Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Will ditching the CGT have revived business spirits?

By Jenny Ruth

May 27 (BusinessDesk) - Amid an action-packed week for business news, a key piece of information will arrive on Wednesday afternoon when ANZ Bank's latest business confidence survey shows whether Prime Minister Jacinda Ardern's decision to drop a planned capital gains tax has lifted business owners' spirits.

Earlier the same day, the Reserve Bank will deliver its bi-annual financial stability report and a day later will be the week's highlight, the government's first “Wellbeing Budget.

"Most economists are expecting to see a slightly more difficult situation for the government, with softer growth likely to impact on tax revenue projections and therefore a little more pressure on the minister of finance to keep additional spending to a minimum," says Mark Lister, head of wealth research at Craigs Investment Partners.

"At the same time, some factions of the coalition government want to see a loosening of the purse strings, as do many of the voters who put this regime in power," Lister says.

But corporate news will also be coming thick and fast with Air New Zealand holding its annual investor day today and Fisher & Paykel Healthcare reporting its annual results.

Another heavy-hitter, Mainfreight, will report its results on Tuesday, as will retirement home provider Arvida.

Turners Automotive Group is reporting on Wednesday and cinema software company Vista will hold its annual shareholders' meeting that day too.

About two-thirds of the April business confidence survey was conducted before Ardern's decision and it showed headline business pessimism virtually unchanged at a net 37.5 percent, only a marginal improvement from the net 38 percent March result. A zero result would be neutral.

The shelving of CGT “is a genuine game changer. A lot of small businesses in particular were worried about that,” Lister says.

The cut in the official cash rate to a record low 1.5 percent on May 8 may also have lifted business spirits.

However, just about all the news from offshore has been considerably worse, Lister says.

He's expecting the Reserve Bank will highlight that factor when it releases its six-monthly financial stability report on Wednesday morning.

“There's still a few things to be nervous about – global issues have worsened and global growth has taken another leg down,” particularly in China, Lister says.

There will be an update on that on Friday afternoon when both China's official Purchasing Managers' Index and the alternative Caixin reading will show how manufacturers in China are faring.

“Both these measures remained in expansionary territory (in April), but only just, with respective readings of 50.1 and 50.2,” Lister says. Index readings of 50 mean manufacturing is neither increasing nor decreasing.

And then there's the escalating trade war between the United States and China. That's the main reason the broad measure of US shares, the S&P 500 Index, has fallen for three straight weeks and has lost more than 4 percent in May so far.

The international economic picture “probably looks a little less stable” to the Reserve Bank than six months ago, Lister says.

“My strong suspicion is that the key thing worrying the bank is offshore stuff – that I think will be the one that gets the most airing.”

The central bank will probably be comfortable with how much the housing market has cooled – in April, the Real Estate Institute's Auckland house price index fell 4.4 percent from a year earlier while prices in the rest of New Zealand rose 6.7 percent, down from the 7.2 percent growth recorded in March.

“The housing market has done what the bank would have wanted to see,” Lister says.

Dairy farmers are also probably less of a worry for the central bank than in recent years.

Although dairy giant Fonterra has reduced its annual earnings forecast to 10-15 cents per share and narrowed the expected farmgate milk price to near the bottom of its previous range, at $6.30-6.40 per kilo of milk solids, that's still more than a dollar above the average farmer's break-even price.

And Fonterra is forecasting the coming year's milk price could be $6.25-7.25.

“We've had three year's of good, stable, steady payouts in the mid-$6s, when you include the dividend,” Lister says.

Although the last Global Dairy Trade auction result was down a little, ending 11 consecutive auction increases, prices are still up more than 22 percent in 2019 so far and flat relative to a year ago.

But the weakening currency is providing a cushion – the New Zealand dollar has dropped 2.43 percent against the US dollar so far this year.

“Everything points to the coming season being up slightly. The sector's not out of the woods completely because it's still got a heavy debt burden,” Lister says.

The Reserve Bank is likely to highlight that indebtedness because, as we saw in the GFC, such high debt levels mean the dairy sector is still vulnerable to a global downturn, he says.

© Scoop Media

Business Headlines | Sci-Tech Headlines


Marsden Pipeline Rupture: Report Calls For Supply Improvements, Backs Digger Blame

The report makes several recommendations on how the sector can better prevent, prepare for, respond to, and recover from an incident. In particular, we consider it essential that government and industry work together to put in place and regularly practise sector-wide response plans, to improve the response to any future incident… More>>


Oil Scare: Trump Authorises Use Of Emergency Crude Stockpile

The New Zealand dollar fell against the US dollar after President Donald Trump authorised the use of the country's emergency crude stockpile after the weekend attack on Saudi Arabia’s major oil facilities. More>>


Pre-Post-Brexit Deal Talks: UK Trade Minister Visits Wellington

New Zealand should get a better deal for exports of sheepmeat, beef and dairy products into the United Kingdom after Brexit, the British Minister of State for Trade, Liz Truss, said in Wellington today. More>>


Not-Very Well: Tamarind Halts Tui Drilling; OMV Assesses Options

Tamarind Resources has halted drilling at its Tui oil field off the Taranaki coast after the first of the three planned wells came up dry. Managing director Ian Angell says that despite the “unexpected” result from the first well, the firm believes the other two prospects are worth pursuing. More>>


Seeking 'Clarity': Crown To Appeal Southern Response Decision, Offers Costs

“It is our intention that the clarity that will come from the outcome of these proceedings will enable the Crown to work with Southern Response to provide a soundly based proactive solution to those people that are affected.” More>>