Regulatory risk (delayed?)

Red Meat Sector conference 8 July 2013

1 www.TheHugoGroup.com

Regulatory risk (delayed?)

Red Meat Sector conferenceColin James8 July 2013


Timescale of comments

• Out to 2018• Goes through two elections here — change of

govt 2017 if not before • Sees through unwinding of QE, China adjustment• Two big FTAs? Or neither? • Climate change issues higher profile• Maybe: US-China trade/security crunch; MidEast

mess



Context

• Firm domestic growth through next 18 months, slower thereafter

• Depends on global conditions — expect bumps• Outlook good for high-end food• 210m more households by 2025 on $US20,000 a

year; Chinese households on $US16,000-34,000 go from 14m to 168m by 2020; 3bn more in “middle class” ($US10-100 a day) spending 2030

• But those straight-line projections; diversion risks (China, water, food, geo-security)



Domestic policy/political overview

• GDP growth dominates till next election• National 55:45 to win third term — NZ First may

hold balance• If National wins 2014, policy continuity (modified

a bit by deals with small parties)• If Labour+Greens win 2014, major policy

reversals on RMA, local govt, labour• Labour+Greens odds-on in 2017 if don’t win 2014• If Labour+Greens win 2014, 50:50 National 2017



A triangle at the top

Key

English Joyce




Key

English Joyce




Key

English Joyce




Key

English Joyce




Key

English Joyce


The strongest line

What happens if this line frays?



Key

English Joyce


The strongest line

What happens if this line frays?

Second tier of other sector-leading ministers— corresponding to departmental sectors


Till 2014 election: GDP growth is king

• Fiscal consolidation to reduce state crowdout• Balance, then debt reduction below 20% GDP• Improved asset management• Asset selldowns for investment funds• PPPs (but warily)• “Better public services”:efficiency, effectiveness• 2014 budget won’t be a vote-buyer but some doles• Tax policy mainly tidy-ups



Till 2014 election: GDP growth is king

• More mining, more irrigation• Research geared more to food/agriculture• Deregulation of labour market• Big RMA changes: economy trumps environment• Local councils required to get in line• Exceptions: re-regulation in finance and to deal

with political embarrassments (quake rules, mine safety, very low wages — maybe more

• Has the economy rebalanced? Lab+Greens say no



Till 2014 election: other policy

• FTAs: TPP, RCEP and whoever else will play; not much trans-Tasman

• Climate change: all sectors firm target for 2020 but ministers wary about effect on GDP growth

• Education: more emphasis on technology, professionalisation of teachers

• Health: increasing output; spending constraints• Welfare: get them into jobs (actuarial/investment)• Foreign policy: independent but friendlier to US• A four-year fixed term? 13 www.TheHugoGroup.com


The 2014 election

• Alternative govt has taken shape: Lab+Greens (+maybe others); voters have choice (unlike 2011)

• Polls give Nat big lead over Lab but little or nothing above Lab+Greens

• Household finances/confidence key factor: so far, so good but watch the global economy

• Leadership: Key popular but now some doubts; Mar-April dip might be repeatable

• Norman looks too much like opposition leader for Labour comfort; might stop Nat—>Lab transfers



Polls still good for National but Lab+Green close



Hypothetical 2014 election outcome — NOT forecast

• Nat has real prospect of 44%• ACT may get 1 seat (but needs new candidate) • Maori party 0-3 seats, let’s guess 2• Conservatives get 2011 2.7% (=3 seats if in Parlt)• Lab should get 35 at least (electorate score 2011)• Greens likely to be lower — but at least 8%• Mana 1 seat• NZ First 60:40 to clear 5%• Peter Dunne out16 www.TheHugoGroup.com


Hypothetical election outcome—NOT a forecast

• National 44.2% • ACT 1.0% • Maori party 1.4% • Conservatives 2.7% • TOTAL NATIONAL 49.3%• NZ First 5.5%• Labour 35.0% • Greens 8.0% • LABOUR+GREENS 43.0%• [Mana 1.0%]



Hypothetical result 1: Peters over 5%, Craig out

• National 44.2% 55 seats• ACT 1.0% 1 seat• Maori party 1.4% 2 seats• Conservatives 2.7% 0 seat • TOTAL NATIONAL SIDE 58 seats• NZ First 5.5% 7 seats• Labour 35.0% 44 seats• Greens 8.0% 10 seats• LABOUR+GREENS 54 seats• [Mana 1.0% 1 seat]



Hypothetical result 2: Peters over 5%, Craig a seat

• National 44.2% 54 seats• ACT 1.0% 1 seat• Maori party 1.4% 2 seats• Conservatives 2.7% 3 seats • TOTAL NATIONAL SIDE 60 seats• NZ First 5.5% 7 seats• Labour 35.0% 42 seats• Greens 8.0% 10 seats• LABOUR+GREENS 52 seats• [Mana 1.0% 1 seat]



Hypothetical result 3: Peters under 5%, Craig a seat

• National 44.2% 57 seats• ACT 1.0% 1 seat• Maori party 1.4% 2 seats• Conservatives 2.7% 3 seats • TOTAL NATIONAL SIDE 63 seats• NZ First 4.5% 0 seats• Labour 35.0% 46 seats• Greens 8.0% 10 seats• LABOUR+GREENS 56 seats• [Mana 1.0% 1 seat]



Hypothetical result 4: Peters under 5%, Craig out

• National 44.2% 59 seats• ACT 1.0% 1 seat• Maori party 1.4% 2 seats• Conservatives 2.7% 0 seat • TOTAL NATIONAL SIDE 62 seats• NZ First 4.5% 0 seats• Labour 35.0% 46 seats• Greens 8.0% 11 seats• LABOUR+GREENS 57 seats• [Mana 1.0% 1 seat]



Repeat — hypothetical NOT A FORECAST

• Take Nat down 1% and it gets more marginal• Likewise if ACT cannot get a credible candidate• If Dunne in, may add a seat (but very big “if”)• If Nat up 1%, chances improve• If Lab 38%+Green 8%, Nat in trouble• If Peters has balance of power, unclear if he goes

with Nat (is ex-Nat but angry at Key’s 2008 attacks) or Lab+Greens (doesn’t gell with Greens)



Outcome 2014

• Election likely 29 Nov; Key may announce date early Feb

• 55:45 National third term• But support mix may make it difficult to manage

so might not see out full term: NZ First hard to accommodate, Maori party needing more distance

• Key goes by end-2016 (if a loss he goes quickly)



If Nat-led govt post-2014

• Policy continuity but qualified by: —need to attend to voter preferences —need to attend to small parties—if Key retirement: Joyce, Collins, Adams?—possible economic/other upsets so hasty fixes—possible deregulatory over-reach• Higher cabinet rank: Adams, Kaye, Bridges;

ministry posts: Goldsmith, Lotu-Iiga, Ross (Lee?)• Leadership convulsions in Labour24 www.TheHugoGroup.com


If Lab+Green-led govt post-2014

• Significant regulatory risk for business• Would reverse/repeal several 2008-14 policies —

RMA, local govt, house consents, workplace law, protest, Sky City; plus tougher on climate change

• “Seesaw factor” in policy: the bigger the 2008-14 “see”, the bigger the post-2014 “saw”

• More active economic policy: monetary, capital gains tax, compulsory KiwiSaver, govt agency to buy electricity, research tax credits, high-end manufacturing, venture capital, apprenticeships



If Lab+Green-led govt post-2014

• Balance budget (but some slippage?)• Social policy focused on “child first”• “Living wage” ($18.30 now) for state employees

and contractors/suppliers• Greens push on social, environmental policy;

oppose mining (but Lab mostly prevails), oppose FTAs (but Lab gets Nat support)

• NZ First push on immigration• Would it last more than one term?



2017 election and beyond

• If Nat third term 2014, 75:25 Lab+Green-led win in following election

• IN SHORT: a Lab+Green govt sometime in the next five years

• So regulatory risk is real but may be delayed• If Lab+Green win 2014, 50:50 Nat back 2017



Lab+Green govt post-2017

• Generally similar to post-2014, except that Y-gen MPs more significant, baby-boomers/X-gen less influential —so Robertson, Ardern, Clark, Hipkins up

• Who would be leader/deputy after Shearer dropped 2015?

• May not reverse as much policy as would have if elected 2014: the longer between the “see” and the “saw” (of policy seesaw) the better the chance of a smaller (or no) “saw”



Get ready for change

• If not 2014, then 2017• Post-1984 orthodoxies not secure• Regulatory risk significant




Documents

Regulatory risk (delayed?)