POLITICAL UPDATE Tues 12 June

Superannuation consensus a long way off

The NZ Superannuation Bill, as reported back by the Finance & Expenditure select committee today (www.treasury.govt.nz), shows a political divide, with minority statements from National, the Greens and United Future NZ. National's statement recalled its motion that the committee obtain independent advice on the merits of the policy - a motion that was voted down by Government members. National and United Future NZ asked for genuine multi-party discussions on the future shape of NZ superannuation. The Greens supported the investment of budget surpluses in a range of areas rather than all eggs in the 'super fund' basket "and the misplaced certainty that goes with that." The select committee's conclusion states: "The majority of us consider it increases certainty for New Zealanders by restating the Government's obligations under NZS and providing a means for meeting those obligations. A minority of us consider the establishment of the fund undesirable. It may lock New Zealanders into a high tax economy and could, as a result, adversely affect economic growth."

Exports to Aust. Down

Manufactured export growth slowed in the month of April, with an increase of just 5% from April 2000. The exchange rate declined by 11% over this period. Most of the slowing in export growth was due to a 15% fall in exports to Australia. Exports to Australia have increased by just $5 million since 31 December while total manufactured exports have increased by $623 million (including growth of $141m to US and $133m to Japan). Despite the mixed scorecard for manufactured exports, overall export growth in April was strong as a result of a 77% increase in dairy exports.

Aussies unhappy over GST

A Monash University survey shows that while GST in Australia is unpopular, the Federal Opposition's proposal to roll it back is causing a similar amount of concern. More than two-thirds of respondents believed GST was not saving business costs, and was creating more paperwork - but nearly 70% believed rolling it back would not be good for business. The survey also showed family business margins had been squeezed by inflation, despite healthy sales and turnover.

Company tax cut next for US?

Most US taxpayers will soon receive a cheque in the mail ($300 rebate for singles, $600 for those who filed joint returns), following the signing into law of the $1.35 trillion tax cuts. The move lowers the top personal rate to 35%, temporarily winds down estate tax, and increases the amount that can be contributed to individual retirement and educational accounts before tax. The White House is now talking about a corporate tax cut next year, but without control of the Senate, this may be unlikely.

Tax cut promise fails to woo Brits

Neither the promise of large tax cuts, nor the anti-euro 'Save the Pound' campaign was successful for the British Conservative party in last week's election. Labour succeeded in portraying William Hague's tax cut pledge as a threat to cut public services funding by up to £28 billion. Labour convinced the electorate it would increase spending on health, education and infrastructure, despite being criticised for the current state of underfunding of public services. The Conservatives were unable to exploit that situation because of their previous record of under-financing public services.

Ireland throws spanner in EU works

Ireland has thrown EU expansion plans into disarray, by voting against plans for 12 new EU members (most from former communist countries). Ireland is the only EU country required by its Constitution to have a referendum on the issue. Irish voters were wary of the prospect of paying money to the EU, "to Polish farmers with two cows apiece", at the expense of their own subsidies. Other concerns were the likely influx of refugees from war-torn countries, and increased pressure for Ireland to take part in the EU's Rapid Reaction Force, a threat to Ireland's traditional neutrality.

Brain drain not quite an exchange

Treasury research on skilled migrants released last week was touted as showing we don't have a brain drain after all. That's true with regard to Australia - the research shows the mix of skills of Kiwis departing for Australia is similar to the skill level of those who stay home. But it's not true of those departing for other countries - NZers migrating to places like the UK or US fall into higher skill categories. And while the figures over the last two decades have been volatile, the Treasury figures show an increasing net outflow of high skill Kiwis for the past 3 years.

Brain drain examined

Meanwhile, Richard Poole, the Aucklander who (with Paul Homes and Roger Kerr) ignited the 'Lost Generation' controversy, is now surveying around 1,000 young expat Kiwis to find out why they left and what it would take to get them back. The results will be fed into the 'Knowledge Wave' joint venture between Auckland University and the Government.

Rules for HK closer partnership

One of the concerns with the proposed Closer Economic Partnership with Hong Kong is the possibility that the CEP could be misused, to import Chinese goods masquerading as Hong Kong goods. 'Rules of Origin' are being proposed to prevent this. Seminars on possible options for these Rules of Origin will be held in Christchurch and Auckland on 5 & 6 July. Contact: stephen.harris@mfat.govt.nz to attend.

Kyoto debate heats up

As President Bush begins his state visits in Europe, a boycott against Esso (Exxon Mobil) in England and France because of Exxon Mobil's backing for Bush's decision to pull out of the Kyoto Protocol is gaining momentum ( www.stopesso.com ) and is evidence of environmental activists going 'international' over the issue. But satellite pictures of global CO2 hotspots seen on world news media over the last week support the US argument that developing countries with the highest CO2 emissions will stay out of the Protocol, leaving developed countries to bear the penalties. The satellite pictures graphically showed CO2 emissions from China and India - both exempt from Kyoto requirements - dominating the world map. Business interests in countries supporting the Protocol are concerned that it will make them less competitive than their counterparts in countries that are not part of the Protocol.

Electricity price rises not foregone conclusion

Media speculation of electricity price hikes (based on spot prices rather than hedged contracts) is premature, even though margins have been squeezed over the last year. Statistics NZ's Producers' Price Index data show a halving of the gap between input and output prices over the last year - to the benefit of the consumer. It's still too early to assess whether current short-term generation price increases will have any long-term impact on business or residential customers. ENDS

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