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Molesworth & Featherston - 2 March 2004

Molesworth & Featherston

Business And Political News
Weekly Bulletin
2 March 2004

There is mutiny in the air … this week we report increasing chances of industrial trouble, consider a new Maori party and look to the Act conference. Also this week, decisions in Parliament and Cabinet, a little reminder of your generous support for LOTR, our new column ‘O That’s Funny!’ and M&F’s exclusive rolling poll of polls.

Trouble at mill

A big industrial bust-up is on the way courtesy of the breakdown in the multi-employer metal industry talks, our union friends (no, we are not class prejudiced like some newsletters we could name).

The metal industry agreement, which would cover some 220 workplaces and 2500 staff, would have also knocked-on to other worksites. Union organisers detect the hand of the employers lobby groups in the failed talks. Business leaders would be happy to have industrial disruption as they gear up to oppose changes to the Employment Relations Act – and hope that new labour minister Paul Swain is listening to the calls for a softening of the union- and employee-assisting amendments.

We put odds of a nationwide stop-work meeting as high as 75%.

Cabinet this week

Cabinet approved up to $3 million over the next two financial years to fund the inquiry into police rape complaints.

It also approved new tax rules including changes to the venture capital tax regime, which Finance Minister Michael Cullen is expected to announce on Friday when he talks to the Fiscal Association in Christchurch.

Discussion papers will soon be released on the regulation of human tissue and tissue-based therapies. These will touch on stem cell research, organ and tissue donation, and transplants.

There will also be a discussion paper on preventing and minimising harm from gambling under requirements of the Gambling Act.

Cabinet was updated on the North Island floods with an estimate that roading and other infrastructure repairs would cost around $65 million plus or minus 30 per cent. The first estimate of damage to farms is between $159 million and $180 milllion.

PM Helen Clark moved to further hose down the schools closure issue by distancing the Government from the process (“Trevor Mallard is a good minister but he really should have told us first…”) and then appointing a mediator/facilitator to review the review of school closures already mooted in Mallard’s latest proposal for the eleven districts already in the spotlight. You remember … they are the ones that he was going to press ahead with but will now accept can stay open if the facilitator finds a way to allow it. Messy.

In the House

The House will enjoy the third reading of the Cervical Screening Programme Bill, the committee stages on the Civil Aviation Amendment Bill and the first reading of the Films Videos and Publications Classifications Amendment Bill and the Crimes Amendment Bill.

Wednesday is private members day. It will also see the debate on the Budget Policy Statement and the House is also expected to debate the Status of Redundancy Payments Bill and the Volunteers Employment Protection Bill (safeguarding jobs for territorial troops on duty).

Thursday will see progress on the Fisheries Amendment Bill and the bill extending the moratorium on aquaculture licences.

Tasman talks

Prime Minister Helen Clark leaves today for her annual chin-wag with Australian PM John Howard. High on the agenda will be reform of the Pacific Islands Forum.

There is likely to be a preliminary retreat, venue unknown, to hammer out changes ahead of the forum meeting in Apia in August. Other issues will be the usuals …trade, single market harmonization, Pacific security…

CER gains

While she’s chatting to Mr Howard, the PM could mention NZIER research showing a borderless market could bring benefits worth between NZ$256 million and NZ$576 million.

In its March 2004 Update NZIER says the figures are ‘conservative’ and have to be off-set against one-off costs of dislocation and uncertainty of between NZ$64 million and NZ$128m.

Te party

Talk is beginning to mount of a new Maori Party and it will be on the agenda at a hui at John Tamihere’s local marae at Hoani Waititi on Saturday.

There is certainly more than the usual level of angst among Maori, urban and iwi-based, after the Brash Orewa speech and the Government’s about-turn on warm fuzzies for Maori affirmative action. That’s not to say the long-threatened party will happen any time soon. The big conundrum is how you get the urbans and the iwi, the cooperators and the separate sovereignty people, the left and the right all in one tent – along with funding and who will organise it. (Some of the large potential and professional funders and organizers don’t see any interest in co-operating).

But we are detecting more than the normal background level of disgruntlement from Maori leaders. There is a stronger realisation that Maori needs will not be met by the big parties – or at least will be put on ice whenever political imperatives dictate that the pakeha majority are uncomfortable and need patting on the head. Of more fundamental concern is whether the consensus over the pre-eminent role of the treaty in determining Maori rights will be overturned.

Significantly Mr Tamihere is publicly saying now is not the time for a party (which supporters want him to lead) but he is very grumpy about not getting the Commerce portfolio or a significant promotion in the divvy-up after Lianne Dalziel’s fall. He is thought to be privately sympathetic … and may be persuaded if the organisation and funding was put in place.

His grumpiness is echoed on Labour’s right, which feels that the quota system which delivered the liberal David Benson-Pope to replace the liberal Dalziel is working against them … and the promotion of talent like Damien O’Connor.

Chances of a new Maori party? About 10 per cent, but higher than they were a month ago.

Final Act

The ACT party holds its annual conference in Christchurch this Saturday wondering how to lift the one per cent polling flat-line of the last few months.

Leadership aspirant Rodney Hide has been persuaded to tone down his ambitious statements in public but we think it is premature to rule out a challenge anytime soon.

Soundings suggest the numbers – which are in any case close – might be drifting his way as the party does the same soul-searching National did before it dumped Bill English. That is, what will change if we stick with Richard Prebble and isn’t a risk better than the near certainty of failure?

We think Act is a ruined beast as long as Brash stays leader of National, and it may as well take a punt on Rodders.

The M & F rolling poll

Talking of polls, our unique rolling average of polls this week shows National has finally got its nose in front – although (and this is the funny thing about a poll of polls) the latest survey in the Sunday Star Times shows Labour may be clawing back some of National’s lead.

Current standings are:

National 42.6
Labour 40.75
NZ First 6.6
Greens 6.3
Act 2.3
United Future 1.2

Look out this week for more polling data ...

Another rate rise coming

We’ll preview the Reserve Bank’s 11 March OCR review in our next edition – but just to let you know early, we are picking the Reserve Bank will increase interest rates again next week.

With a 90—day bill rate of 5.6 and an OCR at 5.25, markets are pricing in a rates hike. A poll of economists by Dow Jones newswires puts a consensus among bank economists on a rates hike. The bank needs to balance risks: Lifting interest rates should increase the value of the dollar (already high) and suppress domestic demand. But if markets guess that domestic demand is slack, the rate rise would be cause a loss of confidence and could perversely jolt the dollar downwards. Certainly the expectations of increasing interest rates are out of step with forecasts of economic conditions worsening this year.

Odds of a 0.25% interest rate rise: 70%

Phat controls

The standard of financial control in government departments is improving, according to Treasury.

Its survey of 44 departments praised the performance of departments in foreign exchange, delegations and financial management information.

Not so good? Cashflow forecasting and management, and most departments don’t have a policy for managing working capital. Treasury told departments it also wants to see better processes for handling money departments hold on behalf of others.

Time to buy a seat in the country

What do you think is the better investment – rural land (excluding lifestyle blocks) or urban housing?

There is not much difference, but both get a better return than their cost of capital according to the latest National Bank rural report. But if you had to choose rental housing looks like it gets a slightly better return than rural land, and both out-perform shares – although the bank qualifies its findings heavily.

The research appears to be heavily dependent on the fraught (and possibly flawed) assumption of timing the market. The average annual increase in rural land prices has been a nominal ten percent for the past 35 years.

Lord of the Blings

Peter Jackson mentioned a big thank you to the New Zealand Government as he accepted his Oscar. Well he might have. A recap on how you paid for the trilogy, underwritten by the Government – starting with Bill Birch in 1998:

BNZ Finance set up a finance company and took a gigantic tax deduction (in the tens of millions of dollars) for the cost involved. The finance company took a thumping tax deduction for the cost of shooting the films. It then sold not the films, but the right to buy the intellectual property in the films. The price for this ‘right to buy intellectual property’ had little to do with the cost of making the film – meaning the government’s potential tax exposure, if the trilogy made huge losses, was larger than the cost of the making film. The owner of the intellectual property is now taking the film on a world tour, picking up tax write-offs in Germany, for example. One day the right to buy the intellectual property will be exercised, at which point some tax will be payable – provided the film has made enormous profits.

We should be grateful for the Oscars, because the larger audiences attracted by the Academy’s awards will produce larger profits for LOTR and in turn reduce the dent in our tax base.

Our contribution? At a minimum a two-year tax holiday for 33% of the sum that the rights in the film were sold for – potentially as much as $400 million worth of tax over the three films according to the highest estimate; PLUS the risk of losing all the tax deduction if the film had been a flop (a risk is not ephemeral – it is an economic value, which can be calculated); PLUS the value for the original deduction for the costs of setting up the first company. All of these subsidies have gone to the least deserving taxpayers in the country.

As everyone knows, these tax schemes have been dumped, but it’s hard for governments to tell Peter Jackson – or Hollywood -- to go jump, especially when it knows Wellington is already NZ’s worst performing regional economy. Then there is the influence of a couple of very large law firms (all of whom subscribe to Molesworth & Featherston – along with their competitors) and some even smarter independent lobbyists.

No one has much of a problem with allowing a tax deduction for the cost of making a film. The intolerable risk to the tax base is the deduction for the unrelated – and potentially far larger – sale of intellectual property. Tax wonks are fond of asking, if the economic benefits are so good why not directly subsidise the film instead of using the tax system? And if the schemes are good enough for films, then they will soon apply to everything with intellectual property – music and fashion spring to mind.

That’s why the Government replaced the LOTR scheme with a direct subsidy – a $40 million fund to assist large budget films (though no one has claimed it yet). It helps to bring the films here, but limits the potential bruising to the revenue.

So what are films worth?

Filming the Last Samurai in Taranaki pumped $85 million directly into the New Zealand economy, and a total of $195 million counting downstream activity. It also created 1403 jobs over a year (that’s almost $140,000 a job).

That’s the assessment of an economic impact study for Venture Taranaki. It said the Last Samurai utilised fourteen different industry sectors from construction to retail and communications.

And how can anyone put a price on breathing the same air as Tom Cruise?

This week we proudly introduce our new column…

O That’s Funny

From ‘The Letter’, the weekly newsletter of Act leader Richard Prebble:

“Like an Italian tank (one forward gear and four reverse), Labour is now keen to abandon policies that Helen Clark asked her government to be judged on.”


Your mail

One of our correspondents last week thought we were too harsh on Labour’s response to National’s poll surge, writing:

“Yes, it has been chaotic and panicked, but at least there has been a response. At least you can't accuse Labour of acting like a possum caught in the headlights (a la the Shipley govt). A hallmark of this govt is its willingness (regardless of individual ministerial ego) to cauterise their injuries and not let them fester. In short, don’t underestimate the strong survivalist instinct of this government.”

Another correspondent was fascinated by Helen Clark talking about ‘battlers’ – pointing out that was John Banks’ favourite term – ‘Kiwi battlers from Struggle Street’.

“Must be the first time Helen’s picked anything up from Banksie…”

Molesworth & Featherston welcomes your feedback. We won’t publish names and email addresses unless you ask us to, or you offer us an attractive investment in a Nigerian scam.

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