Days of discontent
Wellington, New Zealand
The bumper sticker reads, "Will the last Kiwi to leave please turn out the lights." For the past several years, 15,000 to 40,000 New Zealanders -- most of them between 15 and 39 years old -- have left their scenic but isolated country.
Prime Minister Robert D. Muldoon says this outmigration does not bother him, because it will relieve pressure on housing prices. "We've had a net outflow, mainly to Australia, but quite a lot of the migrants from Britain are going home again. They didn't like it out here," he says.
"We came into office with the policy of turning around a net inflowm of 30,000 , which was causing us real trouble in terms of pressure on the economy, on investment, on housing prices. . . ."
Yet the migration is symptomatic of a larger trend: New Zealanders have steadily watched their standard of living erode and their economy stagnate.
New jobs beckon from mineral-rich Australia instead of the rainy green hills of New Zealand, where the unemployment rate as of March, the latest figures available, was 3.5 to 4 percent, a rate considered high in this nation of 3.1 million people. A year ago it was 2.5 percent.
In 1981 -- an election year -- the country expects real economic growth of only 1 to 2 percent, not much better than the 1 percent gain last year. Between 1976 and 1979, however, the country's gross domestic product actually shrank.
In addition to a slowed economy, the country has been further strained by violent protests against this season's tour by a South African Rugby team, the Springboks. In retaliation, the Commonwealth finance ministers have changed their September meeting from Auckland to the Bahamas.
Underlying the apparent disenchantment is an inflation rate that has been as stubborn as the scrubby gorse that survives on its high and beautiful mountains.
Even though inflation is expected to drop this year to 12 or 13 percent from the 18 percent level last year, New Zealand's rate will remain higher than that of its major trading partners, the United States, Australia, and the United Kingdom.
The Reserve Bank, the country's central bank, reports an inflation rate worse than other comparable Western economies in the Organization for Economic Cooperation and Development. "New Zealand is actually less dependent on trade than some OECD countries which have had notable success in containing inflation -- such as [West] Germany," the bank said, adding that the country is also less dependent on imported oil than Japan, another country that is checking inflation.
The business community has also bemoaned the tax rates, which go as high as 62 percent for anyone making over $16,000 a year. "We need to lower taxes to 50 percent," says John M. Hunn, general manager of the Development Finance Corporation, "which would result in a lot fewer tax shelters."
New Zealand has been saddled with high youth unemployment, particularly among Pacific islanders entering the country. Gangs of young Maoris (native New Zealanders) have also created problems in the Auckland area. Maori unemployment , according to one disputed study, stands at 60 percent.
Organized labor has been another thorn in the side of business. The unions, like their counterparts in Australia, hae adopted the British craft union arrangement. This has resulted in widespread labor stoppages, since one small union has the power to shut down an entire factory. Nowhere have the country's labor costs been more apparent than in transportation. For example, the cost of shipping a container from Wellington to Christchurch is practically the same as on the Wellington-to-London run.
This is not to say the country doesn't have some bright spots: It is still the lowest-cost producer of lamb, wool, and dairy products in the world. And it has found new markets in the Middle East for the lamb it used to send the United Kingdom.
The country has also discovered onshore oil deposits which, when combined with plans to convert natural gas from offshore fields into gasoline, will help ease New Zealand's $1.04 billion bill (NZ$1.25 billion) for imported oil. And the country has ambitious plans to better utilize its hydroelectic potential and coal deposits in making aluminum and steel.
Most of its energy resources will come from development of the giant Maui gas field. One of the 15 largest gas pools in the world, the field is in stormy, earthquake-prone waters off the southwest shore of North Island.
Government officials expect conversion of a portion of the gas into compressed natural gas for use in motor vehicles. Still more will be used for a methanol plant and an ammonia/urea fertilizer plant. Some will power a third aluminum potline at Tiwai Point and possibly another smelter near Dunedin. But the linchpin for this project is the possibility that 16 percent of the gas will be used for a $750 million gas-to-gasoline plant expected to be built and operated by Mobil Oil New Zealand Ltd. According to Energy Minister William Birch, the country's goal is to be self-sufficient in gasoline by 1990.
This new energy-based development, which will cost in excess of $2.5 billion (NZ$3 billion), should help reverse the net outflow of people seeking jobs, the prime minister says. The rush to build plants is expected to boost the nation's capital spending by 9 percent this year. But many of the projects are just on the drawing boards and remain controversial.
The Social Credit Political League, the nation's third party, runs on a platform opposed to such "big projects," and would prefer to aid the small businesses that provide 85 percent of the country's jobs. The Labour Party, the main opposition party, has been split on some of them. It is opposed to the building of the aluminum smelter, for example. But some of its members from Dunedin, near where the smelter will be built, favor it. The election sometime between now and late November could well be a watershed for such projects as Mobil's. Without Mr. Muldoon's National Party ruling the country, the big developments may not get off the ground.
One effect of inflation was brought home to the government in recent wage negotiations with the Federation of Labor. The Union, represented by Ken Douglas, an articulate and tough negotiator, wanted a tax reduction as well as a raise. Inflation had pushed many union members closer to the 62 percent tax bracket for anyone earning over $16,000 a year. This "bracket creep," called "fiscal drag" in New Zealand, results in lower real pay increases after taxes.
The government turned down the unions, and is now considering whether to impose some form of compulsory wage controls or compulsory wage-tax settlement.
The fight against inflation is also impeded somewhat by the election. Prime Minister Muldoon acknowledged in a Monitor interview that the election means that normal fiscal and monetary measures to cope with inflation may not be used, although the 1981-82 budget, introduced in July, had relatively few election-year presents.
Since anti-inflationary monetary measures are frowned on in Wellington, interest rates for savers are well below the rate of inflation. Thus, in an effort to maintain their wealth, New Zealanders are buying real estate and stocks.
On Lambton Quay, one of Wellington's main thoroughfares, E. F. Stuart, executive officer of the New Zealand Stock Exchange, explains that the New Zealand stock markets have been soaring, because investors have viewed stocks as an inflation hedge. In the financial year ending March 31, the Reserve Bank stock index had gained nearly 50 percent. Since then, stocks have moved up even faster. They have also received an impetus because there is no capital-gains tax, and some dividends are considered tax free.
With inflation buffeting the country like the winds that swirl through Cook Strait, New Zealand has taken to steadily devaluing its currency. This policy, called the "crawling peg," has lowered the New Zealand dollar one-half a percent per month over the past year. Although the policy has been popular with farmers , since it helps them sell products abroad, it has raised the cost of imported goods. Douglas is convinced that the prime minister, who will have a relatively tough fight this fall from the Labour Party, will devalue the currency by 10 percent in September to corral more votes.
Such a devaluation would probably go over well with the tourist industry, as well as farmers. With the crawling peg, tourism from the US increased 27 percent last year and from Canada, 30 percent. But a lower New Zealand dollar would mean a larger oil import bill, which would keept pressure on the balance of payments. Senior government officials here say they expect a deterioration in the balance of payments until the major energy projects come on stream int he mid-1980s.
With 30 percent of the country's gross domestic product related to imports, such a devaluation would have an unwanted inflationary effect. A devaluation would also mean the balance of payments would continue to deteriorate as dollar borrowings became more expensive, Already, higher interest costs are expected to expand the current-account gap to $1.1 billion in this fiscal year.
Because of its balance-of-payments problems, the country embarked on an ambitious and successful export program, spurred in large measure by handsome export incentives. Now, however, Sir Frank Holmes, head of the New Zealand Planning Council, says those incentives should be reviewed so as to help the government balance its $2 billion budget deficit and because many foreign governments, including the US, are viewing them suspiciously as unfair subsidies.
New Zealand's posture of protecting its domestic industries from foreign competition -- through import licensing, tariffs, or both -- has allowed some inefficiency and competitive laxness in some industries, causing high prices in such consumer items as TV sets, cars, clothing, plastics, and electronic wares.
Nor does supporting the industrial sector make the farmers happy. Rick Vallance, a sheep farmer who runs an efficient, 2,000-acre ranch northeast of Wellington, says, "I'm tired of supporting unproductive areas of the economy." Farmers too can point to higher prices paid for fencing and farm implements.
Despite these criticisms, Ian Douglas, director general of the New Zealand Manufacturers Federation, points out that the country's work force is well educated and relatively adaptable. He claims that productivity is up 30 percent since 1977.
And he is optimistic about the country's future. Forests planted in recent decades will become harvestable in the 1990s; fishing and tourism still have great potential. These industries could take off about the same time oil dependency is eliminated. Such hopeful signs, says Prime Minister Muldoon, should result in another surge of immigration in the 1990s.