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NOV 11

Election starts to bring policy change – more needed

The political race has come to the fore after the end of the rugby world cup. There has been some interesting policy released. Coming on top of earlier releases on fiscal and monetary policy Labour’s savings and superannuation policy seems to extend some new thinking and different policy directions. It will be interesting how the different parties see the economy in general and in particular how each will improve conditions for manufacturers and exporters.

The NZMEA for its part has launched a website,, to give a platform that can express the views of the tradable sector before and after the election. This features the articles from Members of the Association and others concerned about the fortunes of the tradable sector about what economic policy changes they would like to see from the next Government.

I recommend having a look at the site and the contributions made so far. They have covered areas such as monetary policy, tax, early stage business incentives, research and development and depreciation rates amongst others. More contributions will be going up on the site and we are still open for further contributions – contact the Association if you have an article to submit or would like assistance in developing an article for the ChangeNZ site.

There have been several recent reminders that despite some rhetoric there is a long way to go on rebalancing the economy and providing an economic policy framework that will allow innovative export focused companies to grow:

1. Credit rating downgrades
The credit agencies have demonstrated an increased sensitivity to ever higher foreign debt – hence the downgrade for New Zealand. A persistent current account deficit drives this result. Low local savings and an appetite for asset backed debt, supported by high offshore borrowing, has created unsustainable deficits over the past couple of decades. Add to that the absence of the necessary focus on the needs of the tradable sector in Government policy, and the result is we earn less and borrow more; where we are should be no surprise.

2. Trade balance
The trade balance in September was a deficit of $751 million according to Statistics New Zealand. Imports have risen dramatically indicating that we may be back to the spend and borrow mentality.

3. European crisis
Instability in the PIIGS (Portugal, Ireland, Italy, Greece and Spain) nations has so far been accommodated but instability in international markets could have a big impact on New Zealand. Already sales in Europe and North America are difficult with weak markets and a high exchange rate. The accommodating ‘maintain the status quo and muddle through’ approach risks another crisis in Europe or elsewhere significantly raising the cost of funding offshore debt pushing back any potential Government surplus, or worse, causing another liquidity crisis which could threaten the ability of banks and the Government to roll over debt.

Those three points demonstrate that not a lot has changed since the recession opened in 2008. Economic policy still incentivises consumption and borrowing over savings and exports. This must change.

The growth of our tradable sector must be at the forefront of the election debate. There are other ways to focus monetary and fiscal policy and the well-trodden retreat to the “there is no other way” is past its use-by-date.

tags: changenz, election 2011, superannuation, credit rating, trade balance
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