A nurses strike looms within a fortnight unless the Government can either stonewall unions in final negotiations or relax its fiscal pursestrings a bit. The Government has relented slightly on its foreign buyers ban, allowing foreigners to hold on to new apartments and hotel units they provide the capital to build. But rest home operators and wine companies missed out on the exemptions they hoped for.
Nurses strike looms
Nurses rejected a nine percent pay rise yesterday, setting up the prospect of the first nurses strike in 29 years and highlighting the intense wage pressure being applied to the Labour-led Government by public sector unions.
Teachers are aiming for a 15 percent pay rise and strikes loom there too unless the Government relents.
The Government faces political pressures from all sides.
The unions want to catch-up on wage inflation they missed out on under the previous Government and to keep employees from drifting away overseas or into other private sector professions where wages have moved ahead relative to the public sector over the last decade. The lowest unemployment rate since 2008 and fast employment growth has created intense pressures on staffing in education and health at a time when record high immigration has increased demand sharply, and after under-investment by the previous Government in both staffing and infrastructure. It is a perfect storm of demand and supply hitting the first negotiation under a Labour-led Government in 10 years.
Employers and borrowers are concerned that a Labour-led Government will use a budget surplus and a strong balance sheet to give a big wage increase that spills over into wider wage inflation that forces up inflation generally and interest rates. Public sector wage inflation and wage inflation generally was higher under the last Labour Government. This was part of the reason why the Reserve Bank had to hike interest rates aggressively through early 2007.
Prime Minister Jacinda Ardern also raised voters' expectations that the Government would deal with the under-investment in both infrastructure and people in health and education. She noted before the Budget that the under-spending was both a capital and operating expenditure issue. The prospect of strikes on July 5 and July 12 while she could still be in Auckland hospital after the birth of her baby would not be a good look.
Meanwhile, this challenge to the Government's ability to deliver on its health and education promises while also sticking to its fiscal promise will all be happening during Ardern's maternity leave.
Deputy Prime Minister Winston Peters and Health Minister David Clark were firm in comments yesterday at the first post-cabinet news conference, saying nine years of under-funding could not be addressed in a single pay round. They said the Government had topped up a late May offer of an extra $250 million by a further $250 million.
They said the money could be rejigged, but could not be increased because of the Government's fiscal limits. So far, Finance Minister Grant Robertson is holding the line that the Government's 20 percent debt target limit is more important than fixing the health and education systems.
The Government and the unions hope the dispute can be resolved before the first strike on July 5. A full strike would signify the Government's first major failure.
Parker relents, a bit
The other big news in the political economy late yesterday was the release of the Finance and Expenditure Select Committee's report into the Overseas Investment Amendment Bill, which included various tweaks aimed at addressing concerns the previous version actively discouraged foreign investment in new apartments and hotels.
There were winners and losers in the latest rounds of changes, and plenty of unintended consequences remain to be ironed out.
Developers of multi-storey apartment blocks and hotels will now be able to invite in foreign buyers again under changes to the Government's foreign buying ban law.
Conveyancers also dodged a bullet because they requirement they prove a buyer is a resident was dropped. The resident must now prove that.
Telecommunications firms got an exemption, but retirement village operators failed to win the exemption they hoped for.
Viticulturalists are also still worried the ability of foreign owned wine companies to have picking rights on vineyards bigger than five hectares has not been exempted, while foreign owners of cutting rights have been exempted.
The bill will now go to a second reading and the Government is under pressure for time to have it signed into law before the CPTPP is ratified. We also still do not have an agreement with Singapore for it to relent on its trade deal to ensure they are covered by the bill too.
Fonterra criticism and slowing economy
Elsewhere on Newsroom Pro, Winston Peters was asked about Shane Jones' criticism of Fonterra and call for Chairman John Wilson to resign. Peters stopped short of repeating the call for Wilson to resign, but was bitterly critical of Fonterra's performance and called for commercial accountability. See more here in Pattrick Smellie's article.
The economy continues to show signs of softness ahead of key March quarter GDP data on Thursday. NZIER released its consensus forecasts showing a slight fall in expectations since the same survey in March.
The June survey, which averages forecasts compiled from a survey of financial and economic agencies, shows projected gross domestic product has been cut by 2 basis points to 2.9 percent for the year ending March 31, 2019, and by 1 point to 3.2 percent in the March 2020 year. Exports are forecast to grow at a slower 1.6 percent pace in the current year before rebounding more strongly than was seen in the March survey. See more on Newsroom Pro in Jonathan Underhill's article.