Richard Prebble's
Letter from Wellington
Tuesday, 04 June 2002
The Rocketing Dollar
The Kiwi dollar has broken 48 cents US. The Kiwi has now increased more than 16% this year and its rise shows no sign of
stopping. It's partly due to a fall in the US dollar and the weakness of the Yen, but the Kiwi is now rising against all
currencies. As manufacturers usually work on a tight margin, the dollar's rise is impacting heavily on exporters. The
Reserve Bank argues that NZ interest rates don't affect the currency. But currency dealers say NZ has been "off the
radar" for international dealers for some time. The Reserve Bank's decision to be the first in the world to raise
interest rates (Sweden beat us by hours) has put NZ back on the dealers' screens. More than $1B of hot money has flowed
into NZ this year, nearly all into short-dated government bonds. Speculators have seen a 10 percent return on their
money in six weeks. NZ is also benefiting from New York investment managers' inability to distinguish between Australia
and NZ. A manager of a multi-billion dollar fund will decide to place a tiny fraction down here, and put $250M in both
Australia and NZ. The historical annual movement of the Kiwi has already been exceeded in five months. This year could
be a real roller-coaster.
Election Jitters
Instability of any kind hurts business. Election campaigns are bad for investment and people even put off buying washing
machines during an election. Constant talk, fed by the Prime Minister, of an early election is now impacting on car
sales. It's a strategy by the government to get business to call for an early election, to settle the uncertainty.
Why Go Early?
The reason being pedalled by government spin doctors, that they must go early because of the Alliance, is simply untrue.
The collapse of the Alliance has not affected the government's majority in Parliament. The Greens' ultimatum over GE is
about something that will not happen for possibly three years. No one can even apply to use GE outside the laboratory
for 18 months. Any application will then take at least a year to process - maybe two years - so this is a crisis for the
next election, not this one. The Greens and Helen Clark have both decided to 'beat up' on the Greens' ultimatum - the
Greens to give themselves branding and Clark to justify calling an early election. Both Labour and the Greens'
leadership know there'll be no uncontrolled release of GE in the next three years. It's the ideal issue to make a stand
on - one that's not going to happen. ACT MPs are convinced that much of the "crisis" has been organised by Labour with
the willing collusion of the Greens. Helen Clark has not withdrawn her support for Jeanette Fitzsimons in Coromandel.
The Real Reasons
Floating mortgage rates will hit 9 percent by November. Voters in the crucial mortgage belt of Auckland are sensitive to
interest rate rises.
Rehabilitation by Early Release - a Failure
Labour has ignored Norm Withers' referendum calling for tougher penalties for violent offenders. The new Parole Act has
cut in half short-term prison sentences and removed the requirement that violent prisoners must serve at least
two-thirds of their sentence. A person sentenced to eight years for home invasion can now be out in two years eight
months. ACT MP Stephen Franks has been bombarding Justice Minister Phil Goff with questions about the success of
rehabilitation by early release. The Minister has repeatedly denied ACT's claims that early-release prisoners re-offend.
A new research paper by the Justice Department shows that re-offending by prisoners is even worse than ACT has claimed.
The report states: "More than a third (37%) of inmates were reconvicted of some offence within six months of release,
while more than half (58%) were reconvicted within a year ... most inmates (86%) were reconvicted within five years."
(See the report at http://www.act.org.nz/justicereport. The report found 94 percent of teenagers re-offend and those who
serve short sentences re-offend more than those who do long sentences. Justice officials have been pressing for short
sentences. But the report shows rehabilitation by early-release to be a failure. National's justice policy, to return to
the old law of releasing violent offenders after two-thirds of their sentence, is strange. That was what Norm Withers'
referendum was against! ACT's policy of Truth-in-Sentencing, where offenders serve their full court- imposed sentence,
will reduce violent crime. The Letter believes law and justice will be the number one issue in the election. Surveys
show 17% of the electorate don't feel safe.
Tax Policy
On Thursday, Rodney Hide and Richard Prebble will launch ACT's economy and tax policy - the first of the party's
election policy releases. ACT's economic policy is designed to bring NZ back to the First World. To do that, NZ must
become more attractive than Australia as a place to invest, do business, work and live.
High Taxes Do Matter
Dr Cullen, after lecturing the nation that tax cuts don't promote growth, has agreed to wipe income tax for foreign
yachties, to encourage the marine industry. In the past two weeks, Labour has reduced the company tax rate for Maori
businesses to 19.5% and now for foreign yacht crews to zero. Labour claims the cut in foreign yachties' tax will be
revenue positive because of GST and $100M worth of extra marine refit work that will result. The Letter does not dispute
this. Dr Cullen's claim that NZ is a low-tax country is refuted by OECD research that says only Sweden and Denmark have
higher taxes on profits and income. Both those countries have just 2% growth - just like NZ.
Brash's Role
TV approached Don Brash to be a commentator on the Budget. Dr Brash said he would love to but he had to check with
National. The result - no appearance. National is quite happy for Don to address business groups in private but not to
have him on TV. Dr Brash's influence in Parliament will depend on how well ACT does.
ENDS