THE PRESS WEDNESDAY, JULY 26, 1989. Some economic success

Press, 26 July 1989, Page 16

THE PRESS WEDNESDAY, JULY 26, 1989. Some economic success

On the eve of the 1989 Budget the Government can take satisfaction from its achievements in some parts of the economy. It must continue to look at others with alarm. In specific economic terms the Government’s great achievement has been to reduce inflation until it is hovering between 4 per cent and 5 per cent. It has also steadily reduced the size of the internal deficit. Seeking long-term psychological effects, the Government has persuaded business and farm people that they should produce for a world economy, not to get export incentives or farm subsidies. The wisdom of the market place has been visited on the nation and, although a capacity for self-deception can never be ruled out completely, the lessons of the last few years will not be forgotten in a hurry. That attitudinal change should be of lasting benefit to the country. The balance of payments is looking better. The terms of trade, that is the measure of the prices of exports against imports, are reasonably favourable. Wool, dairy, and beef prices have been good, and the prices of some manufactured goods have increased. Retail sales have moved in fits and starts; but they, are generally increasing. Few factories, a limited number of other commercial buildings, and few tourist accommodation buildings are being constructed. Residential building is relatively strong. The correct value of the New Zealand dollar against other currencies is not a subject on which there is ever likely to be unanimous agreement; but a fair number of manufacturers consider that they can live with the present value of the dollar against the Australian and American dollars.

There is still little or no growth. Business confidence is increasing, but lacks any convincing surge. Interest rates are higher than those of most of New Zealand’s trading partners. The question still hanging in the air is whether the lower wage rounds of the last two years and the increased productivity achieved in manufacturing plants will be sufficient to overcome worries about interest rates and lead to the investment that is so necessary in the economy. Longer-term doubts are justified about a continuing improvement in the balance of payments. Much of the improvement in export prices has come about because of better prices for commodities. New Zealand caught some of the economic boom in commodities, but caught it late. The prices for commodities seem ready to decline, although the decline

may not be steep. The fall in the stocks of dairy produce held by the European Community and by the United States should help to keep up the prices for New Zealand dairy products. The greatest specific cost has been in employment, last measured at 11 per cent of the workforce. A great deal of this unemployment was brought about by restructuring forced on firms by deregulation, by imports, and by the abolition of subsidies, as well as changes in Government departments and the move to corporatising State enterprises. The debate which will continue In New Zealand about the fourth Labour Government will not be about whether change was necessary but about the speed and management of the change. Unemployment has been driven mostly by restructuring. The former Minister of Finance, Mr Douglas, was bent on further reductions in the Government sector which would have put many thousands more out of work. The psychological effect of the constant restructuring of the Government departments cannot be accurately measured; but it must be a factor in the pessimism that has gripped so much of New Zealand and may, only now, be showing some signs of cracking.

The Government cannot be blamed for all the unemployment. It inherited huge economic problems. Besides that, technological developments and the changing patterns of world trade have created a world in which the unskilled find it increasingly difficult to find work. If business confidence survives, and if confidence from the rural parts of New Zealand flow into the provincial towns, some new jobs will be created. However, the number of new jobs is not increasing and unemployment, frightening as the prospect is, will be a feature of the New Zealand economy for a long time to come. New Zealand’s prosperity has long been dependent on many factors beyond this country’s control. The depth of the Australian recession, the level of access granted by the European Community for sheepmeat and dairy produce, the importing policies and behaviour of a number of countries will all have a profound influence on New Zealand. The country had to change; much of the dependency remains, but it may now be seen more clearly where the country has got to. Thursday’s Budget will be another sign of where the Government believes the next steps lead the country. They will also have to soothe and encourage a lot of hurt people, and do so within the real means available.