Framing an election-winning budget a priority for Hipkins-led team — but will inflation erode any benefit before it arrives?

Incoming Prime Minister Chris Hipkins has already indicated he intends making the tax system “fairer”.  That points  to the route a government facing an election could take to tilt the odds towards winning  in its favour, given Labour’s support in the  last  months  of the Ardern era had been drifting downwards.

Appearing on AM on Monday, Hipkins said he will focus on bread-and-butter issues, like the cost of living, in his new role. 

He also hinted that tax changes could be on the cards, saying “we should always look at how we can make the tax system fairer”.

Widening gap between the “haves” and “have nots” is the burning issue for Ardern’s government to tackle

When  a  journal   as influential  as  “The Listener” flags  the  great  divide between  the  “haves”  and  the “have nots” as the  legacy of the Covid pandemic, it’s an issue  which should be  consuming   the  attention  of every politician — especially  the politicians in a government  with  ministers  who see  themselves wearing  the  mantle  of  Michael  Joseph  Savage.

The Ardern government has not  hesitated  to  throw money  at  the problem, as  other  governments  have done,  and  massive  stimulus  from  the Reserve  Bank  has helped  get the economy   back  on track. 

But, as  economist Cameron Bagrie points out  in “The Listener’s” study,  not  everyone has been a  winner. He  says  the  K-shaped  recovery has exposed pre-existing tension points  such as race  and gender  and  who bears the brunt of a  lift in unemployment.

“There’s  the perceived gap between the haves and the have-nots,  with  soaring  house prices at the epicentre. And  at the  very time we  are dealing  with that, the  financial cost of  our  ageing population is rising rapidly. By 2035, a  massive two-thirds of  welfare  benefit spending is projected to be spent on NZ Superannuation—and that’s not  counting  the growing  health costs”, says Bagrie.     

Covid  has exacerbated  inequality and driven  holes in the social  welfare   safety  net.

Regional survey has some good news about confidence – so what will Parker make of it?

Less than a fortnight ago, Economic Development Minister David Parker dismissed an ANZ business confidence result – the bit that attracted politically awkward media headlines – as “junk” and an unreliable indicator of business activity.

We await with interest Parker’s critique of regional economic data published today.

The Westpac-McDermott Miller Regional Economic Confidence survey in the June quarter shows

• Six of 11 regions posted an improvement in regional economic confidence.
• But economic confidence in regions most closely associated with dairy and/or oil exploration has deteriorated significantly.
• Aucklanders are the most negative about their region’s economic prospects and are becoming more pessimistic.
• Households in Nelson/Marlborough/West Coast and the Bay of Plenty are the most optimistic about the future and confidence in both regions is well up on the last quarter.
• Consumer confidence (a measure of households’ views of their own economic conditions) fell in eight of 11 regions.

Economic confidence in Nelson/Marlborough/West Coast, Bay of Plenty and Northland rose sharply during the June quarter.

The reason? Westpac analysts note that much of the improvement in Nelson/Marlborough/West Coast had to do with a recovery in activity after several severe weather events earlier in the year had washed out roads and bridges and damaged horticultural and forestry businesses.

For the Bay of Plenty and Northland, sentiment is likely to have been lifted by the effects of higher commodity prices and increased tourist numbers.

Now let’s check out the down side of the survey.

The number of households expecting economic conditions to improve fell significantly in the Waikato, Taranaki/ManawatuWhanganui and Southland.

Westpac analysts reckon the Waikato region is likely to have experienced some spillover in negativity from neighbouring Auckland.  Moreover, the Mycoplasma bovis cattle disease has spread to this major dairy producing region.

The same disease is among the likely causes of Southland’s slide.

And in the Taranaki/ManawatuWhanganui region?

Well, the Government has proudly announced it will stop issuing permits for offshore oil and gas exploration in the region.

Households in Auckland are negative about the economic prospects for their region and are easily the most pessimistic in the country.

Pessimists in the region have outnumbered optimists in two of the last three quarters, mostly because of what is happening in the housing market, according to Westpac,

“ … and more specifically what government policy might mean for house prices going forward”

The imminent introduction of a regional fuel tax is unlikely to have helped matters.

Households in Wellington are quite positive about the future, in contrast, and have been since the new Government came to power late last year.

No guesses are needed. The likelihood of more public sector jobs is likely to have been a key support, Westpac says.

Confidence in Canterbury’s future prospects, which also rose, has been helped by a strong performance from the hospitality and tourism sector.

When he dismissed the ANZ business confidence survey as junk earlier this month, David Parker referenced an email he had received from Cameron Bagrie, the ANZ’s former chief economist who now heads a research firm, Bagrie Economics, and an article from interest.co.nz from January, which said the survey has 0.2 per cent correlation with GDP growth.

Bagrie had told him in an email “I think those surveys are very poor barometers” and “you should throw them away“.

The ANZ’s monthly business confidence surveys measure several things, of course, including the expected business activity of respondents, generally considered a useful pointer to official GDP figures produced by Statistics New Zealand.

The ANZ’s press release on the latest results distinguished between:

• “Headline business confidence”, which dipped in May . A net 27% of businesses were pessimistic about the year ahead, down 4 points from April. And…
• Firms’ views of their own activity (“which has the stronger correlation with GDP growth”), dipped from +18 to +14, the lowest reading since November. Agriculture lifted; construction was flat at low levels and retail fell 10 points to match it as the equal lowest-confidence industry.

Before anyone asks Bagrie if he has emailed Parker about Westpac’s regional survey,  let’s hear what he had to say about the ANZ business confidence survey.

He acknowledged to BusinessDesk he had emailed Parker, and that headline business confidence “bears no resemblance to economic growth”,

But he also said he pays attention to a derivative of it, the gap between business confidence and firms’ own activity expectations.

In the the latest survey, firms’ views of their own activity dipped from net 18 per cent optimistic to net 14 per cent, the lowest reading since November 2017.

“When that gap is large you do tend to see that impact on business plans – that’s the one you can’t ignore,” Bagrie said.

“If it gets to be pretty negative it is a big indicator of uncertainty and it does have an impact on the business cycle. When uncertainty is high, firms don’t tend to invest.”

Talking with BusinessDesk, Bagrie also harked back to the “winter of discontent” in 2000 – when business confidence plunged after the Clark Labour government took power.

This was not directly comparable to current business confidence trends, he said. In 2000, Wall Street’s Nasdaq was crashing followed by markets around the globe, and the Reserve Bank had hiked the official cash rate by 150 basis points to 6.5 per cent within six months. Current uncertainty was to do with the government, Bagrie said.