling climate change,” said McLean.

Many, like Mainfreight’s Don Braid, question Prime Minister Jacinda Ardern’s heavy reliance on Government bureaucrats for advice and execution and her apparent unwillingness to listen to the private sector for ideas.

“There are many willing to devote time, energy and ideas in areas that allow New Zealand to find the right environment to operate in a post-lockdown economy,” said Braid.

The New Zealand Herald’s Mood of the Boardroom 2020 Election Year survey, taken in association with BusinessNZ, provides an in-depth assessment of CEO opinion at what is the most concerning time in the survey’s long history.

“It’s heartening that a record number of CEOs took part in the 2020 survey against a background of the Covid-19 pandemic. Optimism may be at the lowest levels seen in the survey’s history, but the CEOs’ responses demonstrated their own commitment to turning the economy around,” said says Mood of the Boardroom executive editor and NZ Herald’s Head of Business Content, Fran O’Sullivan.

With the General Election just weeks away business leaders are looking for more from both Labour and National.

Deloitte CEO Thomas Pippos points to tax policy being a key issue.

“Though Labour’s proposal to increase the highest personal tax rate doesn’t impact on the majority, National has upped the ante by helicoptering in temporary tax relief across the board to stimulate economic growth. Tax therefore promises to be a very complicated and emotive topic, that will either be centre stage this election or not far from it,’’ says Pippos.

BusinessNZ CEO Kirk Hope said Labour’s economic policy response to Covid has underpinned the economy in a challenging time.

“However, the long-term plans are less well understood. They will need to do a hard sell. National’s plans are slightly more pro-business. But both parties need to talk about how quantitative easing enables them to maximise a reduction in borrowing costs to help grow the economy.” . . 

You can read more about the Mood From the Boardroom at the NZ Herald here.

Confidence isn’t helped by the fact that Labour hasn’t released its fiscal plan:

The New Zealand Taxpayers’ Union is calling on the Labour Party to immediately release their fiscal plan, so it can be subjected to the same scrutiny as the National Party’s fiscal plan.

Union spokesperson Louis Houlbrooke said: “The National plan was found to have a few holes after analysis by Labour and independent economists. The Nats admitted to one $4 billion mistake but denied another. It is healthy that major spending plans are put under intense investigation before an election.”

“That is why the Taxpayers’ Union is calling on Prime Minister Jacinda Ardern to immediately release Labour’s own fiscal plan. She has told the nation that her numbers ‘stack up’. That clearly means their plan is finished, fact checked, and ready to go. There is no need to wait for a September Treasury data release to unveil the plan – the Pre-Election Economic and Fiscal Update (PREFU) was reported a little over a week ago. All the fiscal data is there.”

“Let people like Paul Goldsmith, David Seymour, Cameron Bagrie, and your humble Taxpayers’ Union check that Labour’s numbers really do stack up. Then, taxpayers can make an informed choice about who should manage our economy in a post-COVID recession.”

It’s not just a fiscal plan that hasn’t been released, Labour keeps telling us it has a plan for recovery but has given scant details.

Uncertainty is one of the bigger drags on business confidence.

That matters because businesses that lack confidence at best don’t invest and don’t hire more staff, at worst they retrench and make staff redundant.

That so much about Covid-19 and how it will impact the country and the world is uncertain, and to a large degree uncontrollable, makes it even more important that politicians are upfront about their plans and what they can control.


$5b extra cost with CGT

07/04/2019

BusinessNZ has worked out the proposed capital gains tax would impose an extra $5 billion on the economy :

BusinessNZ has released an analysis of additional costs to the economy that would accompany the direct costs of New Zealand’s proposed capital gains tax.

It shows compliance costs of $1.6 billion, administrative costs of $210 million and deadweight costs of $1.5 – $4.2 billion, over five years.-

BusinessNZ Chief Executive Kirk Hope said the Tax Working Group’s report did not include compliance, administrative or deadweight costs, and these needed to be made explicit to enable public debate about costs before the Government made its decision on a capital gains tax.

Goodness me, how surprising.  The people proposing a tax based on an ideological view of fairness didn’t include the costs.

Compliance costs include Valuation Day requirements for all business assets to gain a valuation to enable the imposition of the capital gains tax.

Administrative costs are IRD’s costs of collecting the tax.

Deadweight costs are the costs of reduced economic output resulting from changes in supply and demand caused by the imposition of a tax. . . 

Those who want the tax keep repeating the same theoretical argument about fairness.

Those opposing it keep finding real, practical reasons why it isn’t fair, will add costs and sabotage the economy.

There’s more on this at BusinessNZ


A plot so cunning . .

01/02/2019

The play opens in a private room with a well stocked bar.

Simon raising a glass: Well done Jim, your report‘s upset every employer group and business organisation in the country.

Jim: Thank you. (takes a sip of whiskey) You don’t think I’ve overdone it?

Paula: No, not at all. It’s just what we need – recommendations so ridiculously pro-union and anti-employer and worker, even the really left-wing media will have to admit it would be madness to follow them.

Just look at the media releases.

The EMA says  Fair Pay Agreements make no economic sense, the Canterbury Employers Chamber of Commerce says they’re not fit for the future of work, and BusinessNZ says the compulsory nature of fair pay agreements and the risk of industrial action and productivity loss are key concerns.

Amy: You sounded really convincing, as if you believed what you were saying. And it’s so cleverly designed to handicap growth, hamstring productivity and act as a hand brake on innovation that it can’t possibly be actioned.

Simon: I was only a kid but I remember Mum and Dad talking about how the unions used to wield all the power, hold businesses to ransom, and how hard it was when workers were forced to strike ran out of money to feed themselves and their families.

Paula: We’ll have to be careful about that because a lot of people would have been too young to really remember what it was like, they might think we’re just scaremongering.

Amy: Even farmers who hadn’t been born in the 60, 70s and early 80s know the stories of how hard it was when the freezing workers kept striking so they couldn’t get stock killed, even when they were running out of feed and facing very real animal welfare issues.

Paula:  Good point. And of course the threat of all those Christmas flights being cancelled gave younger people a taste of what could happen and reminded older ones what used to happen – ferries dock-bound every school holidays because the wharfies or cooks and stewards were on strike.

Simon: Those so-called failed policies you introduced have sure saved workers and businesses big and small a lot of heart ache, Jim. Our productivity over the last few decades hasn’t been anything to celebrate but think how much worse it would have been with national awards, compulsory unionism and all the trouble that went with them.

Jim: takes another sip of his whiskey,  swallows, Yeah, I guess that’s why I’m worried about the report. People are going to think I’ve gone gaga recommending we go back to those bad old days.

Simon: Ah well, we all make sacrifices for the good of the party, Jim. You know how much we appreciate the ammunition you’ve given us, and of course we know there’s no risk of anything too serious going through because your friend W-

A knock on the door sounds. Paula opens the door and tales a note from a secretary.

Paula: It’s for you Jim. She hands it to him.

Jim:  takes another sip of whiskey, smiles. Ah yes, speak of the devil, Winston has just phoned, he wants me to call him.


Micro matters not minor matters

11/09/2018

BusinessNZ says the Employment Relations Amendment Bill is harmful and oppressive:

None of the provisions that most concern business have been removed by the select committee considering the Bill. . .

55% of submissions were against the Bill and thousands of emails sent to Parliamentarians by concerned businesses. EMA, Business Central, the Canterbury Employers’ Chamber of Commerce and Otago Southland Employers’ Association ran a high-profile campaign asking the Government to explain the reasoning for the Bill’s harmful provisions.

“Given current low levels of business confidence, especially among small business, it is unfortunate that the Government has neither listened nor explained its justification for the Bill.

Low business confidence is not political pique. It’s based on genuine concern about policy like this which will make it more difficult, and expensive, to run a business.

“Business cannot support this Bill and will be making our position clear as this Bill progresses through Parliament.

“BusinessNZ is also considering pursuing a claim to the International Labour Organisation or International Court of Justice on parts of the Bill which are contrary to international law.

“Business strongly objects to this Bill’s ability to harm employment relations, jobs and commercial value in New Zealand enterprises.”

The EMA is bitterly disappointed no heed was paid to concerns raised:

The EMA, along with its fellow regional associations, actively lobbied and campaigned for four key areas to be modified as it believed these will not deliver to the Government’s stated aims of a high wage and high performing economy, nor help businesses to be more productive. The joint Fix The Bill campaign resulted in at least 2254 emails being sent to Government MPs seeking clarification on how the changes will help their business succeed.

The four aspects of the Bill that were particularly worrying for business were:

– Employers with 20 employees or more will lose the right to include 90-day-trial periods in employment agreements. However, findings from a nationwide survey of employers found that the 90-day trial periods were useful for businesses of all sizes, to give prospective employees a chance.

A trial period is not just good for employers, it’s good for other employees. If a new worker isn’t up to scratch it impacts badly on workmates.

– Businesses will be forced to settle collective agreements, even if they don’t or can’t agree

And even if they can’t afford them.

– Allowing union representatives access to workplaces without permission

Any access, any time is not conducive to productivity.

– Not allowing businesses a choice to opt out of a multi-employer collective agreement (MECA)

This will not only means saddle businesses with agreements they can’t afford, it will stop a business offering staff better pay and conditions.

With more than 50% of New Zealand businesses employing fewer than 100 staff, the EMA is deeply worried the changes in the Bill combined with the raft of other legislation in the pipeline will unduly burden smaller operators.

Furthermore, despite rhetoric from Government that it is listening to business, this is a tangible example that ideology rather than solid public policy driving decisions and does not bode well for business going forward.

Throughout this process the EMA has been puzzled by how any of the proposed changes to the industrial relations framework will take the country forward in terms of the Government’s goal of developing a modern, nimble and high performing economy.

Taking industrial relations back to the 1970s will not take the country forward and it will harm rather than help the economy.

Steven Joyce writes:*

. . .Economic policy is in fact a three-legged stool, fiscal policy, monetary policy, and microeconomic policy. You can’t successfully operate an economy, especially a small one like New Zealand, without all three working together.

Microeconomics is everything that operates at the firm level in the economy – all the regulations and policy settings that impact directly on businesses. These are things like employment law, immigration settings, competition law, resource allocation, innovation settings, tax policy and the government’s investment in infrastructure.

It is microeconomics that drives much of firms’ actual operating conditions. Along with interest rates and exchanges rates, it is access to capital, skilled people, resources, markets, the necessary infrastructure and importantly the consistency of those settings, that tell the owners of businesses that it is a good time to invest and grow their business.

If you start playing with those settings in an arbitrary way while ignoring the economic consequences of those changes, then firms will simply stop investing. They’ll either wait until there is more certainty, or not invest at all. . .

Microeconomic matters, including employment relations legislation, are not minor matters.

They have a huge influence on the business environment and economy.

Any changes which add to the complexities and risk of employing people will have the opposite affect from the government’s stated aim of developing a modern, nimble and high performing economy.

But this legislation shows that this aim comes a very poor second to Labour’s need to pay back unions for their financial and personal support.

The legislation will be good for unions but not the whose interests they purport to represent nor for the businesses which employ them.

* Hat tip: Kiwiblog


Unprepared, ill prepared

08/06/2018

The ODT opines, there’s been a lack of progress from the government:

The Government seems intent on digging itself into a hole from which there may be no escape.

After nine years in Opposition, there were expectations change would happen quickly once New Zealand First went with Labour to form a coalition government, with support from the Greens.

However, that has not been the case. More than 100 working parties or inquiries have been established, some of them at least reporting back by the end of the year.

The latest one involves ‘‘fair pay agreements’’, seemingly code for collective bargaining agreements, to set industry standards.

Although the Government appears keen to talk to everyone possible about changes it wants to make, it seems Energy and Resources Minister Megan Woods did not bother to consult her colleagues when it came to deciding to stop offshore oil and gas permits being allocated in New Zealand.

When the papers were finally released this week, it was discovered the Government was warned its plans for future oil and gas exploration could have a chilling effect on investment.

The papers said if the supply of natural gas was restricted, the likely price rise for consumers posed a significant risk to the security of energy supply and could have a detrimental impact on some regional economies.

Wasting multi-millions on working groups then failing to consult on a policy with such significant ramifications as this is the sign of a government both unprepared and ill-prepared.

The Government is hamstringing itself. There is a chance, and a real one, the Government will achieve nothing before the 2020 election if it does not start making progress on some key policies.

The only policy it has made real progress on is fee-free education for tertiary students, most of whom don’t need it and which hasn’t resulted in an increase in students.

Even KiwiBuild seems out of reach for Housing Minister Phil Twyford. Branding private housing developments as KiwiBuild will not solve the problem of building 10,000 houses a year. Within a few months, the Government will have been in office for 12 months. Recriminations which are bubbling under the surface now will become fully-fledged attacks on the core competency of ministers who should have hit the ground running when it became their time to serve.

Prime Minister Jacinda Ardern can only hold the coalition together for so long if progress is not being made.

Planting one billion trees has not yet started, social policy is edging its way into the system, and the so-called housing crisis is not being addressed by Labour, which christened it such.

It is unrealistic to expect the Government to implement all its policies in the first 12 months, but some progress should be measurable by now. . .

What is measurable is a lack of business confidence, which is worsened by the prospect of a return to collective bargaining.

Employers say the fair pay agreements are a major cause of concern. BusinessNZ is part of the working group announced on Tuesday but employers say they are not supportive of a national award-type employment regime in New Zealand.

Under the proposal, employers and workers cannot negotiate their own conditions — unless they are above the fair pay rates. Although workers cannot strike for a fair pay agreement, they can strike to get their own rates above the fair pay agreement rate.

This is a return to the days of multi-employment contract agreements (Meca) which broke out separate pay agreements for workers living in high-cost areas, such as Auckland and Wellington.

This is a recipe for job insecurity, an increase in unemployment and business failure.

The craziness of continually forming working parties smacks of a Government ill-prepared to govern. Until Ms Ardern stepped into the position of leader, it did look as though National would win a fourth term. Perhaps Labour MPs had given up on the treasury benches and were going through the motions.

There’s no perhaps about that – they had and they were.

There have been missteps from some ministers, something not good enough from three-term MPs. The at-fault MPs are surely surviving because there is no-one with experience to replace them.

Labour, the major party of the coalition, needs to stop thinking about solutions and start enacting policies. Otherwise, a second term is starting to look out of reach.

Just eight months into government is very early to be talking about it being a one-termer.

But Labour, which spent most of its nine years in opposition wallowing directionless with most of its energy going on undermining its leaders, is unprepared and ill-prepared for government and it shows.

The fee-free policy is Labour’s, the other ones in which there has been any progress are New Zealand First’s money for good looking horses and the regional slush fund which Shane Jones admits is politically biased.

Shane Jones’ admission this morning that his Provincial Growth Fund is a political tool is backed up by new figures released this morning revealing Northland as the main recipient of taxpayers’ money, National’s Regional Economic Development spokesperson Paul Goldsmith says.

“The Provincial Growth Fund should really be renamed the Political Survival Fund after more than half the funding announced so far has gone to one region – one with less than 10 per cent of regional New Zealand’s population.

“MBIE information shows Northland has sought $54.6 million from the fund so far. Applications from all the other regions combined amounted to $240 million.

“Yet Northland projects have received funding up to $61 million – even more than they’ve asked for. While the rest of the regions have had to make do with $42.4 million combined, plus a $7.5 million grant to the Howard League covering the whole country, including Northland. . .

Northland’s got more than it asked for and the whole of the rest of the country has had to share two-thirds of that amount.

Yet even Northland hasn’t got what it really needs – a better road to and from the rest of the country.

Northlanders will be scratching their heads, wondering why some groups are getting all this attention, while the single most important investment for their region – the double lane highway from Wellsford to Whangarei has been scrapped in favour of Auckland’s light rail.

“Shanes Jones is being allowed to use public money for a thinly veiled political slush fund – but on the really big issues, such as advancing oil and gas production, there is no question that New Zealand First’s ‘provincial champion’ label is nothing more than wishful thinking.”

We need a government that’s prepared to govern for the whole country, not one whose major party is so ill-prepared it is mired in the quicksand of working groups and lets its minor partner get away with pork barrelling.


Rural round-up

16/08/2017

Paying for water should be a consistent policy:

A consistent policy on water for everyone is required, says BusinessNZ.

An ad hoc policy on water charging would be prone to political manipulation, with regions, councils and businesses all lobbying for favourable royalty regimes, BusinessNZ Chief Executive Kirk Hope said.

“Business needs an agreed, consistent water policy that applies to all water users and where rights to use water are tradable, fairly apportioned and can be known in advance.

“It would not be helpful for business to have to operate and make investment decisions in an environment where the cost of water is determined on an ad hoc, changing basis. . . 

Unwanted, Unknown, Unnecessary – Labour’s New Water Tax on Auckland’s Rural Northwest:

The water tax recently proposed by Labour would deliver a sharp blow to the economy of Auckland’s rural northwest, says National’s candidate for Helensville, Chris Penk.

“It’s unwanted because farmers, horticulturalists and viticulturists provide a significant number of jobs in the region … and slapping them with a water tax would completely undermine this growth. And the inevitable price rises for consumers would hardly be welcome either.”

“It’s unknown because Labour aren’t saying what they’d actually charge. There’s almost no detail associated with the threatened tax, even on such key aspects as how much it’d be and where the money would go.” . . 

The realities of Mycoplasma bovis – Keith Woodford:

The recent outbreak of Mycoplasma bovis in South Canterbury has come as a shock to all dairy farmers. It is a disease that most New Zealand farmers had never heard of.

Regardless of whether or not the current outbreak can be contained, and the disease then eradicated, the ongoing risks from Mycoplasma bovis are going to have a big effect on the New Zealand dairy industry.

If the disease is contained and eradicated, then the industry and governmental authorities will need to work out better systems to prevent re-entry from overseas. And if the disease is not eradicated, then every farmer will have to implement new on-farm management strategies to minimise the effects. . . 

Slowing supply growth to impact NZ dairy supply chain – new industry report:

New Zealand dairy processors will struggle to fill existing and planned capacity in coming years as milk supply growth slows, leading to more cautious investment in capacity over the next five years, according to a new report from Rabobank.

The report Survive or Thrive – the Future of New Zealand Dairy 2017-2022 explains that capital expenditure in new processing assets stepped up between 2013 and 2015, but capacity construction has run ahead of recent milk supply growth and appears to factor in stronger milk supply growth than what Rabobank anticipates.

Rabobank dairy analyst Emma Higgins says milk supply has stumbled over the past couple of production seasons and, while the 2017/18 season is likely to bring a spike in milk production of two to three per cent, Rabobank expects the brakes to be applied and milk production growth to slow to or below two per cent for the following four years. . . 

Synlait Milk says US approval for ‘grass-fed’ infant formula will take longer –  Tina Morrison:

(BusinessDesk) – Synlait Milk, the NZX-listed milk processor, said regulatory approval for its ‘grass-fed’ infant formula in the US is taking longer than expected.

Rakaia-based Synlait is seeking approval from the US Food and Drug Administration for its ‘grass-fed’ infant formula to be sold in the world’s largest economy ahead of a launch of the product with US partner Munchkin Inc. The companies said in a statement today that the FDA process, which had been expected to be completed this year, is now expected to take a further four to 12 months. The stringent process, known as a New Infant Formula Notification (NIFN), includes a range of trials, audits and documentation. . . 

New Zealand’s beef cattle herd continues to grow:

Beef + Lamb New Zealand says that during the past year, New Zealand’s beef cattle herd increased by 2.8 per cent – to 3.6 million head – while the decline in the sheep flock slowed sharply as sheep numbers recovered in key regions after drought and other challenges.

The annual stock number survey conducted by Beef + Lamb New Zealand’s (B+LNZ) Economic Service highlights the continued growth in beef production, as farmers move towards livestock that are less labour-intensive and currently more profitable. . . 

Grad vets encouraged to apply for funding:

Associate Minister for Primary Industries Louise Upston is encouraging graduate vets working in rural areas to apply for funding through the Vet Bonding Scheme.

Since the Scheme was launched in 2009, 227 graduates vets have helped address the ongoing shortages of vets working with production animals in rural areas of New Zealand.

“The 2014 People Powered report told us that by 2025, we need 33,300 more workers with qualifications providing support services, such as veterinary services, to the primary industries,” says Ms Upston. . . .

Production and profit gains catalyst for joining programme:

The opportunity to look at their farm system and strive to make production and profit gains was what spurred Alfredton farmers, James and Kate McKay, to become involved in the Red Meat Profit Partnership (RMPP).

RMPP is a seven year Primary Growth Partnership programme aimed at driving sustainable productivity improvements in the sheep and beef sector to deliver higher on-farm profitability.

Encouraged by their ANZCO livestock rep, Ed Wallace, James and Kate joined the programme in 2015 and have had the opportunity to look at some key aspects of their farming system. This has included sitting down with local BakerAg consultant, Richmond Beetham, who has helped the McKays look at their ultimate goal of mating a 50kg hogget. Increasing weaning weights and looking to diversify their forages has also been a goal for the McKays. . . 

Fonterra Dairy Duo Claim Awards at Top International Cheese Show:

Two Fonterra NZMP cheeses have scooped silver awards at the prestigious international Cheese Awards held recently at Nantwich, UK.

One of the most important events in the global cheese calendar, the International Cheese Awards attracted a record 5,685 entries in categories that ranged from traditional farmhouse to speciality Scandinavian. Cheeses from the smallest boutiques to the largest cheese brands in the world vied for top honours in the Awards, now in their 120th year of competition. . . 

Dairy farmers spend over $1b on the environment:

Federated Farmers and DairyNZ have conducted a survey on New Zealand dairy farmers’ environmental investments, revealing an estimated spend of over $1billion over the past five years.

Five percent of the nation’s dairy farmers responded to the survey and reported on the environmental initiatives they had invested in such as effluent management, stock exclusion, riparian planting, upgrading systems and investing in technology, retiring land and developing wetlands. 

“It is encouraging to see the significant investments farmers are putting into protecting and improving the environment,” says Andrew Hoggard, Federated Farmers Dairy Chair. . . 

Criticism of farming gas emissions tells only half the story  – Paul Studholme:

It is imperative that political decisions on reacting to climate change are based on science, writes Waimate farmer Paul Studholme.

I write because of frustration with the sweeping generalisations and half-truths critical of the farming industry in this country that are presented by the mainstream media and environmental groups as facts.

One in particular, repeated frequently, is this: Farming produces more than half the greenhouse gases in New Zealand. This is only telling half the story or one side of the equation.

What is referred to here are the gases methane and carbon dioxide emitted by cattle and sheep. This is part of the carbon cycle. . .


Rural round-up

19/08/2015

Dairy price correction a confidence boost – BusinessNZ:

The uptick in dairy prices at the latest auction should put some confidence back into the economy that should never have been lacking anyway, says BusinessNZ chief executive Phil O’Reilly.

Prices at the latest GlobalDairyTrade rose an average of 14.8 percent, with the all-important whole milk category rising by more than 19 percent, ending a five-month run of 10 consecutive falls.

“It’s been a long time coming, but I guess we’ve got to remain cautious,” says Federated Farmers spokesman Andrew Hoggard. . . 

Auction result welcome but industry needs to remain vigilant:

Federated Farmers has welcomed the outcome of this morning’s GlobalDairyTrade auction, but says those in the dairy industry need to remain vigilant.

Dairy Industry Chair Andrew Hoggard says “The outcome of this morning’s auction suggests there might be light at the end of the tunnel, but what the industry needs is for this to continue and hold.” . . .

Fonterra calls for a halt to having to accept all milk and supply other large entrants –  Fiona Rotherham:

(BusinessDesk) – Fonterra Cooperative Group, the world’s largest dairy exporter, said it should no longer be required to accept all milk from new suppliers or to have to make milk available to large processors, apart from Goodman Fielder.

In submissions to the Commerce Commission, which is undertaking a government-ordered review of the industry’s competitiveness, rival processors have said they either want the status quo or the regulations tightened.

Fonterra said it recognises part of the Dairy Industry Restructuring Act (DIRA) continues to benefit the dairy industry and New Zealand but some parts are no longer “necessary or efficient” given significant industry changes since 2001, particularly the continuing entry of well-resourced competitors. . . 

Fonterra’s submission is here.

Auditor General to examine Saudi farm deal:

The controversial deal that saw $11.5 million of taxpayer money on a Saudi farm is to be examined by the Auditor-General.

Lyn Provost has announced she will carry out an inquiry into the expenditure of public money on the Saudi Arabia Food Security Partnership.

Mrs Provost received several requests, including from members of Parliament, the New Zealand Taxpayers’ Union, and in a petition from over 10,000 New Zealanders, to inquire into aspects of the deal. . . 

 

Dairy prices set for ‘substantial recovery’ by mid-2016, Rabobank says – Tina Morrison:

(BusinessDesk) – Dairy prices, which have slumped to a six-year low, are set for a substantial recovery by mid-2016, according to agri banking specialist Rabobank.

Average dairy product prices plunged to the lowest level since August 2009 at the last GlobalDairyTrade auction a fortnight ago, amid increased supply and weak demand. Still, the factors to trigger a turnaround are now in place and a substantial improvement in prices is expected by mid-2016, Rabobank said in its dairy industry note ‘Riding Out the Storm’.

Rabobank says dairy prices are set to rise as milk price reductions in China start to choke off domestic production growth, lower New Zealand production leads to a supply-side adjustment in export regions, the collapse in international commodity prices reduces supply growth from the US and EU, and as accelerated dairy consumption growth depletes current accumulated stocks. . . 

The short, the medium and the long term for dairy – Keith Woodford:

With calving in full swing, most dairy farmers have no time to think about anything but today. Things are indeed grim and the short term focus has to be on survival. For the next few weeks, there is some logic to focusing on the simple day to day things that can be influenced. Even in the good times, these are the things that often separate out the best from the not so good.

Despite the gloom, most of the farmers I know do seem to have things well under control. Perhaps that is because most of my mates have lived through tough times before, back in the 80s and 90s. They have always assumed that at some time a storm would burst upon them and so they have not panicked. Rather, they have been quietly and sequentially battening down the hatches for more than 12 months. . . 

Meat industry shareholder groups merge to push their case for reform – Fiona Rotherham:

(BusinessDesk) – The two shareholder groups representing Silver Fern Farms and Alliance farmers have joined forces in a bid to encourage the two meat cooperatives to follow suit and work collaboratively.

Each shareholder group has separately gained the 5 percent farmer support needed to call special meetings of their respective cooperatives to try and force the boards to investigate the benefits and risks of a merger, though dates have not yet been set for either.

Alliance shareholder Jeff Grant said it is best to wait on the outcome of Silver Fern Farm’s current capital raising before holding either meeting.

“If the capital raise changes the structure of the cooperative to be a non cooperative or in foreign ownership then it would be pointless having an SGM (special general meeting) at all,” he said. . . 

 High Beef Prices Are Fueling a Revival of Cattle Rustling in the Plains States –  Michael Graczyk:

Doug Hutchison wears a badge and carries a gun but his most effective weapon in the pursuit of livestock thieves in the nation’s largest cattle-producing territory may be his smartphone.

With it, Hutchison, one of 30 Special Rangers with the Texas and Southwestern Cattle Raisers Association, photographs suspected stolen livestock, accesses the association’s databases of livestock brands and reports of missing animals and consults with sheriff’s offices.

“I think it’s one of the greatest tools in the world,” said Hutchison, wearing a cowboy hat and jeans, his boots mired in the mud and manure of noisy auction stockyard corrals filled with nervous cattle. . .  Hat tip: AEIDEAS

Outdoors Lobby Wants Recreational Only Fisheries:

A national outdoor recreational advocacy group wants freshwater fish species such as whitebait, eels and some saltwater species ”recreational only.”

The call by the Council of Outdoor Recreational Associations (CORANZ) an umbrella group of outdoor recreational organisations, was in response to Massey University researcher Mike Joy’s call to remove whitebait and eels from commercial status and protect them by a “recreational only” classification.

Bill Benfield, co-chairman CORANZ, conservationist and author, said that commercialised species, almost without exception, struggled to be sustainable in the face of human greed. . .

 And from Kansas Department of Agriculture:
Kansas Department of Agriculture's photo.


NZ 2nd least corrupt

04/12/2014

New Zealand has cemented its global reputation for being among the least corrupt countries:

New Zealand remains one of the top countries in the world for low levels of perceived corruption, says Justice Minister Amy Adams.

Transparency International’s Corruption Perceptions Index released today ranked New Zealand second out of 175 countries. The index scores and ranks countries and territories based on how corrupt their public sector is perceived to be on a scale of zero to 100.

New Zealand retained last year’s score of 91, taking out second place to Denmark which moved up one point to 92.

Ms Adams says New Zealand’s high ranking reflects the Government and the public sector’s strong commitment to protecting New Zealanders’ rights and freedoms.

“New Zealand is perceived as one of the least corrupt countries in the world. We’ve got a strong track record of open and transparent government and our public sector is internationally renowned for low levels of corruption,” says Ms Adams.

“The Government is continually working to prevent and address the risk of corruption. Our robust legal frameworks encourage transparency, criminalise bribery and corruption, and facilitate collaboration with other countries to tackle such practices.

“I note Transparency International have noted a concern that we have not ratified the United Nations Convention Against Corruption. However, the legislation to enable this has passed its first reading and is currently before a select committee for consideration.”

“This year we’ve progressed a range of initiatives to strengthen anti-corruption measures and further enhance transparency,” says Ms Adams.

Anti-corruption initiatives progressed by the Government this year include:

  • introducing  the Organised Crime and Anti-corruption Legislation Bill to strengthen New Zealand’s bribery and corruption offences
  • formally joining the Open Government Partnership (OGP) which is a multilateral initiative aimed at promoting open and transparent government and fighting corruption
  • enacting the Companies Amendment Act 2014 and the Limited Partnerships Amendment Act 2014 to prevent overseas criminals from using  New Zealand’s companies registration systems to create shell companies
  • implementing an information sharing agreement between Inland Revenue and the New Zealand Police
  • reviewing New Zealand’s extradition and mutual legal assistance laws
  • the Serious Fraud Office’s collaboration with Transparency International NZ and BusinessNZ to create a free online anti-corruption training course
  • introducing the Crimes (Match-fixing) Amendment Bill to combat match-fixing risks during the Cricket World Cup and the FIFA Under 20 (football) World Cup.

Transparency International says corruption is threatening economic growth.

Poorly equipped schools, counterfeit medicine and elections decided by money are just some of the consequences of public sector corruption. Bribes and backroom deals don’t just steal resources from the most vulnerable – they undermine justice and economic development, and destroy public trust in government and leaders.

Based on expert opinion from around the world, the Corruption Perceptions Index measures the perceived levels of public sector corruption worldwide, and it paints an alarming picture. Not one single country gets a perfect score and more than two-thirds score below 50, on a scale from 0 (highly corrupt) to 100 (very clean).

Corruption is a problem for all countries. A poor score is likely a sign of widespread bribery, lack of punishment for corruption and public institutions that don’t respond to citizens’ needs. Countries at the top of the index also need to act. Leading financial centres in the EU and US need to join with fast-growing economies to stop the corrupt from getting away with it. The G20 needs to prove its global leadership role and prevent money laundering and stop secret companies from masking corruption.

New Zealand has topped the index for several years.

Our second place is due to Denmark’s improvement not a reduction in our own performance but it is not something about which we can be complacent.


Labour’s two levels of minimum wage

02/07/2014

BusinessNZ is not impressed by Labour’s intention to create two levels of minimum wage if it implemented its immigration policy:

The policy released on the weekend says low-paid migrants push wages down for New Zealanders, and a Labour government would make it compulsory for businesses to pay migrant workers at least the living wage, after accommodation deductions.

BusinessNZ Chief Executive Phil O’Reilly says having a minimum wage for New Zealanders and a higher minimum wage for migrant workers makes no sense.

“Whether it is called a living wage or any other name, it would basically be a higher minimum wage for migrant workers.

“The policy appears to be based on advice from a Lower Hutt church agency that promotes an arbitrary wage level without bearing accountability for that advice.

“This is hardly the way to make public policy.

“New Zealand’s skills shortage is a complex problem. It requires the education system to be delivering more needed skilled people. It requires students to be making more realistic study and career choices. In the absence of these, many employers are forced to seek migrant workers.

“Labour’s policy proposal to require higher rates of pay for migrant workers than New Zealand workers does not address our skills shortage problem and would create problems of its own.

The idea would create problems for workers and employers.

Local workers on one wage would rightly feel hard done by doing exactly the same work as immigrants but knowing they were paid less.

Problems employers already have getting enough staff willing and able to work would be exacerbated if immigrants were priced out of the market.

BusinessNZ sees other problems with Labour’s policy:

Labour’s new immigration policy would mean Immigration New Zealand would be given the power to make employers train New Zealanders before getting the nod to employ workers from overseas.

BusinessNZ says the policy released by Labour this weekend appears to convey employers are to blame for skills shortages in New Zealand.

BusinessNZ Chief Executive Phil O’Reilly says Labour’s policy is “wrongheaded.”

“What Labour’s doing is a bit worrisome because what they’re saying is they are going to be much tougher on employers.

“They’re saying you’ve got to skill up your workforce before you come knocking on the immigration door.”

He says the government needs to work with businesses to help solve the skill shortage.

“You can’t just train them all up in a week. Sometimes, no matter how much good work government does with employers and the likes in terms of training for some of those skills, they go overseas too.

“This is always going to be an issue, with the gap between the skills a business needs at any given time and what the skills system in New Zealand can deliver them.” . . .

Sometimes businesses can afford to take on someone and train them, sometimes they need someone already skilled.

Locals are usually the preferred option as it is because there’s usually extra administration involved in hiring immigrants.

But sometimes an immigrant will be more suited to the job than a local and employers don’t need more hurdles to jump before they can fill a vacancy.

New Zealand needs productive businesses to contribute to economic growth.

Their ability to do that will be compromised by Labour’s policy which is a thinly disguised attempt to limit immigration and looks like its been written by unions.


More tax, higher costs, fewer jobs

02/06/2014

The Green Party plans to impose a carbon tax on us:

. . . Co-leader Russel Norman wants to scrap the current carbon pricing system – the Emissions Trading Scheme.

In its place would be a tax of $25 per tonne of carbon on industry polluters. . .

Critics of the tax claim the tax is a burden on households, who pay higher electricity and fuel costs.

However, the Greens say their levy would be offset by a ”climate tax cut” on the first $2000 of income. 

”We can reduce our emissions without hurting household budgets,” he said. ”Households will be on average $319 better off every year under the Green party policy.” . .

Imposing a tax with one hand and giving a tax with another won’t make anyone better off because the tax will lead to other cost increases on fuel, power and food which will passed on, in part or full, to consumers.

Agriculture – which is currently exempt from the ETS – would pay a reduced rate of $12.50 per tonne. This works out as an 12.5 per cent hit on farmers’ income. This includes 2 per cent on the working expenses of the average farm. A Berl Economics report, released with the policy, said dairying will be ”adversely affected.”

Dairying won’t just be adversely affected by the carbon tax, it will be hit by other Green policies too.

But it adds: ”However, at the currently projected pay-out for milk solids, even dairy farms in the lowest decile would remain well above break even in the face of an emissions levy.”

What happens when the payout drops to its long-term average which is well below the $7 forecast for the coming season?

What about the environmental impact of less efficient farmers in other countries increasing production because our produce is more expensive which makes it easier to compete with us?

And what about the poor people who will face higher prices for dairy products, power and fuel?

Other gas-emitting industries – such as electricity and road fuels – are less likely to be affected because they would be able to ”pass-on any production cost increases to households.” . . .

That will be the households whose earners will be getting a tax cut, the benefit of which will be less than the cost increases from the extra tax.

BusinessNZ Chief Executive Phil O’Reilly said the levy may threaten jobs. 

“Our approach should be unlocking business solutions rather taxing business more,” he said. 

As a “small open trading economy” New Zealand should participate in international emissions trading schemes.

Federated Farmers president Bruce Wills said the tax will make dairy farmers “less competitive” in international markets. . .

Less competitive means lower returns which means less export income which means less economic growth which means we’ll be less able to fund the first world education, health and other services we need.

However green they want to paint it, this is a red policy which will add costs, put downwards pressure on wages and threaten jobs.

Bernard Hickey told last week’s  Alliance Group Pure South conference that the election will be close.

He then went on to list the policies that farmers could expect to adversely affect them under a Labour/Green coalition with whichever other left-wing parties they’d need to govern.

They included: capital gains tax, compulsory KiwiSaver and water restrictions and charges.

Those are three very good reasons to vote National and the Green carbon tax is another.

And Steven Joyce points out some inconvenient truths:

 

 

 


Labour no longer champion of poor

30/04/2014

Labour once claimed to be the champion of the poor.

The monetary policy announced by its Finance spokesman David Parker yesterday is further proof that it has strayed far from that because it would hit the  poor hardest.

Labour’s plan to use New Zealanders’ retirement savings as a monetary policy tool would hit low and middle-income New Zealanders hardest, and not achieve what Labour thinks it would, Finance Minister Bill English says.

“This idea mixes up people’s own retirement savings – which require certainty over a long period – with the Government’s monetary policy, which the Reserve Bank reviews and can change every six weeks. The two are completely different and should stay that way.

“Labour’s approach will force people to save at least 9 per cent of their wages, plus more when the Government decides to up the contribution rate. This cut in take-home pay would hit hardest those low and middle-income families who are unable to save much, or who are focusing on paying their mortgages.

“Our current monetary policy settings are considered world-best practice. In the last few years we’ve come through a domestic recession and a global financial crisis and now have sustained economic growth, increasing wages and jobs and interest rates are just coming off 50-year lows.

“Labour’s ‘tool’ is a confusing solution looking for a problem. This is wishful thinking and there is no evidence it would actually work. Even if it did it would  require Kiwi families to accept a higher cost of living and higher compulsory savings at the same time, which would be a double squeeze on them.

“Labour has a recent history of over-spending in government. It should commit to spending less itself, rather than forcing householders to do the hard work for it.

“Low and middle-income earners would be paying the price for Labour’s lack of discipline,” Mr English says.

Compulsory savings isn’t going to appeal to people who have little or no spare money to save.

Compulsory savings with a variable rate which means you could be forced to save even more of the money you don’t have to spare will have even less appeal.

The idea behind the proposal is to give the Reserve bank and alternative tool to interest rates for fighting inflation.

No-one with borrowed money welcomes interest rate rises but at least most people have some control over how much they borrow and how quickly they repay it.

When interest rates go up they could choose to reduce their debt.

With compulsory savings they would have no choice about how much they pay, and no choice about reducing the amount they had to pay.

Increases in compulsory savings rate will hit everyone but interest rate rises affect  a relatively small number of people directly: *

Only  26% of single families and 55% of couples have mortgages.

Then there’s the impact on wages.

Labour’s compulsory scheme would require greater contributions from employers over time.

When working out what they can afford to pay staff it’s the total cost not where the money goes that matters so a greater contribution to KiwiSaver accounts will leave employers with less for wage increases.

Rob Hosking explains why Labour’s big tool won’t work:

. . . The  entire policy rests on the assumption a lower interest rate will also lead to a lower exchange rate. This is by no means a given. . .

The second issue is more political.

Forcing people to save more is not a costless move for them. Someone on an average income who suddenly has another chunk of their cashflow taken out of their weekly income is going to feel the pinch. . .

Forcing people to give up something is going to be fraught with political difficulty.

When it to implementation you can expect a wave of applications for exemptions, and this can be expected to lead to an administrative catscradle  and a political tangle. . .

BusinessNZ  chief executive Phil Oreilly has concerns about the workability of the policy:

. . . The proposed policy would ‘mix the targets’, he said. Instead of a sole focus on inflation, the Reserve Bank would also have to focus on achieving a positive balance of payments, stable economic growth and stable employment. This raises the risk of not achieving some or all targets.

“New Zealand’s external balance is a result of a number of factors, including over-consumption, over-regulation and inefficient government spending. It’s hard to see how the Reserve Bank can be particularly influential in changing these.”

Mr O’Reilly said there was potential for uncertainty and confusion from having different levers over interest rates and KiwiSaver rates.

“While the Reserve Bank would apparently retain control over its existing interest rate lever, it would probably need to go to the Government for the power to use the KiwiSaver savings lever each time it sought to do so. This would not only slow down the Reserve Bank’s decision-making ability, but would undoubtedly introduce politics into the decision making process. All of this would potentially add a great deal of political uncertainty to New Zealand’s macroeconomic settings.

 “New Zealand’s current Reserve Bank system is scrupulously apolitical. That is why other countries have followed our lead in monetary policy.

“Labour’s policy brings the risk of a future government politicising what has until now been an apolitical process.

“Can you imagine a future Government agreeing to a Reserve Bank recommendation to raise KiwiSaver rates three months before an election? “ Mr O’Reilly asked.

He said restricting immigration numbers as a way to reduce house prices could have negative consequences, potentially leading to wage inflation and constraints on firms unable to gain the skills they need.

“The policy announced today makes little mention of the key role played by other government policies in reducing house prices and making our economy more competitive. We note for example the recent Productivity Commission report on housing affordability which pointed to the key role played by land supply constriction in increasing house prices. ”

There would also be more uncertainty about incomes as a result of the proposed policy, he said.

“Income earners would be uncertain as to whether or not their KiwiSaver or their mortgage rates might rise, or both. This would have impact on private sector wage setting. . . “

So the policy won’t necessarily achieve it’s aim which is to reduce the exchange rate.

It would threaten the political neutrality of the Reserve Bank.

It would also leave people with less money to spend and it would leave them with no certainty over how much they would have.

Even the best budgeters are used to unexpected expenses but in the normal course of events we can all expect certainty over income.

With Labour’s proposed Variable Savings Rates, we won’t have any certainty.

It would be like being subject to possible changes in tax rates every six weeks and it’s the poorer people whom Labour used to champion who will be hurt most by that.

* Hat tip Lindsay Mitchell

 


Why stop at $15?

25/02/2014

Labour Minister Simon Bridges announced the minimum wage will increase from $13.75 an hour to $14.25.

 . . The Starting-Out and training minimum wages will increase from $11 an hour to $11.40 an hour, which is 80 per cent of the adult minimum wage.

“Setting these wage rates represents a careful balance between protecting low paid workers and ensuring jobs are not lost,” says Mr Bridges.

“The increase announced today balances the needs of both businesses and workers and will have minimal impact on the wider labour market and inflationary pressures.

“This increase will keep the minimum wage at around 50 per cent of the average hourly rate, which is the highest rate in the OECD.

“The Government is firmly focussed on growing the economy and boosting incomes. Through our Business Growth Agenda we are creating opportunities to help grow more jobs in New Zealand, for New Zealanders.” . . .

That nearly half those surveyed think that’s not enough goes to show most people don’t understand the issues.

The only sustainable way to increase wages is by economic growth.

Without an increase in productivity and profit, an increase in wage rates will result in a decrease in job numbers.

The Green Party doesn’t understand that.

The Greens would have immediately raised the minimum wage to $15 an hour, Green Party Co-leader Metiria Turei said today. . .

Why stop there?

“Around 125,000 kids live in families where the adults earn less than the living wage. It is in the government’s hands to end poverty for working families and improve the lives of those kids. . .

Those families get Welfare for Families through which those with two children pay no net tax until they earn $50,000. Any increase in their pay will reduce their welfare. That’s less money from public coffers but they’ll be no better off and could be worse off if jobs are lost.

That living wage is an arbitrary figure and last week’s increase in it was based on different methodology from the original figure:

The ‘new’ living wage has shifted the goalposts and appears to be more about politics than public policy, says BusinessNZ.

Last year the living wage campaign said $18.40 should be the living wage, calculated on the basis of the living costs of a family of four.

The promoters now say the living wage for this year should be updated to the higher rate of $18.80.

“But the report shifts the goalposts,” BusinessNZ Chief Executive Phil O’Reilly said.

“The increase from $18.40 to $18.80 is not based on the same methodology as last year.

“Using the same methodology, for the same family of four, would show the new living wage should really be $22.89.

“If last year’s formula said $18.40 was needed for a living wage, and the same calculations now show $22.89 is required, why isn’t the campaign seeking $22.89 an hour?” Mr O’Reilly asked.

“Either the original calculations were flawed, or the campaign is just picking numbers out of thin air.”

Mr O’Reilly said decision makers could not have confidence that the living wage figures were soundly based.

“This switch in the figures used is important for taxpayers and ratepayers who are being asked to pay for the campaign. Wellington ratepayers are now funding the living wage policy for council employees and taxpayers would be funding it for all government employees under Labour Party policy.

“There can be no confidence in a living wage proposal set on an arbitrarily changing basis.”

The whole concept of a living wage which decrees everyone should be paid enough to support a family of four, regardless of what the work they do is worth, is flawed.

For the record, all our staff are paid more than the minimum wage.

That’s a decision we make in negotiation with them taking into account their skills and experience, what they’re required to do, the value of all of that and what the business can afford.


LabGreen power plan would be worse

11/02/2014

The LabourGreen power plan would be worse for consumers than the current system.

The electricity market in New Zealand is extremely competitive, with consumers able to switch retailers to gain lower prices, and more consumers using metering and home energy management systems to save more. But the electricity proposals of the Labour and Greens parties would be less able than the current market to meet consumer needs.

These are among the key findings of an analysis of the electricity market commissioned by BusinessNZ and undertaken by Sapere Research Group.

BusinessNZ Chief Executive Phil O’Reilly says it is valuable to get rigorous analysis on a sector that is complex and sometimes poorly understood.

“The electricity market was established in 1996 and has operated under changing rules since then. The research makes it clear that under the current 2010 rules, the electricity market is developing towards a highly competitive, well-functioning market.

“The electricity market’s greatest problem has been a lack of transparency around prices. Energy companies have not explained price changes clearly enough, and this has led to doubts about whether prices have been unnecessarily high in the past. BusinessNZ is recommending that energy companies ensure that the reasons for future price changes are meticulously itemised. We also recommend investigating whether we should have rules for information disclosure around price setting.

“The Sapere research also notes that a segment of the market may be experiencing energy hardship in having to spend too great a proportion of their income on house heating. BusinessNZ recommends investigating options for policies within the market and the social welfare system to help alleviate this,” Mr O’Reilly said.

Sapere found the electricity market is achieving positive outcomes against five key criteria:
1. Secure supply of electricity
2. Efficient operation and market transactions
3. Efficient investment in assets
4. Social requirements
5. Environmental requirements

Sapere also analysed NZ Power proposals (Labour and Greens policies) against the same criteria. Sapere concluded that these policies would be less able than the current market to meet the five criteria, and would not resolve transparency or energy hardship problems. . .

The Labour Green power plan would make the electricity supply less secure, lead to less efficiency in operation and market transactions, less efficiency in investment, poorer social requirements and poorer environmental requirements.

Rather than fixing any problems, real or perceived, it would exacerbate them and the people who would be most disadvantaged by the added costs and poorer efficiency would be those least able to afford them.

That isn’t unusual when ideology comes before practical considerations.

Key findings of the report are:

• Outcomes under all of the public policy goals are for the most part positive but there are some areas where more effort should be applied
• Security of supply has improved under the market, and investment in generation, transmission, and distribution assets is keeping ahead of demand without government subsidy or direction
• Retail electricity price increases have not been transparent enough
• There appears to be insufficient action to address energy hardship experienced by some consumers who live in houses that are too cold and damp
• The NZ Power proposal would be less able than the current market to deliver against the five goals, and would not resolve transparency or energy hardship problems

BusinessNZ recommendations:
• Retain current electricity market framework as superior to the alternatives across a range of desirable policy objectives

• Aggressively pursue net-benefit positive improvements to the efficiency of the current market arrangements by improving price transparency:
i. Investigate rules for information disclosure around price setting
ii. Fast-track Electricity Authority and MBIE workstreams on price transparency

• Confirm the nature and size of the issue of energy hardship, acknowledging that efforts by the electricity market will benefit those affected only marginally

• Implement options to aid those experiencing energy hardship, in a systematic, whole of-government way (including the appointment of a lead agency), such as:
i. Requiring landlords who receive state money to make their houses available for social housing to submit their houses to a ‘warrant of fitness’
ii. Replacing the poorly targeted Low Fixed User Charge with a better initiative
iii. Reviewing initiatives in health and welfare that can help address energy hardship

The full report is here.


Boardrooms back Bill

25/07/2013

Finance Minister Bill English has won well-deserved praise in the Herald’s annual Mood of the Boardroom  CEO’s survey.

Finance Minister Bill English has emerged as the hidden “star” of the Key Government pole-vaulting boss John Key for the second year in a row to emerge as the highest rated Cabinet Minister by leading chief executives.

“Bill English has really been an exceptional Minister of Finance,” said BusinessNZ CEO Phil O’Reilly. “He has been sober, boring and sensible but the macro settings have been just right. He deserves more credit for that.”

English’s “Southland determination” to get the country’s books back into order and “dour, no-nonsense personality” are cited by chief executives as making him the perfect foil for a populist prime minister. “He can just get on with the business,” said a financial markets chief.

The Herald’s 2013 Mood of the Boardroom CEOs Survey, in association with BusinessNZ, found widespread support for English’s management of the economy. . .

This matters.

Businesses which have confidence in the government and the direction in which it is taking the country are more likely to make the investments which boost economic growth and crate jobs.

The Finance Minister’s ability to deliver on his aim to post a Budget surplus in 2014/2015 has been buoyed by growing taxation returns off the back of stronger corporate profits; the proceeds of the partial privatisation programme and a determination to keep government spending under control.

In his post-Budget speech to the Trans Tasman Business Circle John Key spelt out how he would like New Zealanders to remember his government. Key said if the Government can achieve a step change in New Zealand, “in years to come they will say ‘I think that it held its nerve and fundamentally guided us through the global financial crisis and the Christchurch earthquakes and it set the country up to grow during a period of dramatic change in Asia’ and that is going to be a far bigger gift.

“New Zealanders will have jobs and families will have independence.”

That is a legacy every government should aspire to leave.

Seventy-two per cent of chief executives responding to the CEOs survey agreed that the Key-led Government has achieved that positive legacy; 9 per cent said No and 19 per cent were unsure. . .

“Most New Zealanders will not realise until much later what a great job Messrs Key, English and others have done steering New Zealand through the challenges of the last few years,” added First NZ Capital’s Scott St John.

“The way they have protected NZ households by maintaining fiscal discipline and keeping interest rates low has been very important.

“Amazing that we have come through the Global Financial Crisis with a short recession, low unemployment, Government debt at under 30 per cent, credit ratings OK and earthquakes,” added a wholesale trade CEO. “Overall it is impressive stuff. . .

It needs at least one more term to bed in the progress and achieve more.


Powering back to socialist 70s

19/04/2013

BusinessNZ calls the Labour/Green plan to nationalise electricity wholesalers economic vandalism.

Chief Executive Phil O’Reilly says the proposal would destroy a functioning market and replace it with heavy-handed bureaucracy.

“Inserting an army of bureaucrats between power generators and retailers would destroy price signals, so prices would not reflect the cost of generation.

“In that situation, the taxpayer would continue to pay ever higher subsidies of the electricity system. This is not sustainable.

“The Electricity Authority said only yesterday that the electricity market is as competitive as it has ever been. It can always be improved, and this is where the focus should be.

“It’s only competition that can drive prices down. Governments can’t do this, not without subsidising the sector from taxes.

“A state-controlled sector as envisaged by Labour would drive out private investment. Why would the private sector invest in generators when the state can determine the prices they can charge, while subsidising state-owned competitors?

“The private sector power companies would have to seriously consider their future in the market. Those who have invested heavily would basically find their profits confiscated.

“Interfering in the market in this way would send a signal to the rest of the world that it is not safe to invest anywhere in New Zealand. The knock-on impact from that, on jobs and growth, would dwarf any short-term benefit from artificially reduced electricity prices,” Mr O’Reilly said.

Energy and Resources Minister Simon Bridges says the Labour-Greens power plan is incoherent and will kill competition in the electricity market.

“Under the previous Government, electricity prices increased by 72 per cent. It has taken the National-led Government’s reforms to arrest these ridiculously steep increases on New Zealand households,” says Mr Bridges.

“The 2010 electricity market restructure is working. The market now has more players and much more competition than it ever had under Labour.

“New Zealanders are increasingly taking advantage of greater competition and are switching companies for a better deal – in some cases, saving up to several hundred dollars a year.

Since the Electricity Authority’s What’s My Number? campaign began in May 2011, there have been almost 700,000 consumer switches.

“Why scrap the whole electricity market when consumers can already save more than the economically illiterate promises the Opposition is making?

“These types of policies have been considered in the past and rejected for very good reasons. Consumers should be very afraid of them. They may look simple but all they will ultimately bring is higher costs to households,” Mr Bridges says.

Economic Development Minister Steven Joyce calls it a a half-baked Soviet Union-style nationalisation “plan”:

“This is truly wacky and desperate stuff obviously made up in the last minute in the Koru Lounge between comrades Norman and Shearer,” Mr Joyce says.

“Their crazy idea to have both a single national purchaser of electricity and to exempt Government-owned companies from both company tax and dividends would effectively demolish private investment in the electricity industry overnight. It would also raise real questions as to why any individual or company would want to invest in businesses in New Zealand.

“Even the idea of it is economic vandalism of the highest order, with the timing designed to try and disrupt the mixed-ownership company floats. What we are seeing here is a desperate Opposition that is prepared to sacrifice economic development in New Zealand on the altar of political opportunism.

“The sad truth is that Labour has no idea how to operate a competitive market that keeps downward pressure on prices. Labour made a number of reforms to the electricity market in the early 2000s and the result was power prices rising 72 per cent over nine years.

“This Government’s reforms have halved price increases while maintaining investment in generation and transmission. Labour’s suggestion today is no more than a belated apology for their mismanagement, with a back-to-the-70s solution that would only make things worse.

“You seriously have to question the quality of economic advice the Labour Party is getting. They really need to get a lot more serious if they are ever to be considered fit to manage the New Zealand economy.”

It’s not just the government questioning the policy.

Colin Espiner asks has Labour actually gone insane? As in stark, raving, Monster Loony Party mad?

I’m assuming the answer is yes, judging by today’s incredulity-creating announcement that, if elected next year, Labour will essentially nationalise the electricity industry. . .

The Opposition says it’s going to create a single buyer, NZ Power, that will buy all the country’s electricity generation “at a fair price” and then onsell it to consumers. 

It’ll pretty much give away a 300KW bloc to every household and then charge for additional units. 

At a stroke, Labour is proposing to dismantle the electricity market, ruin Contact Energy and Mighty River Power and decimate the Government’s share float plans for both MRP and Meridian. 

Oh, and sell thousands of mum and dad investors down the Mighty River, since MRP’s share price would almost certainly plummet if the company was forced to retail only through a government department at whatever price it deemed to be fair. 

Already Contact shares dipped 3 per cent on the news, and that’s just a taste of what would come if this policy was ever implemented.

I’m no fan of high power prices – and I don’t own any Contact or MRP shares – but what Labour is proposing is essentially nationalisation a la Brazil or Argentina. This is Third World, funny-money stuff. Goodness knows what the financial markets will make of it. And what message does it send to overseas investors? . . .

It’s extremely rare that I agree completely with Economic Development Minister Steven Joyce, but his comment today that the plan was “a return to the 1970s-style monopoly provision of electricity…Only North Korea and Venezuela did not think such ideas are nuts” is pretty much spot on.

I agree with Joyce that Labour is virtually sabotaging the economy. 

It is, in my view, also an indication that Labour does not believe it has any hope of winning the next election. In my experience, only political parties that know they have no realistic hope of winning an election propose things they know they will never have to try to implement. . .

There is no virtually about the economic sabotage this policy would inflict.

I was in parliament for Question Time yesterday.

The Government benches were enjoying themselves and Ministers made the most of the opportunity Labour and the Green Party gifted them:

Hon STEVEN JOYCE: The Electricity Authority yesterday released its review of the electricity market in 2012. The report showed 18 percent of customers, around 32,000 people a month, voted with their feet by switching electricity providers in 2012, presumably for lower prices. For the benefit of the Opposition, that is called “competition”. Since November 2008 annual electricity price increases have halved from the 8 percent year-on-year increases suffered by hard-working New Zealanders during the previous 9 years. This follows a number of pro-competitive reforms by this Government, which apparently the Opposition is not aware of. We have reconfigured State owned enterprise assets to increase competition, created the Electricity Authority and made it responsible for promoting competition, allowed line businesses to compete in the retail space, and funded promotion of consumer switching through the What’s My Number campaign.

Todd McClay: Has the Minister seen any other proposals to try to lower electricity prices?

Hon STEVEN JOYCE: Well, weirdly, yes, I have. Just before lunch today I received one report, which I believe came from the “North Korean School of Economics”. Apparently, the suggestion there was that nationalising the entire electricity industry would somehow lead to lower power prices. . .

That got a point of order call from Winston Peters to which the Minister responded:

Hon STEVEN JOYCE: If I could perhaps clarify my answer, I should clarify that I received a report from the local branch of the “North Korean School of Economics”.

I’d like to believe Espiner’s theory that this is the policy of parties which know they’ll lose the next election and therefore never have to implement it.

The only other explanation is that the people promoting them are so economically illiterate they don’t understand what they’re talking about.

Either way, it shows they haven’t learned from history because these policies would power us back to the socialist seventies and it would be all downhill from there.


TPP – threat or opportunity?

09/12/2012

Is the TPP a threat to democracy?:

Almost three quarters of a million people around the world have signed an online petition that brands the Trans-Pacific Partnership (TPP) agreement a “threat to democracy” and a “corporate takeover”. . . .

“Many hundreds of thousands of people from around the world have sent a blunt message to politicians and corporations who tout the TPPA as a model for the 21st century that it does not represent not their 21st century”, said Jane Kelsey, who has been asked to present the petition to the negotiators. . .

Or is it of seminal importance for jobs?:

The Trans Pacific Partnership is of seminal importance for developing job opportunities in New Zealand, says Kim Campbell, chief executive of the Employers & Manufacturers Association.

But alongside our ongoing struggle to win access for our agricultural products we need a completely separate work stream dealing with intellectual property, Mr Campbell said.

“It is evident that in terms of the TPP, intellectual property is a complicated rat’s nest full of ambiguity and vested interests,” he said.

“Well-resourced groups have the capacity to subvert the TPP process if we are not most careful to ensure it is robust and enduring.

“Hence the need for caution and precision over the agreement’s terms and conditions.

“New Zealand business will be paying close attention to the details of this part of the agreement because tomorrow’s globally integrated business world will be driven by intellectual property.

“And we are 100 per cent committed to New Zealand negotiating a high quality TPP agreement for the job opportunities and economic growth prospects it can undoubtedly deliver.”

Business NZ sees the importance of the TPP for people:

The Trans Pacific Partnership will help build more successful communities, says BusinessNZ.

Speaking at the Trans Pacific Partnership Forum in Auckland today, BusinessNZ Chief Executive Phil O’Reilly said the TPP has the potential to raise living standards around New Zealand.

“This trade agreement goes beyond the 20th Century approach of simply seeking to reduce tariffs and border restrictions.

“It recognises the fact that industry now relies on complex supply and value chains involving producers in many different locations and countries. New Zealand is deeply involved in many international value chains and the TPP will enable more New Zealand businesses to trade more effectively in more countries, and that means increased growth and more jobs for New Zealanders.

“The particular value of the Trans Pacific Partnership is that it involves many of the fastest growing economies on earth. Economic growth in the Asia Pacific region is surging and the TPP will help unlock that growth for New Zealand’s benefit.

“It’s appropriate that New Zealand’s negotiators are focused on protecting and advancing our interests including public health, intellectual property, the environment, and the Treaty of Waitangi, and success in these areas will mean a high-quality trade deal that is sustainable in the long term,” Mr O’Reilly said. . .

Both sides of this argument are right about the need for caution over some of the details.

But one side is anti-trade in general and using that bias to oppose the TPP in its entirety.

The other realises the importance of trade for maintaining and creating work opportunities here and earning the export income which will support the first world economy and society to which we aspire.


Left don’t learn from history

10/10/2012

The statistics on the youth unemployment rate are unequivocal – it increased far more steeply than rate for older adults when the youth minimum age was axed by Labour.

But have people and parties on the left learned from that? No.

Yesterday Labour Minister Kate Wilkinson announced a starting-wage for young people and immediately got this response:

Lower wages no solution – from the Council of Trade Unions.

Poverty pay won’t give young people skills or jobs – from the Service and Food workers Union.

More youth to pack for Australia – from  Hone Harawira.

National offers young workers a hefty pay cut – Metiria Turei.

And low wage no future at all from David Shearer.

None of these people have joined the dots between increasing the cost of employing young people and the sharp increase in the unemployment rate for that age group.

The Employers and Manufacturers Association has a far more positive view of the starting-wage:

Everyone concerned about our alarming rates of youth unemployment should be celebrating today’s announcement on the Starting-out wage, says David Lowe, Employment Services Manager for the Employers and Manufacturers Association.

Then they will be looking out for more ways to help, he said.

“Without an incentive an employer with a choice between an experienced worker and an inexperienced worker will choose experience every time,” Mr Lowe said.

“Though there is no silver bullet for creating jobs for young people, the Starting-out wage offers a vital first step up the employment ladder.

“Unless there is an incentive for taking on the added issues of employing youth workers, young people will continue to be over represented in the unemployment numbers.

“The Starting-out wage will restore a form of youth rates that were abolished in 2006 and which proved, as predicted, to hurt the very people its supporters were trying to help.

“Independent research from Pacheco at the time found job opportunities for youth would fall by nearly 20 per cent for all teenagers if youth rates were abolished, but that turned out to be very conservative.”

BusinessNZ also sees the starting-wage will benefit the economy and communities:

Chief Executive Phil O’Reilly says having to pay unskilled teenagers at adult rates makes it hard for many young people to get a job.

“Not being able to get that initial job prevents many young people from gaining workplace skills, further reducing their future employment chances.

“A starting-out wage at 80 per cent of the minimum wage for the first six months’ employment will make it easier to employ a young person so they can gain those vital workplace skills.”

Mr O’Reilly said the policy announced today would particularly benefit teenagers who were vulnerable to being trapped on a benefit through being unable to compete effectively for a first job.

Costings indicate that with accommodation and other applicable subsidies unaffected, a teenager on a starting-out wage would earn more than if on a benefit.

“Getting more young people into jobs – especially including those currently on a benefit – will benefit the economy and communities all through New Zealand,” Mr O’Reilly said.

If employers have to pay people the same rate they are almost always going to favour age and experience over youth and inexperience.

Enable them to pay younger people a bit less in recognition of the bigger investment required in training and the bigger risk with people with no work experience, and they will be more willing to take them on.


Councils’ purpose needs clarity

16/09/2012

BusinessNZ says the purpose of local government needs to be properly established in new legislation:

Chief Executive Phil O’Reilly says the purpose statement in the current Act is very broad and permissive, and has resulted in a number of councils taking on, or investing in, too many non-essential activities exposing ratepayers to unnecessary risk and cost.

“The current Act allows councils to ensure communities’ ‘four wellbeings’ – social, cultural, economic and environmental – and this very broad purpose statement has allowed councils throughout New Zealand to continue to expand their operations into the provision of services which more appropriately should be undertaken by the private sector, if at all. Moreover, councils have backed projects with marginal or negative economic returns. Businesses often bear a disproportionate share of these costs given the significant use of business rating differentials by many councils.

“The Amendment Bill has a more restrained purpose statement and is a significant improvement on current legislation, but should to be tightened further.

“A clearer definition of local government’s important role is essential,” Mr O’Reilly said.

Amen to that.

Although Tourism New Zealand is concerned events and festivals will be at risk.

“The tourism industry is concerned that the Local Government Act 2002 Amendment Bill could restrict councils investing in events, festivals and other visitor infrastructure if it is passed in its present form,” TIA Chief Executive Martin Snedden says. . .

TIA is calling for local government to continue to be allowed to invest in the visitor industry, which creates jobs and income in communities around the country. Support from visitors makes possible a range of events and festivals that residents also enjoy, enhancing that community’s vibrancy and well-being. . . .

Events and festivals do attract visitors and add to the vibrancy of communities but current legislation has enabled councils to back them at great cost with questionable return.


It’s up to business

29/07/2012

Anyone who has taken a modicum of interest in politics in the last four years should be in no doubt about the government’s economic plans.

They might not like it but they should understand it.

But a majority of respondents to the Herald’s mood of the boardroom survey say the government has failed to articulate its plan.

Just how much does a political party have to do to get its message across?

Almost every speech from Prime Minister John Key, Finance Minister Bill English, and any other minister who mentions the economy spell out the plan quite clearly.

Perhaps those who haven’t got the message should follow this advice:

Can’t understand why the Business leaders aren’t aware of the present National Governments long term PLANS. I have certainly had no trouble finding and understanding where National wishes to position NZ, such that the sons and daughters of not only Business Leaders, but all NZ’ers will have a future in NZ.This is a vastly different future to that which Parker is planning for when he rolls Shearer next year, a possibility, regardless of the recent labour conference change of rules.
The information is out there, if one looks; BUT you are unlikely to find it headlined in the written, or voice media. They are too Socialist.
Perhaps the Business Leaders should step out of the Cocktail circuit, and visit their local National Party office for a briefing; or if they wish have both, hold the Chardonnay glass in the left hand, and lookup the National website using the Right hand.

However, in spite of what respondents to the Herald survey said, a BusinessNZ survey show its members do understand, and support, what the government is doing:

BusinessNZ chief executive Phil O’Reilly said the “standard response” that might otherwise be expected from business was that the Government should cut spending. But the results from his organisation’s survey were consistent with what members were telling him.

“They are supportive of this kind of track the Government’s taking. You don’t want to get so much austerity that you push the economy into recession – at the same time you don’t want them to just blast money everywhere in the hope of getting the economy moving faster because a lot of it will be low-quality spend.” . . .

O’Reilly said the SME Snapshot results largely reflected what business people told him every day. That included the widely held view among members that they generally supported the direction of the Government’s “relatively conservative economic reform programme”.

Building business competitiveness, reducing Government spending as a proportion of GDP, improving New Zealand’s international situation, and building innovation and skills were all regarded as important.

“There will be some in the business community that will have concerns about the pace and execution of government policy, but they broadly support it.

Regardless of what businesses know and understand about government’s plans, the good ones treat governments like the weather, enjoy it when it’s good and do all they can in spite of it when it’s not.

The businesses that get on with their businesses, concentrating on what they can control, are the ones with the best chance of success which will be good not just for them but for the wider economy.

This point is made by Liam Dann:

. . . In reality business knows that there is little point in looking to Government for any major new spending in the next few years.

So what next? Where does all this leave business in 2012? Where will the circuit breakers for this economic cycle come from?

We are going to need strong and innovative leadership from the business community to turn the tide. And we are going to have to see some of that dogged optimism translate into business spending.

Teasing the public out of its recessionary mindset will be a slow process but it is a chicken and egg scenario. Business can lead the way by being proactive and trying new things. It is never easy because there are many reasons why we can’t afford to do something. But if the alternative is slowing sinking in the mire of a stagnant economy – can we afford not to?

Governments come and governments go, so do recessions.

The global financial crisis one isn’t going anywhere fast and it will have an impact here.

But where there is crisis there is also opportunity and businesses which realise it’s up to them and do what they can about it will help turn the tide.


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