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Annual ReportNew Zealand Institute of Economic Research
2007
New Zealand Institute of Economic Research (Inc.)
ESTABLISHED 1958
8 Halswell Street ThorndonPO Box 3479Wellington 6011New Zealand
Phone: +64 4 472 1880Fax: +64 4 472 1211
email: [email protected]
Website: www.nzier.org.nz
Contents
PAGES
Chairman’s Report 2
NZIER Board Members 2007 4
Chief Executive’s Report 6
Public Good Work 8
NZIER Publications 11
List of NZIER Members 2007 15
Financials 17
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About NZIER
The New Zealand Institute of Economic Research (NZIER) is an independent economic consulting and forecasting
organisation specialising in quality economic analysis and research to help decision-makers in both the private and
public sectors with strategic and policy advice.
Established in 1958 and based in Wellington we are a non-profi t incorporated society.
We are independent of Government and any other organisation and we conduct our activities in an impartial and
independent manner free from bias or any sectional interest.
Membership fees form approximately ten percent of our revenue and fund our various membership services.
Membership is open to all.
Economic consultancy services provide most of our revenue.
The surplus on consultancy funds our public good research and other activities.
Our clients and members come from throughout New Zealand, Australia and further afi eld.
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Chairman’s ReportThe past fi nancial year did not continue the strong growth of the previous year. However, the staff remained very busy delivering membership services and public good outputs in addition to undertaking contract work for a wide variety of clients. Some of the more noteworthy projects in the last year have been a study of emission trading schemes for a consortium brought together by Business New Zealand, an economic analysis of a wind farm development by TrustPower in Otago, a study of the economic potential of mineral development in Northland, and an analysis of the proposed policy to impose levies on waste. The environment and resources have been prominent in NZIER’s work in the last year.
The Objectives of NZIER
NZIER is independent of Government and other organisations. Its fi elds of expertise
are economic analysis, consulting and forecasting. Its aim is to provide independent,
authoritative, economic analysis – analysis that is solidly based in the discipline of
economics, reaches conclusions and assessments that are independent of who the client
might be, and is clear in its statement of the issue and insights into the solutions.
Independent economic analysis is not always welcomed by persons with commercial or
political barrows to push. The difference between commerce or politics, and economics,
is that the former deal with the choices of objectives and means to achieve them, and
the latter deals with the consequences of those choices. Economics involves asking
questions such as: what is the market failure that an intervention is supposed to be
dealing with, and if there is a market failure, what are the costs and benefi ts of various
regulatory options? Economics also involves pointing out the unpublicised or unintended
consequences of various proposals and policies, as well as whether they will achieve
their proclaimed or intended objective. Economic analysis can be very inconvenient for
politicians, or interest groups, who are committed to a particular course of action. It often
shows the proposed action is not likely to make people better off. It can show that the
action will have unintended or unsuspected consequences. It is obvious why some people
are tempted to disregard the outcome of economic analysis or the need to apply it.
There appears to have been a growing tendency in New Zealand for at least politicians
and policy advisors to give in to this temptation in recent years. The conduct of regulatory
impact statements has become less rigorous. Less attention appears to have been paid
to identify unintended consequences, or these have been dismissed as the worries of
economists. Cost benefi t analysis as a policy tool seems to have slipped out of many
analysts’ toolkit. Our Australian neighbours appear to have been moving in the opposite
direction, making solid economic analysis a cornerstone of policy evaluation, through
the work of the Productivity Commission and the Offi ce of Best Practice Regulation, and
through increased requirements for proper assessments of policies before they become
law.
NZIER was founded in 1958 to improve the economic well-being of New Zealand through
the use of impartial and independent economic research. So the growing tendency to
disregard inconvenient economics goes to the core of the objectives of NZIER. The Quality
Regulation Review promoted by the Minister of Commerce, the recent Cabinet decision
to have more rigorous approaches to regulatory impact statements, and the Minister of
Commerce’s expressed interest in the work of the Australian Productivity Commission,
are all encouraging signs that the pendulum may be swinging back again. I hope so,
because the belief of the founders of NZIER is as relevant now as it was nearly 50 years
ago: authoritative economic research will contribute to the economic well-being of New
Zealand. A disregarding of economics, no matter how inconvenient for a politician or
interest group’s pet policy it might be, will have the opposite impact.
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Public Good activities
NZIER’s Constitution sets down that its objectives include conducting and promoting
research into economic matters directly or indirectly affecting New Zealand and
advancing the understanding of economic matters directly or indirectly affecting the
country. Elsewhere in this report the numerous activities undertaken in fulfi lment of those
objectives are listed in more detail. These public good activities are funded largely from
NZIER’s own accumulated resources, as the current subscriptions from members are just
adequate to fund the services provided to them. Each year NZIER devotes approximately
$250,000 of its own funds to public good projects and activities.
During the year a decision was made to lend long-term to the Reserve Bank the MONIAC
machine built by Bill Philips at LSE. The MONIAC is a water-based analog computer
designed to calculate the consequences of various macro economic policy settings on the
fl ows in the economy. The Reserve Bank will display the MONIAC in the new Museum it
has opened on its ground fl oor. The agreement provides that if the Reserve Bank does not
want the MONIAC for public display it will return to NZIER.
The decision to lend the machine was not easy as it is a cherished asset of NZIER. But
there was no question that, in terms of the objectives of NZIER relating to promoting
economic understanding, it is better for the machine to be viewed by thousands a year at
the Bank’s Museum than by the select few who could come to NZIER to see it operating
Governance
The proposed reduction in the size of the Board was passed at the last annual general
meeting. The Board is continuing to work effectively. The Board has two committees: the
Audit Committee, which is chaired by Mr Paul Baines with Mr Norman Geary and me as
the other members, and the Remuneration Committee, which is chaired by me, with the
Deputy Chairman, Mr Kerry McDonald, as the other member.
It is the intention of the Board to apply to retain the charitable status of NZIER under the
new legislative provisions. NZIER’s aims and objectives are educational, and its activities
appear to fulfi l the requirements for retaining this status.
Thanks
On behalf of NZIER, and personally, I thank all the Board members for their contributions
to NZIER’s success during the last fi nancial year. I particularly acknowledge the work
undertaken by Mr Paul Baines as Chair of the Board’s Audit Committee. I also express the
appreciation of the Board for the hard work put in during the last year by Brent Layton
and all the staff of NZIER.
Michael Walls
Chairman
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NZIER Board Members 2007The roles of the members of the NZIER Board are to:
Be responsible for the NZIER’s continuing to strive to attain its goals as they are agreed from time to time, and for the
NZIER’s strategic direction.
Monitor and safeguard the continuation of the NZIER in good fi nancial health and morale.
Ensure the employment of a Chief Executive of NZIER, on appropriate terms, and monitor the Chief Executive’s
performance relative to those terms.
Keep under review the performance of the Chief Executive and, through the Chief Executive, of NZIER’s staff.
Give advice to the Chief Executive on questions of general business practice or standards within the knowledge of
the Board and give advice on strategic planning initiatives and issues.
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Mr M WallsChairman
Mr N M T GearyCBE
Dr T B Layton(Chief Executive) Ex offi cio
ProfessorV B Hall
Mr T K McDonaldDeputy Chairman
Mr P Baines
Mr R F NottageCNZM
Auditors PricewaterhouseCoopers
Solicitors Kensington Swan
Secretary J T Matthewson
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NZIER AGM 2006Held at the Intercontinental Hotel in Wellington on 7 September 2006
John Dauth LVO addresses the 2006 AGM
Sir Frank Holmes and Phillip Meyer
Graham Valentine and Dr Alan Bollard
Bernard Card and Rob Davison
Professor Conrad Blyth and Bob Buckle
Juliet McKee and Richard Nottage
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Staff
We lost a number of key and very productive staff early on in the fi nancial year. There
were a number of reasons for this. One staff member took parental leave, another wished
to shift to Auckland for family reasons, a third wanting to expand his work experience and
horizons, and so on. There was no clear pattern and no indication that the remuneration
arrangements we offer are not attractive to productive staff.
Our initial attempts to replace the staff that left were not very successful. Virtually all the
applications we received when we advertised in mid-2006 were from people who did not
have suitable qualifi cations or experience to be appointed.
Late in 2006 our efforts to identify specifi c individuals to approach started to pay off. We
were able to make some very good appointments. When we advertised again in March
2007 we received a sizeable number of applications from well-qualifi ed candidates and
were successful in making a number of very good appointments of both experienced and
less experienced economists. The difference may refl ect that NZIER’s profi le has been
higher of late.
Staff numbers have since grown signifi cantly. Indeed, we currently have more economists
than we have had since early 2003.
Systems and Image
We have worked on ‘refreshing’ a number of aspects of our core business activities and
systems over the 2006/07 year. We prepared and issued a request for proposal to upgrade
our fi le management, timesheet and accounting software. We have recently signed a
contract for these systems. Our webpage was modifi ed and updated, and we refreshed
the format and contents of Quarterly Predictions. We have also introduced new templates
for our reports and presentations. These improvements are aimed at meeting the changing
demands of our clients. As part of the changes my title has become Chief Executive
instead of Director. The term Director is now more associated with corporate governance
than with a management role.
Markets
There have been slow but signifi cant changes in the last few years in one of our main
markets. The number of analysts with economic skills employed in government agencies
has grown strongly in recent years. This has meant government bodies have had less
need to contract-in basic policy analysis skills, but more need to utilise fi rms like NZIER
to provide higher level economics expertise, quality assurance and peer review of their
in-house work, usually to very tight deadlines. We have adapted to this change by honing
our expertise. A crude ‘indicator’ of our adaptation to the change in our market is the
number of staff with PhDs we employ. When I arrived two staff had a PhD; now eight do.
Chief Executive’s ReportThe 2006/07 year was a challenging one for NZIER and its staff. We lost some very productive staff. They have been diffi cult to replace in the current tight labour market. We have been working to refresh some of our systems. We have also been adapting to a changing domestic market place, and been actively engaged in establishing the Economic Research Institute for ASEAN and East Asia (ERIA).
The strength of the New Zealand dollar has meant that offshore contracts have generally
held little opportunity for us in the last few years. This last year we have, however,
participated with 15 international research organisations to help establish the East Asia
Economic Research Institute for ASEAN and East Asia (ERIA). The objectives of ERIA are
to provide the research needed by policy makers and politicians for decisions about the
economic integration of the ten ASEAN countries and the six other participants in the
East Asian Summit – Australia, China, India, Japan, Korea and New Zealand. ERIA will,
initially, draw on the contributing institutes like NZIER to undertake the research, but will
eventually have a core staff to undertake some research itself and to manage projects
undertaken by others. NZIER is actively engaged in four projects for ERIA at present;
these all relate to trade liberalisation, which has been one of NZIER’s core interests and
capabilities for many years.
I would like to acknowledge the efforts of all my colleagues over the last year.
Brent Layton
Chief Executive
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NZIER wishes to thank:Major members, members and clients for providing the funding necessary to carry
on the NZIER’s work.
The New Zealand Treasury for providing a grant towards the cost of the Quarterly
Survey of Business Opinion.
The Reserve Bank of New Zealand for providing a grant towards the cost of
Quarterly Survey of Business Opinion.
The National Business Review for their support of the NZIER Economics Award.
Dr Alan Bollard, Dr Grant Scobie, Mr Peter Bushnell, Professor Lewis Evans and Sir
John Anderson for sitting on the Awarding Panel for the 2006 NZIER Economics
Award.
Dr Geoff Bertram for maintenance of the MONIAC Machine.
Mr John Dauth LVO, Australian High Commissioner to New Zealand, for providing
the address at the 2006 Annual General Meeting.
The New Zealand Committee of the Pacifi c Economic Cooperation Council (NZPECC)
for providing assistance for our PECC work.
Professor Allan Rae of Massey University and Dr Anna Strutt of Waikato University
for collaborative research.
The Foundation for Research Science and Technology for research funding.
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Public Good WorkBecause of its public good role, as set out in its Constitution, NZIER is an incorporated society and a registered charity. Each year it undertakes a variety of activities focusing on promoting and assisting research into economic problems directly or indirectly affecting New Zealand. These activities are mostly funded from our own resources, but NZIER would welcome sponsorship to enable it to undertake more such work.
During the 2006-2007 year, NZIER staff responded to many inquiries from the public and students who wanted information about the New Zealand economy. Staff were often called upon to provide comment for the media, briefi ngs for international visitors and to make presentations at conferences and workshops.
Some notable visitors 2006-2007
Tony Burke, Australian Labour Party MP
Sandra Hoffman, Fellow, Resources for the Future, Washington, DC
Professor David Hong, President of TIER (Taiwan Institute of Economic Research)
Dr Choi Jung, President of the Korean Rural Economic Institute (KREI)
Dr Timothy Kane, Director, Center for International Trade and Economics,
Washington DC
Jung Kyung-Min, JoongAng Daily, Korea
Kim Min-koo, International Desk of the Mail Business newspaper, Korea
His Excellency Mr Molosiwa Selepeng, High Commissioner to Botswana
Delegates from the Research Institute for Fiscal Science department of the Ministry
of Finance, China
Delegates from the Taiwan Institute of Economic Research (TIER)
Delegation of Australian Federal, State and Local politicians
Offi cial from the Japanese Ministry of International Trade and Industry (MITI)
Offi cials from the Asia-Pacifi c Economic Cooperation (APEC)
Offi cials from the International Monetary Fund (IMF)
The Committee for Labour and Social Services of the German Budestag
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Public Good Work Continued
Conferences, briefi ngs and presentations
Some of the conferences attended and papers presented at conferences by NZIER staff
during the 2006/7 year are listed below.
EMA’s CEO Network Breakfast, Wellington, May 2006
Presentation titled “The Future of the New Zealand Economy – Where are we
heading?”
Commercial Leasing & Property Management Conference, Auckland, July 2006
Presentation titled “State of the Commercial Leasing Market:
2006 Outlook and Predictions”
Institute of Policy Studies Energy Roundtable Series
“Breaking dependence on fossil fuels by 2020”, Wellington, August 2006
Presentation titled “Lessons from past ‘energy crises’”
International Conference on Sustainable Growth in the Asia-Pacifi c Region, ERIA,
Jakarta, November 2006
New Zealand Early Childhood Research Annual Conference, Wellington, December
2006
Presentation titled “Early childhood participation – is ‘20 Free Hours’ the answer?”
Hosted the launch of the Heritage Foundation’s Index of Economic Freedom 2007,
Wellington, January 2007
9th Annual National Power Conference, Auckland, February 2007
Presentation titled “Gas, Oil & Coal Prices”
7th Annual Competition Law and Regulation conference, Wellington, February 2007
Pacifi c Economic Outlook Forecasters meeting, Japan, March 2007
8th Annual SuperFunds Summit, Wellington, March 2007
Presentation titled “Should KiwiSaver be Compulsory?”
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NZIER Economics Award 2006
The NZIER Economics Award was established in 1994 to promote and recognise excellence
in economics of direct or indirect benefi t to New Zealand.
In 2006 no award was presented.
Past winners can be viewed on the NZIER website www.nzier.org.nz
Loan of MONIAC Machine
NZIER has loaned the MONIAC Machine, designed by Professor Bill Phillips, to the recently
opened Reserve Bank Museum. The MONIAC was donated to NZIER by the London School
of Economics in 1987, and was on display at NZIER’s offi ces until September 2006.
The MONIAC on display in Venice, 2003
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MEMBERS ONLY*
NZIER offers its members a comprehensive macro-economic forecasting service.
Successful organisations need a clear picture of the economy, and how it is likely
to develop. Economic forecasts can help our members understand the economic
circumstances that are likely to prevail in the future, allowing them to take advantage of
economic opportunities and minimise the impact of downturns.
Quarterly Predictions
Quarterly Predictions contains detailed and comprehensive forecasts for the New Zealand
economy. Each issue contains forecasts for four to fi ve years ahead, with focus on the
composition and drivers of economic growth in the coming two years. Empirical analysis
is complemented by an examination of related economic and policy issues, and any risks
attached to the forecasts.
During the 2006-7 year issues 166-169 were published.
Quarterly Survey of Business Opinion
Begun in 1961, NZIER’s Quarterly Survey of Business Opinion is New Zealand’s longest
running and most comprehensive business confi dence survey. The resulting indicators are
a valuable tool for assessing the current state of the economy, and forecasting short term
economic activity.
The survey samples manufacturers, builders, architects, wholesalers and retailers, and
service sector fi rms. Information from these industries provides useful indicators of future
investment patterns, and the likely direction and composition of economic growth in
coming quarters.
During the 2006-7 year issues 180-183 were published.
CPI Forecast Summary Table
This specialist web-based publication is aimed at members of NZIER who are electricity
line distribution companies subject to the price-path threshold regime under Part 4A
of the Commerce Act 1986. It provides in one place the forecasts of infl ation in the
Consumer Price Index (CPI) of all the major forecasting organisations. This assists our
members in setting their prices as the thresholds to which they are subject are defi ned in
terms of movements in the CPI.
The CPI Forecast Summary table is published four times a year, in March, June, September
and December.
NZIER Publications
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PUBLIC GOOD**
Update
Update provides a monthly economic commentary on topical business and policy issues.
It discusses recent NZIER work of interest to business and policy makers. An ‘economic
diary’ highlights recent and up-coming releases of economic information and statistics.
Update also includes a roundup of the latest economic data for New Zealand.
Eleven issues of Update are published every year.
Consensus Forecasts
Consensus Forecasts presents short term forecasts of the New Zealand economy. It does
this by averaging forecasts produced by a variety of organisations, including NZIER.
Because forecasts are averaged across contributors, they provide a useful benchmark.
Variables covered include economic growth, prices and interest rates.
Consensus Forecasts is published four times a year, in March, June, September and
December.
Public discussion papers
NZIER prepares and publishes working papers on topics it considers to be of interest to
the general public. The aim is to better inform the general community and policy makers
on issues of importance to the performance of the New Zealand economy.
The papers published during the 2006-7 year were:
Fuel expenditure - Impacts on households
September 2006 NZIER working paper 2006/03
Trust Ownership and Vector
September 2006, NZIER working paper 2006/04
Sponsored by the Auckland Energy Consumer Trust.
The New Zealand-Australian income differential
October 2006, NZIER working paper 2006/05
* available to NZIER members for downloading from the ‘members only’ section of
the NZIER website.
** available to the public for downloading from the NZIER website.
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New Zealand Trade Consortium working papers
New Zealand Trade Consortium working papers are produced with the help of funding
from the Foundation for Research, Science and Technology.
The papers published during the 2006-7 year are listed below:
Perspectives on the internationalisation of the New Zealand labour market
by Nicolas Weinhold and Chris Nixon. NZTC working paper no 44
Farming subsidy reform dividends.
by Ralph Lattimore, 2006. NZTC working paper no 45
REPORTS TO CLIENTS**
Most reports commissioned from NZIER by clients are for the clients own use and are not
available for general circulation. Some clients do allow publication of the reports they
have paid to have produced.
The reports to clients from the 2006-7 year which are available to the public through the
NZIER website are:
Research to support the ITOs’ leadership role: analysis of economic and social
environment
Summary of NZIER’s report to the Industry Training Federation, April 2006
Review of Electricity Commission’s Draft Decision
Transpower’s Auckland 400kV Grid Investment Proposal
Report to MEUG, May 2006
Benchmark agreements and interconnection rules
The Electricity Commission’s consultation documents
Report to MEUG, July 2006
Grid planning assumptions
Opportunity to provide feedback
Report to MEUG, September 2006
Otahuhu security upgrade
Report to MEUG, September 2006
The benchmark agreement and interconnection rules papers
Invitation for cross-submissions
Report to MEUG, September 2006
Auckland’s contribution to the Government’s surplus in 2005
A report to the Committee for Auckland, September 2006
Facilitating distributed generation
The Ministry of Economic Development’s draft regulations
Report to MEUG, October 2006
Transpower’s amended North Island grid upgrade proposal
Report to MEUG, November 2006
Ageing and economic growth in New Zealand
Report to Pacifi c Economic Outlook Structure Specialists Meeting, November 2006
NZIER Publications Continued
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* available to NZIER members for downloading from the ‘members only’ section of
the NZIER website.
** available to the public for downloading from the NZIER website.
Productivity, profi tability and industry-good activities
A report to Dairy Insight, February 2007
Waste and rationality [the link is to Business NZ’s website]
A report to Business New Zealand, February 2007
Transmission pricing methodology
The Electricity Commission’s consultation paper
Report to MEUG, February 2007
Transmission pricing methodology
Submissions on the Electricity Commission’s consultation paper
Report to MEUG, February 2007
Otahuhu substation grid upgrade plan
Report to MEUG, February 2007
Emissions trading in New Zealand
a report to Business New Zealand, March 2007
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List of NZIER Members 2006–2007
Major members
ABN AMRO New Zealand Ltd
Air New Zealand
Department of Labour
Electricity Commission
Inland Revenue Department
Ministry of Economic Development
Ministry of Foreign Affairs & Trade
PricewaterhouseCoopers
Reserve Bank of New Zealand
Telecom New Zealand Ltd
The Treasury
Members
3M New Zealand Ltd
Accident Compensation Corporation
AgResearch
Airways Corporation of New Zealand Ltd
AllianceBernstein New Zealand Ltd
Amalgamated Engineering Printing & Manufacturing
Amcor Kiwi Packaging Ltd
AMP Capital Investors (New Zealand)
ANZ Banking Group Ltd
APN News and Media
APR Consultants Ltd
ASB Bank Ltd
Auckland City Council
Auckland City Libraries
Auckland Regional Council
Auckland University of Technology
Aurora Energy Ltd
Australian High Commission
Axiom Rolle PRP Ltd
Bancorp New Zealand Ltd
Bank of New Zealand
Barclays Capital Bank PLC
BASF New Zealand Ltd
Bayer New Zealand Ltd
Bayleys Real Estate Ltd
Bell Gully
Bic New Zealand Ltd
BOC Gases Ltd
Brevan Howard Asset Management LLP
British American Tobacco
Business NZ
Caltex New Zealand Ltd
Cameron Partners Limited
Canterbury Development Corporation Ltd
Canterbury Employers Chamber of Commerce
Canwest New Zealand
Capital Economics Ltd
Career Services
CB Richard Ellis Ltd
Cerebos Greggs Ltd
Chapman Tripp Sheffi eld Young
Citigroup Global Markets New Zealand Ltd
Colenso BBDO
Colliers International New Zealand
Connell Wagner Ltd
Contact Energy Ltd
Croxley Stationery Ltd
Darroch Valuations
Deloitte Touche Tohmatsu
Department of the Prime Minister and Cabinet
Deutsche Bank
DHL Worldwide Express
Dilworth Trust Board
DTZ Darroch
Du Pont (New Zealand) Ltd
Eastern Equities Corporation
Embassy of Japan
Energizer New Zealand Ltd
Ernst and Young
First New Zealand Capital
Fonterra Co-operative Group
Foundation for Research, Science and Technology
Fuji Xerox (New Zealand) Ltd
GE Commercial Finance
Genesis Energy
Golden Bay Cement
Goldman Sachs JB Were (New Zealand) Ltd
Gough Group
Graham Scott (New Zealand) Ltd
Grundfos Pumps New Zealand Ltd
Guiness Peat Group
Hay Group Ltd
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Holcim ( New Zealand) Ltd
Holden New Zealand Ltd
Honda New Zealand Ltd
Hortresearch
Hynd Pipe Systems Ltd
IBM
Infometrics Ltd
Ingersoll-Rand Architectural Hardware Ltd
Jetro Auckland Offi ce
Jones Lang LaSalle Advisory Ltd
Kiwi Property Management Ltd
KPMG
L.E.K.Consulting
Land Information New Zealand
Landco Ltd
Landcorp Farming Ltd
Library of Congress Washington
Lincoln University
Livestock Improvement Corporation
Macquarie Bank
Maersk New Zealand Ltd
Manukau City Council
Manukau Institute of Technology
Massey University
Meat and Wool New Zealand Ltd
Mercury Energy
Meridian Energy Ltd
Methven Ltd
Microsoft New Zealand Ltd
Ministry of Agriculture & Forestry
Ministry of Education
Ministry of Social Development
Ministry of Transport
Ministry of Womens Affairs
Mitsui & Co. (New Zealand) Ltd
Moore Capital Management
Motor Trade Association Inc
NALCO
National Australia Bank
National Library of Australia
New Zealand Defence Forces
New Zealand Industry Training Organisation
New Zealand Lotteries Commission
New Zealand Meat Industry Association Inc
New Zealand Racing Board
New Zealand Refi ning Co Ltd
New Zealand Seafood Industry Council Ltd
New Zealand Steel Ltd
Nissan New Zealand Ltd
Novartis New Zealand Ltd
Offi ce of the Controller & Auditor-General
Offi ce of the Minister of Finance
Open Polytechnic of New Zealand
Opus International Consultants Ltd
Orion New Zealand Ltd
Palmerston North City Council
Parliamentary Library
Pernod Ricard New Zealand Ltd
Port Otago Ltd
Positively Wellington Business
Powerco Ltd
RBC Capital Markets
Retirement Commission
Rider Hunt Wellington Ltd
Rio Tinto Aluminium (New Zealand) Ltd
Rockwell Automation New Zealand Ltd
Sandvik New Zealand Ltd
SCION
Securities Commission
Sky City Entertainment Group Ltd
Smith and Smith Autoglass
Solid Energy New Zealand Ltd
Spotless Services (New Zealand) Ltd
State Services Commission
Statistics New Zealand
Steel and Tube Holdings Ltd
Tainui Group Holdings Ltd
Te Puni Kokiri
Te Runanga o Ngai Tahu
Television New Zealand Ltd
Telstra Clear
Tertiary Education Commission
The Radio Network
The Royal Society of New Zealand
The Todd Corporation Ltd
The Warehouse
Toyota New Zealand Ltd
Transpower New Zealand Ltd
UBS New Zealand Ltd
University of Auckland
University of Canterbury
University of Otago
Vector Ltd
Victoria University of Wellington
W Stevenson and Sons Ltd
Waikato Institute of Technology
Wallenius Wilhelmsen Lines New Zealand
Wellington International Management Company Pte Ltd
Wesfarmers Ltd
Westpac
Westpower Ltd
Wigram Capital Advisors Limited
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Contents
PAGES
Report of the Auditors 18
Statement of Financial Performance 20
Statement of Movements in Equity 21
Statement of Financial Position 22
Statement of Cash Flows 24
Notes to Financial Statements 26
THE NZ INSTITUTE OF ECONOMIC RESEARCH (INC.)ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2007
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Report of the Auditors
Auditors’ Report to the shareholders ofNew Zealand Institute of Economic Research (Inc.)
We have audited the fi nancial statements on pages 4 to 12 (pages 20–30 in this report). The fi nancial statements provide information
about the past fi nancial performance and cash fl ows of the Institute for the year ended 31 March 2007 and its fi nancial position as at
that date. This information is stated in accordance with the accounting policies set out on pages 9 and 10 (pages 26–27 in this report).
Director’s responsibilities
The Institute’s Board Members are responsible for the preparation and presentation of the fi nancial statements which give a true and
fair view of the fi nancial position of the Institute as at 31 March 2007 and its fi nancial performance and cash fl ows for the year ended
on that date.
Auditors’ responsibilities
We are responsible for expressing an independent opinion on the fi nancial statements presented by the Members of the Board and
reporting our opinion to you.
Basis of opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the fi nancial statements. It also
includes assessing:
(a) the signifi cant estimates and judgements made by the Members of the Board in the preparation of the fi nancial statements;
and
(b) whether the accounting policies are appropriate to the circumstances of the Institute, consistently applied and adequately
disclosed.
We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our
audit so as to obtain all the information and explanations which we considered necessary to provide us with suffi cient evidence to
give reasonable assurance that the fi nancial statements are free from material misstatements, whether caused by fraud or error. In
forming our opinion we also evaluated the overall adequacy of the presentation of information in the fi nancial statements.
We have no relationship with or interests in the Institute other than in our capacity as auditors and as a member of the Institute.
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Auditors’ ReportNew Zealand Institute of Economic Research (Inc.)
Unqualifi ed opinion
We have obtained all the information and explanations we have required.
In our opinion:
(a) proper accounting records have been kept by the Institute as far as appears from our examination of those records; and
(b) the fi nancial statements on pages 4 to 12 (pages 20–30 in this report):
(i) comply with generally accepted accounting practice in New Zealand; and
(ii) give a true and fair view of the fi nancial position of the Institute as at 31 March 2007 and its fi nancial performance and
cash fl ows for the year ended on that date.
Our audit was completed on 1 June 2007 and our unqualifi ed opinion is expressed as at that date.
Chartered Accountants Wellington
20
Statement of Financial Performancefor the year ended 31 March 2007
2007 2006
Note $ $
OPERATING REVENUE
Subscriptions 368,555 361,526
Contract Research 2,933,460 3,778,513
Interest 93,233 49,891
Grants 37,500 37,500
Miscellaneous Income 16,961 37,905
TOTAL OPERATING REVENUE 3,449,709 4,265,335
LESS: OPERATING EXPENSES
Accounting - 4,633
Audit Fees 10,500 8,379
Photocopier 12,592 10,959
Depreciation - Building 15,160 14,998
- Offi ce and Equipment 77,685 106,269
Insurance 49,905 49,372
Legal Fees 3,727 260
Salaries and Direct Contract Costs 2,630,420 3,408,199
Travel and Hospitality 56,127 64,773
Board Costs 5 22,500 16,000
Public Good Projects 4 150,756 96,215
Other Operating Expenses 299,701 316,278
TOTAL OPERATING EXPENSES 3,329,073 4,096,335
NET OPERATING SURPLUS 120,636 169,000
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Statement of Movements in Equityfor the year ended 31 March 2007
2007 2006
Note $ $
Net Operating Surplus 120,636 169,000
Other Recognised Revenues and Expenses
Increase in asset revaluation reserve 3 - 615,293
Total Recognised Revenues and Expenses
120,636 784,293
Movements in equity for the year
Equity at the beginning of the year 2,924,275 2,139,982
Equity at the end of the year 3,044,911 2,924,275
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Statement of Financial Positionas at 31 March 2007
2007 2006
Note $ $
EQUITY
Revaluation Reserve 3 1,009,613 1,009,613
Accumulated Funds 2,035,298 1,914,662
TOTAL EQUITY 3,044,911 2,924,275
CURRENT LIABILITIES
Trade and Sundry Creditors 156,102 191,952
Employee Entitlements 793,216 1,373,550
Contract Income Received in Advance - 23,660
Membership Fees in Advance 188,028 129,030
Annual Leave Accrual 141,016 134,536
Accrual for Contract Costs 49,167 124,492
GST Payable 89,058 91,335
TOTAL CURRENT LIABILITIES 1,416,587 2,068,555
TOTAL EQUITY AND LIABILITIES 4,461,498 4,992,830
Continued next page
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2007 2006
Note $ $
NON CURRENT ASSETS
Property, Plant & Equipment 2 1,970,891 2,016,827
CURRENT ASSETS
Bank 343,863 425,184
Funds on Deposit at Bank 1,133,066 1,346,264
Accounts Receivable 582,507 766,110
Sundry Debtors 11,935 1,863
Prepayments 42,192 52,750
Contract Work in Progress 377,044 383,832
TOTAL CURRENT ASSETS 2,490,607 2,976,003
TOTAL ASSETS 4,461,498 4,992,830
Statement of Financial Position continued
The Board Members of the NZ Institute of Economic Research (Inc.) authorised these
fi nancial statements for issue on 30 May 2007.
For and on behalf of the Board.
Michael Walls Paul Baines
Chairman Chairman of Audit Committee
24
Statement of Cash Flowsfor the year ended 31 March 2007
2007 2006
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
Grants 37,500 37,500
Subscriptions 427,553 478,656
Contract Research 3,100,192 3,543,657
Interest Received 93,233 49,891
Miscellaneous Income 6,889 37,905
3,665,367 4,147,609
Cash was applied to:
Payments to Employees and Contract costs (3,282,901) (2,318,427)
Operating Expenses (479,320) (575,056)
Public Good Projects (150,756) (96,215)
(3,912,977) (2,989,698)
Net Cash (Outfl ow) / Infl ow From Operating Activities (247,610) 1,157,911
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was applied to:
Purchase of property, plant & equipment (46,909) (84,191)
Net cash outfl ow from investing activities (46,909) (84,191)
Net (Decrease) / Increase in cash held (294,519) 1,073,720
Cash at beginning of year 1,771,448 697,728
Cash at end of year 1,476,929 1,771,448
Composition of Cash
Bank 343,863 425,184
Funds on Deposit at Bank 1,133,066 1,346,264
1,476,929 1,771,448
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2007 2006
$ $
Reconciliation of Net Operating Surplus with net cash
fl ow from operating activities
Net Operating Surplus 120,636 169,000
Add non cash items
Depreciation 92,845 121,266
Movements in other working capital items:
Decrease / (Increase) in Accounts Receivable 183,603 (188,892)
Decrease in Trade and Sundry Creditors (35,850) (267,202)
(Decrease) / Increase in GST Payable (2,277) 27,291
Decrease / (Increase) in Prepayments 10,558 (8,115)
(Increase) / Decrease in Sundry Debtors (10,072) 932
Decrease / (Increase) in Contract Work in Progress 6,788 (70,556)
Increase in Membership Fees in Advance 58,998 117,130
(Decrease) / Increase in Contract Income in Advance (23,660) 23,660
(Decrease) / Increase in Employee Entitlements (580,334) 1,156,008
Increase in Annual Leave Accrual 6,480 14,536
(Decrease) / Increase in Accural for Contract Costs (75,325) 62,853
Net cash (outfl ow) / infl ow from operating activities (247,610) 1,157,911
Statement of Cash Flows continued
26
Notes to Financial Statementsfor the year ended 31 March 2007
1. Accounting Policies
Reporting Entity
The New Zealand Institute of Economic Research Inc. (“NZIER”) is registered as an
incorporated society under the Incorporated Societies Act 1908. As a registered not for
profi t organisation it is exempt from interest and dividend PAYE under section NF9 of the
Income Tax Act 2004.
Statutory Base
The Financial Statements have been prepared in accordance with the requirements of the
Financial Reporting Act 1993.
Measurement Base
The measurement base adopted is that of historical cost modifi ed by the revaluation of
land and buildings.
Accounting Policies
The Financial Statements are prepared in accordance with New Zealand generally
accepted accounting practice. The accounting policies that materially affect the
measurement of fi nancial performance, fi nancial position and cash fl ows are set out
below.
Revenue: Contract Research revenue and Subscriptions comprise of amounts received
and receivable in the ordinary course of business, plus the amount recognised through
contract work in progress in respect of contract research. Grants are matched with the
expenses incurred in the appropriate period. The grants are used to partially offset the
costs of the QSBO publication. Interest income is accounted for as earned.
Property, Plant and Equipment: The cost of purchased property and equipment is
the value of the consideration given to acquire the assets and the value of other directly
attributable costs which have been incurred in bringing the assets to the location and
condition necessary for their intended service. Fixed assets other than land and buildings
are stated at cost less accumulated depreciation. Land and Buildings are stated at
revalued amounts.
Depreciation of Property and Equipment, other than freehold land, is calculated using the
straight line method so as to expense the cost of the assets over their useful lives.
The following rates are applied:
Buildings 2%
Offi ce Furniture & Equipment 10%
Computing Equipment 33.3%
Contract Work In Progress: Work in Progress is stated at cost plus surplus recognised
to date, less amounts invoiced to customers. Cost includes all expenses directly related to
specifi c contracts and an allocation of general overhead expenses incurred.
Accounts Receivable and Sundry Debtors: Accounts Receivable and Sundry Debtors
are carried at estimated realisable value after providing against debts where collection is
doubtful.
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1. Accounting Policies continued
Goods and Services Tax (GST): The fi nancial statements are prepared so that all items
are stated net of GST except for certain current assets and liabilities, which include GST.
Payables: Trade and Sundry Creditors, Accrual for Contract Costs and GST payable is
stated at the estimated future cash outfl ows.
Financial Instruments: Financial instruments recognised in the Statement of Financial
Position include Bank, Funds at Bank, Accounts Receivable, Sundry Debtors and Payables.
The particular recognition methods adopted are disclosed in the individual policy
statements associated with each item.
Employee Entitlements: A liability for annual leave is accrued and recognised in the
Statement of Financial Position. The liability is equal to the estimated future cash outfl ows
as a result of employee service provided at balance date.
Operating Leases: : Leases that are not fi nance leases are classifi ed as operating leases.
Operating lease payments are recognised as an expense in the periods the amounts are
payable.
Statement of Cash Flows:
The following are the defi nitions of the terms used in the Statement of Cash Flows:
(i) Operating activities include all transactions and other events that are not
investing or fi nancing activities.
(ii) Investing activities are those activities relating to the acquisition, holding
and disposal of fi xed assets and investments.
(iii) Financing activities are those activities that result in changes in the size
and composition of the capital structure. This includes both equity and debt
not falling within the defi nition of cash.
(iv) Cash includes cash in the bank and overnight deposits.
Changes in Accounting Policies
There have been no changes in accounting policies from those applied in the previous year.
Notes to Financial Statements continued
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2. Property, Plant and Equipment
2007 2006
Cost or
valuation
$
Accumulated
Depreciation
$
Book
Value
$
Cost or
valuation
$
Accumulated
Depreciation
$
Book
Value
$
At Valuation
Land 1,320,000 1,320,000 1,320,000 1,320,000
Buildings 542,227 (15,160) 527,067 532,500 532,500
At Cost
Offi ce Furniture & Computers 995,752 (871,928) 123,824 958,570 (794,243) 164,327
Total 2,857,979 (887,088) 1,970,891 2,811,070 (794,243) 2,016,827
Land and buildings were revalued on 31 March 2006 in accordance with a valuation
report from independent registered valuers, TelferYoung (Wellington) Ltd. The basis of
the valuation was under a highest and best use approach and resulted in the value of
$1,320,000 for land and $532,500 for buildings. The revaluations are conducted on a
systematic basis so that the Land and Buildings are revalued every fi ve years.
3. Revaluation Reserve
2007 2006
$ $
Balance at beginning of year 1,009,613 394,320
Buildings and Land revalued - 615,293
Balance at end of year 1,009,613 1,009,613
4. Public Good Work
In addition to direct operational expenditure of $150,756 (2006: $96,215) on a wide
range of public good projects, the NZIER incurred a further $139,153 (2006: $127,777) at
normal charge out rates of staff time on these public good activities.
5. Related Party Information
At 31 March 2007, $22,500 has been accrued in respect of payments to be made to
Board Members for services rendered during the year ended 31 March 2007. (2006:
$16,000).
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6. Joint Ventures
The NZIER entered into a joint venture on 28 March 2002 with the limited liability
company Prism 3. This venture was established between McKinlay Douglas Limited, The
Institute of Public Policy and the NZIER to provide combined capabilities in strategic,
economic and technical research and advice. On 03 March 2006 NZIER disposed of its
holding in this joint venture to McKinlay Douglas Limited and Auckland University of
Technology for nil proceeds. The holding was split evenly between them.
7. Commitments and Contingent Liabilities
There were no capital commitments or contingent liabilities at balance date (2006: Nil).
8. Operating Leases
2007 2006
$ $
Non cancellable operating lease commitments:
Within one year 42,757 42,757
Later than one, not later than two years 16,998 42,757
Later than two, not later than three years 1,373 18,421
9. Segment Reporting
The only business of NZIER is providing economic analysis in New Zealand.
10. Financial Instruments
Credit risk
The NZIER is subject to credit risk which arises in the normal course of its activities. The
NZIER has a credit policy which restricts the exposure to individual accounts receivable
and sundry debtors. The Board reviews such exposure on a regular basis. The NZIER does
not have any signifi cant concentrations of credit risk.
Amounts owed to the NZIER are unsecured.
Notes to Financial Statements continued
30
Fair Values
The carrying values of all fi nancial instruments are equivalent to their fair values.
11. Events occurring after balance date
There have been no events requiring adjustment in the Financial Statements that have
occurred since balance date.
8 Halswell Street ThorndonPO Box 3479Wellington 6011 New Zealand
Phone: +64 4 472 1880Fax: +64 4 472 1211
email: [email protected]
Website: www.nzier.org.nz
