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POLITICAL UPDATE Friday 1 Sept 2000 (No. 33/00)

Economists differ over predicted surplus

BNZ senior economist Geoffrey Mason says Treasury's prediction at Budget time of a surplus of just over $1 billion after a $36 billion tax take may now not eventuate - he says the last two quarters of negative growth have led to a slip in GST returns and this plus more unemployment benefits could turn the surplus intro a $100 million deficit. Deutsche Bank chief economist Ulf Shoefisch agrees there is a risk of a lower tax take and higher social spending, but he feels the Treasury surplus prediction is still robust.

Increasing confidence despite Government policy

The National Bank August business outlook which has been hailed by the Finance Minister as showing improving business sentiment, says the increased confidence has nothing to do with Government actions: "NZ's external accounts will gradually return to a healthier state thanks to a weak currency, high real interest rates, a flat domestic economy but a strongly performing earnings sector. The rebalancing is occurring despite poor Government policy which is doing nothing to encourage saving or ensure quality investment is undertaken."

'Triangular taxation' may stop the drift to Aussie

The proposal announced by Australia and NZ Treasurers this week to review tax on dividends from trans-Tasman investment may stop the drift of NZ businesses to Australia. NZ shareholders in companies investing in Australia are currently double taxed, and tax issues are a major impediment to NZ companies raising capital in Australia.

AA says cut petrol tax

The Automobile Association has called on the Government to cut the amount of petrol tax it takes for non-roading activities, saying such a move would soften inflationary pressure. The AA says the reduced revenue to government from the petrol excise tax would be offset by the higher GST returns on increasingly expensive fuel.

Carbon charge unlikely to work

The Government has indicated it may resurrect the 'carbon charge' proposal to limit carbon emissions, some time in 2002. It's unlikely to be effective however, as it would raise petrol prices by less than a quarter of the price rises that have occurred over the last six months alone. These price rises have not led to a drop in petrol use - so a carbon charge is unlikely achieve it either.

Confusion, low expectations from ERA

A recent Waikato University management research centre survey of small to medium businesses shows: * 63% don't think the Employment Relations Act will promote cooperation between employers and employees * 64% think it won't benefit the country The survey showed most business people erroneously think the ERA means compulsory unionism.

Further union influence in Labour after November The ruling council of the Labour Party may be dominated by unionists following council elections in November. Twelve unionists, six from the Engineers' Union, are seeking places on the 24-member council. Auckland-Northland, Waikato-Bay of Plenty, central North Island and Wellington positions are likely to be held by unionists. Commentators say the union movement is pushing for a greater say in MP candidate selection, following the row over the selection of the PM's preferred choice John Tamihere for Hauraki instead of unionist Maurice Davis after two selection meetings were adjourned when it appeared Davis had the numbers.

IRD needs to show leadership in e-commerce tax issues

The US, UK, Australia and Canada are studying tax issues connected with e-commerce in time for their recommendations to be incorporated in an OECD study on that subject - but not NZ. The NZ Government's inquiry into tax, given its breadth and limited resources, is unlikely to devote much space to e-commerce, and will not be completed in time to feed into the OECD study. Currently NZ businesses don't know how income from e-commerce transactions will be treated for tax purposes and will not be part of the OECD loop unless Inland Revenue takes leadership of the issue.

Deadline extended for IRD claims

The small number of taxpayers claiming rebates for donations to charities and housekeeper and childcare expenses has led the Government to extend the claim deadline from the end of September to the end of December. The new system whereby IR5 taxpayers don't have to file returns has caused confusion about claiming rebates. From this year the new rebate claim form is separate from the income tax return. Rebate claim forms are available from Inland Revenue.

US economy keeps producing jobs

A US survey which has been running for 25 years (Manpower Inc) has recently recorded its largest increase in projected demand for labour. The previous highest increase was last year.

Concerns about stock exchange merger

London sharebrokers uneasy about the proposed merger of the British and German stock exchanges have asked for the merger vote to be postponed. The British exchange needs the approval of shareholders owning at least 75% of its total shares for the merger to proceed. The British brokers want more information on how transactions would be regulated and settled and whether stock prices could still be listed in British pounds.

Australian govt agencies doing business online

A recent survey shows over 70% of Australian government agencies pay at least some of their suppliers electronically. Their biggest barrier to electronic trading is the capability of suppliers to do business online. Sixty percent of small businesses and most larger businesses in Australia are connected to the Internet.

R&D costs higher here

An OECD study Benchmarking Knowledge-Based Economies 1999 shows the after-tax cost of doing R&D in New Zealand is higher than in any other OECD country.


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