Business Update

Huge Surplus Raises The Question…

Thursday Treasury announced an operating balance of $5.6b for the year ended June, $1.5b higher than forecast, with tax and ACC revenues higher than expected. This huge surplus raises the question of how productively it will be used. While taxes and charges are going up and increased household incomes over the last three years have gone on cars and house upgrades at the expense of more productive investment, the Government’s surplus is also likely to be used unproductively in pre-election spending on important stakeholders. The quality of Government spending decisions needs to be put under the microscope.

RIGHT-SIZING GOVERNMENT Meanwhile, a recent paper by Waikato economist Arthur Grimes, on tax, spending and the optimal size of government, indicates the Government is over-reliant on direct taxation, spends too little on infrastructure and education and too much on welfare. The paper Economic growth, the size and structure of Government is under ‘what’s new’ on www.businessnz.org.nz.

LAWYERS BILL WILL HAMSTRING ADVISERS Changes mooted by the Lawyers and Conveyancers Bill are causing concern to those who provide advice in employment relations, health & safety, human rights, taxation etc but who do not hold Law Society practising certificates. The Bill would see them barred from giving advice on whether and how legal cases should be taken and from preparing legal documentation. The implications for many consultants, accountants and other advisers are severe if the Bill goes ahead in its present form. Contact: bburton@businessnz.org.nz.

ONLINE BUSINESS HELP Coming soon - the new business-to-business website with a range of ‘how to’ tools to help businesses, especially small and medium-sized ones, achieve growth and profitability and fulfil compliance requirements. Draws on the expertise of contributing partners Business NZ, NZ Chambers of Commerce, the Pacific Business Trust and the Poutama Trust. From next Wednesday 1 Oct, check www.biz-growth.co.nz.

ROBBING ROADS FOR SHIPPING The dreaded Land Transport Management Bill (that will siphon even more petrol tax and road user funds away from roads) may have got worse - it’s suggested there are new provisions allowing road user funds to be spent on coastal shipping. Giving weight to the rumour is the fact that maritime unions have been lobbying hard to reintroduce cabotage (protection of coastal shipping) and the Government’s mysterious foot-dragging in releasing the Shipping Review report. Road user money going to coastal shipping would starve roading development further. Meanwhile cabotage would increase rates for coastal freight - the volume of imports into Auckland and exports out of Christchurch and Tauranga means there’s a large movement of empty containers from north to south, mostly carried by coastal operators, but at rates kept lower than otherwise through competition from international lines. Cabotage would remove this price restraint. Contact nclark@businessnz.org.nz.

GROWTH STATS

GDP GROWTH SUBDUED IN JUNE QUARTER

GDP grew 0.2% in the June 2003 quarter, down sharply on previous quarters, and the lowest quarterly growth rate since June 2000.

Growth was fuelled by internal demand, up 2.4% during the quarter, driven by consumer durables and housing construction. The external sector (exports less imports) made a negative contribution to growth - this confirms we have a 'two-speed' economy: positive domestic economy, negative export sector.

While the services and construction industries experienced growth, activity in manufacturing fell 2.1%, primary industries fell 2.0%, and electricity, gas and water fell 8.0% due to the power crisis.

A 4.5% increase in business investment - higher spending on plant, machinery and transport equipment – is a hopeful sign.

For the year ended June GDP was up by 4%, but much of this is a reflection of higher growth rates recorded in the second half of last year and will drop out of the picture in coming quarters.

BALANCE OF PAYMENTS FURTHER IN THE RED

The seasonally adjusted balance of payments current account deficit grew $557m to reach $1.66b for the June 2003 quarter.

Export volumes were down for the quarter and a higher $NZ contributed to lower export and import prices, but increased import volumes offset the effect of lower import prices.

The current account deficit for the year ended June 2003 was $5.89b, almost double that for the year ended June 2002. The deficit as a percentage of GDP is now 4.6% - the highest since December 2000.

IMPORTS (SURPRISINGLY) DOWN IN AUGUST

Merchandise imports were $2.6b for Aug 2003, down by a surprisingly large 11.6% compared to Aug 2002.

Deficits are typical in August months. With the early estimate of exports falling by 2.4% compared to Aug 2002, the trade deficit for Aug 2003 was provisionally estimated at $274m - better than market expectations and half that recorded for Aug 2002.

For the year ended Aug 2003 imports were down 0.9% on the previous year and exports fell 9.1%, giving an annual trade deficit of $2.8b, though this was better than expected and may signal the beginning of a recovery in export volumes.

NET MIGRATION SLOWING

Permanent and long-term (PLT) arrivals exceeded departures by 2,200 during Aug. While still at historically high levels, long-term net migration has been gradually falling over recent months, now at 41,200 for the Aug 2003 year, compared with 42,100 for the July year.

The downward trend in net migration levels should act to cool the booming housing market, but if the numbers fall too much too soon prices could slump - could be disastrous for a domestic economy dependent on high consumer confidence inspired by the 'wealth affect' of rising house prices.

CARGO VOLUMES GROWING

Export cargo loaded at NZ ports was up by 2.6% (to 25.3m tonnes) in the June 2003 year compared with the June 2002 year. Import cargo was up 4.6% (to 16.2m tonnes) in the same period.

Reflecting the higher $NZ, the value of export cargo loaded fell 8.1% to $30.4b for the year ended June 2003, while the value of import cargo rose 0.8% to $31.7b.

Tauranga had the largest rise in weight loaded over the year, up 9% compared with the June 2002 year, but also had the largest fall in the value of cargo loaded over the same time period, down 14.5%.

Exports: logs, wood & wood articles had the largest rise in weight loaded (+811 tonnes) over the June year. Imports: mineral fuels had the largest rise in weight unloaded (+562 tonnes).

ANZ-BUSINESS NZ PMI ANNIVERSARY The ANZ-Business NZ PMI (performance of manufacturing index) turns one year old today. The survey of hundreds of NZ manufacturers gives a monthly update on manufacturing activity – the year’s results (see graph below) show buoyancy in late 2002 (levels above 50 points on the index), a gradual decline until April 2003 (below 50), followed by a plateau (close to 50) since April. Results above 50 indicate expansion in activity. The PMI also captures manufacturers’ comments – exporters’ complaints about the rising $NZ have risen as the PMI index has fallen.

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