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Molesworth & Featherston: Wednesday, 24 March 2004

Molesworth & Featherston

New Zealand's up-to-date business and political insight.
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Wednesday, 24 March 2004

About Molesworth & Featherston
Molesworth & Featherston is compiled from informed business and political sources and published on Tuesdays to be New Zealand's most up-to-date business and political newsletter. For more info see FINE PRINT

After a week on the road, we’re back with the latest from the streets of power and fortune. This week we anticipate the next set of economic data and analyse the effect of current polls on the small parties, curiosities around the ‘powdergate’ charges, the release of university rankings, and oddities from the Law Commission. All that, plus our weekly update of business at Cabinet, in Parliament and our exclusive M & F rolling poll of polls…

Hold your breath

The first signs of trouble in the economy may arrive this week.

Balance of payments figures will show the current account deficit has widened, while GDP figures are expected to show the economy slowing a little.

The current account deficit is the difference between the amount a country earns and the amount it spends. By definition, the average current account deficit around the world is zero. New Zealand hasn’t been in the black for more than thirty years, but economists are not too worried about a deficit less than the rate of growth in GDP.

Three months ago the current account deficit was at 4.9%. Economists usually begin to express concern when the deficit climbs over 5%, although it happens so often in New Zealand no one may notice.

We rate the probability of a 5%+ deficit at 80%, with a deficit for the twelve months to the end of December of around $6.5 billion expected. A deficit higher than $6.5bn is more likely than a lower one on the back of our high exchange rate – a higher result will push the level of our dollar down, but it would take an unlikely and very significant blow-out to make a really big dent in the dollar.

The last set of GDP figures recorded 1.5% growth in the three months to September – and a 3.9% growth rate for the year to the end of September. We put the odds on the side of a lower quarterly figure (i.e. lower than 1.5% for the three months to December), but the annual figure could even rise, as a low figure for growth a year ago drops out.

We noticed that the weekend’s TVNZ political recorded economic optimism behind economic pessimism for the first time since 2000.

This week in the House

There will be a four hour debate on the Appropriations Bill and the chamber will also deal with the reappointment of the Police Complaints Authority, and the Business Law Reform Bill second reading.

The Charities Bill – analysed previously in M & F – landed in the House today.

The Resource Management (Waitaki) Bill will get its second reading after the select committee’s report back.

Wednesday is a private members day with bills dealing with the status of redundancy payments, protection for Territorials soldiers' employment, and shop trading hours on the agenda.


A quick-fire Cabinet meeting (to allow ministers to go to the funeral of Social Services Minister Steve Maharey’s wife Liz) approved for introduction a Fisheries Amendment No 3 Bill (which was introduced in the House today).

It deals with the quota management system, and allocates processes and provides access to species outside the current Quota Management System. It introduces scampi to the system, as well as some migratory species.

Cabinet also received discussion papers on screen funding (movies and stuff), possible rationalization of funding agencies and gambling.

The Molesworth and Featherston Rolling Political Poll (MAFRPP )

An exclusive feature which allows us to average and weight other political polls without paying them or charging you!

Current standings

National 45.8

Labour 39.5

NZ First 5.7

Greens 5.2

Act 1.9

United Future 1.5

We have had a special request (God only knows why) from an element of the Progressive party asking us to include them. So to be polite:

Progressives <1

Which means, current friction aside, a National-NZ First Government is still the most likely. National is getting perilously close, if they are not already there, to being able to govern alone. On these historic averages a Labour-Green-Progressive Government with NZ First somewhere on the cross-benches is still an outside chance, but the trend in recent polls has been sharply away from that.

Small change

In the Molesworth & Featherston rolling average of all polls, the combined Labour-National share of the vote is at 85.3%. In the most recent TVNZ poll, the combined share reached 90% -- a trend that puts small party support at the lowest levels since the early seventies and well below anything seen since the MMP referendum over a decade ago.

Analysts are struggling to come up with an explanation. Do small parties ‘always get crushed’ when the major parties battle, as many commentators have asserted? The facts show the opposite.

When National and Labour are neck and neck, the battle invariably increases dissatisfaction with at least one of the big players. A third party alternative tends to swell, as contemptuous voters seek to punish the protagonists with a ‘plague on both your houses’ response. One recent US example has been celebrated by commentators as practical proof of the phenomenon – last month’s Democratic party primary in Iowa. Howard Dean and Dick Gephardt entered January as Iowa frontrunners, on ratings nearing 40% in a crowded field. After a month of battering each other, John Kerry and John Edwards surged through the field and finished with shares in the thirties. The erstwhile ‘major players’ in that field finished at 10 and 15%. OK, so that is an example from a much more fluid electorate – but the lesson is clear. A battle between frontrunners usually opens the field rather than locking out smaller fish.

So how to explain the dwindling share of all small parties? One crucial factor is that, for the first time in thirty years, the net approval ratings of both National and Labour is positive (that is, more people approve than disapprove of their performance).

In contrast, the smaller parties may be looking jaded, lacking the new ideas that in past times have characterised their reason for being.

Does it matter? Crucially. Although direction and leadership inevitably comes from the party providing the prime minister, the flavour of the smaller partner in government changes both the style and substance of the major party’s programme.

Options for the little guys

NZ First, United and the Progressives are best placed to survive the small-party drought -- each holds an electorate seats they are unlikely to lose.

In our view, all five small parties in parliament need to stick closely to their knitting, reminding voters of why they exist rather than trying to compete step for step with the big players.

Act is in the most trouble. Act MPs struggle to identify the party’s reason for being when a Brash-led National Party is stealing its clothes. Donors will have little reason to fund it. We expect Act to begin attacking National more vigorously on ideological grounds – both carving a more philosophical niche for itself and helping to present National as centrist. But Act must be seriously contemplating the 5% threshold and its elimination from parliament. A leadership challenge remains the most likely emergency measure.

United Future will be feeling almost equally concerned. Although the party will be represented in the next Parliament, its hopes for a re-electing a majority of its MPs appear poor. It is hard to see how United can stake out a position that distinguishes itself in a crowded field. Perhaps United MPs could now rue the loss of experienced former strategist and chief of staff Mark Stonyer. We expect Peter Dunne to hold his nerve and wait for voters to tire of Labour-National bickering. He will position himself as a statesmanlike alternative, above the political fray.

The Greens have demonstrated the most reliable ability to push up the polls in times of need. But the party leadership is worried the Greens have slipped sharply without doing anything obviously wrong. On current polling, more than half the voters who supported the Greens a year ago are now supporting a Brash-led National party. There have been few environmental reasons for those supporters to stay with the Greens since the GE issue (predictably) slipped off the radar. The Greens do best when they emphasise environmental-lifestyle issues with strong cross-over appeal (such as GE). They do worst when their positioning changes from the ‘environment party’ to the ‘alternative lifestyle’ party with marginal views on cannabis and Treaty issues. Project Aqua may well be the next big issue for the Greens.

NZ First has conspicuously switched from attacking Labour to attacking National. As the saying goes, you fish in the deepest pool. Mr Peters will enjoy pinning National down on his trademark immigration issue. Will Dr Brash steal NZ First’s clothes on immigration, as he did with the Treaty? Another round of economic nationalism should help hoover up conservative voters disturbed by Dr Brash’s economic rationalism.

Alone among the small parties, the Progressives are delighted with the decline of small parties in general. Where last year Jim Anderton struggled to be taken seriously because of his party’s small following, everyone else is now in the same boat and he can argue for equal treatment. Although it may go too far to say patience is wearing thin with Labour’s arrogance towards its junior coalition partner, the two Progressive MPs are experienced at exploiting the gaps left by Labour’s opportunism. Jim Anderton is preparing policy announcements in the business field we expect to provoke surprise and in the social field to exploit opportunities Labour has left open.

Academic freedom, and precious flowers

The release of the performance-based research fund for tertiary institutions was to be today but the extraordinary court challenge against the release of the international comparisons contained in the report has likely delayed that.

We at M & F would just note that:

A) Universities like Victoria and Auckland traditionally supported freedom of information and debate and should be able to cope with criticism and point out, on their merits, any comparisons they think are unfair or need further comment.

B) The authors think the comparisons are actually to the universities benefit, not detriment.

C) The authors have contemplated releasing a bowdlerized version, minus the international comparisons, but thought they were integral to the report so decided not to.

D) Auckland University's vice-chancellor John Hood will soon be heading to some UK university or other to continue his good work in pursuit of academia’s rights. They will no doubt appreciate his input.

Demonstrators alert

It has been agreed the Pacific Island leaders will hold a retreat at a major Auckland hotel on April 6(Australia's John Howard in attendance, venue not yet released but the hotel-formerly-known-as-the-Sheraton is always a good bet) to thrash out the future of the PI forum.

Milk of Human Kindness

We note a few failures last week from both news media and the parties involved when on Wednesday the Auckland District Court heard charges against seven players in the $50 million-plus 17 -month ‘powdergate’ investigation by the Serious Fraud Office.

Here was an alleged fraud linked to our biggest corporate player and yet Fonterra knew about it and said nothing. Even though it suspended on Friday one executive still working for it and who was charged.

The SFO made no attempt to announce the high-profile charges and at last check had put no information on its website . Perhaps it was waiting in the hope that interim name suppression will be lifted at midnight tonight.

The Government made no comment, even though it could have ramifications for our access to the dairy markets of the world, and particularly Europe who are always looking for ways to attack our dairy export(ers).

And where was the NZ Herald covering its own patch? The story finally broke on Monday in the Dominion Post.

One more point – the horse may have bolted before the, ummm, gate was closed, but does the scandal have to be called ‘powdergate’?

Wouldn’t ‘powerderkeg’ have just as much impact and avoid the tired practice of attaching the suffix ‘-gate’ to every supposed scandal? Memo to ‘-gate’ using writers: “Watergate” had nothing to do with water.

Life. Be in it

Plans for changes to laws covering the industry have gone on hold as the Law Commission finishes a review of life insurance.

Life and non-life insurance are regulated under separate regimes. The government plans to set about both.

The government is already increasing financial disclosure requirements for the sector, in return for dropping the requirement to lodge deposits with the public trustee. All ‘non-life’ insurance companies will have to get an annual rating of financial strength (and disclose it) as well as file financial statements

Last December the Commission published a lengthy discussion document raising issues around life insurance. At the glacial speed the Commission works, the delay in changes may amount to indefinite delay.

Meanwhile at the ridiculous Law Commission

You won’t read this in the Chen and Palmer newsletter…We at Molesworth & Featherston are not completely convinced of the usefulness of Sir Geoffrey Palmer’s Law Commission. Its report last week proposing changes to the court system is a good example of the reason for our ambivalence.

The Commission correctly described the current court system as an ‘impenetrable maze’. It proposes to fix this with a wholly illogical, and muddle-headed idea of abolishing the ‘District Court’ brand most New Zealanders are familiar with and introducing a confusing jumble of new brands, including a ‘Community Court’ alongside eight – count them – other courts collectively to be named ‘Primary Courts’.

The Law Commission took its thumb out of its mouth long enough to propose the new courts be known as ‘Community Court, Primary Civil Court, Primary Criminal Court, Family Court Youth Court, Environment Court, Employment Court, Maori Land Court and Coroners' Court’. You tell us why the term ‘District Court’ should be dropped with a list like this. We can think of one reason – it helps the lawyers’ union if only lawyers know which court is which. We think each court should be a division of the District Court.

We pause to observe that lawyers receive training in law. Not marketing nor other communications disciplines. Nor in any discipline that would make a lawyer competent to pronounce on the branding of publicly-owned institutions. One can imagine the haughty response to suggestions courts are ‘branded’.

On the positive side, the Commission has recognised the need to change the ‘structure, culture and process’ around the high volume part of the District Court.

Although the report continues the legal arrogance of referring to the respect it wishes New Zealanders had for the judiciary – rather than the other way around – its commentary helpfully states ‘high volume cases need judges not only with sufficient practical legal experience but also the time to deliver appropriate decisions. More and more people are unrepresented and inadequately represented which means judicial officers need a robust knowledge of the law and the confidence and experience to be flexible within the law.’

Our enthusiasm for this diagnosis is tempered only by sadness it has to be stated at all.

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Molesworth & Featherston is compiled from informed sources and published on Tuesdays to be New Zealand's most up-to-date business and political newsletter.

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