National’s economy rises and falls with dairy prices

The weakness of National’s one product to one market economic strategy was highlighted today with falling dairy prices hurting the terms of trade this quarter, the Green Party said.

The merchandise (goods) terms of trade fell 4.4 percent in the September 2014 quarter, due to export prices falling more than import prices, led by the decline in international dairy prices. Seasonally adjusted dairy values fell 8.9 percent after an 8.6 percent fall in the June 2014 quarter.

“Falling dairy prices have once again highlighted the risks inherent in National’s one product to one market economic strategy,” said Green Party Co-leader Dr Russel Norman.

“National’s economic gamble of focussing the economy on selling milk powder to China might look like a bonanza in the short term, but in the medium and long term, we won’t prosper.

“Fundamentally, the Government can’t control the prices of exports, but it can control the economic direction of the country, and the direction they’ve chosen of simple commodity exports has real risks.

“The Government’s economic focus continues to be on controversial state asset sales, subsidising irrigation, weakening clean water rules, and hoping for a big oil strike – in short, a pollution economy.”

Treasury forecasts New Zealand’s current account deficit will double from 2.8 percent of GDP in 2014 to 6.4 percent by 2017.

“New Zealand’s persistent current account deficit is a symptom of an economy that faces some fundamental challenges,” Dr Norman said.

“There are solutions to the serious structural problems of our economy – a tax on capital gains (excluding the family home), ramping up government investment in R&D, and establishing a Green Investment Bank to accelerate investment into smart, green infrastructure would all help address our one-trick economy.

“The Government can set in place the drivers and incentives for our companies to get access to cheaper capital, innovate, export, and thrive.”