New Zealand New Zealand at a Glance: 2004-05
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Country Report New Zealand New Zealand at a glance: 2004-05 OVERVIEW The centre-left coalition government led by the Labour Party is in danger of becoming bogged down by a number of issues, such as the row over Maori claims to the country’s foreshores and seabed. Meanwhile, relations between Labour and the parties on which it relies for support are becoming increasingly fractious. Yet Labour remains well ahead of the main opposition centre-right National Party in the polls, and its grip on power is secure. It remains to be seen whether National’s new leader, Don Brash, has the political skills needed to reunite the party and boost its popularity. The Economist Intelligence Unit expects continued fiscal operating surpluses over the forecast period, but substantial increases in government spending are unlikely as the government focuses on building up the new pension fund. Consumer price inflation will remain comfortably within the 1-3% target range of the Reserve Bank of New Zealand (RBNZ, the independent central bank). The current-account deficit will widen to 5% of GDP in 2003, but is forecast to narrow to 4.1% of GDP by 2005. Key changes from last month Political outlook • A further slip in National’s opinion poll ratings in October saw Mr Brash, a former governor of the Reserve Bank and the then shadow finance minister, launch and win a snap leadership contest against the beleaguered Bill English, who had led the party since 2001. Mr Brash’s election is likely to signal an increased emphasis on welfare reform and tax cuts. Economic policy outlook • The Australian airline, Qantas, and the state-owned airline, Air New Zealand, are considering their options after their proposed alliance was rejected by New Zealand’s Commerce Commission in mid-October. Economic forecast • Latest data releases have led us to revise upwards our estimate for domestic demand growth, and revise downwards that for export growth, with the net result that overall growth in 2003 is estimated at 2.6% (previously 2.7%). Our projection for growth in 2004 has been revised upwards to 2.8% (from 2.5%), with growth in 2005 now forecast at 3.1% (previously 3%). November 2003 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2003 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 0269-7114 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. New Zealand 1 Outlook for 2004-05 Political outlook Domestic politics The centre-left coalition government led by the Labour Party is in danger of becoming bogged down by a number of peripheral issues, including a potentially damaging controversy with Maori over who owns the country’s foreshores and seabed. Relations between Labour and the parties on which it relies for support also appear to be growing more fractious. Although the Labour prime minister, Helen Clark, can count on the support of her party’s junior coalition partner, the left-wing Progressive Coalition, the centrist, pro- family United Future (with which the coalition has an informal support agreement) is growing increasingly frustrated with the government’s social and environmental policies, and its continued support is far from guaranteed. Meanwhile, relations with the Greens (on whom the government relies when support from United Future is not forthcoming) have deteriorated sharply over the lifting of the moratorium on genetic modification at the end of October. Wounds are, however, likely to heal, reflecting the recognition by the Greens that an antagonistic relationship with the government could increase the chance of a National Party victory in the next election, due in mid-2005. Indeed, there are already signs of a thaw, with the Greens ensuring the passage in October of the government’s controversial Supreme Court Bill, which removes the right to appeal to the UK-based Privy Council in legal disputes, after United Future decided not to back the legislation. Labour’s level of discomfort over the next two years will depend partly on the ability of Don Brash, the new leader of the main opposition, the centre-right National Party, to unify the party under his leadership. A further slip in already dismal opinion poll ratings in October saw Mr Brash, a former governor of the Reserve Bank of New Zealand (RBNZ, the independent central bank) and the then shadow finance minister, launch and win a snap leadership contest against the beleaguered Bill English, who had led the party since 2001. Labour’s occupation of the political middle ground has left National struggling to develop a policy platform that clearly differentiates it, and Mr Brash’s election is likely to signal an increased emphasis on tough welfare reform and tax cuts. Few doubt Mr Brash’s capabilities on the policy front, but whether he has the political skills necessary to reunite the party and boost its popularity remains to be seen. Winston Peters and his right-of-centre party, New Zealand First (which has the third largest number of parliamentary seats), currently seem to pose the greater threat to Labour. Mr Peters, a vocal anti-immigration campaigner, has persistently attacked the government’s immigration policies since the 2002 election. However, with the government having recently tightened immigration rules, Mr Peters has turned his attention to the debate on ownership of the foreshore and seabed, and his tough line on Maori appeasement is likely to strike a chord with many, including (ironically) Maori who feel let down by Labour’s Maori members of parliament (MPs). Country Report November 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003 2 New Zealand International relations Concern that New Zealand will be disadvantaged by a recently signed free- trade agreement (FTA) between Australia and Thailand, and a possible future FTA between China and Australia, will result in a renewed focus on bilateral trade negotiations. Trade talks between New Zealand and Thailand could progress quite rapidly, although the prospect of some form of trade agreement with China, first mooted during the visit to New Zealand in October of China’s president, Hu Jintao, is a long way off. Hopes of a bilateral free-trade agreement (FTA) with the US have already been dashed, although the US government had in any case indicated that trade talks were a low priority. Economic policy outlook Policy trends A major shift in economic policy is unlikely in the next two years, with the government continuing to focus on increasing investment in health and education. Despite the recent announcement of measures to help to boost the development of the biotechnology and film sectors, a lack of new initiatives in other areas suggests that progress towards boosting the country’s sustainable rate of economic growth (one of the government’s central goals) will be limited. The government will continue to run operating surpluses during the Economist Intelligence Unit’s forecast period, although substantial increases in spending are unlikely as the government focuses on building up the new superannuation (pension) fund. The government is likely to loosen the purse strings in fiscal year 2004/05 (July-June), ahead of the next general election (due by mid-2005). The first priority is likely to be greater financial support for poorer families. Tax cuts are unlikely, but there may be some if budget surpluses exceed target, if only to outflank opposition calls for surpluses to be returned to the taxpayer. The Australian airline, Qantas, and the state-owned airline, Air New Zealand, are considering their options after their proposed alliance was rejected as anti- competitive by New Zealand’s Commerce Commission in mid-October. The ruling follows a similar rejection of the deal by the Australian competition authority in September.