poilatic news

The Government's economic management is suddenly in sharp focus, and it's high time an issue of national importance replaced the self-serving rows that have been obsessing politicians. The business sector has been complaining for many months that things are definitely not right, but it was Fisher and Paykel's shock announcement last week that was the catalyst for a debate which had previously been on the fringes of Parliament's attention. The iconic New Zealand whiteware manufacturer said it was moving its three production lines in Mosgiel, Brisbane and California to Thailand, Italy and Mexico to take advantage of cheap labour. The F&P move means 430 New Zealand workers will lose their jobs, and within hours of that announcement Dunedin knitwear company Tamahine said it was closing, laying off 50 workers. On the same day it was revealed that ANZ National Bank was shifting about 500 processing jobs to Bangalore, although it isn't going to sack anyone and will shed the jobs through attrition". Finance Minister Michael Cullen was right when he said companies all over the world had been moving their manufacturing operations into countries with cheap labour for "any number of years", and there was no way New Zealand could compete with those wage rates. But F&P raised other issues which businesses around the country have been crying out about -- high interest rates, the grossly over-valued New Zealand dollar and high compliance costs. High interest rates suck in foreign money as traders take advantage of it, and their deals maintain the strength of the dollar. The high rate of the dollar makes goods exported from New Zealand much more expensive in other countries, and manufacturers can't compete. Reserve Bank governor Alan Bollard kept on raising interest rates to crush the housing boom, which he has succeeded in doing. But he didn't succeed in controlling inflation, which is still running over the limit. The downside is that he may be crushing the economy as well.
New Zealand First and the Green Party are calling for a review of monetary policy. For NZ First, this isn't a new issue. It has been saying for at least three years that the Reserve Bank Act, which forces governors to control inflation within a tight band, needs to be rewritten. "Monetary policy madness" was how party leader Winston Peters described the situation on Friday. He recalled that on June 22 last year he had predicted in a press statement: "If we do not adjust our monetary policy we may as well be buying the ticket for our exporters such as Fisher and Paykel to leave". How right he was, and no one any notice of it at the time. "It is sheer madness to have a monetary policy which deliberately cripples our manufacturers, farmers and other exporters in an effort to control inflation," Peters said on Friday. "While inflation must be controlled, it should not be the sole focus of monetary policy. Other factors, such as the exchange rate, should be taken into consideration." Green Party co-leader Russel Norman said Dr Bollard was trying to use high interest rates to hold down domestic inflation, but much of the pressure was actually coming from commodities like fuel and food. "We are crushing our productive sector with high interest rates without having much impact on inflation," said Norman. "Where is the sense in that?" Norman acknowledged that a lower dollar would make imports like fuel even more expensive, but he said keeping it high wasn't a sustainable strategy because of the crippling impact on exports. The ACT Party issued a seething statement written by leader Rodney Hide and his recently co-opted helper Sir Roger Douglas. Hide forecast the economy would be the number one election issue. "The true extent of the mismanagement has been masked by the best global conditions our lifetime, but the chickens are now well and truly coming home to roost for Prime Minister Helen Clark and Finance Minister Michael Cullen," he said. "Under Labour, productivity growth has slumped to lows unheard of since Muldoon times." Sir Roger described the economic situation as a tragedy. "This government has over-taxed New Zealanders by $20 billion - that's money that could have been left with people to unleash a whirlwind of initiative and productivity of the kind we've seen in countries like Ireland." The National Party is also attacking the Government, but it has a narrow focus. Finance spokesman Bill English accuses it of spending too much money, fuelling the inflation rate that the Reserve Bank has to deal with. He has stopped short of calling for a review of monetary policy. "Rather than knee-jerk reforms...what is required is a government focused on injecting more momentum into areas of our economy that will promote economic growth and improvements in productivity -- such as infrastructure, cutting red tape, education and training, and increasing after-tax incomes." Cullen responded to these accusations and suggested remedies by saying he had been warning since last year that people needed to realise the full scale of the challenges facing the economy. But he doesn't seem to think the Government can do much about them. "Household budgets are under pressure due to rising food and petrol prices just when the fallout from the sub-prime mortgage crisis in the United States is pushing up mortgage rates," he said. "The weakness of the US dollar continues to put pressure on exporters and drought has hurt a number of our farmers." What he should be really worrying about is that household budget problem, because going into an election with voters who are struggling to pay their bills is very bad news for any government. Maybe he is worrying about it. "Next month's budget will outline a real response to the situation facing households and a real plan for a strong economy into the future," he said on Friday. Well, we'll just have to watch that space.