Economic news tricky for Opposition

PATTRICK SMELLIE
Last updated 07:53 20/06/2013

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OPINION: This has not been a great few weeks for Opposition parties seeking to portray themselves as a government-in- waiting, with their fingers on the pulse of what ails the economy.

On Monday, the Opposition parties Labour, the Greens, NZ First and the Mana Party - count 'em - released the results of an inquiry into what they say is a crisis in manufacturing.

Publication was one working day after the most buoyant reading in seven years for the long-running performance of manufacturing index.

While last Friday's announcement of 84 job losses at Blenheim's Safe Air helped offset the politically unhelpful statistic, other consumer and business confidence surveys still made the Government confident enough to sneer at crisis talk as needlessly negative scaremongering.

Then yesterday came another tactical blow. The deficit on the current account of the balance of payments - identified by both the Labour and Green parties as the country's No 1 economic problem - came in lower and at a fairly respectable 4.8 per cent of gross domestic product.

In politics, it is unhelpful to have what you have labelled the most important to fix apparently fixing itself, however short term the gain may turn out to be.

Also unhelpful, from an Opposition perspective, has been the drop in the value of the New Zealand dollar by about 10 per cent over the past month, thanks to nothing that has happened here and because the United States economy is showing signs of life.

That has seen global investors withdrawing funds from safe, high-yield regional markets like Australia and New Zealand, and returning to the vast US economy they know and love and which could yet spring back into life.

That is the great American strength - housing values destroyed across the board in the past seven years but we move on.

Aucklanders take note: that kind of housing hurt can still happen here.

The Reserve Bank Governor Graeme Wheeler talked last week about house price inflation "increasing the probability and potential harm of a significant downwards correction".

Note he said "probability".

The result of this switch in global investor sentiment to a stronger America? One Australian dollar has been worth less than one American dollar for about a month, after spending most of the past three years above parity.

The kiwi has trotted down in lock-step to bubble below US80 cents. That is still uncomfortably high for some exporters but it is a damn sight better than nudging near post-1984 float highs of US87c, where it has been occasionally in recent months, and official forecasts expect further weakness.

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If sustained, there will be an export earnings fillip to growth in coming months.

Then, yesterday, Greens co- leader Russel Norman confirmed the dumping of the party's previous enthusiasm for quantitative easing, otherwise known as printing money, to bolster the local economy. He still thinks it would be a good option to hold in the arsenal but appears to have accepted it would be incendiary to squirt extra money into an economy barrelling along at close to 3 per cent with a house price inflation problem.

True, some of the froth is one- off and Canterbury-related, but that doesn't make it unreal.

And while house prices today may seem unsustainable, they appear to be encouraging households to get out and spend after a few frugal years of debt repayment. There is no reason for artificial pump-priming.

More importantly, Labour thought the Greens policy was nuts. Add to that the fact National loves nothing better than to paint scenarios of a weak Labour government in thrall to the Greens, and QE had to go.

The centrally planned electricity policy, however, remains in place, where it continues to win hearts if not minds in political focus groups.

However, it has been savaged even by deep critics of the current electricity markets.

Bryan Leyland, a perennial critic over the past two decades of market-based electricity policy, called it a "parody of a single- market buyer" in an open letter this week. However, lower power costs are one of the three pillars of a "new orthodoxy" in economic policy being offered by an alternative government, along with a "fairer, less volatile" exchange rate and a capital gains tax to discourage housing speculation and encourage productive investment.

Labour's problem is that on the first count, the exchange rate is now looking "fairer", no-one having acted, and fiddling with the Reserve Bank Act's settings won't solve the kiwi's volatility in a volatile global environment.

On the second, while taxing capital gains more completely now appears politically accepted, one tax initiative won't single- handedly change investment patterns, especially if the family home is outside the equation.

A differentiated offering from a government-in-waiting's agenda is starting to emerge in time for the 2014 election but it has a long way to go to look electable.

- BusinessDesk

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