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ACT's The Letter - 19 April 2005

ACT's The Letter - 19 April 2005


To Labour's relief parliament is in recess for two weeks. Clark's scare with the aeroplane was a welcomed distraction. Labour's spin is that the Tamihere affair is peripheral and will do no polling damage. However, not even the 9th floor says it will help the government's popularity. Although time consuming in the short term the interview appears to have caused little damage, however, this may not be the case in the long term. Tamihere's claims that this is a government that has no sympathy for fathers, is hostile to small business, favours trade unions and is run by homosexuals with a secret agenda have not been answered. Our politically correct media have refused to go there. Last week in her column Dr Muriel Newman examines the evidence on Labour's secret agenda. See http://www.act.org.nz/thecolumn.


Clark has formed the view that Tamihere is having some form of breakdown. Her dilemma now is how do you handle someone who is not behaving rationally? No one in the government knows what he is going to do next.


The latest CPI figure is 0.4% for the quarter, 2.8% for the year. It is dangerously close to the Reserve Bank's 3% limit. The inflation threshold would have been broken had there not been a fall in international air travel which is down 15.8%. Higher fuel prices are now driving transport costs up. Toll is seeking two substantial price increases this year for rail freight. Building costs are increasing rapidly. It all points to another interest rate increase.


Ignored by all commentators is the significant role of government charges in inflation. The second highest contributor to the last quarter's inflation is government charges. Increases have been a major factor all year and the government is also leading wage inflation. The cost of monopoly government services is rising at well over the rate of inflation and is a secret tax. The cost of Education and Childcare rose 4.5%, local authority rates rose 3.9% and the cost of road user charges for two-tonne vehicles rose 27% on 1 April.


Who can provide lower house mortgages? This was the issue of the last Australian election. It won John Howard re-election. Brash never mentions it as he will not criticise the Reserve Bank and his advisors think voters associate him with high interest rates. Rubbish. The Bank deserves to be strongly criticised. Inflation is well over the old target of 2%. Using the CPI measurement Brash had to work with it is even higher. The bank undermines its independence by failing to criticise government policies that are driving up inflation. Brash needs to decide if he wants to be PM.


We expect the NZ share market to have a bad day. Wall Street has had big falls. There is doubt over whether the US can keep driving the world economy as higher fuel prices cause the Japanese and EC economies to slow. Readers know we remain optimistic about the US economy and about the ability to absorb fuel price increases. There is no fuel shortage just a shortage of refining capacity in the US. Planners and environmentalists have made it impossible to build any new refineries in the US for 20 years. New refineries will take years to build. Alarmists have been claiming the world is running out of petrol for decades - its not. It is just a question of price.


The Letter understands there will be no budget night legislation, usually a sign that there are no significant new initiatives. Examination of bills put through under urgency reveals administrative laws that any government would pass. Is Labour running out of ideas? Clark's strategy is to run on the economy and being a stable government. Labour is vulnerable to a charge it has let inflation rise. We also have Tamihere's word there is a secret extreme social agenda.


Anti Japanese demonstrations in China are worrying developments. All of China's borders are in dispute. India and Vietnam have fought border wars with China, and Japan, Vietnam, Malaysia and the Philippines are disputing China's territorial seas. The Letter recalls visiting a Chinese government building where there was an official map of China that claimed the whole of the Spratly's and South China Sea. Their foreign policy has been to put these disputes on the back burner to concentrate on economic growth.

The Chinese army took a terrible beating from the Vietnamese. This persuaded the Chinese generals they needed to re-equip which means a modern economy. As China's economy grows its expenditure on its army (still the largest in the world) has increased even though as a percentage of GDP it has decreased. China has not dropped any of its territorial claims and recently passed a resolution that a declaration of independence by Taiwan would be an act of war.

Clark's view is we live in an area of stability and she has axed our air strike capacity. This is not the view of China's neighbours who are rearming. Japan's decision to send its own oil rigs to the disputed sea may be triggered by their need for oil but also by a belief that if Japan does not act now, China will soon be too strong. No new super power has ever emerged without war. The decision by the EC to review whether to sell arms to China is a realisation that adjusting to China's new status is not going to be easy. A NZ dependent upon China under a free trade agreement may have to make some difficult choices.


Last week 94% of letter respondents thought Tamihere had told the truth in his Investigate interview. This week "Is superpower China a threat to New Zealand?" Vote at http://www.act.org.nz/poll. We will send the results to the Minister of Defence.


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