The government is defending its decision not to step in to help keep newsprint production at full capacity at a Kawerau mill, saying the developments reflect the flexibility of the New Zealand economy.
Norweigian company Norske Skog confirmed last week that it would halve production at its Kawerau newsprint mill, with unions warning the move could lead to the loss of about 100 jobs.
Falling demand for newsprint and unfavourable exchange rates, making large scale exports to Asia unprofitable, were given as reasons for the move.
At the same time, the company announced an A$84 million investment - funded mainly from Australian central and state government - in its Boyer Mill in Tasmania to enable that mill to produce different types of paper.
Speaking on TVNZ's Q&A programme on Sunday, Prime Minister John Key defended the government's economic policies in the face of attack from opposition parties claiming the Kawerau job losses were another indication those policies had failed.
Key said the developments reflected the flexibility of the New Zealand economy. He attacked those calling on the government to subsidise production at the mill to ensure jobs were not lost, saying subsidies led to an economy "which is likely to produce not what the world wants but something quite different; Under that strategy, we’d still be making cars."
'NZ$ level due to fundamentals'
Meanwhile, Economic Development Minister Stephen Joyce told TV3's The Nation programme on Saturday that while jobs would be lost at the Kawerau mill, there were other opportunities in the region and in others like Taranaki and Christchurch.
Norske Skog had not asked the government for a subsidy for the Kawerau newsprint mill, Joyce said.
He said the level of the New Zealand dollar - alluded to by Norske Skog as one of the reasons it was cutting production at Kawerau - was due ultimately to market fundamentals.
"Ultimately nobody's going to bid the New Zealand dollar beyond what they consider it should be at. Now even if it bounced through say, for example, the quantitative easing that's coming through at the moment, it will come back again," Joyce said.
"Because fundamentally the value of the New Zealand dollar is determined by what the world believes is the future of the New Zealand economy, and if they bid it up too high, then they will look at it and say well actually we've bid it up too high, and we'll bid it down again," he said.
A significant fall in the New Zealand dollar would lead to substantial rises in living costs in New Zealand as the prices of imported goods rose, Joyce said.
"Unfortunately you only have one exchange rate [as opposed to different settings for exporters and importers]. The exchange rate is the assessment of what people think of the future of the New Zealand economy," he said.
"The quickest way to get it down would be to do some very reckless things that would actually put our economy at risk."
'Flexible economy'
On Q&A, Key said the government's economic policies were aimed at making the economy more competitive. He said jobs were constantly created and lost in New Zealand's "flexible" economy.
"If you take Kawerau, why is there a reduction in demand for pulp and paper? Well, people don’t buy their newspapers," Key said.
"It’s the same reason why APN have got the New Zealand Herald for sale. It’s the same reason why Fairfax’s print media around the world is struggling. It’s because people are not going to the newspaper in the same way they used to. They go online, and so that’s why the government’s supported ultra-fast broadband," he said.
"New Zealand’s a small economy. It’s flexible in the world. In any one given year, this economy creates about a quarter of a million jobs and loses a number slightly smaller than that. We create net positive jobs.
"So if you want to preserve what we’ve always done, of course you can do that, but that will deliver you an economy which is likely to produce not what the world wants but something quite different," Key said.
"Under that strategy, we’d still be making cars and we’d still be selling legs of lamb to Europe instead of racks of lamb and better cuts and moving up the value chain and Fonterra producing nutraceuticals and all of those things," he said.
There would always be job losses across the economy as its make-up changed.
"There will always be parts of the economy where, for whatever reason, there’s a change in pattern. Years ago, we all did different things from what we’re doing today," Key said.
"In the case of the auto industry, that decision was made a long time ago for New Zealand not to have that on a subsidised basis. And, yes, that caused pain and dislocation for the industry," he said.
"But it also bred a new competitive industry. So let’s look at wine. Years ago, it was a totally protected industry. Yes, we got rid of all that protection, but what did we build? A world-class, highly successful industry based on new types and varieties."
Key said many of the governments in the developed world which were subsidising industry were highly indebted.
"So the whole problem in Europe, the whole reason why you’re seeing countries like Spain, like Greece and right through Southern Europe in the sort of mess they are is they have huge levels of government debt," Key said.
"The answer in New Zealand is not necessarily coming up with a make-work scheme funded off taxpayers’ taxes. It comes off New Zealand having a competitive industry, making sure that we have flexible labour markets, making sure that we are investing in things that will make the economy go faster, like science and innovation," he said.
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"Because fundamentally the value of the New Zealand dollar is determined by what the world believes is the future of the New Zealand economy, and if they bid it up too high, then they will look at it and say well actually we've bid it up too high, and we'll bid it down again," he said.
Fundamentals - yeah right.
Does the government really care about the 75% majority ?
The government running an economy on an elite group of the population of 25% only, doesn’t understand the concept of a “Successful, wealthy society”.
No wonder why the majority of Kiwis are in low skilled jobs and low wages in this country.
Minister Joyce with his decisions is a real disaster and will lead into mass unemployment.
The weirdness coming from Key is truely fascinating. His understanding of the anatomy of a sheep is worth reading.
"Under that strategy, we’d still be making cars and we’d still be selling legs of lamb to Europe instead of racks of lamb
A sheep has 4 legs, and some racks- quantity depending on how you cut them. racks are chops still joined together. So no matter how many racks you sell, you still have 4 legs to move one way or another, that is just the way sheep are. Economists would say that we should move from legs to racks to meet the needs of the market. Sheep would probaly say baa to that bleating nonsense.
He also commented that.
Key said the developments reflected the flexibility of the New Zealand economy
The flexibility he is refering to is the ease in which a European Multinational can alter production across its plants worldwide to meet demand by using New Zealand as marginal production because due to our flexibility we are the easy option to turn off. So the flexibility Key speaks of is flexibility for multinationals not us.
If Norweigian company Norske Skog tried to turn off production and fire workers back home in ultra high cost Norway it probably would not be able to politically - it has had a great deal of problems in Europe closing reducing plant capacity and is near on the edge in terms of viability as a company. So yes- New Zealand may help it to survive- but maybe we would be better to force it to sell out at a price that is now realistic- they probably paid far more than it was worth. By letting creative destruction have its way and by playing hardball New Zealand could still have a fully functioning plant operating at far low cost of capital and emplying local workers. Instead we are letting a failing multinational manage decline in their interests but not in ours.
Plan B - does it actually occur to you that might be the reason that many jobs are in NZ and other flexible places, why hire at home in Norway when the labour laws kill your ability to respond to changes in your business - instead take the jobs elsewhere in the first place. A massive problem that France will face in the next few years where Hollande plans to bring in laws along those lines - just watch the jobs that aren't created there - of course you can't measure those, but only a dummy thinks its not considerable.
In principle not a bad idea - but here we pretend flexibility is the default case for certain entitled players - fire them, then rehire them as consultants - the bills run into many hundreds of millions of dollars - unlabelled backdoor beneficiaries, the lot of them - make them line up dole bludgers and watch for a change of attitude. Gives genuine consultants a bad name.
Flexible labour laws impact those most likely to take out personal revenge -nothing left to lose - got your barricades in place?
Seem to remember Key wanting to bail out F&P not long ago
Seem to remember this govt saving Mediaworks butt not long ago
Seem to remember Key proposing pokie deal to get Sky City Convention Centre over the line not long ago
Seem to remember this govt proposing to fund irrigation schemes for Canterbury not long ago
Seem to remember this govt changing labour laws for Peter Jackson and Hollywood not long ago
Meanwhile do stuff all to help politically unconnected, non "iconic", unglamorous SME's struggling to stay afloat
Flexible? I am picking that to the people of Kawerau that this feels absolutely rigid, with a sharp blade at one end.
When is Joyce going to start acknowledging the people are being constantly affected by all this, I notice whenever he is speaking that people seem to not get even so much as a mention
There is a human side to all this, Joyce, several actually, and at the end of the day that is only thing that matters. I don't know about but I don't think I see any of these people just sliding into R and D
A significant fall in the New Zealand dollar would lead to substantial rises in living costs in New Zealand as the prices of imported goods rose, Joyce said.
An argument that is a distraction ,if we observe that the TWI and the Balance of payments anticorrelate then the argument changes to fundamentals ie what can we afford.
http://s1250.beta.photobucket.com/user/Poission/media/a984d297.gif.html…
Wednesdays figures maybe a wake up call.
The focus on Kawerau is also a distraction, to put it another way at 70cus Tiwai point would be very profitable at todays Alu prices.
Joyce: "fundamentally the value of the New Zealand dollar is determined by what the world believes is the future of the New Zealand economy"
What a total lot of cobblers! Does he really believe this? If so, I am terrified. Any economist will tell you that the high NZ $ is a reflection of the currency being a plaything of the money markets. Plus hot money coming from China etc to buy property, pushing the dollar up. Plus when China & various other countries keep their artificially make their currency weaker, it automatically makes ours stronger.
Suggesting that the value of the dollar is a reflection of a market economy is naive at best.
It's remarkable isn't it. Our PM was employed to speculate with currencies on a grand scale in his previous life, yet both Key and Joyce never mention speculation, only investment and fundementals. Its like the twilight zone.
Change two words in the financial lexicon and watch how perceptions change. "investors" to "speculators" and "credit" to "debt". Imagine hearing the TV news: "Speculators today drove the kiwi dollar and NZX50 to new highs"
Well Philly, that would only demonstrate Joyce is an imbecile determined to convince other imbeciles at large the NZinc is where you plough your foreign cash....cause it's as safe as.......................................HOUSES.....in fact it's all about houses.
What poor Joyce does not understand is outside of Central Banks (64 in fact) and Forex traders, the...................world....doesnt even care if we are alive down here.
What poor Mr Joyce further does not understand is the conflict of pressures the high N.Z. dollar places on the internal/external economy will be our very undoing in the near term, as the RBA will demonstrate.
The rock and the hard place was allways going to be Petrol.......or Export / Tourist income ..?
The solution is in practice as we speak....Sustained overvalued NZD....Petrol at prices the masses can live with... a cheap mortgage with every fill......so far.
If our currency was at fair value, then why do we run chronic losses as a country every single year?
All that money being borrowed from overseas isn't being invested productively, building up assets that will generate sustainable income. Its all to prop up our housing market & other property interests.
If our currency level was based on market fundamentals, it would be at a lower level and all that borrowing would be more expensive. Our ongoing property and currency bubbles go hand in hand.
Its hardly a sustainable model for a country, & Joyce is being disingenuous to suggest so. Or stupid; & frankly I can't see him as dumb. Or maybe ideologically hidebound on the supposed "free market". But he seems too pragmatic for that. Brash or Roger Douglas maybe, but not Joyce. So probably disingenuous.
NZMEA says - Government does not understand* exporting
Comments from Steven Joyce over the last week demonstrate that the Government does not understand* exporting say the New Zealand Manufacturers and Exporters Association (NZMEA).
NZMEA Chief Executive John Walley says, “Steven Joyce described the jobs being lost due to the high currency as ‘uneconomic’ and their sectors as ‘dying industries’. If he thinks that milk, coal mining, aluminium smelting and wood processing are all ‘dying industries’ then damn near every other exporter should be looking over their shoulder. It is time our leaders moved past the post-industrial fantasy and recognised that onshore value add is something to be prized not disparaged.”
“It is correct to say that a fall in the NZ Dollar will impact living standards in the short-term – imports, TVs, petrol and overseas holidays will be more expensive. However, exporters will earn more, help to balance our current account (stop increasing our international indebtedness), create more jobs and provide a future for New Zealand that looks past the end of this political cycle.”
“An overvalued currency might feel good for a while but cheap imports and offshore holidays don’t help sustain an economy and really don’t matter much when you don’t have a job.”
“There is a reason that the jobs are uneconomic – our policy settings overvalue our currency, and encourage consumption and investment in real estate over investment in productive industries that create growth and jobs.”
“There are a number of options available to the Government which would help to manage the exchange rate – direct intervention is one alternative. Those who claim that it is impossible demonstrate their own lack of understanding. A central bank can technically sell currency forever and build up huge foreign reserves – there is not a speculator on the planet that will stand against a central bank that means what it says when it is shorting its own currency. Switzerland’s experience is clear, unequivocal evidence of that fact.”
“As the world changes clear and open policy debate is vital. This issue is more important than personalities or playing politics. Introducing spurious nonsense such as claiming exporters want two exchange rates or attempting to substitute proper debate with pejorative references is not helpful. We need to deal with the problem not play games,” says Mr Walley.
“Increasingly policy frameworks that focus on exchange rates and inflation are being implemented around the world and are truly best practise among export dependent nations.”
“The key point is that we must balance Total Foreign Costs (including privately sourced foreign debt) and Total Foreign Earnings in order to stop the increase in Foreign Debt. Allowing our current economic settings to continue is to knowingly support the mortgaging of New Zealand with no productive asset to show for the increased debt.”
“It takes a particular sort of world view to dismiss the empirical evidence that our policy settings have failed us while others have succeeded. A new normal needs different thinking and it is hard to dismiss what the likes of the Chief Economist of the IMF Olivier Blanchard or economists Joseph Stiglitz and Jeffrey Frankel have to say.”
“The fact that can’t be escaped is that extending the status quo for as long as possible will come with a huge bill at the end.”
http://www.realeconomy.co.nz/306-government_does_not_understand.aspx
* and neither does 'Export NZ' aka Business New Zealand = a woeful lack of empathy and understanding.
Cheers, Les.
ThanksLes,it does seem that Key/Joyce do the currency thing by money trader logic.It was Roger Douglas /Lange who talked of the "sunset" industry that was dairy farming a generation ago,as then ,so now.People not understanding the real earnings that flow from primary industry,and other small business,but with a philosophical agenda to move the "money" from peasants to "we who know much better what to do with it".National should be ashamed of itself for the narrow focus on so called profitability,that seems to mean the increased dependancy of many on welfare as a result.
Know it`s a taboo word for many,but Winston seems to understand the reality far better than many of the current crop in parliament
Thanks Les; and very well put by Mr Walley. I would have intuitively expected the NZMEA's default political allegiance to be to the National Party; but clearly the NZMEA have seen through the damage the exchange rate policies of the government are doing to the economy.
Am pleased to see noone is asking for subsidies; just get the exchange rate closer to fundamentals, which would mean a current account close to balance.
Am looking forward to Question Time in Parliament tomorrow. If Parker, Shearer and Cunliffe have any kahunas they should be able to make life for Joyce and Key very uncomfortable. Let's see.
People often say that, however NZMEA is apolitical, in terms of party politics. It advocates policy that is healthy for the real economy. Hence the reduction of the current account deficit and is therefore supportive of NZ's economic sovereignty. Birds of a feather and all that .... see who flies in the flock:
The Agenda...is still tyred to the Financial Hub ...Les, anything that falls outside the shade of that umbrella is viewed by Joyce as dying industry.....why make anything ...? our new best freinds do that for us ....we process their dirty laundry.....Drycleaning..Les,.we'll make enough to have everybody on welfare....
Just when you all thought John Boy had given up on that idea.......he urinates up wind.
N- G . I am certain that the Asian demand for newsprint has not as yet slipped away to the point where it would not be a viable market If our exchange rate was anything close to where it should be - remember rolls of newsprint a big heavy &cumbersome beasties to transport so the closer to your end user market they are produced the better .....
As an example of the twisted results that flow from our artificiallly high currency level - it was reported last week that at the time of the closure annoucement, that that day's Herald was being printed on imported asian newsprint ...!!! What a farce.
As another line of discussion - why does NZ not accept the reality of our only real advantage - that is our bountiful agricultural sector ? - We are able to produce top quality food stuffs across the board - not just dairy although that is currently our biggest and best product group- but we also provide world leading support/ infrastructure for our alreadyhighly efficient agricultural sector - everthing from specialized equipment manufacture and maintenance to ultra high value pharmaceutical extraction technoloies.
Surely if we focussed the NZ's abilities on these aspects along with the directly connected "support structures" we could develop a world leading economy, after all the world will always need food!
Unfortunately it seems that our so called "leaders" have the idea that we can compete with the world in every single field of endeavour thereby undermining, by dilution of effort/capital, any real chance we have to make our way in the future....remember "The Knowledge Wave" from the woman who forged artworks ...???
We still import a huge amount of lowish grade glazed paper to produce those letterbox stuffers that we are barraged with everyday and not one piece is made in NZ.
It is time we all resisted by demanding that advertisers ask for newsprint copy- that is if we must have them at all. Either that or buy lots of "Addressed Mail Only" stickers
Start by demanding the Countdown and New World set it off!
“An overvalued currency might feel good for a while but cheap imports and offshore holidays don’t help sustain an economy and really don’t matter much when you don’t have a job.”
“There is a reason that the jobs are uneconomic – our policy settings overvalue our currency, and encourage consumption and investment in real estate over investment in productive industries that create growth and jobs.”
Our dollar simply does not fairly represent where our economy is, but by Key and Joyce's answers above they either don't care or are what they accuse all disscenters of, ignorance.
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