Letter No.73
10 February, 1998

28 January 1998

The Asian financial crisis is threatening to defer some of the government's spending plans. Further tax cuts are being called into doubt as the Treasury estimates that the Asian crisis will shave $300m off next year's budget surplus projections.

The Asian crisis is starting to show up with a sharp drop in export figures to some Asian countries in November. Exports of wood to Japan have halved on the figures for November 96.

Company liquidations are up for the first time since 1991, rising 48% to just over a thousand liquidations this year. Bankruptcies are up 11% to 2,658 cases, and are the highest since 1992.

A National Business Review survey of professional respect shows that doctors and nurses are the most respected professions, with marginally more support than teachers and the police. The NBR "wooden spoon" goes again to politicians, who as a profession have the lowest respect since the poll began in 1992.

In a review of Polytech fees for 1998, Simon Collins of Wellington's City Voice reports that it now costs more to do a trade course in electronics or the hotel industry than it costs to become a lawyer in Wellington.

29 January 1998

Seven Business Development Boards have announced they are taking the Minister of Business Development Max Bradford to court over his suspension of monies to BDB schemes.

The Wellington Chamber of Commerce says that while some manufacturing companies and consultancies were being hit by the Asian crisis, it is the educational institutions in the region that are being hit hardest. The Chamber says that Asian student numbers are expected to be down 30%, especially with students from Thailand, Malaysia and Indonesia.

30 January 1998

The Reserve Bank forecasts NZ's current account deficit will grow to nearly 8% of gross domestic product in the year to 1998. The New Zealand Herald reports that this is a level comparable to the crisis year of 1984, and is similar to Thailand's before the Asian crisis engulfed it last year.

Moody's Investors Services has downgraded NZ's sovereign debt outlook from "stable" to "negative". NZ's AA+ rating has been left untouched.

Market response to the Moody downgrade is fast and brutal with the NZ dollar plunging almost a cent against the US dollar.

In a speech entitled "Keeping Your Head When Many About You Are Losing Theirs", Treasurer Winston Peters urges the public to keep "a sense of perspective" on the Asian crisis. Peters: "Be assured Asia will recover, and sooner rather than later"

1 February 1998

The ACT Party criticises the Budget Statement as being based on economic modeling done in October, before the main impact of the Asian crisis. It wants the government's planned $5 billion spending programme cut.

Labour and the Alliance want the tax cuts abandoned. Helen Clark argues that what started out as bad luck for the government is fast becoming bad management.

The Inland Revenue Department is delaying the release of the Caratoga report which says that NZ'er are paying far too much tax. The report, by former IRD specialist Patrick Caratoga, is based on papers by international tax experts including the controversial Texan economist Gerald Scully. It concludes that the total amount of all forms of tax, direct and indirect, should be around 20% of gross domestic product (GDP) to maximise economic growth.

2 February 1998

The head of education and training for the OECD, Abrar Hasan, tells a Christchurch conference that NZ must address its yawning gap between the top-rate students and underachievers. He says that while NZ rates amongst the top OECD countries for education, the gap between the top quarter of school students and the bottom quarter was too wide.

As the El Nino summer intensifies, the government announces a drought relief for Malborough farmers facing crisis. The package includes access to social welfare support for the worst-affected families, and army help to transport stock feed and water.

3 February 1998

Student suspensions have risen by 14% in the last year.

4 February 1998

The government Budget Policy Statement says it will press ahead both with the tax cuts and the planned spending programme, although will reconsider this if the Asian crisis deepens. The statement also signals a review of benefit levels and eligibility rules.

Labour's Michael Cullen says the statement represents a hard right turn for the coalition government: "It drops nasty hints about the future for beneficiaries "

Alliance leader Jim Anderton says the government is squeezing social spending to stay within its $5 billion cap on spending limits.

PM Jenny Shipley says a postal referendum cutting the number of MPs from 120 to 100 could be held as early as October.

5 February 1998

Official Household Labour Force survey statistics are released, showing unemployment slightly dipping to 6.7%.

Social Welfare Minister Roger Sowry moves to reassure beneficiaries that he is not planning cuts of the scale of 1991. Sowry: " If you are on the appropriate benefit, and you are not doing anything that is illegal, then as a beneficiary you have nothing to fear from yesterdays Budget statement"

In Germany, thousands of people have taken to the streets to protest the country's unemployment level. Like their French protesting counterparts, the targets of their anger are the state unemployment offices around the country. Latest figures show that 12.5% of the German workforce is unemployed, or 4.8m people. In eastern Germany, one in five people are out of work.

Controversial tax specialist Gerald Scully _ one of the contributors to the IRD's Caratoga report, urges NZ to cut its tax rates by "means-testing the middle class out of the welfare system."

6 February 1998

Waitangi Day.

7 February 1998

The Council of Trade Unions wants a minimum of four weeks annual leave for employees. CTU: "Minimum rights in NZ are the least generous, along with those in Canada and Ireland and Britain and Ireland are moving to a minimum of four weeks so they comply with European Union directives"

8 February 1998

Economist John Lepper criticises the IRD Caratoga report saying that it is fundamentally flawed and useless as a guide to tax policy. Lepper: "throw random data into the model and it still comes up with the same answer "

US unemployment figures were steady at 4.7% in January.