Business News

In light of the latest CPI result today the Reserve Bank should review how it assesses inflation and cut the official cash rate, the Employers and Manufacturers Association says. “With inflation below the Reserve Bank’s mandated target for three consecutive quarters now the official cash rate should be cut, said Kim Campbell, EMA’s chief executive (pictured). “Lowering the OCR makes sense for three important reasons: 1) It would help keep us in line with interest rate cuts in Australia, our largest trading partner, thereby maintaining the trans-Tasman cross rate at its present favourable level. Further falls in the Australian dollar could well stifle our exports to Australia and short circuit our fragile recovery. 2) It should keep us within the central bank’s mandated target range for inflation by holding CPI prices between one and three per cent over the medium term. 3) It would make investment in productive enterprise more attractive; interest costs are a hand brake on investment.  “If we’re lucky it might also help bring our exchange rate down marginally.  “The Reserve Bank needs to separate out the price inflation in Auckland’s housing market from the deflation elsewhere in the economy. For example the Producers Price Index has been negative for many months, and Auckland’s house prices are driven by insufficient stock due to few new houses being built over recent years. “No adjustment to interest rates will make any difference to the present lack of housing. “If housing affordability is an issue, that’s hardly the responsibility of the Reserve Bank and we fail to see why the productive sector should be punished for a lack of housing stock. “Some groups advocate a change to the Reserve Bank Act. That’s unnecessary. All the Bank has to do is stick to its own rules.”  

BEIJING—China is losing its competitive edge as a low-cost manufacturing base, new data suggest, with makers of everything from handbags to shirts to basic electronic components relocating to cheaper locales like Southeast Asia. The shift—illustrated in weakened foreign investment in China—has pluses and minuses for an economy key to global growth. Beijing wants to shift to higher-value production and to see incomes rise. But a de-emphasis on manufacturing puts pressure on leaders to make sure jobs are created in other sectors to keep the world’s No. 2 economy humming. Total foreign direct investment flowing into China fell 3.7% in 2012. -Wall Street Journal Asia  

NZ First is outraged an Australian company is looking to import foreign construction workers to New Zealand with the promise of high pay and free food and accommodation, in what looks like a snub to Kiwi builders. Australian HR company TR7 has listed an advertisement on job website Seek, looking for expressions of interest from 80 Australian construction carpenters to work on a major project in Auckland, starting early this year. The ad is also listed on Seek’s New Zealand website, but again refers specifically to “top-grade mature tradespeople Australia-wide”. The workers will be paid between $55 and $59.99 an hour, along with free food and accommodation. NZ First leader Winston Peters says the ad indicates a New Zealand construction project has been secured by an Australian company, and that’s “scandalous”. “Either the Government or a New Zealand organisation is paying top rates for Australians to work here, shutting out any hope of skilled New Zealanders picking up these jobs,” he said. Mr Peters says New Zealanders should have the first priority to jobs, but the Government “cares more about foreign companies making money on our shores than in ensuring New Zealanders have jobs”. -Radio Live News  

While we do not agree companies operating in New Zealand should aggressively seek to pay the minimum tax possible in New Zealand, this is no time to be signaling we are about to tighten our company tax rules, the Employers and Manufacturers Association says. The statement is in response to the release of an Issues Paper by Inland Revenue yesterday which ostensibly would tighten the rules on deductions claimed on interest paid in New Zealand by non-resident investors. The Issues Paper also has ramifications for the low levels of tax collected in New Zealand on profits made here by global giants such as Google and Apple. “The far bigger issue at stake is the urgent need to attract much more foreign investment into local productive enterprises,” said Kim Campbell, EMA’s chief executive. “The larger challenge for us is how can we reduce our high company tax rate or develop other ways to make New Zealand a far more attractive investment proposition,” he said. “The focus should be on finding new ways to attract much more foreign direct investment here. “While we support in principle proposals to plug perceived gaps in the thin capitalisation rules the overall emphasis on this just now is simply not justified. “This is no time to be putting up possible deterrents to investment when we have many large scale infrastructure projects required, the rebuild of Christchurch, and the urgent need to recapitalise our industrial base, especially in Auckland. “Though the rule changes proposed at first glance would place foreign equity investors on the same basis as wholly owned local investors, everyone also knows it is possible to ensure tax can be paid in the country where the tax rate is lowest, with the costs falling, including the costs of debt, where the tax rates are highest. […]

The failure to make a firm recommendation on the mutual recognition of imputation tax credits clouds the value elsewhere in the joint report, Strengthening Trans-Tasman Economic Relations, just released by the Productivity Commissions of New Zealand and Australia. The Employers and Manufacturers Association says the failure not to come out strongly in favour of mutual recognition of the tax credits suggests, despite all the analysis put up to the contrary, that at least $300 million of benefit to our trans Tasman economies is not important. “The Productivity Commissions shy off from the single most significant impediment to the development of CER,” said Kim Campbell, EMA’s chief executive. “Mutual recognition of tax credits is by far the most important outstanding issue,” Mr Campbell said. “At stake is New Zealand’s very ability to build and retain world scale companies head quartered here. “So long as the issue remains unresolved, the risk is their head offices will always migrate to Australia. “Under the present regime, when the success of a New Zealand company means it attracts more shareholders in Australia than here, then those shareholders will always oblige the company to transfer its head office to Australia. “There have been several high profile examples of this modern day economic colonialism; the Australian government is reluctant to act on it because Australia is benefiting from the value created by New Zealanders. “It’s extremely disturbing, and we urge our Prime Minister to redouble New Zealand’s efforts to resolve it. “Continuing the present arrangement also reduces the returns that Australian businesses with operations in New Zealand can achieve. “It’s a pity the Productivity Commissions didn’t take into account these longer term implications in their economic analysis as other recommendations in the report are most worthwhile. “For example the concept of a trans Tasman visa where people […]

The latest New Zealand Manufacturers and Exporters Association (NZMEA) Survey of Business Conditions completed during December 2012, shows total sales in November 2012 increased 2.86% (export sales increased by 20.3% with domestic sales decreasing 6.42%) on November 2011. The NZMEA survey samplecovered NZ$543m in annualised sales, with an export content of 41%. Net confidence came out at 0, up from the -18 result reported last month. The current performance index (a combination of profitability and cash flow) is at 104.5, up from 93.5 in October, the change index (capacity utilisation, staff levels, orders and inventories) went up to 102 from 96 in the last survey, and the forecast index (investment, sales, profitability and staff) is at 104, up on October’s result of 98.5. Anything less than 100 indicates a contraction. Constraints reported were 73% markets, 9% production capacity and 18% skilled staff. Staff numbers for November decreased year on year by 0.5%.  “A bit of a mixed bag; employment down, composite index up on the month for the first time since mid-year and sales in positive territory but less than last month. Overall trends are close to zero and with the inexorable appreciation of the currency you would have to be an unrestrained optimist to draw a lot of festive cheer from this survey.” said NZMEA CEO John Walley.  “It looks like December results will not show any real change to this picture. Markets are slow and the further currency strengthening following the do-nothing November Monetary Policy Statement will take yet more shine off the margin from the sales that are made.” Recent Treasury reports indicate a contraction in the current account deficit at 4.7% of GDP. But the long run trend is set to see the deficit increase next year. Balancing the current account needs much more Government focus. […]

South Island businesses are increasingly bullish, outshining their northern counterparts, according to the latest Grant Thornton IBR survey. Simon Carey (pictured), a Christchurch based partner of Grant Thornton New Zealand Ltd, said that over the next year, 73.20% of South Island businesses expect an increase in revenue or turnover compared with 65.4% in the North Island. Overall 65% of southern businesses are very or slightly optimistic compared with 57.2% in the North Island. He said that the Christchurch rebuild was a major factor in the growing confidence. “Last year (2012) I think it’s fair to say that many businesses have been watching from the sidelines as they wait for the city’s blueprint to be finalised and the way cleared for rebuild activity. We’re now almost at that stage and businesses are optimistic about what lies ahead,” Carey said. “Clearly there will be benefits across the country and in the past year we have already seen some businesses opening an office in Christchurch or expanding their operations, poised for the economic spin-offs which are set to accrue.” Carey said that while the Christchurch rebuild will have a significant positive impact on the South Island economy for many years to come, the importance of the agricultural sector cannot be under-estimated. Commodity prices remain strong and dairy numbers are growing. “With large irrigation schemes such as Central Plains Water about to kick off, the importance of agriculture in the South Island will continue to grow. Minister Gerry Brownlee is quoted as saying that for every $1 billion invested in irrigation it will return $1 billion year-on-year. Over $1 billion is earmarked for investment in irrigation in Canterbury alone over the next few years.” Carey said that both South Island and North Island businesses expect profitability to increase – 64.90% and 67.30% respectively while […]

Young New Zealanders must not be left behind in acquiring digital literacy skills, says BusinessNZ. Commenting on the Education & Science Select Committee’s Inquiry into 21st century learning environments and digital literacy, BusinessNZ Chief Executive Phil O’Reilly said digital capability is a key issue for jobs and the economy.  “Recognising that the school system has to do more to ensure that all students have the digital literacy skills needed to succeed, and investigating the changes required to ensure more young people become digitally competent are valuable outcomes of this inquiry,” Mr O’Reilly said.  “Digital literacy skills, along with numeracy, literacy, problem solving, collaboration, and critical thinking skills are fundamental building blocks for employment. “ICT skills are in demand and provide people with these skills with good careers. The development of ICT and science education requires particular attention to ensure that our future workforce is able to meet the needs of competitive businesses. “It is critical that action is taken and that there is focus on those recommendations that will ensure that our future workforce has the skills to compete in the global economy. “The Committee’s recommendations in this important area show a welcome measure of cross-party support,” Mr O’Reilly said.  

The Employers and Manufacturers Association is backing the increase in the fuel excise tax over the next three years, as an important and efficient source of revenue for growing the economy. “Raising the excise tax on fuel again is an important investment needed to fund New Zealand’s infrastructure deficit,” said Kim Campbell, EMA’s chief executive. “Rather than cynical the issue is more important than balancing the books within a given time frame,” he said.  “New Zealand urgently needs to build better roads to lift our productivity and work life balance.  “Raising the funds required through the fuel tax is the most efficient method available as it simply costs less to collect in this way than any other. “But it would be helpful if there were renewed assurances that all the funds raised will be hypothecated for investing solely in land transport infrastructure. “Prior to the recession kicking in, regular increases in the fuel excise tax at about three cents a year were introduced in 2009 and generally accepted as necessary to accelerate road building. The increase was not implemented last year, though there has been the expectation it would be re-installed when conditions allowed. “The additional infrastructure able to be funded like this represents an investment in the country’s future growth so everyone stands to benefit.”  

The argy bargy between Auckland and Wellington over who should decide whether Auckland should complete Auckland’s inner city rail link, or when, is classic comedy, and besides it largely misses the point, says the Employers and Manufacturers Association. EMA’s chief executive Kim Campbell said Transport Minister Gerry Brownlee will win no friends in Auckland with comments like those  when the minister said: ‘the Ministry of Transport and the Government’s NZ Transport Agency will continue to work on the best and most cost effective solutions for freeing up central Auckland congestion now and into the future. “Comments like these are unhelpful,” Mr Campbell said. “They’re Tui moments – yeah right,” he said. “The rest of the statement will also only help unite Auckland behind the Mayor’s resolve to get work swiftly underway on the CRL. “Wellington appears to have a strange idea that Auckland’s transport woes are fixed. So why are taxpayer funds going into a report such as this latest one by SKM which the government has no intention of adopting?  “It’s obvious to everyone in Auckland that the CRL and the AMETI eastern corridor with an East –West link across the central southern city are urgent, as much to ease transport congestion as to facilitate the growth of the city. “But projects like these have very long lead times, so we need to get into detailed planning of them now, and remind ourselves the world will not always be in recession. “Mr Brownlee and his teams of naysayers in Wellington need to consult the government’s economic growth agenda where it talks of export growth in particular and where and how the government’s aspirations for exports can be achieved. “Without far more investment in Auckland’s transport infrastructure there’s no way we can lift exports from 30 to 40 per cent […]