Tuesday, October 18, 2005

From New Zealand with love.

The Election Winner is…Winston Peters.
On the election night, Labour just holds 50 seats compared to National’s 49. Special votes counted 4 weeks later; the verdict is 50-48. Another few weeks of political courting to form a coalition government, Green does not have enough number to hold sway, so Labour has to court Winston Peters and Peter Dunne.
The result, Winston Peters got 3 ministries including Foreign Ministry; Peter Dunne gets the Revenue Ministry and the Green only get policy concessions on some issues. Winston Peters influence in Immigration issues will undoubtedly change future intake of new migrants into the country and his fiscal policy would cost estimated extra $300millions. I have no grumble against his stated policies; 1000 extra police, better care for senior citizens in the form of 1 percent increase from 65 to 66 percent of average wage living allowance and increase minimum wage to $12 per hour. Given the country’s high MPC (marginal propensity of consumption) rate, this will aggravate the inflationary pressure somewhat, although not as bad as National tax cut. Remember, Labour’s election bribe is not as inflationary as National by the virtue of lower income targeting. The outlook is still higher interest rate in the future, and further reduction in unemployment to record lows. Labour’s election bribe includes increases in family support, which will give better lifestyle to families and option of homemaking full time. People would be working less hours, more time for leisure. Interest free student loan will only encourage more youth and adult to tertiary studies, simultaneously reducing available low wage pool of labour and upskilling them. Not a bad path to a high wage economy.
The negative outlook in the future is the property sector. With the number of new migrant dried up, (what else do we expect when Winston is in charge of Immigration?) and interest rate inching higher and new dwellings coming on stream by the thousands, it is likely that house prices would consolidate and may even come down a bit.
Alan Bollard, the Reserve Bank Governor gave severe warning a few days ago that the exchange rate is at unsustainable levels and New Zealanders spend $112 for every $100 they earn. This is a clear indication that he will increase interest rate. High interest rate and high fuel prices will crimp the expanding economy.
Maybe New Zealanders will change their habit of investing in unproductive housing real estate into productive businesses – farming, manufacturing and services.

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