Audrey Young is the New Zealand Herald’s political editor.

Left's answer to NZ's woes

Opposition parties present solutions to a problem the Prime Minister says doesn't exist.

Opposition leaders (from left) Winston Peters, David Shearer and Russel Norman have lauded the manufacturing blueprint. Photo / Dean Purcell
Opposition leaders (from left) Winston Peters, David Shearer and Russel Norman have lauded the manufacturing blueprint. Photo / Dean Purcell

Opposition parties have hailed what they call a blueprint to address a manufacturing crisis which Prime Minister John Key says doesn't exist.

He said it was a "joke" to suggest there was a crisis in manufacturing and it had been "a stunt" to hold an inquiry into it.

Labour, the Greens and New Zealand First leaders were all at Hamilton Jet in Christchurch yesterday to release the inquiry's report.

They are going easy on the crisis rhetoric, preferring instead to characterise manufacturing as "the Cinderella sector" of the New Zealand economy.

Opposition MPs sat on the inquiry which was chaired by Christchurch businessman Cameron Moore. Professor Nigel Haworth, of the University of Auckland Business School, wrote the report.

Its three main recommendations reflect a combination of the parties' policies.

They want changes to Government policies that would result in a less volatile exchange rate; stronger investment into the productive economy rather than housing speculation; lowering electricity prices; reviving research and development tax credits and a national procurement policy that favours New Zealand made.

The importance of the manufacturing sector to the economy was reflected in several submissions about the multiplier effect.

The Council of Trade Unions estimated that the multiplier for output was 1.4 - that for every $1 of manufacturing output, another $1.40 was produces elsewhere; and that the multiplier for jobs was 1.7 - for every job in manufacturing, another 1.7 jobs was created elsewhere.

Hamilton Jet managing director Keith Whiteley, who hosted the launch yesterday, made a submission to the inquiry in January.

He talked about how much fluctuations in the exchange rate impacted on sales.

The company's policy was to hedge 50 per cent of projected sales five years ahead and 100 per cent one year ahead, which at the time meant operating with the US dollar at 74c and the euro at 56c.

At those rates its profit was about 9 per cent of sales but if it had to trade at the spot rates of the day (84c and 62c on January 28) it would be a marginal 2 per cent of sales.

The report cites another example of the Dreadnought machine tool company - a made-up name for a real Christchurch company that submitted confidentially. The company has been around for three generations and employs 200 people.

"Exchange rate pressure can be the make or break of the company," says the report.

It successfully competed internationally on the basis of competitive pricing, high quality and reliability.

"It simply cannot 'put up its prices' as the way out of exchange rate difficulties."

With a US dollar at 70c its profit margin was 8 per cent of sales price, at 80c it was 2 per cent and at 83c it was zero.

Greens co-leader Russel Norman cites the fact that there were now 40,000 fewer manufacturing jobs than there were at June 2008 in Statistics New Zealand quarterly Employment Survey as proof of a decline in the sector.

Labour leader David Shearer said the report was a blueprint for better jobs and higher wages. The major recommendations would tackle an overvalued dollar, encourage innovations through a better tax system and create a level playing field for New Zealand companies' access to Government procurement.

New Zealand First leader Winston Peters said the report was an urgent call to action if the manufacturing sector was to survive and thrive.

Mr Key scoffed at the report yesterday saying: "I reckon the only crisis is the one brewing in the Labour Party."

Main recommendations

* Reform monetary policy to ensure a less volatile exchange rate.

* Refocus investment into the productive economy rather than housing speculation.

* Lower structural costs such as electricity.

* Encourage innovation through a return to R&D tax credits.

* Govt procurement policy to favour New Zealand made.

- NZ Herald

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