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Molesworth & Featherston - 18 November 2003

Molesworth & Featherston

Business And Political News
Weekly Bulletin
18 November 2003

This week in the complimentary edition…

Will the world cup debacle wreck the economy? The Herald’s union trouble; Labouring over a gnat; The week ahead; Energy; Trains; Interest rates and credit cards; even something on Prince Charles…and an all Pseuds Corner column.

Full credit

The wreckage of the All Blacks’ World Cup campaign is unlikely to affect the economy or the poll ratings of the government.

A number of economists have rashly put their own reputations on the line and forecast economic chaos. Within hours of the defeat, Arthur Lim of Macquarie Equities was on the front page of the Sunday Star Times announcing the defeat ‘was likely to dent the economy.’

You would think that economists would check the hard data. After all, we have ample evidence now about what happens when the All Blacks lose the world cup.

Molesworth & Featherston sent out a specially equipped team of palaeontologists who were able to find dusty old tablets containing economic data from the last time the All Black won the World Cup. We then compared those figures with seasonally adjusted GDP in constant prices (Stats NZ figures).

It turns out that the worst thing we could do for the economy would be to win the rugby world cup.

In the quarter following the All Blacks’ June 1987 win GDP expanded by 0.28 per cent, the smallest per centage increase in GDP following any world cup. The Lange Labour government was re-elected. Then the stock market collapsed. Which was the greatest catastrophe is a matter of conjecture on which we offer no view.

Four years later, GDP in the three months coinciding with New Zealand’s semi-final loss to Australia increased 0.75 per cent. In the following quarter it expanded 0.35 per cent.

In 1995 the All Blacks progressed to the final and GDP expanded by 0.96 per cent. The National Party in government rose to its highest poll ratings of the nineties (over 50 per cent), and in Opposition Labour sank to just 16 per cent.

The economy raced ahead after the 1999 All Black loss, expanding 1.4 per cent. The Shipley-government crashed out of office, but appeared to strengthen in opinion polls in November from a very weak position following All Blacks’ defeat on 31 October.

So it appears Reuben Thorne’s pre-game comment -- ‘it’s sad but true, the economy suffers’ -- indicates he is not only a great in-field strategist and leader of men, he is an economist of equal quality. The data shows World Cup rugby has no effect on political party support and defeat is good for the economy.

Pedants note: There will be a minor effect in those bars where fans will not flock to view the final. The same could be said of Wellington’s failure to win the Ranfurly Shield.

Poor old Granny

Those looking for Labour Minister Margaret Wilson’s long awaited amendments to the Employment Relations Act should prepare themselves for the first week in December.

Meanwhile unions, and anyone who gets pleasure from the New Zealand Herald’s pain, have been chuckling over the EPMU’s victory over O’Granny in the employment court.

Seems their pressure on two senior journalists to leave the collective in order to get a bigger salary breached the law and New Zealand’s international obligations on freedom of association to boot. It could also have wider ramifications if, as appears at first reading, it means that anyone in a union should be in an applicable collective agreement (not an individual deal) since, as the full bench of the court found, there is nothing to stop employers giving conditions different from, but better than, the collective minima.

“Leaving the collective means leaving the union” seems to be the ruling.

That could cause some heartache for those old socialists in the Herald and elsewhere who thought they could have their union cake and ditch the obligation to go on strike if the union collective voted to go out. Smirk.

Nicked in the bud

Well what can you say about the National party coup?

Labour is chortling about six deputy leaders in six years (McKinnon, Creech, English, Sowry, Smith and Brownlee) and four leaders (Bolger, Shipley, English and Brash) against just one leader and one deputy for themselves. Of course if you go back 16 years it is a different picture (Lange, Palmer, Moore and Clark ...) and the real lesson to be learned is how changing leaders is inevitable and does little good.

It is not an auspicious start for Don Brash.

His public assault on the leadership broke with convention and his failure to provide a deputy and frontbench ticket, allied with his failure to give the caucus time to lobby and select a deputy, saw the rushed decision to select Nick Smith over two unacceptable candidates. At the time he made a virtue of this. He had made no promises so was beholden to no-one. He could reward on merit and the caucus could choose a deputy it wanted (the unpopular Roger Sowry had been forced on them and protected by English’s patronage.)

But given Dr Smith's divided loyalties -- to his old friend and his new boss -- and his well-known prickliness and short temper, the recipe was there for disaster even before he deprived himself of sleep and got into a fight with the court over contempt.

Even so it took some serious undermining and leaking to the media about his weird behaviour three weeks ago to set to the scene for his ousting by Gerry Brownlee. Most of the media can't really get into the issue here, because they all received ‘off the record’ tip offs about his behaviour, which they can hardly mention now without dobbing their sources in. But without breaking any confidences, there was no great loyalty shown to Dr Smith, although in most cases it was dressed up as an explanation for his absence and in the guise of a plea to the media to go easy on him.

Now Brash is struggling to explain why Smith was a great choice and a bridge-builder three weeks ago, and now Brownlee is equally excellent. He also has to explain why he had again reshuffled his front bench, not just to accommodate the new deputy, but to promote Simon Power.

At his press conference today he looked all at sea ... and as for his promise to be a cell phone call away for the media ‘24/7’ ... well put that down as the first broken promise.

Brash now faces a factionalised caucus a la Labour of old in a way few National leaders have experienced one. In the brat packers plus their entourage, such as Lynda Scott, he faces a formidable destabilising force if they decide to start whispering and leaking against him.

Straightforward answers to complex questions concerning the National Party leadership

Question one. Did Dr Brash indicate to Dr Smith that he should stand for deputy leader, and that he – Smith – would have the support of his new leader and close friend’s erstwhile rival?

Answer: Well he never said that any more.

Question two. Did Dr Brash tell Dr Smith it was not in his – Smith’s -- personal best interests or the interests of the National Party to continue as deputy leader?

Answer: It’s the leader’s job to give wise counsel.

Question three. Did Dr Brash tell Mr Brownlee that he should not stand for deputy leader and would not have his – Brash’s – support?

Answer: Very wise counsel. This, after all, is a leadership aspirant who lost an assault suit as an MP.

Question four. Did Dr Brash tell Dr Smith that Mr Brownlee would have his support in a leadership challenge?

Answer: Ah. Well, a leader needs to be flexible.

Question five. What does this tell us about the National Party’s leadership and caucus?

Answer: Shambolic. Chaotic. Dithering. Dodgy.

Question six. Would you also say it was treacherous, in the way a shark in a goldfish pond is treacherous?

Answer. Oh yes. There is something of the night about this.

Question seven. Why did Bill English have to go?

Answer: Couldn’t make a decision. You never knew if you were Arthur or Martha. He would back the wrong horse, and then switch suddenly.

Question eight. So has it all changed for the better now under the new management?

Answer: More tea vicar?

Question eight. Is John Mitchell the new National party strategist?

Answer: No. John Mitchell won a few this year.

The Week ahead

A relatively quiet week as the Government lets National fester in the headlines.

The House will deal with the Tax Bill, including new rates for employer contributions to superannuation funds, which align with employees marginal tax rates (but for the six-cent tax break for those earning more than $60,000). Green attempts to extend that 6c break to all workers will fail, even if it would slice only $77 million off Michael Cullen's surplus cake. But there will be a small sweetener in a planned amendment to ensure that if superannuation payments tip a taxpayer into the higher bracket they will be taxed at the lower rate -- say if someone on $37,000 gets $3000 a year in super from the boss they will pay tax at the under-$38,000 rate - 21 per cent - not the 33 cent rate on that marginal income.

It does open a loophole though, so be on the lookout for the defensive measures from IRD, or it will be tax lawyers at the ready! Unless there is a good legislative fix we can envisage some very low base rates and some very big employer contributions for the already wealthy. For instance what price the RBNZ Governor getting $37,000 as a base rate and $463,000 put into his super fund taxed at 21 per cent? Wouldn't that be a scream? Nah, it could never happen, could it?

Money printing machine for sale

A single large investor is the likely buyer if Contact Energy’s 51 per cent owner Edison Mission looks to sell its international assets.

Contact is looking like a jewel, having emerged from this year’s power crunch in a strong position. How good was it for Contact? Contact’s generation earned an average price of $82.32 a megawatt hour – compared to 41.61/MWh last year. Since the company announced its profit this week, shareholders have seen their stock rise to over $5.20 from less than $3.50 a year ago.

Toll still doesn’t have rail where it wants it.

Meanwhile Toll Holdings continues to bluster at shareholders as it tries to get 90 per cent of TranzRail The company is stuck in the eighty per cent range, and has been stuck there ever since investors realised they had little to gain by selling at Toll’s price and plenty to gain by holding.

Investors know Toll wants TranzRail’s cash, for which it has to own 90 per cent. Toll will have to pay a considerable premium to get it. Why would anyone sell for less?

Going up

The likelihood grows of interest rates increases in two weeks.

90-day bill rates are now over 5.4 per cent, meaning the market is virtually certain of an increase in the Official Cash Rate (the market—a different one – was also certain that it would spend next Saturday evening in Sydney watching Jerry Collins knock Jonny Wilkinson’s head off, but we’re not bitter).

Credit card figures due for release this week could be another indicator of the strength of the domestic economy. A new economic indicator, called ‘BNZ MarketView’, was launched in Marlborough last week. It tracks eft-pos and credit card spending to provide rapid information about the impact of economic events.

In September, total credit card borrowings looked to have increased. After falling into single figure per centage increases through most of this year, growth is back in double figures – perhaps indicating consumers are spending more. Meanwhile the rate of increase in ‘total advances outstanding’ appears to be dropping, which may indicate that even as we put more on the card, we are paying off more of our credit card debt -- perhaps indicating a feeling of strong personal cashflows.

Good growing weather

To the extent our economy depends on weather – it’s been a good growing season, and it should be a good summer.

The climate research institute NIWA expects normal rainfall, average temperatures and normal soil moisture, with the El Nino/La Nina cycle in neutral.

In October, virtually the whole of New Zealand enjoyed soil moisture levels bang on the average (although parts of October are well down on normal). Rivers were more than usually full (sell your power shares while the going’s good?)


Lessons in news management

By now, just about the whole world knows the accusation about Prince Charles. The story has been run in virtually every news media on the planet. Check out the covers of every women’s mag.

We don’t really care about the story. (Well that’s not true, we love good gossip as much as the next newsletter publisher, but we don’t have anything new to say because we have never met anyone at the palace so they haven’t leaked to us).

But we are fascinated by the coverage. If the gentlemen who sought an injunction to prevent the publication of the story had refrained from doing so, it would have appeared the next day. It would have achieved very big headlines in one British newspaper. The rest of the UK media would have shot the story down or ignored it. No one wants to follow someone else’s story, the source is dodgy and it’s all just tacky.

The injunction changed all that. It gave global prominence to a story that would otherwise have been a one-news-cycle wonder. This chap had a media problem, not a legal problem and he shouldn’t have sought a legal remedy. We can’t know what advice the aggrieved valet received, of course, but the injunction was clearly not in his best interest. We can’t help feeling his lawyers should never have sought it.

Quote of the week

(Ignoring the 3-year old who heard a reporter describe the choice of Gerry Brownlee as a move to the centre and commented ‘Is he Santa Daddy?’)

“I am very disappointed that during this period a campaign to oust me was conducted in the media while I was under the Leader's instructions to make no comment. Many of the reported statements concerning myself are incorrect.”

Nick Smith fires a parting shot.

Pseuds corner

…A new column we were inspired to introduce after Russell Brown won something called a ‘NetGuide Award’ in which the judge commented, “A good blog is a cathartic release for the writer, but it never degrades into self indulgent poetic drivel.”

This week, Russell Brown in the award-winning

“If a car can be driven glumly, then glumly were piloted the vehicles on Auckland's slick streets around midnight on Saturday night. I found myself imagining the moods of my countrymen as they wandered home from where they'd been: how did that happen?”

Next week we might have to have a look at NetGuide.

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