Confidence plummets

July 31, 2018

Labour, NZ First and the Green Party haven’t even been in government for a year and already business confidence has droppedto the second lowest in the OECD.

New Zealand has tumbled from top to bottom of the OECD business confidence rankings with the most recent data revealing New Zealand has the second lowest level of business confidence in the developed world, National’s Finance Spokesperson Amy Adams says.

“Given the high level of political uncertainty around the world it is a shocking revelation that New Zealand – typically a haven of political and economic stability – has the second lowest level of business confidence in the OECD.

“In 2016 New Zealand was the second highest in the OECD with 33 of the 35 countries beneath us. Now everyone except South Korea is ahead of us. To have fallen so far in such a short space of time is a damning reflection of this Government’s economic management.

“It is clear the Government’s low-growth policies are having a major impact, and are driving New Zealand’s appallingly low business confidence – though the Government is still refusing to acknowledge that.

“Policies such as industrial relations reforms, increased costs on small businesses via minimum wage increases and higher fuel taxes as well as the banning of oil and gas exploration, have all been bad for business sentiment and the economy.

“We want businesses confident so they can invest for growth, hire more people, and increase wages. That is how Kiwi families get ahead.

“With this Government’s dismissive and reckless approach to the economy, it’s no wonder we are again beginning to see more Kiwis heading overseas to greener pastures as opportunities here in New Zealand dry up.”

 

Businesses are generally still reasonably confident about their own outlook, but how long will it be before lack of confidence in the wider economy impacts on their decisions?

Increases in fuel taxes and the minimum wage, the prospect of a return to 1970s industrial relations and the strife that will accompany that, and the unilateral decision to end oil and gas exploration are all taking their toll on confidence.

Deteriorating  relations with Australia, our second business trading partner, add to causes for concern on the domestic front.

Sir John Key warns of clouds on the international horizon too:

. . .”We’re at the end of what I’d say is the economic cycle at the moment. There’s no question that when I look around the world and the things I’m now involved in internationally, you can start to see the pressure in the system,” Key said. 

“I was in China a week ago, it’s clear their economy is really starting to splutter a little bit. While the United States economy is doing well, they’re running massive, massive deficits – 7 per cent of GDP. Europe’s obviously much weaker than it was.

“So I think you are starting to see a slowdown in the economy and I think that, in part, reflects the business confidence numbers in New Zealand, and I think in part New Zealand businesses are looking at what the Government’s doing and they’re uncertain about that.” 

Low business confidence numbers could not be ignored, but Key said he hoped the economy remained strong “because every day, New Zealanders rely on it”.

“If doesn’t, then I think the right political party to lead the country wouldn’t be the one that’s currently there,” Key said. . .

A sluggish economy isn’t just a problem for business it’s a problem for everyone and should it get worse, businesses need confidence that the government will handle it well.

The current one has given plenty of grounds for concern that it won’t.

Running a business is full of risks and uncertainties and business people need confidence in their own outlook and the wider environment if they are to take the risks necessary to grow rather than stand still or retrench.

Business confidence doesn’t matter only for individual operations. It’s important for security of employment and a vibrant and growing economy.

That in turn is necessary to fund the infrastructure and services we don’t just want but need.


NZ 3rd for growth but . . .

September 16, 2016

Good news on the economic front:

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

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

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

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

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

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

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

But there is a but:

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

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

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

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

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

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

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

 

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Trust in government

December 22, 2015


Really working for NZ

June 22, 2015

National’s campaign slogan was working for New Zealand and its policies really are:

New Zealand recorded another quarter of continued economic growth, confirming that the Government’s sensible economic programme is taking New Zealand in the right direction, Finance Minister Bill English says.

“A reduction in dairy production contributed to quarterly growth of 0.2 per cent coming in at the lower end of market expectations, but still resulted in annual growth of 2.6 per cent,” he said. “A strong economy provides Kiwi families with new jobs, higher incomes and opportunities to get ahead.

“We are seeing solid, sustainable economic growth that is giving businesses around the country the confidence to invest another dollar and hire another person.”

74,000 jobs have been created in the past year, and average annual wages have increased by $5,700 in the last four years. Treasury forecasts they will rise by a further $7,000 to around $63,000 by mid-2019, considerably faster than inflation.

“Sustained economic growth is translating into real benefits for New Zealand households. But we need to stay on course to really lift our long-term economic performance.”

The latest quarter was driven in part by the expected reduction in dairy production as a result of drought conditions, with agriculture down 2.3 per cent. Mining activity was down 7.8 per cent, whereas retail trade and accommodation increased 2.4 per cent and construction was up 2.5 per cent.

Average annual economic growth was 3.2 per cent.

“The lower dairy output was in line with Treasury’s forecasts, which see the economy continuing to grow at around 2.8 per cent on average over the next four years.

“This results highlights that New Zealand is closely tied to international markets, and risks are ever-present.”

New Zealand’s 2.6 per cent GDP growth in the year to March compares with 2.3 per cent in Australia, 2.4 per cent in the United Kingdom, 2.7 per cent in the United States, 2.1 per cent in Canada, negative 1 per cent in Japan and 1 per cent in Germany. Average growth across the OECD was 1.9 per cent.

Whether you’re an individual, family, business, other organisation or government, careful management of your finances matter not as an end in itself but as the means for doing what you need and want to do.
New Zealand National Party's photo.


Education the key

December 11, 2014

A new OECD report appears to show inequality is growing in New Zealand.

But NBR editor Nevil Gibson discusses what it really shows:

. . . The four-page summary report based on a working paper, Trends in income inequality and its impact on economic growth (See report here), and statistical tables, has been seized on by the media the opposition as a “failure of trickle down economics” and a case for higher taxes on the rich and more redistribution to the poor.

In fact, this is not the case. The main reason is the dated nature of statistical material, while the policy suggestions carry a heavy caveat that “Redistribution policies that are poorly targeted and do not focus on the most effective tools can lead to a waste of resources and generate inefficiencies.”

The figures that show New Zealand’s growth was inhibited by increased income inequality are based on the period 1990-2010. The figures show “real disposable household income” in New Zealand from 1985 to the GFC (2008) was around the OECD average and well below countries such as Australia.

In the five years post the GFC, New Zealand disposable incomes among the top 10% fell 2.2% (OECD average 0.7%) while those in the bottom 10% fell the least, 0.5% (also the OECD average). Average New Zealand incomes fell  0.9% compared with the OECD average of 1.8%. . .

The GFC hit the richest but National’s policies to look after the most vulnerable during the GFC gave them some protection.

. . . But the main interest in the paper is the evidence it offers on the main mechanism through which inequality affects growth.

This is that the wider income gap between the lower middle class and poor households compared to the rest of society undermines education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development.

In other words, it is education rather than taxation that is the key: “a lack of investment in education by the poor is the main factor behind inequality hurting growth,” the report says.

“This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate,” says OECD Secretary-General Angel Gurría:

“Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”

Few would argue that successive governments in New Zealand are seriously deficient in this area and the biggest deniers would be the Labour government of 1999-2008.

The OECD handout summarising the report observes:

“People whose parents have low levels of education see their educational outcomes deteriorate as income inequality rises. By contrast, there is little or no effect on people with middle or high levels of parental educational background.

“The impact of inequality on growth stems from the gap between the bottom 40% with the rest of society, not just the poorest 10%. Anti-poverty programmes will not be enough, says the OECD.

“Cash transfers and increasing access to public services, such as high-quality education, training and healthcare, are an essential social investment to create greater equality of opportunities in the long run.”

As mentioned, the paper also finds no evidence that redistributive policies, such as taxes and social benefits, harm economic growth, provided these policies are well designed, targeted and implemented.

Well-off New Zealanders already carry a high tax burden – more than half of the population pays no tax except GST – so I don’t think any party can justify higher taxes on the basis of this report.

As the report itself warns,” not all redistributive measures are equally good for growth.”

Inequality increased under Labour’s high tax, high spending policies of the noughties.

It has improved under National which has reduced taxes and taken a much more careful approach to targeting spending where it is needed most needed.

One of those areas is education:

The key message of the OECD’s report on inequality, released today, is investment in education and is not a prescription for higher taxes, says the Taxpayers’ Union.

The Union’s Executive Director, Jordan Williams, reacting to the OECD report and interviews with Grant Robertson and Russel Norman on this morning’s Morning Report says:

“Grant Robertson and Russel Norman want to use the report as justification to tax high incomes more, even though the top 6% of income earners already pay 37% of everyone’s income tax. They are trying to use the OECD report to frame small efficient government and incentives to work as a bad thing.”

“We’re disappointed that Mr Robertson continues to refer to the made up economic theory of ‘trickle down economics’. Mr Robertson must know that no such economic theory exists. No economist has ever argued that in order to make a poor person richer you should make a rich person richer first. Economists have, however, argued that economic growth and freedom makes us all, rich or poor, better off.”

“The biggest cost of living is people’s tax bills. Instead of wanting to solve inequality by cutting government waste and taxes at the low end, politicians immediately want to tax more so they can distribute it to constituencies.”

The background to the oxymoronic ‘trickle-down economics’ argument Messrs Robertson and Norman referred to on radio this morning to is available in a piece by New Zealand Initiative Researcher Jenesa Jeram republished with permission.

“Mr Robertson is now shadow Minister of Finance. He should be focused on arguing real economic data, not taking on his own straw men arguments,” concludes Mr Williams.

The poor won’t get richer by making the rich richer first. But nor will taking more than is fair and reasonable from anyone help those most in need.

Higher taxes and poor spending don’t help the poor and harm the wider economy.

Education is the key to helping the poor, along with carefully targeted investments in health and other services needed to provide equality of opportunity for them.


NZ one of better for inequality

June 25, 2014

The left have done their best to make inequality the problem of the moment.

Fortunately for New Zealand, though not the left’s campaign, the OECD facts contradict their story:

New Zealand was one of only six developed economies in which both income inequality and disposable income inequality was flat or slightly better between 2007 and 2011, according to the Organisation for Economic Cooperation and Development.

In its latest report, which looks at the impact of the global financial crisis on inequality across 33 developed economies, the OECD confirms New Zealand performed relatively well through the GFC and its aftermath, Finance Minister Bill English says.

“The domestic recession in New Zealand under the previous government in early 2008 and the global financial crisis that followed were tough on many New Zealanders and their families,” he says.

“However, this Government ran large deficits and borrowed through that period to continue its significant support programmes. At the same time, we also set a track back to surplus and supported an economic recovery that is now delivering more jobs and higher incomes.

The opposition criticise the increase in debt but give the government no credit at all for using it to protect the most vulnerable from the worst impact of the GFC.

“This latest OECD research confirms that while inequality increased in many OECD countries during the global financial crisis, this was not the case in New Zealand.”

Using data compiled for the Ministry of Social Development’s household incomes report, the OECD’s latest Income Inequality Update confirms that both income inequality and disposable income inequality were flat or slightly better in New Zealand between 2007 and 2011.

It also finds that the disposable incomes of the top 10 per cent of New Zealand’s income earners were hit harder than the bottom 10 per cent of income earners through this period.

“Across the OECD as a whole, the opposite was true,” Mr English says. “The bottom 10 per cent of disposable incomes fell by twice as much through the GFC and the top 10 per cent.

Mr English says that the Government remains focused on supporting the most vulnerable New Zealanders by improving public services, lifting education standards and supporting more New Zealanders off welfare and into work.

“It’s in these areas that we can make a real difference to the lives of New Zealanders most in need.”

The easiest way to solve inequality is to make the rich poorer – as the left want to do by taxing them more.

That might close the gap between the top and bottom but will do nothing to improve the lot of those in most need.

Addressing their problems, as the government is doing through better public services, higher achievement in education and helping those who can work to do so is the only way to get sustainable improvement in living standards for the vulnerable.

The OECD report is here.


NZ 1st in OECD, 3rd in world for business ease

October 30, 2013

The World Bank’s Doing Business report ranks New Zealand third, and it is the highest-ranked OECD economy .

The annual report measures government regulations and their effect on business across 189 countries.

A media release says:

A new World Bank Group report finds that high-income economies in the Organization for Economic Co-operation and Development (OECD) continue to lead the world in providing business-friendly environments for local entrepreneurs.

Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises ranks 189 economies on the ease of doing business. Six of the top 10 are OECD economies: New Zealand, the United States, Denmark, the Republic of Korea, Norway, and the United Kingdom. OECD economies also continue to take steps to improve business regulations, with more than half implementing at least one regulatory reform in the past year.

New Zealand, the highest-ranked OECD economy, has made sustained efforts to improve its business climate. The report finds that in the past year New Zealand made it easier to enforce contracts by implementing an electronic case management system—improving the recording of court cases, lowering costs, and shortening resolution times.

“OECD economies on average have managed to create a regulatory system that facilitates interactions in the marketplace and protects important public interests without unnecessarily hindering the development of the private sector,” said Augusto Lopez-Claros, Director, Global Indicators and Analysis, World Bank Group. “Their stronger institutions and lower transactions costs provide an appropriate point of reference for other economies. In fact, we see countries increasingly seeking to narrow the gap with OECD practices, notably in Europe and Central Asia.”

The breakdown on New Zealand is here.

Economic Development and Small Business Minister Steven Joyce today welcomed the report:

“This is excellent news. Only Singapore and Hong Kong are higher than us overall and we still rank first in the world for starting a business and investor protection,” Mr Joyce says.

“This World Bank report is highly regarded and is used by businesses internationally when they consider setting up operations. The fact that New Zealand continues to rank so high sends a clear message that we are an ideal country for business investment.”

While New Zealand is in third place for the second year running, improvements to the business regulations were evident in a number of areas.

The cost to a business of construction permits and getting an electricity supply, as a percentage of income per capita, have dropped every year since 2010. Improvements to New Zealand’s court system were also cited by the World Bank as making contract enforcement speedier and less costly to business.    

The World Bank’s Doing Business report provides objective measures of the time, cost and number of procedures involved in all major aspects of running a business. . .

Ease of doing business is important.

Less time and money wasted on difficulties in doing business leaves more to spend in and on the business.

There is no room for complacency, though. We’re good and with the right policies we can be better.


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