New Zealand

Politics:

• Analysis

  New Zealand politics: Agriculture and the TPP

  Concern about the impact of a future Trans-Pacific Partnership (TPP) agreement extends beyond the usual anti-globalisation elements in New Zealand. The country already has highly open markets and could benefit from the TPP, but the prime minister, John Key, must navigate a range of concerns about the trade deal in order to secure domestic support for accession.

  Progress on the TPP was limited during the 15th round of negotiations on the trade deal, held in New Zealand's northern city of Auckland in early December. Discussion of some of the most difficult issues has been postponed until the next round of talks, due to take place in Singapore in March 2013, and an informal deadline h-as been set for the conclusion of a deal by October. The TPP is a key part of the drive by successive New Zealand governments to boost the country's trade ties with Asia-as well as with the US, with which New Zealand has long sought a free-trade agreement (FTA).

  The country's most important trade deal to date is an FTA with China, signed by the previous centre-left, Labour Party-led government in 2008. The Labour government also oversaw the signing in 2005 of the Trans-Pacific Strategic Economic Partnership Agreement between New Zealand, Brunei, Chile and Singapore (dubbed the P-4). Since then, seven more countries-the US, Australia, Peru, Vietnam, Malaysia, and most recently Canada and Mexico-have joined negotiations towards an expanded TPP agreement. The nations involved in the talks now include four of New Zealand's ten leading trade partners and together absorb almost 40% of its exports.

  Points of contention

  There was little domestic opposition to the signing of New Zealand's FTA with China in 2008, which received the support of both the ruling National Party and the main opposition Labour Party. However, the TPP agreement is proving more contentious in the eyes of many New Zealanders because of its wider and deeper scope, the apparent secrecy surrounding the talks, and fears that the US will wield its political and economic clout (and use the lure of greater access to its market) to further its own agenda to the detriment of other signatories.

  New Zealand maintains one of the least protected markets in the world, and is the leading global dairy exporter. Its farm sector would therefore be a major beneficiary of the removal of trade barriers against agricultural goods by TPP nations. This is a particularly contentious issue for the US and Canada, where farmers (and especially dairy producers) enjoy a high level of trade protection. Mr Key has insisted that his government will not sign a deal that does not include the eventual removal of tariffs on dairy imports.

  However, there is concern in the New Zealand information and communications technology (ICT) sector that, in order to secure the liberalisation of agricultural exports such as dairy produce and meat, trade negotiators will bow to American demands for a tougher regulatory stance on intellectual property. The changes that the US is reportedly seeking include longer copyright terms, fewer exceptions to copyright rules and tighter patent laws for software. It also reportedly wants to restrict parallel imports, which New Zealand law currently allows. Many in New Zealand's ICT sector believe that these changes will stifle the expansion of the high-growth technology sector, as well as restricting consumer access to DVDs, electronic books and other digital material and pushing up the prices of such items.

  Impact on overseas investment regime

  There are also concerns about the impact on New Zealand's overseas investment regime of international investment protocols contained in the TPP deal. Depending on the details of the final agreement, the government's ability to screen foreign investment from other participating countries could be curbed. In addition, under proposed "investor-state dispute settlement" provisions, foreign companies could be granted the right to appeal and potentially seek damages against a government in an investment arbitration tribunal. According to an opinion poll carried out by a local market-research firm, Consumer Link, during the latest round of negotiations in December 64% of respondents opposed FTAs that include clauses allowing corporations to sue governments.

  Another major area of concern is the likely impact on Pharmac of the TPP deal's proposed tightening of patent regulations relating to pharmaceutical products and the agreement's suggested transparency provisions. Pharmac is a government scheme that uses its bulk-purchasing power to reduce the prices of listed medicines (most of them generic) and provides these drugs to New Zealanders at subsidised prices. Mr Key has sought to reassure New Zealanders that his government would not agree to concessions that threatened the Pharmac scheme, but a degree of compromise on the issue seems likely to be needed in order to finalise the TPP agreement.

  A balancing act for Mr Key

  New Zealand is also participating in the Regional Comprehensive Economic Partnership (RCEP), a new free-trade negotiation process launched by the Association of South-East Asian Nations (ASEAN) in November. RCEP includes the ten ASEAN economies, plus China, Japan, India, South Korea, Australia and New Zealand, and leaders hope to finalise a deal by the end of 2015. Of particular significance for New Zealand is the opportunity presented by RCEP for dairy producers to increase their market access to Japan, which is the country's fourth-largest trading partner after Australia, the US and China. Previous talks on the possibility of an FTA between New Zealand and Japan have failed to make progress, mainly because of the latter country's reluctance to open up its protected agricultural sector.

  Mr Key has made enhancing exports a major component of the government's Business Growth Agenda, which aims to support the growth of New Zealand businesses in order to generate jobs and improve the country's standard of living. In principle, signing FTAs could boost exports. However, the prime minister must tread carefully to ensure that New Zealanders feel that they are getting a fair deal when it comes to crucial sectors such as diary farming.

  December 17, 2012

• Background

  New Zealand: Key figures

  John Key

  A former investment banker, Mr Key became prime minister following the general election in November 2008, just two years after becoming the leader of the then opposition National Party. Mr Key takes an inclusive approach to ethnic diversity in New Zealand, and he has proved adept at building alliances across the political spectrum and negotiating compromises when the need arises. Mr Key's spontaneous and optimistic personality continues to appeal to voters, and his personal popularity remains high.

  David Shearer

  Replacing Phil Goff as leader of the opposition and Labour Party following the general election in 2011, Mr Shearer is a relative newcomer to politics. He was elected as a member of parliament (MP) for the Mount Albert constituency in a by-election held in June 2009 following the resignation of the sitting MP, the former prime minister, Helen Clark. Mr Shearer's background is in humanitarian work overseas, having served the UN in various roles. Despite his limited political experience, Mr Shearer is seen as possessing good leadership qualities. These will be put to the test over the course of the current term as he needs to reinvigorate Labour supporters after the party's devastating defeat in November 2011.

  Peter Dunne

  Mr Dunne is the leader and sole parliamentary representative of the centre-right United Future (UF) party, which was formed through the merger of a centrist party, United New Zealand, and a Christian-dominated conservative party, Future New Zealand. Support for UF fell at the 2008 election, following which the party joined the National-led coalition government. Mr Dunne serves as revenue minister, sitting outside the cabinet. Like the other junior coalition partners, UF supports National through a confidence and supply agreement (whereby a coalition partner supports the government during motions of confidence, and on issues of appropriations) signed following the last general election in 2011.

  Tariana Turia and Pita Sharples

  Ms Turia, a former Labour minister, and Mr Sharples, a Maori academic, are co-leaders of the Maori Party, which was formed in 2004, partly in protest against controversial legislation asserting Crown ownership of New Zealand's foreshore and seabed. The Maori Party opted to stay out of alliance arrangements with Labour or National after the 2005 election, but became a junior partner in the National-led four-party coalition government following the 2008 poll. Ms Turia is the minister of disability issues and Whanau Ora (a major contemporary indigenous health initiative that aims to improve delivery of social, educational and other support services to Maori). Mr Sharples is the Maori affairs minister. Both Ms Turia and Mr Sharples sit outside the cabinet. The sensitive nature of Maori affairs could cause sporadic flare-ups between the National and Maori parties in the future.

  August 14, 2012

• Structure

  New Zealand: Political structure

  Official name

  New Zealand

  Form of state

  Parliamentary monarchy

  National legislature

  Unicameral House of Representatives, usually of 120 members (the current chamber has 121), elected for a three-year term using the mixed member proportional representation system

  Electoral system

  Universal direct suffrage over the age of 18

  National elections

  November 2011; the next general election will take place in 2014

  Head of state

  Queen Elizabeth II, represented in New Zealand by the governor-general, Sir Jerry Mateparae

  National government

  The cabinet is presided over by the prime minister, who is appointed by the governor-general on the basis of party strength in parliament. Currently, the National Party leads a coalition that also includes ACT, United Future and the Maori Party

  Main political parties

  National Party (59 seats); Labour Party (34 seats); Green Party (14 seats); New Zealand First (eight seats); Maori Party (three seats); ACT (one seat); United Future (one seat); Mana (one seat)

  Government

  Prime minister, minister for tourism & Security Intelligence Service: John Key (National)

  Deputy prime minister, minister for finance: Bill English (National)

  Ministers

  Attorney-general, arts, Treaty of Waitangi: Chris Finlayson (National)

  Canterbury earthquake recovery & transport: Gerry Brownlee (National)

  Commerce & broadcasting: Craig Foss (National)

  Conservation & food safety: Kate Wilkinson (National)

  Consumer affairs: Chris Tremain (National)

  Defence & state services: Jonathan Coleman (National)

  Economic development, science & innovation, tertiary education, skills & employment: Steven Joyce (National)

  Education & Pacific island affairs: Hekia Parata (National)

  Energy & resources, housing: Phil Heatley (National)

  Environment: Amy Adams (National)

  Foreign affairs & sport: Murray McCully (National)

  Health & state-owned enterprises: Tony Ryall (National)

  Immigration, racing & veterans' affairs: Nathan Guy (National)

  Internal affairs (sitting outside the cabinet): Simon Bridges (National)

  Justice & Accident Compensation Corporation: Judith Collins (National)

  Labour: (vacant)

  Maori affairs (sitting outside the cabinet): Pita Sharples (Maori)

  Police & corrections: Anne Tolley (National)

  Primary industries & local government: David Carter (National)

  Regulatory reform & small business (sitting outside the cabinet): John Banks (ACT)

  Revenue (sitting outside the cabinet) : Peter Dunne (United Future)

  Social development & youth affairs: Paula Bennet (National)

  Trade & climate change issues: Tim Groser (National)

  Whanau Ora & disability (sitting outside the cabinet): Tariana Turia (Maori)

  Central bank governor

  Graeme Wheeler

  December 01, 2012

• Outlook

  New Zealand: Key developments

  Outlook for 2013-17

  • New Zealand will continue to benefit from a stable political environment in the forecast period. The National Party-led coalition controls 64 out of a total of 121 seats in the legislature following the November 2011 general election.
  • The administration will remain committed to its existing policy agenda, which in the short term will focus on reconstruction and aid efforts following the September 2010 and February 2011 earthquakes.
  • The government succeeded in passing legislation for the partial privatisation of a number of state assets, as well as for deep-sea mineral exploration. The plans remain controversial, however.
  • The prime minister, John Key, has made improving the public finances-including returning the budget to surplus by fiscal year 2014/15 (July-June)-central to the agenda for his second term of office, which ends in 2014.
  • Real GDP is forecast to grow by 2.2% in 2013. The economy will expand at an average annual rate of 3.2% in the remainder of the forecast period, largely thanks to improved domestic economic conditions.
  • In 2013 consumer prices will rise by 1.6%, owing to a small pick-up in global non-oil commodity prices and a depreciation of the New Zealand dollar, which will increase the pressures stemming from imported inflation.

  Review

  • In early November the government proposed controversial changes to the Employment Relations Act designed to protect certain low-paid workers who are affected by the restructuring of businesses.
  • The government has come under fire following the release of a damning report into the Pike River coal mine disaster in November 2010, in which 29 miners died. Consequently, the labour minister resigned.
  • The administration has announced plans to tackle the problem of housing affordability in New Zealand, although the finance minister, Bill English, has warned that there are no quick solutions.
  • New Zealand's economy lost steam in the third quarter of 2012. Retail sales expanded by 5.2% year on year in the first quarter and by 4.8% in the second quarter, but growth slowed to 2.1% in July-September.

  December 01, 2012

Economy:

• Background

  New Zealand: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	4.4	Population growth	1.0
  GDP (US$ m; market exchange rate)	159,229b	Real GDP growth	0.8
  GDP (US$ m; purchasing power parity)	131,442	Real domestic demand growth	0.7
  GDP per head (US$; market exchange rate)	35,912	Inflation	3.0
  GDP per head (US$; purchasing power parity)	29,645	Current-account balance (% of GDP)	-5.5
  Exchange rate (av) NZ$:US$	1.26b	FDI inflows (% of GDP)	1.6
  a Economist Intelligence Unit estimates. b Actual.

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  Background: New Zealand is one of the smallest OECD economies and is still heavily reliant on agricultural production. Agriculture and manufacturing exports remain important. New Zealand has close trade links with the US and Australia, while China and other East and South-east Asian countries are also significant trading partners.

  Political structure: New Zealand is a democratic state within the Commonwealth of Nations. Executive power is vested in the governor-general, who represents the British Crown. The House of Representatives (the unicameral parliament) normally has 120 members. Elections for the entire chamber are held at maximum intervals of three years; 69 members are elected by geographical constituencies (including seven from Maori seats), while 51 are appointed from party lists in proportion to the share of the party vote received by each party. In the November 2011 general election the prime minister, John Key, formed a coalition government with 64 out of 121 seats (the extra seat is the result of the Maori Party's having won four electorate seats, when it would have received only three based on its share of the party vote).

  Policy issues: In the short term, the government will focus on aid and reconstruction efforts following the Christchurch earthquake in February 2011. This was the second earthquake to strike the region in six months, and caused widespread damage and loss of life. More broadly, the government will focus its efforts on improving the public finances and enhancing New Zealand's economic performance and productivity, largely by enacting tax reforms. It is also aiming partially to privatise a number of state-owned assets. The government is keen to improve the regulatory environment.

  Taxation: Personal income is taxed at 10.5% for the first NZ$14,000 (around US$11,300), 17.5% on subsequent income up to NZ$48,000, and 30% on income between NZ$48,001 and NZ$70,000. Income above NZ$70,000 is taxed at 33%. A goods and services tax (GST) of 15% is levied on final consumption, residential construction and financial services inputs.

  Foreign trade: According to IMF data, exports of goods rose by 20.3% to US$38.4bn in 2011, down from 25.8% in 2010. Goods imports meanwhile increased by 20.6% to US$35.6bn in 2011. New Zealand has historically run a structural deficit on the current account and will continue to do so throughout the forecast period.

  Major exports 2011	% of total	Major imports 2011	% of total
  Dairy products	25.0	Machinery & electrical equipment	19.8
  Meat products	11.6	Mineral fuels	16.6
  Forestry products	9.4	Transport equipment	12.7
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Australia	22.7	Australia	15.9
  China	12.3	China	15.7
  US	8.4	US	10.7

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  December 01, 2012

• Structure

  New Zealand: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 01, 2012

• Outlook

  New Zealand: Country outlook

  New Zealand: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: New Zealand will benefit from a stable political environment during the forecast period, aided by a well-established and transparent political process. General elections are held frequently (a typical parliamentary term lasts between two and three years), but changes of government are smooth. The most recent poll was held in November 2011. The incumbent prime minister, John Key, and his conservative National Party secured a record 59 seats out of 121 in parliament. The National-led coalition-which also includes the Maori Party (with three seats), ACT (one seat) and United Future (also with one seat)-controls a total of 64 seats, giving it a slim majority but one sufficient to enable it to govern.

  ELECTION WATCH: The next general election, which is due by 2014, will be held under the existing mixed-member proportional representation (MMP) system. Under the initial recommendations made by the Election Commission on the MMP system, the next poll could see ACT, which is a coalition partner of National, lose its sole parliamentary seat. However, the seat in question, in Epsom, would be safe for a National candidate.

  INTERNATIONAL RELATIONS: New Zealand's closest diplomatic and economic relationship is with Australia, as formally underpinned by the 1983 Closer Economic Relations agreement. Bilateral ties will deepen in 2013-17. The two governments are negotiating a protocol on a common border, pension portability and joint investment, all of which would help to move the countries closer to their goal of forming a single economic market. The New Zealand administration will remain strongly committed to the principle of free trade and the pursuit of free­trade agreements with various trading partners.

  POLICY TRENDS: Mr Key and his government will continue with the policy agenda developed during their first term of office. In the short term, the administration will continue to focus on reconstruction and aid efforts in the Canterbury region, following the earthquakes that struck Christchurch in September 2010 and February 2011. This work is expected to consume considerable fiscal resources. The Reserve Bank of New Zealand (RBNZ, the central bank) estimates that total spending on earthquake-related reconstruction will reach NZ$20bn (US$16.1bn). In the medium term, the government will remain committed to fiscal prudence, and it is not expected to allow the budget deficit or public debt to balloon as a result of the natural disasters. The high cost of rebuilding Christchurch could be seen as reinforcing Mr Key's argument that the partial sale of a number of state-owned assets is necessary to help to keep in check the fiscal deficit and public debt, as well as to fund other capital expenditure.

  ECONOMIC GROWTH: The Economist Intelligence Unit forecasts that real GDP will grow by 2.2% in 2013. On an expenditure basis, next year expansion will be driven by fixed investment, which we expect to grow by 7.4% as earthquake-related reconstruction gathers pace. Growth in private consumption will pick up slightly in 2013, to 2.4%, from an estimated 2.1% in 2012, but expansion will remain below the rates recorded prior to the 2008-09 global financial crisis. This partly reflects ongoing household cautiousness, which will result in a focus on saving and repaying debt. In addition, the government's fiscal consolidation efforts may constrain domestic demand somewhat. The external sector will weigh on economic expansion in 2013, but export growth will accelerate to 4% in that year, from an estimated 2% in 2012.

  INFLATION: We forecast an acceleration in the rate of consumer price inflation in 2013, to 1.6% on average, from an estimated 1.1% in 2012. Global non-oil commodity prices will increase slightly next year, putting upward pressure on domestic consumer price inflation. At the same time, the local currency will depreciate from NZ$1.24:US$1 on average in 2012. This will increase pressures stemming from imported inflation. Further upward pressure on consumer price inflation will be exerted by the rise from January 2013 in the tobacco excise tax. (An increase in the tax will occur in January each year until 2016.) During 2014-17, as post-earthquake reconstruction gathers momentum, spare capacity in the economy will be utilised, generating inflationary pressure. Demand for labour for reconstruction work will help to reduce unemployment, which may raise wage pressures marginally. We expect inflation to moderate to an annual average of 2% in 2014-17, thereby remaining within the RBNZ's 1-3% target range.

  EXCHANGE RATES: We expect the New Zealand dollar to weaken to NZ$1.4:US$1 on average in 2013, from a historically strong rate this year. Over the remainder of the forecast period we forecast a gradual further depreciation of the local currency, to stand at NZ$1.49:US$1 on average in 2017. Given New Zealand's wide and expanding current-account deficit, a bigger fall in the currency's value is possible. However, our benign forecast is based on the positive outlook for domestic economic growth, in addition to expected interest rate rises over the early to middle part of the forecast period. The New Zealand dollar has historically been popular with investors, and its value has held up well even amid the recent bout of volatility in global financial markets. We expect this to remain the case, although the volatility of international investor risk appetite and eventual increases in global interest rates mean that a steeper weakening of the currency in 2013-17 cannot be ruled out.

  EXTERNAL SECTOR: New Zealand has traditionally run a current-account deficit, and we expect it to continue to do so in the forecast period. We expect the shortfall on the current account to widen to the equivalent of 5.6% of GDP in 2013 and to then average 7.8% in 2014-17. In 2013, although price rises for New Zealand's commodity exports and a pick-up in global demand will see export expansion accelerate, import growth will also quicken owing to an increase in reconstruction-related imports. On the services account, the strong New Zealand dollar makes overseas holidays by local residents more financially attractive, while continued weakness in the country's main European visitor markets will act as a drag on New Zealand's tourism sector. As a result, the services account will remain in the red. The deficit on the income account will be sizeable in 2013-17, reflecting the cost of servicing the country's substantial stock of foreign debt, the low domestic saving rate and the repatriation of profits by foreign-owned firms operating in New Zealand. The trade surplus will grow towards the latter part of the period, amid a slowdown in reconstruction-related import growth.

  December 01, 2012

• Forecast

  New Zealand: Country forecast summary

  Country forecast overview: Highlights

  • New Zealand will continue to benefit from a stable political environment in 2013­17, underpinned by a well-established and transparent political process. General elections are held every two to three years. At the most recent poll, in November 2011, the incumbent prime minister, John Key, and his conservative National Party secured a record 59 seats out of 121 in parliament. The National-led coalition government controls 64 seats, giving it a slim majority albeit one sufficient to enable it to govern.
  • In the forecast period the economy will expand by an average of 3% a year, owing to steady growth in demand for New Zealand's major exports and strengthening domestic economic conditions. Real GDP is forecast to grow by 2.2% in 2013, following an estimated gain of 1.9% in 2012. Growth will be driven primarily by fixed investment and private consumption next year.
  • Consumer prices will rise in 2013­17, but the pace of increase is expected to remain within the 1­3% medium-term range targeted by the Reserve Bank of New Zealand (the central bank). Inflation is forecast to average 1.6% in 2013.
  • In the forecast period fiscal policy will be aimed at consolidating the public finances, with new spending to be funded by expenditure cuts elsewhere as well as by fresh revenue-generating measures. The funds for new capital expenditure will come from the proceeds of the partial privatisation of a number of state-owned assets, rather than from new borrowing. The budget balance will improve from a deficit equivalent to 6.4% of GDP in fiscal year 2011/12 (July-June) to a small surplus of 0.4% in 2016/17.
  • The New Zealand dollar has remained relatively strong against the US dollar despite global economic uncertainty, averaging an estimated NZ$1.24:US$1 in 2012. The Economist Intelligence Unit expects the local currency to depreciate in the forecast period, to average NZ$1.49:US$1 in 2017, despite a substantial current-account deficit (which is forecast to widen to the equivalent of 7.4% of GDP on average in 2013-17). Our benign currency outlook is based on the positive prospects for the domestic economy, and on expected interest rate rises in the forecast period.
  • New Zealand's rate of population growth will remain subdued throughout 2013-17, reflecting only moderate net inward migration and lower birth rates. The ageing of the population is proceeding more slowly in New Zealand than in most other OECD countries, but higher dependency ratios (as "baby boomers" begin retiring in large numbers) will start to put pressure on the pension system.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	1.9	2.2	3.1	3.1	3.0	3.5
  Consumer price inflation (av; %)	1.1	1.6	2.1	2.0	1.9	2.1
  Budget balance (% of GDP; fiscal years ending Jun 30th)	-6.4	-2.2	-1.2	-0.3	-0.1	0.4
  Current-account balance (% of GDP)	-4.6	-5.6	-7.5	-8.3	-7.8	-7.6
  Short-term interest rate (av; %)	5.9	6.3	7.8	8.8	9.0	9.0
  Exchange rate NZ$:US$ (av)	1.24	1.40	1.46	1.49	1.49	1.49
  Exchange rate NZ$:¥100 (av)	1.56	1.69	1.68	1.67	1.61	1.62

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  December 01, 2012

View detailed map

Country Briefing

Land area

270,534 sq km, comprising two main islands, North and South, and several smaller islands

Population

4,393,500 (estimated resident population at end-2010)

Urban areas

Population in '000 (March 2006 census):

Auckland: 1,303

Wellington (capital): 449

Christchurch: 348

Hamilton: 129

Dunedin: 119

Tauranga: 104

Climate

Temperate

Weather in Wellington (altitude 126 metres)

Hottest months, January-February, 13-20°C; coldest month, July, 6-11°C (average daily minimum and maximum); driest months, November-February, 87 mm average rainfall; wettest month, July, 143 mm average rainfall; average annual rainfall, 1,240 mm

Language

English; Maori has official status

Measures

Metric system

Currency

New Zealand dollar (NZ$); NZ$1 = 100 cents. Average exchange rate in 2011: NZ$1.27:US$1

Fiscal year

July-June

Time

12 hours ahead of GMT; New Zealand summer time is 13 hours ahead of GMT

Public holidays

January 1st (New Year's Day); January 2nd; February 6th (Waitangi Day); April 6th (Good Friday); April 9th (Easter Monday); April 25th (ANZAC Day); June 4th (the Queen's birthday); October 22nd (Labour Day); December 25th (Christmas); December 26th (Boxing Day)

March 07, 2012