Author: Gary Hawke, NZIER

New Zealand marked time in 2009, with the government conserving its political capital but achieved little.

Much of the agenda was international rather than domestic. This was most obvious in the area of climate change. New Zealand shares the international policy issue of identifying a suitable response to a risk assessment and choice of appropriate insurance policy, but there was also much emotional nonsense. Read the rest of this entry »

Author: Gary Hawke, NZIER

The fourth bilateral meetings of prime ministers Rudd and Key in Canberra at the end of August can now be seen in some kind of perspective. Any pay-off lies in the future and has to be worked for.

Much of the immediate attention was focused on the defence area. The wording of the joint statement by the prime ministers is intriguingly opaque. The list of items to which ‘both governments would bring sustained focus to making new progress’ includes:

‘ongoing close defence relations to promote common regional security objectives, including, exploring possible opportunities to enhance our joint operational capabilities reinvigorating the ANZAC spirit.’

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Author: Gary Hawke

New Zealand’s trade policy attracted unusual attention in the international press when Earth Times ran an article headed ‘New Zealand abandons regional free-trade goal.’ It gave prominence to trade union welcomes for protection of local industries and jobs, including one which identified ‘a final nail in the coffin’ for APEC’s Bogor goals. The article included a comment by Minister of Commerce, Simon Power, that most imports are duty free, and by Trade Minister, Tim Groser, that ‘New Zealand remained firmly committed to freeing up international commerce’ and advocated resistance to protectionist barriers. Nevertheless, the article implied a major change of policy had occurred.

The Earth Times article is clearly an overblown reaction to a minor step.

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Author: Gary Hawke

An Asia Pacific Community – though not in the sense intended by Kevin Rudd – is already being built. Its content can be traced in the work of the Economic Research Institute of ASEAN and East Asia, the Asia Development Bank, APEC and analogous institutions in the political-security field.

This community does not require stimulation, let alone direction, from a new Australian prime minister. The clearest message given to Rudd’s envoy, Dick Woolcott, as he tested reaction to Rudd’s speech was that the evolution of any Asia Pacific Community should be entrusted to existing institutions.

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Author: Gary Hawke

No part of the world economy is exempt from a global crisis. Asia is strongly integrated with the world economy, and therefore will be significantly affected.

However, “crisis” needs to be unpackaged. It has several components.

Asian economies have been only modest participants in the consumer exuberance based on credit which has characterized some economies. Asian banks have been minor participants in exploiting new credit instruments whose valuation has proved to be more problematic than expected by rating agencies and investors. Consequently, Asian economies are less plagued by over-valued assets and bank losses than are some other economies, notably the US and in Europe.

Asia’s current economic problems stem from collapse of confidence and from declining export markets. These are not new problems.

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Author: Gary Hawke

Most economic historians attribute the severity of the Great Depression of the 1930s more to mistaken policy responses than to the initiating behaviour of market participants.

An even stronger consensus among economic historians is that absence of international co-operation exacerbated the Great Depression.

What are the implications for our current circumstance?

Current discussion of fiscal stimulus assumes implicitly that government spending will be financed by borrowing. That is a welcome endorsement of the lessons of recent decades – we do not want another general inflation. But we should also note it means that people must be willing to hold government bonds.

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Author: Gary Hawke

The media comment, ‘Obama and trade: an alarm sounds’, which Jagdish Bhagwati published on 8 January 2009, is welcome for its evidence of his continued ‘eternal vigilance’ for the welfare of the multilateral trading system. Bhagwati is concerned at the composition of the economic team being assembled by President-elect Obama and by the potential for responses to the financial crisis to conflict with trade obligations, not least through protection of car markets.

We need more evidence on this before becoming too seriously alarmed. Compromises are involved in any political appointment process, and appointees sometimes behave according to their responsibilities rather than their records. However, monitoring the compatibility of domestic and international actions poses continuing and deep issues.

Bhagwati specifically argues for preservation of WTO subsidy rules in whatever assistance is given to the US car industry. He is right to do so, but the complexity of policy development becomes apparent when this  argumentis juxtaposed with his advocacy of a narrow definition of ‘trade-related’ in Termites in the Trading System: How Preferential Agreements Undermine Free Trade (New York : Oxford University Press, a Council on Foreign Relations Book, 2008). There he declared ‘I am happy that the larger developing countries have drawn a line in the sand on including trade-unrelated agendas in their PTAs with the hegemonic powers’.

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Special Author: Gary Hawke

In New Zealand, 2008 will be remembered for some remarkable successes in external economic relations, and for a change of government. The electoral fate of most governments depends on domestic success.

New Zealand became the first developed country with which China concluded an FTA, adding to notable earlier ‘firsts’: completion of negotiations for China’s admission to the WTO, recognition of China as a market economy, and entry into negotiations for an FTA. We all have to get used to recognizing such patterns as significant in international negotiations since they are influential in China, but the China-New Zealand FTA was important in other respects too. The negotiations focused less on bilateral issues than media reports did, and more on how China and New Zealand should jointly manage their interests in regional and global settings. Issues included product safety. It was ironic that the agreement was followed so closely by food contamination in San Lu, a Chinese subsidiary of New Zealand’s Fonterra.

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Author: Gary Hawke, NZIER

Government formation has proceeded remarkably smoothly since John Key’s National Party won New Zealand’s election. Normal political noise will soon resume, and an initial burst may well come over the future of the emission trading scheme (ETS) legislated in the last days of the Clark government.

The ACT party and its leader, Rodney Hide, campaigned on more or less direct opposition to a cap and trade scheme. Its agreement with the National Party included a select committee to reconsider the existing legislation with further negotiations on terms of reference to start from ACT’s specification. The thought of members of parliament reviewing fundamental science is not attractive but negotiations seldom finish at their starting point, and there are grounds for optimism in the select committee proceedings on the bill drafted by Rodney Hide on regulatory reform – and indeed now that Hide is minister with responsibility for regulatory reform, he will be looking forward to productive relations between legislature and executive.

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Author: Gary Hawke

“It’s Time” sums up the New Zealand election result. The echo of Australia in 1972 is not only that Helen Clark’s government was swept from office in a widespread feeling that it had lost touch with the electorate but also that John Key’s anxiety to be in office so as to attend the APEC Leaders’ Meeting must have led him to think about the executive consisting of only Gough Whitlam and Lance Barnard.

Normal processes will probably suffice. Legal changes after Muldoon’s resistance to a quick change of power in 1984 mean that the effective constraint on government formation is the political planning for a secure coalition, one which could persist beyond the 2011 election. It would be disruptive to form a cabinet and then have to adjust its membership once arrangements were made with coalition partners.

The victory of the National Party was sweeping.

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Author: Gary Hawke, NZIER and Victoria University, Wellington

Political timing has put an unusual emphasis on New Zealand’s fiscal situation in relation to international financial turbulence.

From stuff.co.nz

In the 1980s, reforms included adoption of General Accepted Accounting Practices for the public sector, the most important aspect of which was that accrual accounting would provide better information for political decision-making. It did, but despite being based on a belief that transparency was desirable and influential, it did not stop concealment of the financial situation of the Bank of New Zealand in the 1990 election campaign. In the early 1990s, legislation required that an election campaign should be marked by a Pre-Election Economic and Fiscal Update in which not only would the Minister of Finance explain developments and intentions, but the Secretary of Treasury would attest as a matter of professional judgement to the accuracy of the information provided.

The current government has undermined much of what was achieved in the 1980s. It has given up the attempt to keep the tax system simple and transparent; the Working for Families initiative addressed the way that in a society characterized by multiple-income families children are likely to experience relative poverty but it did so in a way which makes it very difficult to track redistributive effects. Subsidies reappeared in the tax system for activities like Research & Development with little ability to monitor effectiveness. Most important, an initiative to facilitate realization of private savings intentions was turned into a heavily subsidized KiwiSaver programme whose effects on redistribution are likely to be large and random while the effect on savings behaviour will probably be small.

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Author: Professor Gary Hawke, New Zealand Institute of Economic Research and Victoria University of Wellington

As in most countries, including the United States, foreign policy is not a major issue in the current New Zealand election campaign. A contest among various forms of populism has little scope for looking overseas even if the more important longer-term influences on the prosperity of the various coalitions of voters being wooed are to be found abroad rather than locally.

Indeed, foreign policy has probably come closest to surfacing through the peculiarities of New Zealand’s electoral system. In the last three years, few outside New Zealand could understand how we came to have a Minister of Foreign Affairs, Winston Peters, who was not a member of Cabinet. His party, New Zealand First, provided assurance to the government on issues of confidence and supply but remained less than wholly part of a coalition government. In attempting to position himself as a significant force in the election campaign, he won a major boost to the funding of the Ministry of Foreign Affairs and Trade. Now that the government’s fiscal position has worsened dramatically, that funding must come into question by whoever forms the next government. Current polls suggest that New Zealand First is unlikely to be able to defend its trophy.

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