The Letter

LABOUR’S CHANCE NZ’s economic performance is truly outstanding. Commodity prices are up 26% on last year; a rise that has compensated farmers and manufacturers for the high dollar. Merchandise exports for May were $3.3 billion – a record. NZ appears headed for 4% growth, well above the Treasury forecast. The prospects for growth in the world economy are very good. Asia Pacific is leading the way: China’s growth is phenomenal, Japan is coming out of a decade long recession, Korea is predicting 6% growth. For this country, growth of over 3% means all economic forecasts improve. Tax revenues increase, the balance of payments picks up, jobs and prosperity are all boosted. Very helpful for a government facing a tough election.

IMMIGRATION Much of the stalling of Auckland house prices can be put down to immigration. Last year just 39,000 new immigrants were approved, 6000 fewer than the government's target of 45,000. Labour screwed up. The new skill category criteria were set so high that no one qualified. The immediate effect on the Auckland house market has given the government a real scare. Minister Swain is now aiming for 50,000 new immigrant approvals this year, enough to give housing prices a boost.

APARTMENT MARKET There is some evidence to suggest it is only the inner city apartment market where prices are weaker. Auckland’s apartment market is sensitive to the number of overseas students. Education is now the city’s biggest industry. Student numbers, especially from China, are in turn sensitive to the Kiwi dollar. If the Kiwi falls below 60c (possible) then the students will come back and an apartment investment does not look so bad.

NOT ECONOMIC Auckland house prices are not driven by interest rates or even the economy but by two factors. First – shortage. The ARC planners have created an artificial shortage of urban land. Infill is encouraged. Within the urban boundaries there is a real shortage of building sections. Of course there is really no shortage of land around Auckland; the planning process is so lengthy and the ARC planners are so committed to restricting the urban boundaries that there is only one way land prices can go. The second driver is immigration, a lot of it internal (NZers moving north). The planned increase in immigration, a recovery in international student numbers, strong growth in the economy and Auckland's property market, regardless of the Reserve Bank's actions, can only go up.

While house price inflation is detrimental in the long-term, and makes first home purchase difficult, it is popular. Increasing house prices creates a wealth effect. A continuation of Auckland’s real estate boom in election year will do government prospects no harm.

IT IS THE ECONOMY OR IS IT? Conventional wisdom is governments do not lose when the economy is strong. President Bush may be about to prove the theory wrong. Despite weaker figures this month, the US economic recovery is roaring along but Bush’s poll figures are falling. In the crucial right/wrong way poll a clear majority of Americans now believe the country is headed down the wrong track. Elections are won on a combination of people, policy and money. On all three, Bush is in trouble. He is now seen as less trustworthy. The failure to find the weapons of mass destruction, prison abuses, increases in government spending and the ongoing mess in Iraq has eroded the President’s electoral chances. It now appears the Democrats will even be able to match Bush’s incredible campaign war chest.

COURT JUDGEMENT The Court of Appeal, after three and a half months, has handed down its decision on ACT’s right to declare Donna Awatere Huata no longer an MP because she is distorting the proportionality of parliament. The decision was not unanimous with one of the five judges arguing to dismiss Mrs Huata’s appeal. The Court found there was no predetermination on the part of the ACT caucus in agreeing to expel Mrs Huata, but also interpreted the Electoral Integrity Act in such a way as to find that the actions of Mrs Huata were of “insufficient significance reasonable to be regarded as amounting to altering the number of the party’s seats in the House or its voting strength”. The ACT caucus has yet to decide whether to take an appeal to the Supreme Court.

PECK OFF THEN? That the MP for Invercargill is leaving at the next election surprises no one. Labour parachuted lefties into even the most conservative of NZ provincial electorates. On all matters before the house Mr Peck did as he was told. He hewed strictly to the party line on conscience votes. With such a mismatched MP it is clear that his exercise of conscience votes were far from the views of his electorate. He is wise to leave. It’s plain as day the electors of Invercargill will not return him at the next election. More likely is that National will win Invercargill handsomely – if they learn from Labour’s mistake and select someone representative of the electorate.

CLARK RULES THE WORLD The PM claims there was no other way to deal with the Israeli spies issue than to all but declare an end to relations with Israel. A steadfastly pro-Palestine cabinet may have coloured her judgement. There were a dozen other ways to deal with the Israelis. The best option was to carpet the Israeli government privately and read the riot act to them. Not to publicly thrash the only democracy in the Middle East. Winding up with the support of Hamas shows Clark’s lack of diplomatic finesse.

THE POLL Last week's poll had 99% of 863 respondents saying Closing The Gaps is not money well spent. This week’s poll, Would you rather have Hamas or the United States as our ally? http://www.act.org.nz/poll to vote. We’ll send the result to the PM.

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