Dr Cullen's Casebook: The Good News Continues
The good news continues
Interest rates drop
Home-owners and the local sharemarket got a surprise boost when interest rates fell this month.
The Reserve Bank cut the official cash rate from 6.5% to 6.25%, the first rate cut since December 1998.
RB Governor Don Brash said while further cuts are not inevitable, significant parts of the economy were operating at close to full capacity buoyed by a "still-stimulatory" exchange rate and good commodity prices.
S&P vote of confidence
Standard and Poors put New Zealand back on a stable credit outlook reflecting confidence in the Government's fiscal stance.
This puts us back on par with Australia as both countries are now on AA+, the second highest rating S&P gives. Since 1998, New Zealand had been on negative outlook.
The main reason S&P gave for our promotion is that it is confident the Government will maintain the budget in structural surplus.
Other reasons are the independence of the Reserve Bank in the operation of monetary policy and the resilience of the economy with flexible labour and product markets.
And it is worth noting that S&P has clearly had an opportunity to assess the Employment Relations Act and is satisfied that it does not introduce rigidities into the labour market.
So yet again, while the Opposition was busy talking down the economy and Government's policies, the world kept turning and business kept on doing business.
S&P quotes the current high levels of private sector debt as a constraint on our currency rating. The need to raise national savings rates has long been identified has a top priority (you will no doubt recognise it as one of my constant refrains) and we are developing policies to achieve better saving rates.
They include the proposed New Zealand Superannuation Fund and measures to make private pension funds more attractive as a savings instrument.
Tourism - the magic money maker
Tourism plays a vital role in our national economy. We estimate that domestic tourism and international visitor spending together accounted for more than $11 billion of economic activity over the last 12 months.
It is important that we acknowledge that these figures translate into real jobs and real development in every single region of New Zealand.
We are taking a hands-on approach to ensure each region benefits from the current tourism boom. And New Zealand is reaping the rewards of a strengthening relationship between central government, local government and the tourism industry.
Business Confidence -2 year high
The February National Bank business outlook showed business confidence at its highest level in two years. A net 31 percent of businesses expected general business conditions to improve and a net 38 percent expected their own business to grow over the course of the year.
This is particularly good news when you consider that the international economy is slowing. Hats off to good export growth and a strong labour market.
The same survey showed renewed investment growth. Like business confidence, investment intentions were at a two-year high.
ACC premiums - going down again
More good news with lower premiums on 1 April, the second fall since the Government returned workplace accident insurance to the state.
Employer premiums fall 22.4% from $1.16 to .90 cents for every $100 of wages paid. Earner premiums drop 15% from $1.30 to $1.10 for every $100 of wages earned. And the self employed premiums drop 17% from $1.64 to $1.35 for every $100. Better tax laws for R&D Research and development expenditure will qualify for an immediate tax deduction from 1 April, this year.
Tax laws will be brought into conformity with Generally Accepted Accounting Practice under Financial Reporting Standard 13 so that all expenditure which business categorises under international scientific standards as R&D and which is immediately written off for accounting purposes will also be immediately tax deductible.
The advantages of bringing the two regimes into alignment are threefold. It will:
create significant savings in compliance costs
introduce greater certainty as the FRS 13 definition is much clearer and tends to cut in further along the product development process
provide a firmer guide to the Inland Revenue Department. While in most cases R&D is being fully deducted already, the lack of clarity in the deductibility/non-deductibility boundary creates scope for unnecessary disputes about interpretation between taxpayers and the IRD.
Common sense and natural justice in ACC refunds
Finally, a resolution to the ACC double billing that came to light during National's short-lived privatisation of the workplace accident compensation scheme.
The over-charging, which surfaced when employers had to square up their accounts with ACC in preparation for shifting to private insurance, created an obvious injustice which needed to be fixed.
ACC is now putting a system in place to allow employers who were double billed in the transition from payment of levies in arrears to payment in advance to seek redress.
Employers and the self-employed who changed the status of their business and have not received an adjustment already will be able to apply for what is essentially a "wash-up" of their premium payment.
Rather than a further case going through the courts, ACC will be guided by court decisions to date and the natural justice principle that people shouldn't pay twice for the same service.
Those people who may be affected: were employers in business on 31/3/80 or self-employed in business on 30/9/79 changed their legal personality or line of business prior to June 30 1999 have not received a premium refund or credit as a result of this change.
ACC's approach will now be to look at whether the business would have been entitled to a cessation adjustment if it had applied in time Essentially it will be disregarding the time limit.
Employers who believe they should have made a claim for a cessation adjustment will need to go back to ACC with their supporting documents.