KEY POINTS:
A scarcity of labour, especially the skilled variety, is chief executives' No 1 concern about the state of the economy.
Even after two years of below-par economic growth the unemployment rate is only 3.8 per cent.
The Mood of the Boardroom survey's finding that skill shortages top the list of respondents' economic concerns is consistent with Institute of Economic Research's March survey of business opinion. It recorded a steep rise in the proportion of firms saying it was getting harder to find both skilled an unskilled labour and a jump in the number of firms citing labour as the main constraint on increasing production.
Wage increases and skill shortage also top the list of concerns for small to medium-sized enterprises.
The population is ageing and net migration, while positive, does little to offset that. Because of the gap in incomes that has opened up between New Zealand and most other developed countries including Australia, we tend to lose three New Zealanders for every four immigrants.
And the pool of surplus labour created by the economic reforms of the late 1980s and early 1990s has long been drained.
Sleepyhead's Martin Ellis described the labour market as "absolutely impossible at the moment''. He also detects a work-shy attitude among the young.
"We look to automate wherever possible but that is more about productivity gains than reducing employment.''
Regulation ran labour shortages a close second among respondents' concerns.
That interest rates should rank high among business concerns is unsurprising when the Reserve Bank has just delivered another couple of official cash rate rises, continuing the tightening it started more than three years ago. At 7.75 per cent the OCR is one of the highest in the developed world.
Wage inflation, one of the bank's concerns, is a worry shared by business leaders.
Even with some signs of moderating in the last two quarters, wage inflation remains close to its highs for the cycle. The average wage and salary increase agreed in the March quarter, for example, was 5.4 per cent, Statistics New Zealand reported.
But chief executives rated the current account deficit as of much as a concern as wage inflation.
The deficit for 2006 was $14.4 billion, or 9 per cent of GDP. That is unsustainable and is evidence of an economy that is badly off-balance, with domestic demand overheating while the export sector, with some exceptions such as dairy farming, struggles.
The classical correction to a big current account deficit is a fall in the exchange rate.
But while economists have been predicting a fall in the currency - like a flattening of the housing market - for quite some time, it still hasn't happened.
The kiwi dollar's strength is partly the mirror of US dollar weakness and may also reflect the market's tendency to see the kiwi as a commodity currency, buoyed by high world prices for dairy products and some other export commodities.
But it may also reflect a view in the market that the Reserve Bank is not yet on top of inflation and that interest rates will therefore keep rising.
Weak labour productivity, the next biggest concern, does not augur well either for inflation or growth.
The recent sharp decline in productivity is seen by some economists, including those at the Treasury, as a cyclical phenomenon, evidence of labour hoarding in the face of a structural tightening of the labour market.
Employers held on to staff through the downturn for fear that if they let workers go they would not be there when they needed to hire again. Productivity suffered and the household sector was, to some degree, sheltered from the downturn businesses experienced.
Even with the well-flagged cut in this month's Budget the corporate tax rate remains an issue for both the top end of town and the small to medium enterprise sector.
Personal tax rates as a lesser concern than the company rate, even though with dividend imputation it is the personal marginal rate which is the final rate of tax for local shareholders, and many small businesses are unincorporated.
But when asked if the Government should cut personal tax rates, the consensus is clear: 86 per cent of respondents said yes.
The fact that inflation in general, and petrol and other energy costs in particular, rate well down the list of concerns may prove temporary.
Inflation is 2.5 per cent - within the Reserve Bank's target zone - and should drop at the next reading, as the outsized 1.5 per cent increase in the June 2006 quarter falls out of the annual figure.
But the economic indicators point to increasing activity and mounting inflation pressures.
Employment grew strongly in the first three months of the year, with 25,000 new jobs. Retailers had their strongest quarter since the mid-1990s and house-price inflation returned to double-digit rates.
The Budget forecasts a stronger fiscal impulse next year than this year and Fonterra is forecasting a bumper payout for this season.
Petrol prices remain hostage to the tormented politics of the Middle East.
When asked to rank international concerns, respondents gave most weight to oil prices, followed by climate change, the US dollar, Middle East instability, China's competitiveness, the trend to offshoring, free-trade agreements and global inflation.
"The Government is hellbent on driving manufacturing out of New Zealand,'' said Ellis.
"Why they want a free-trade agreement with China is beyond me.''
