Tag: Labour

Economy Continues to Improve

When doing so – how do you make it better

 

News of the continuing to improve economy and the manufacturing sector will usually do well for an incumbent Government and be of a nightmare for an opposition party trying to seek Government. The question is for the opposition is how to get into Government while people are in a good mood (that reflects back as Government support).

Standard macro-economics will teach you that then a nation’s economy improves to the point it starts hitting the boom phase (we are not in a boom yet) then the State should be scaling back “state-sponsored building initiatives” to avoid overheating the economy. When the country is in a recession or depression then you start the state-sponsored building programs to give the economy a prod along. Typically this is done through infrastructure building to lay the foundations down for when the economy takes off again as it is for New Zealand. It is unwise for a Government to embark on a massive state sponsored building program when the nation is in a full recovery or boom phase as flooding the economy with money is like fuelling a fire that will go out of control. An out of control fire will cause large-scale damage to an economy in the end as Japan and the USA have found out over time.

And so where does this leave Labour. Well it does not leave them a lot of room at the moment. However, it does not mean that they give up. It means you have to be smart at how you develop and pitch policies that will not cause the economy to overheat leading to interest rates hitting 10%.

From the NBR on the Economy Growing

NZ economic growth keeps rate hike track intact

Paul McBeth | Thursday March 20, 2014

New Zealand’s pace of growth in the final three months of the year, underpinned by a booming manufacturing sector, won’t derail the Reserve Bank’s path to higher interest rates this year.

Gross domestic product grew 0.9 percent to a seasonally adjusted $38.3 billion in the three months ended Dec. 31, from a revised pace of 1.2 percent in the September quarter, according to Statistics New Zealand. That was in line with market expectations and slightly ahead of the Reserve Bank’s forecast of 0.8 percent growth in the quarter. Annual growth was 2.7 percent, and GDP was 3.1 percent higher than the same quarter a year earlier. (See graph below)

The pace of growth underpins signs the local economy is gathering momentum, which Reserve Bank governor Graeme Wheeler says is creating inflationary pressures that require a monetary policy response. He kicked off a tightening cycle this month, lifting the official cash rate a quarter-point to 2.75 percent and anticipates raising the OCR another 2 percentage points over the next two years.

The rest of the article gives a break down in further figures of the economy growing.

 

Back to the question where does that leave Labour.

I would go down the Social Liberal path and be very careful managers on our economy is growing. For the most part it would mean the following:’

  • stay well out if the way in trying to “intervene” in the growth phase. This usually means wind back some regulation not put on more…
  • There will be inequality that is a given. The question is how best to address it without impinging greatly on the rest of the economy. So maybe expanded apprenticeship and mentoring schemes for the unemployed and under-employed. Maybe better flexible working arrangements especially parents. And better funding towards our tertiary systems especially and ironically around the Arts Faculties (I’ll do a post on that sometime in the future).
  • Wind back any state sponsored building programs – this is the wrong time to do it unless you want to overheat the economy. You can still get away with expanding the rail network, boosting our coast shipping and maybe some new power generation north of Huntly but I would be reluctant on ‘Think Big” stuff including 100,000 homes outside of Christchurch.
  • Make sure Councils are not spending willy nilly as interest rates rise and too much money from them flooding the economy can also cause overheating. This means it can put the CRL in an interesting position if we enter a boom phase and we try to leverage debt when interest rates are particularly high at the time.
  • And for heaven’s sake do not hike taxes unless you plan to do a massive overhaul (which should be down when in a recession any how).

 

Labour though seem to be doing the opposite to a number of bullet points above. To which in my own evaluation will in the medium and long-term have potential to cause more harm. I saw this piece (which I will post en-mass) from Leader of the Opposition David Cunliffe a few moments ago

Millions invested due to Labour’s forestry plan

DAVID CUNLIFFE | 20 MAR 2014

Red Stag Timber has today announced it will invest $120 million in upgrading its plant on the basis of Labour’s Forestry and Wood Products Economic Upgrade, says Labour Leader David Cunliffe.

Red Stag General Manager Tim Rigter said. “We are confirming today that if we can get a Pro Wood policy with a future government, we would proceed with a $120 million capital investment in upgrading our plant and facility. We want to be able to process another 500,000 tonnes of logs.”

“This is great news for the Rotorua region that suffered through the closure of the Tachikawa sawmill and the loss of 120 jobs,” says David Cunliffe.

“A new world-class mill fitted with the latest technology will future proof jobs in a region hard hit by the National Government’s hands-off approach. I am delighted that our policies can secure jobs in a region that desperately needs them.

“It is a terrific endorsement for Labour’s Economic Upgrade for Forestry and Wood Products that I announced yesterday.

“Our upgrade is supported by the sector. Our focus on investment, innovation and industry is part of the upgrade that will create better jobs that pay higher wages where they are needed.

“To encourage investment we will provide tax deferrals in the form of accelerated depreciation to encourage industry to invest in new technology and plant.

“To boost innovation we will work with the industry and public science bodies to develop new products and technologies.

“To support industry development we will introduce measures including a Pro-Wood policy for government buildings, loans for new forest planting and forestry taskforces for long-term unemployed.

“Labour’s economic upgrade will lead to better jobs and higher wages for all New Zealanders,” David Cunliffe says.

———-

 

The question that comes to me now is why can’t Red Stag do this investment NOW? What is actually holding it up? I am quite curious to see the mechanics of the waiting. For the rest of the “Pro-Wood” policy it looks like something the Soviet Union would try to pull. That is the State leading and essentially dictating who does what with their resources. Not the most efficient way of moving the economy along that I have seen to date and especially as we are not in a recession that requires state intervention.

 

Now what would be interesting to see is what is the total demand of processed wood in New Zealand and will Christchurch and Auckland make any “contributions” to that demand. Furthermore I am keen to see what export potential in the free market is for our processed timber. I am also keen to see if a wider infrastructure roll out across New Zealand might kick off increased demand for wood as industry and cities expand while satellite centres begin to establish themselves.

In the end though Labour’s “Pro Wood” policy just does not do it for me (in wanting to vote for them) both at the individual and collective level.

 

Right then I wonder what narrative will come along the way this time for tomorrow. Hopefully something from National.