http://bit.ly/TimMcCreadyDonaldTrumpMood

Tim McCready

The “Trump factor” is one of the major issues impacting chief executives’ confidence in the global economy.

In last year’s Mood of the Boardroom survey – held just over a month before the US presidential elections – CEOs rated the election outcome as their third greatest international concern impacting on business confidence.

A year on, they see Donald Trump’s presidency and its resultant political instability as taking the edge off a generally positive outlook. CEOs rated the “Trump factor” their second highest international concern at 6.47/10 with 10 saying they were “extremely concerned” about its effect on political instability.

“The Trump regime has amplified geopolitical instability considerably,” said Rob Cameron, founder of merchant bankers Cameron Partners. “Global political outcomes are more unpredictable.”

“His performance is so poor we can only hope for impeachment,” added a law firm head.

Despite the negativity towards the president, 80 per cent of those surveyed say their view of Trump’s performance won’t affect their own company’s intentions with the United States:

“Operating in the US isn’t easy, regardless of who is in power,” said a tourism boss. “The domestic economy actually feels very strong in the US from a business operating perspective.”

“It remains a key market for us, no matter the presidency. Therefore, we remain committed to the United States,” added Don Braid, Mainfreight’s group managing director.

Others cited the ability for the US Congress to moderate the actions of the President as offering reassurance:

“Fortunately, in the United States, the founding fathers designed a constitution with checks and balances. Despite the concerns about Trump gaining a lot of media attention, his ability to implement action is limited,” explained a major law firm partner.

“He is mercifully restrained by the constitution and the checks and balances in the system,” said Kate McKenzie, Chorus CEO.

Several executives in the real estate industry thought Trump was having a positive impact on their business, as he unintentionally makes New Zealand a more appealing environment:

“As more Americans look to diversify investment and lifestyle outside the US, New Zealand’s clean green image and welcoming economic and political environment makes us a favoured destination,” said one real estate chief executive.

Another commented: “Trump’s irrational behaviour makes New Zealand’s isolation one of our greatest strengths.”

Neil Paviour-Smith, managing director of Forsyth Barr thinks Trump will help New Zealand businesses to bolster its trade in other markets. “While the New Zealand economy is continuing its expansionary phase, we are seeing more synchronised growth globally – including former laggards Japan and the EU – despite a lot of distraction from geopolitical-related activities.”

Much of the comment was pungent. Simplicity’s Sam Stubbs predicts – “as the ultimate apprentice in the ultimate game show, he will be, ultimately, fired.”

Closer to home there was some criticism of New Zealand businessman Chris Liddell – a former chief financial officer at Microsoft and General Motors – who heads Trump’s strategic development group focusing on priority projects and liaison with the private sector.

“Trump is an absolute tosser! What is Chris Liddell doing there?” questioned Local Government Funding Agency chairman Craig Stobo.

Another added: “Though in talking with a prominent Kiwi in the White House, he believes Trump is a very clever person who knows business and will succeed – as long as he gives up the stupid tweeting and mind games over people.”

Though Liddell is still in the White House, the turmoil and unprecedented staff turnover in Washington and delays in filling key jobs in US Government departments, has been noted.

“A disastrous lack of leadership is leaving the United States increasingly rudderless,” said Beca’s Greg Lowe.

“Trump is worse than I thought he was going to be,” added a real estate executive.

The Trump administration has seen a number of high-profile staff leave the White House.

Recent departures include Sebastian Gorka, deputy assistant to Trump; chief strategist Steve Bannon; communications director Anthony Scaramucci – dismissed after only 11 days in the job – and chief of staff Reince Priebus.

But the new chief of staff, former marine general John Kelly, is said to be bringing discipline to the show.

Protectionism rears its head
One of Trump’s first actions as president was to throw out the TPP agreement which New Zealand signed in Auckland in February 2016 along with 11 other nations. During the 2016 presidential campaign, Trump frequently criticised TPP – labelling it “horrible,” a “bad deal,” and a “death blow for American workers”.

His new “America First” strategy has had a wide impact on US involvement in regional and multilateral trade agreements. The president favours individual deals on the proviso they can be quickly terminated in 30 days “if somebody misbehaves.”

He has recently stepped up calls for a more protectionist stance. Dismissing some of his top staffers as globalists, he has demanded a plan be drawn up to impose tariffs to remove China’s “unfair advantage” displayed by its trade surplus with the United States. “There is no dodging it, the world is more fearful and feels (but may not be yet) more protectionist,” says a senior player in the investment community.

“The move towards protectionism causes one to be more cautious and concerned about the outlook,” says Cathy Quinn, partner and former chair at MinterEllisonRuddWatts.

The protectionist stance also brings with it the possibility of border taxes, which some congressional Republicans have put forward to support Trump’s commitment to increase American competitiveness and prevent jobs shifting overseas.

This would mean companies could no longer deduct the cost of imports, creating strong incentives to retain and relocate supply chains and research to the United States. But there are fears this could spark a trade war, as countries move away from the US and source products and materials elsewhere.

Without a detailed proposal for border taxes, it is impossible to comment on the specifics. But chief executive respondents to the Herald survey indicated they are reasonably concerned about potential risks to exporters trading with the United States, rating this at 5.2/10.

“Implementation of the Border Adjustment Tax poses a very serious risk to New Zealand’s wine exports to the United States – our biggest export market – and will undoubtedly be damaging to the industry,” says Erica Crawford, founder and managing principal of Loveblock Wines.

Threat of nuclear war
There is no doubt the threat of nuclear war has escalated considerably since Trump became president.

Earlier this month, Pyongyang said it had successfully trialled a hydrogen bomb that could be loaded onto a long-range missile.

North Korean state television said the trial, which was ordered by leader Kim Jong-un was a “perfect success” and a “very meaningful step in completing the national nuclear weapons programme.” It received international condemnation – including from New Zealand’s Foreign Minister Gerry Brownlee, who called the test “utterly deplorable.”

As is customary, Trump responded by tweet: “North Korea is a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success.”

This was followed by: “South Korea is finding, as I have told them, that their talk of appeasement with North Korea will not work, they only understand one thing!”

Trump didn’t expand on what that “one thing” might be, but at an unrelated event last month he promised to inflict “fire and fury like the world has never seen” upon the totalitarian state if it acted in a hostile manner.

It is not surprising then, that the potential for nuclear war in Asia was considered by CEOs to be of reasonable concern, rating at 5.9/10.

“North Korea is a serious issue, which would have come to a head with or without Trump. The problem is Kim Jong-un can’t be fired, only fired upon. This is not reality TV,” said Simplicity’s Stubbs.

The Trump Factor
CEOs rated President Trump’s policy initiatives and actions on a 1 to 5 scale (where 1= not impressive and 5= very impressive).

  • Implementing his campaign agenda including a radical cut to the corporate income tax to 15 per cent: 1.51/5
  • Trump’s call for an “America First” trade policy with a focus on bilateral trade deals: 1.31/5
  • Threats of a nuclear strike on North Korea: 1.30/5
  • United States withdrawal from the Paris Climate Accord: 1.24/5
  • Dealing with Russian security concerns: 1.24/5

http://bit.ly/TimMcCreadyKingmakerorQueenmaker

Tim McCready

New Zealand First leader Winston Peters may not be universally admired by the C-suite, but chief executives rate him a shrewd politician.

“Winston is undoubtedly in my view a supreme politician!” said Joanna Perry, professional director and chairwoman of the IFRS Advisory Board. A legal firm boss added, “Peters plays the political game very astutely. But he is the ultimate opportunist on the political front.”

Peters, 72, has previously held the roles of Deputy Prime Minister in Jim Bolger’s National Government (sacked by Jenny Shipley) and Foreign Minister in Helen Clark’s Labour Government.

NZ First currently has 12 MPs, and following the election expects to have former Labour MP Shane Jones join the ranks, listed comfortably at eighth on the list.

NZ First has released some favourable policies for business – including cutting corporate tax rates to 25 per cent – but his negative stance on the TPP, foreign investment and immigration, along with his growing shopping list of bottom lines, has damaged his reputation with business leaders.

Chief executive respondents to the Herald’s CEO Survey rated Peters’ political performance as leader at 2.76/5 on a scale where 1= not impressive and 5= very impressive. But it is the NZ First leader’s ability to exert leverage under the MMP political system which makes him a key player at the September 23 election.

It is possible Peters will not be the sole potential kingmaker or queenmaker when coalition negotiations begin after the votes come in. Or at least not with the same levels of bargaining power the NZ First leader might have had eight weeks ago, before Labour began its poll climb.

Before Labour’s leadership change, NZ First was considered the only path to power for either National or Labour. But in light of the “Ardern Effect”, there is some evidence that disillusionment with the status quo is spilling over to Labour, with recent polls showing they now have more than one path to form a government.

CEO respondents identified the young vote – and young females in particular – as those who might be drawn to vote for Labour this time, favouring a removal of a stale Government in favour of a fresh one.

When asked who NZ First should form a coalition with, most CEOs (69 per cent) opted for National. Just 4 per cent said Labour. What is notable is that a considerable number said the decision should be up to the voter – and not a case of the tail wagging the dog.

“The party who secures the largest portion of the vote from the electorate as that is the party most New Zealanders want to see form government,” said Beca’s Greg Lowe. Others thought NZ First should just support the largest party on confidence and supply rather than trying to “blackmail policy concessions that result in much being watered down”.

There was growing support for both major parties to reject NZ First as a coalition partner and instead form a grand coalition – between Labour and National – as has been seen in Germany, or for both parties to simply go back to the polls instead of making a deal with Peters. “Maybe National and Labour should form a grand coalition to get some long-term things right,” recommended an automotive CEO.

Both National and Labour have ruled out giving the prime ministership to Peters. Unsurprisingly, 94 per cent of chief executives were also strongly opposed to the major parties conceding the prime ministership on an interim basis to achieve power.

Most thought the party with the largest share of the vote should be in control, and that minor parties should not have this level of influence.

Some of the responses were on the nose: “Heck no,” “FFS”, and “Winston doesn’t have the work ethic to be Prime Minister even for a couple of weeks.”

In this year’s Mood of the Boardroom, a majority of chief executives expected the disillusionment with traditional politicians would spill over and affect the results of the upcoming election.

Brexit. Jeremy Corbyn. Donald Trump.

Recent outcomes of elections and referendums around the globe have been anything but predictable and can be largely attributed to disillusionment and rejection of immigration, globalisation, and a loss of national identities.

But many also believe disillusionment with the status quo can be explained by the curse that comes with ruling for three terms:

“We are already seeing it – sensationalism and strong communicators are winning votes,” adds a media industry CEO.

“There will be some fatigue with another National government term but not the disillusionment with political institutions that we have seen in the US and Britain,” reckoned Rob Cameron, founder of Cameron Partners.

“We are in a very different position to the US and UK,” says a professional director. “Our economy is strong and we have choices as long as we make them wisely.”

Others think the disillusionment runs deeper. An executive in the wine industry: “People are sick of smug, self-indulgent, middle-aged white men. At least I am.”

http://bit.ly/TimMcCreadytaxcuts

Tim McCready and James Penn

The Government’s election-year Budget contained $2 billion worth of tax cuts from April next year – on the proviso National gets elected on September 23.

When the Mood of the Boardroom asked CEOs whether now is the right time to cut personal income tax, most (56 per cent) responded no, 38 per cent said yes, and a further 6 per cent were unsure.

“Tax at the current level is workable; there is no urgency,” says Oregon Group managing director Thomas Song. A recruitment head suggests tax cuts are a good idea “if you want to buy votes”.

Many responded that any tax cuts should be targeted to low and mid-income earners. “Target those that really need it,” says the managing director of a public relations firm. “Give cuts to lower and middle-income earners as a matter of urgency,” said a wine industry executive. “Giving cuts to top bracket achieves nothing.”

Most respondents felt that investing into other areas – particularly housing, infrastructure, education, health and climate change – is more important.

But Bill English disputes that you can’t have both.

“We can achieve our social and our environmental objectives at the same time as having a strong economy,” said English during the recent TVNZ leaders debate.

“We can have a strong economy with reasonable taxes, give hard-working families $1000 a year on the average wage, that they can make some choices about.”

“There is still too much to do in New Zealand,” says a major banking boss. “Infrastructure investments, and fixing our schools and hospitals. After that, maybe.”

Vector Director Dame Alison Paterson agrees: “I think the majority of New Zealanders believe that while there are children living below the poverty line, there should be no personal income tax cuts.”

CEOs were asked whether now is the right time to bring in a new progressive tax rate on high earners. A large majority – 79 per cent – responded no. Just 13 per cent responded yes; 8 per cent were unsure.

Many chief executives were concerned this would discourage growth and could make it difficult to attract and retain skilled workers in New Zealand. “We don’t want to drive talent offshore,” says Mai Chen, managing partner of Chen Palmer.

Most of those in favour to raising taxes for high earners had a caveat: “it is subject to where reinvestment goes,” said a media boss. “As long as the proceeds are targeted towards eliminating inequality,” said another.

There was scepticism among respondents that increasing the tax burden on high income earners would help contribute to long-term productivity and societal gains, and would be against global trends.

“Higher earners will generally still spend a high proportion of their disposable income,” explains a printing boss. “The Government collects GST from every additional dollar spent, and they are more likely to spend in areas such as medical insurance and private education, resulting in a lesser load on government services.”

Several CEOs worry that increasing tax on higher earners could lead to an increase in tax avoidance measures. “A huge proportion of the New Zealand tax burden is paid by a small number of supposedly high-income salary earners,” says an agribusiness boss. “A new progressive tax would make this burden worse.” Others suggested a wealth tax or capital gains tax might be more productive in the long-term.

The other major form of tax paid by individuals is GST. Executives were keen to see a movement towards a regime where GST, as well as regional petrol taxes, was returned to the regions in which it was collected, to go towards local economic development. Indeed, 76 per cent of respondents supported such a policy.

Mainfreight group managing director Don Braid is one of those in favour. “It is so important this debate is had,” says Braid. “Having Wellington think they have the answers for how much is spent on infrastructure in the regions is yesterday’s answer. We need to be thinking about a bottom-up approach to regional tax investment.”

Enthusiasm wasn’t universal.

“Having seen the standard we currently have at local government level, further devolution of power would need to be coupled with a major rethink on how to attract talent and experience to move into that space.”

“Daft idea,” said one executive. “Local government would just waste the money.”

Thomas Song’s top three issues

  1. Productivity: Every factor of input is expensive because of the political insistence on New Zealand labour. If we buy infrastructure, we should buy “quality and speed at cheapest price”. How the supplier delivers shouldn’t be our concern except, of course, slave labour excluded.
  2. Ignorance of world affairs: Move to educate with diverse sources of teachers from offshore.
  3. Complacency: The average Kiwi has very little idea about our largest trade partner – China. Most still believe China is still in the Mao era of cheap labour. Again, make knowledge of our trading partners a priority.

http://bit.ly/TimMcCreadyJamesShawMood

Tim McCready

Chief executives have strongly marked down Greens leader James Shaw’s leadership abilities in the wake of the Metiria Turei scandal which claimed the career of his former co-leader.

Whereas last year, CEOs ranked Shaw second in their performance rankings for Opposition MPs, this year he has slumped to ninth place just behind fellow Green MP Julie-Anne Genter.

It is a stunning turnabout for the MP last year’s Mood of the Boardroom had billed as part of a “dream team for the future” along with first-ranked Opposition MP Jacinda Ardern.

“James disappointingly has been damaged by the Metiria issue and undone all the good work securing new urban Green voters. He lacked decisiveness on an issue that was black and white,” says a transport CEO.

A professional director agrees: “I would have rated James a five six weeks ago, but his handling of the Turei affair was appalling and the Greens are damaged almost to the point of extinction as a result.”

Chief executives believe Shaw should have called time on Turei after her admission she had intentionally misled authorities about her living costs while on the DPB.

Her admission of benefit fraud initially spiked the Greens poll ratings. But outrage grew after further revelations that Turei had registered at her former partner’s address in a prior election in order to vote for a friend.

The fallout continued when Kennedy Graham and David Clendon – two of the Greens’ most long-serving and respected MPs – quit in protest, saying they could no longer support the leadership. The killer blow came when a Newshub-Reid Research poll revealed a slump in support for the Greens – down 4.7 points to 8.3 per cent. Turei finally admitted defeat and stood down leaving Shaw as the party’s sole leader.

“It has become a joke,” says a banker. “The Greens were clearly out to steal votes from Labour with their announcement of a no-questions-asked welfare policy, and Labour have clearly done their best to steal those votes back again, helped by Ms Turei’s extraordinary performance.”

Chief executives had to this point considered Shaw an asset to the Green Party. He has an impressive background, with a pre-politics career in management consulting, working offshore with multinationals to develop their sustainable business practices.

Stick to the environment
CEOs believe the Greens should now “stick to their knitting” and refocus on environmental policies instead of standing by while Labour and National grab terrritory.

A banking boss says: “If James Shaw can make the Greens a truly environmental party – rather than a party of social justice activists and protests – that will be good.

“It will push Labour and National to up their game around New Zealand’s pressing environmental issues.”

“The Greens need to provide the necessary environmental platform and stand strongly on that platform,” says a wine industry boss. “Sadly, they have neglected the environmental aspect for a Labour agenda.”

Labour’s eleventh-hour leadership change to Ardern has seen her reclaim the progressive agenda as her party hoovers up the soft Green vote.

An automotive sector boss said the leadership spill had demonstrated they are not sure themselves whether they are environmentalists, left-wingers or a Third Way party.

“Talk to James and you might think the latter, but I’m no longer sure and Jacinda might be better without them.”

Scrap the MoU with Labour
Some 78 per cent of CEOs now think that the memorandum of understanding (MoU) that Labour and the Greens forged in May 2016 should be scrapped.

Others think it had its merits when the Opposition needed to project an alternative option to a popular National-led government.

“The context in which it was signed is more part of the past than the present given where Labour in particular was in the polls,” says Deloitte CEO Thomas Pippos. “In terms of today, I would have thought the Greens would be better placed out of it and more focused on Green issues in and around the centre; as they could naturally, under an MMP environment, be within successive Governments for extended periods of time.”

During Three’s recent The Nation debate, Shaw was asked why the Green Party did not transcend left and right as it said it would when it was set up.

Shaw explained: “We felt it was only fair to voters who want to know which way their vote is going to count that we would say we’re with the parties of change.

“If you want a progressive, Labour-led government, the Green Party has to be at the heart of that government because they won’t be able to govern without us.”

But many CEOs disagree, saying that a blue-green government is one they could get behind.

“Greens should work with National to form a government” says Onno Mulder, City Care Group CEO.

Mainfreight group managing director Don Braid offers the Green Party and Shaw sage advice: “Get on and believe in yourselves rather than worrying about who you might need at your side, or not!”

Tell me: Who are you?
“Raise your profile” is the overwhelming message from CEOs when asked about Opposition MPs.

While most were rated an average of between two and three (out of a possible five), an alarming proportion of “Unsure” votes were given as well.

MPs such as Labour’s Chris Hipkins and Dr David Clark and NZ First’s Tracey Martin all received “Unsure” responses from over 40 per cent of respondents, for example.

Martin was ranked lowest overall of 20 Opposition MPs rated by respondents, with an average rating of just 1.57.

This translated into uncertainty and pessimism about a potential alternative government.

“What do these people actually do?” asked the director of a law firm. “One hears nothing of them until election year.”

“There is a lot about a Labour government that is unknown – and thus risky,” said Rob Cameron, founding partner of investment banking firm Cameron Partners.

However, cause for cheer will be the performance of Labour’s core election team.

Leader Jacinda Ardern was well in front, with an impressive average rating of 3.81.

She was flanked – as in the election campaign – by deputy leader Kelvin Davis on 2.97 and finance spokesperson Grant Robertson on 2.96.

“The bench strength outside of any Government always suffers from a concern around whether they are ‘game fit’,” said Deloitte CEO Thomas Pippos. “The inexperience in this case exacerbated by the number that have never been in Government – or if in Government, in lesser roles and 9 years ago… but everyone starts somewhere.”

NZ First leader Winston Peters received a smattering of ratings across the spectrum – culminating in an average rating of 2.64. This was a slight drop on his rating from last year (2.90).

“Winston gets a midway mark for being Winston,” summarised one business leader.

“Really!” said one investment banker, when asked his opinions on Peters’s key election policies. “Is that all they have got?”

“Dog whistle – playing to the base,” said Matthew Cockram, CEO of Cooper and Company. “None of these things will add to New Zealand’s productivity or wealth.”

http://bit.ly/TimMcCreadyWater

Tim McCready

Many CEOs raised the state of New Zealand’s water quality as one of the top issues currently faced by the nation. “We are risking killing the goose that’s laid the golden eggs due to our complacency around water quality,” says Theresa Gattung, AIA Australia Chair.

A staggering 93 per cent of CEOs agree more should be done to ensure New Zealand has clean water in the future (3 per cent said we are doing enough, 4 per cent are unsure).

CEOs suggested the current government was under-performing in tackling water quality and the environment, scoring 2.51/5 (where 1 = not impressive and 5 = very impressive).

“We need to be far more aspirational with our targets,” suggests a food and beverage boss.

Added Gattung: “What we have collectively allowed with regard to water degradation is a disgrace and we cannot accept the current timeframes to get back to swimmable waterways.”

Business leaders are concerned New Zealand’s “100 per cent Pure” slogan may not be sustainable unless corrective action is taken. Last month, the Al Jazeera channel launched a two-part investigation into New Zealand’s water quality. The documentary – Polluters Paradise – focuses on the impact dairy farming has had on rivers and lakes, and asks whether New Zealand’s waterways are “as sparkling as the tourist ads suggest?”

The investigation claimed there were “troubling questions about what can happen when a nation’s desire for economic growth, however understandable and justifiable it may be, takes undue precedence over the environment”.

This is a significant worry for many CEOs, who say if decisive action is not taken soon, we could blow New Zealand’s unique environmental position and perception, causing far-reaching economic impact. Several respondents thought water ownership was a major issue. “We need to reach agreement on the ownership of water with Maori, with regard to the Treaty of Waitangi provisions,” says an agribusiness leader.

An independent director agreed: “There needs to be a national conversation on water ownership, management and protection.”

Perhaps offering some perspective to the water debate, one chief executive pointed out that such a high percentage calling for more to be done with respect to water quality is not unexpected: “for context, you would tick yes for every other country in the world too”.

Peak cow
A significant percentage of chief executives believe dairy intensification in New Zealand has gone too far (43 per cent say yes, 27 per cent say no, 30 per cent don’t know), suggesting it is time to move up the value chain event to plant-based milk.

Several business leaders say expansion on to marginal land that is unsuitable for dairy farming is causing lasting damage: “We are doing things with some land that is not naturally aligned. Long term, that will have an impact,” says a capital markets head.

“New Zealand has reached peak cow,” says a major banking chief executive. “The focus should move to creating more added value from dairy, rather than increasing the number of commodities we put on the international market.”

Policies
Several policies relating to water have been announced during the election campaign.

Labour wants to charge for the large scale commercial use of water. The royalty for bottled water would be charged per litre, whereas irrigation would be charged per 1000 litres. Revenue from the royalties would go to regional councils, with the expectation it would be used to keep waterways clean.

Labour’s finance spokesman Grant Robertson says the likely rate for irrigators would be somewhere between 1 or 2 cents per 1000 litres.

The Green Party also wants to charge for the sale and export of bottled water, putting a 10 cent levy on its sale and export, which would be applied at the point of manufacture. The revenue from the levy would be distributed between councils and mana whenua, with councils expected to use the revenue for environmental programmes and drinking water management.

Though many respondents indicated they are in favour of a water tax, the varied responses from CEOs demonstrate it is not a simple task:

  • “Labour’s water policy is a good start to rethinking how to allocate a valuable resource. Would water bottle sales be a more economically sustainable export than dairy?” Craig Stobo, Chair, Local Government Funding Agency
  • “Focus on where water is used and/or polluted – agriculture rather than the small percentage in bottled water.” Food and beverage boss
  • “This is not just a rural issue. Many cities have woeful sewage management and this needs to be addressed as well.” Agribusiness chief.

http://bit.ly/TimMcCreadyReportCard

Tim McCready

When asked to consider the National-led Government on its performance in key areas since the 2014 election, CEOs rated the Budget surplus focus at 4.55/5 most highly, followed closely by economic growth at 4.21/5.

This is perhaps unsurprising given this year’s Budget showing the Government recording a stronger operating surplus than was forecast, and the recently released Pre-Election Fiscal Economic Update showing a robust economy growing at an average of around 3 per cent over the next four years.

“The country has benefited on many fronts from stable and skilled economic policy making,” says Beca Group chief executive Greg Lowe.

But survey respondents cautioned though National can be proud of the economic health of the country, there are significant social issues that need tackling.

“National’s steady as she goes approach needs to change up if they get another term,” says an agribusiness chairman. “They must be more aspirational in their approach to the big-ticket items including water, climate, homelessness and poverty.”

This tale of two very different report cards is obvious in the survey, with National’s performance tackling housing issues (2.43/5), environmental/water quality (2.50/5) and poverty and homelessness (2.43/5) among the five lowest scoring areas.

“There are plenty of gaps starting to appear,” says an automotive chief executive. “They have not addressed environment and housing that well as they don’t want to offend their constituency: farmers and home owners.”

New Zealand’s growing inequality gave National another poor score, with the wealth gap receiving 2.56/5.

Research released by Oxfam earlier this year showed the richest 1 per cent hold 20 per cent of the wealth in New Zealand, while 90 per cent of the population owns less than half of the nation’s wealth.

ICBC chairman Don Brash says many of these issues are interlinked, with housing the crux of the problem: “increasing wealth inequality, poverty and homelessness are all a direct result of the Government’s failure to deal with the unaffordability of housing.”

A legal boss gave National a ruthless assessment: “They have not listened on housing ideas; allowed continued Chinese money launderers a free pass via housing access; missed opportunities to intervene in the market as Australia, Hong Kong and Singapore have done; messed up citizenship and residency revenue and allowed Auckland Council to continue to mess up the city.”

Poverty and homelessness was rated by CEOs as one of the Government’s poorest performing areas since the 2014 election, receiving a rating of 2.43/5. “New Zealand’s performance on a global scale has been impressive in comparison to most economies and National deserve credit for that,” says a director of two prominent companies. “But there are some notable underachievements, including the rise of homelessness — just walk along Queen St.”

When asked “should we be doing more to help the homeless population?” 85 per cent of CEOs said yes, 5 per cent no, and 10 per cent were unsure.

“Homelessness is simply not the New Zealand way. We fail ourselves as a society by condoning it in any form,” says Simplicity managing director Sam Stubbs.

Stubbs was not alone with this sentiment. “Everyone needs a home,” and “there is always more to be done in this space,” and “surely this problem is solvable” were comments peppered throughout this year’s survey responses.

But how to tackle poverty and homelessness was much harder for business leaders to agree upon.

“Give tax breaks to low and mid-income people and stop the merry go round of money,” says Erica Crawford, Loveblock Wine chief executive.

“Our people are struggling and kids struggling to learn. Too many homeless and hungry. Do something.”

The challenge now for National is to clarify what their vision for the future is – for both New Zealand and New Zealanders, explains Deloitte chief executive Thomas Pippos. “They need to capture the hearts, souls and minds of the voting public around it – not straightforward for anyone given the shallow decision-making criteria it seems the average voter adopts.”

Cathy Quinn’s Top Three Issues
Retreat to protectionism around the world: All we can do is to keep advocating for open trade and opening doors with others.

  1. Trump commencing war with North Korea: Bill English openly warning US against it took moral courage. I think it is a position every Kiwi would agree with.
  2. The divide between the haves and have nots: I would support a programme that provides housing for the homeless and support for children in deprived families. The challenge is getting the money spent where we want it to be. For example, on kids in deprived circumstances and not diverted off elsewhere. It is in no one’s interest to simply provide dollars without a degree of confidence that it ends up helping those who are most in need. Fundamentally, as a society I believe the majority want to see the vulnerable looked after appropriately. We find it abhorrent – for whatever reason – that kids have no home, damp homes, insufficient food, no shoes. That is not the NZ most of us want.

http://bit.ly/TimMcCreadyMoodhousing

Tim McCready

Housing affordability featured highly the Herald CEO survey, rating as the fourth greatest domestic factor impacting business confidence.

CEOs scored the issue at 7.1/10 (where 1= no concern and 10 = extremely concerned).

This year the annual Demographia International Housing Affordability Survey rated Auckland as the world’s fourth least affordable city for housing, behind Hong Kong, Sydney and Vancouver.

In Auckland, the median house price is around 10 times the median household income, which is considerably higher than the threshold for affordable housing (three times median income), and as a result, home ownership rates are at record lows.

Housing unaffordability was also mentioned by most chief executives when asked more generally to outline the top three issues that are currently facing the nation.

But they are divided on whether there needs to be further intervention to constrain house price growth: 41 per cent say Yes, 55 per cent say No, and 4 per cent were in the don’t know camp.

Many respondents, including MinterEllison’s Cathy Quinn, believe the market is self-correcting: “The market is and will address itself.”

A real estate boss agrees, “the restrictions have proved successful and in my mind first home buyers need to be relaxed now.”

Business NZ CEO Kirk Hope says funding and demand factors must be aligned to ensure development can occur. “Measures to constrain demand do not fix the problem, they may provide more time to increase supply whilst restraining house price inflation,” he says.

When asked the best way to constrain house price growth, the top three options were: funding a major Government housing programme to provide affordable housing in Auckland – favoured by 50.5 per cent, bringing in a Vancouver-style foreign property buyers tax/stamp duty on all residential property transactions in Auckland (48.6 per cent) and giving urban authorities power to bypass local politicians to ensure new supply (40.0 per cent).

Infrastructure New Zealand CEO Stephen Selwood believes current Auckland plans allowing house construction to occur throughout the city have been a failure. “We need urban development at scale, by way of a satellite city to the south linked to the city by rail and high-density development centred on rail and busway stations,” he says. “The faster we build houses on current plans the worse our transport system will become.”

“As both Bill English and Phil Twyford understand (and of course David Seymour), the outrageous prices of housing in most New Zealand cities are a direct result of restraints on the availability of land, and the way we have chosen to fund infrastructure,” says ICBC chairman Don Brash.

A major banking boss remarked: “The current LVR restrictions have seen many mum and dad investors leave the Auckland market, which is good. First home buyers have come back into the market in the suburbs that were having their prices increased previously by those investors.”

Some of the lowest scoring options to constrain house price growth included extending the current two-year “bright line” test (32.4 per cent) and introducing a capital gains tax (27.6 per cent) – both of which are likely outcomes of a tax working group under a Labour-led government.

“We need to fix the tax arrangements in New Zealand that favour investment in houses over investment in productive businesses,” says Carolyn Luey, MYOB GM, Enterprise Solutions & New Zealand.

This year’s survey reveals that retaining workers due to housing affordability is becoming of increased concern (43 per cent of the CEOs responded yes, compared to 39 per cent last year).

Although most said it is only an issue in Auckland and Queenstown, several said they anticipated this would be an increasing concern in coming years.

http://bit.ly/TimMcCreadyGameChanger

Tim McCready

Jacinda Ardern’s charisma, her ability to appeal to a younger generation, and her much sought after ‘cut-through’ that former leader Andrew Little just couldn’t seem to muster are some of her most admired attributes by chief executives.

“It is refreshing to have an Opposition leader with a more positive outlook on life, rather than one that is stuck in the past or in a negative loop,” said a transport head.

Says Mainfreight’s Don Braid: “There is clearly a level of enthusiasm, energy and commitment to what is lacking in New Zealand at the moment.

“An injection of youthful energy and vision is sorely needed.”

“Much is unknown, but perhaps that’s the best way to be going into an election when she has the ‘X’ factor,” says Simplicity’s Sam Stubbs.

Although CEOs respect Ardern’s courage – stepping into the Labour leadership role less than two months out from the election – most are worried she lacks experience and her unusually short job interview for Prime Minister won’t give the public the chance to see her tested for the top job. “An impressive start as leader of the Labour Party but untested under pressure in her national leadership,” observed Rob Cameron of Cameron Partners.

There is significant concern among chief executives that Ardern has failed to articulate the detail of some of her policies. In particular, tax policies including the expected capital gains tax and a failure to provide detail on whether the proposed levy on water use for farmers will be 1 cent or 2 (a difference of 100 per cent). Many consider this unacceptable for a party that has been nine years in opposition.

“We have not seen Jacinda Ardern in a leadership role for long but the initial signs appear impressive – not least in galvanising the Labour Opposition into campaigning hard to win the election and creating some self-belief,” says Forsyth Barr managing director Neil Paviour-Smith.

Adds EMA’s Kim Campbell: “It’s too early to tell how good an administrator she will be.

“We need to see more substance in policy development.

“She is a superb communicator with a very engaging social style. We have yet to see her perform under pressure.”

“I don’t know enough about her capabilities to be useful but give her 10/10 for courage taking over as leader with eight weeks to go to a general election,” says a banking boss. “But she has been very fluffy on tax policy and how we are going to pay for all the election promises.

“It feels like a tax hike for the 12 per cent of New Zealanders who already pay 75 per cent of tax in New Zealand.”

A law firm boss said in any event, she is likely to persuade many voters to ‘give her go’ without having to prove her credentials as potential Prime Minister.

“She is in the right place at the right time.”

Speaking publicly for the first time as leader, Ardern said: “We are about to run the campaign of our lives”. Recent polling shows this is the case with Labour – jumping from 24 per cent to 43 per cent in the latest 1 News Colmar Brunton poll; its highest polling in 12 years.

Port of Tauranga chief executive Mark Cairns says: “An intelligent politician with clearly a freshening of the Labour brand. Early days though to judge Jacinda on producing sound policies (economic as well as social) and her skills at political management.”

Adds Beca’s Greg Lowe: “Jacinda Ardern is putting on a polished performance but as she has no track record her ability to lead effectively, manage the economy and put forward policy that moves New Zealand forward is unproven.”

“I really don’t know and nor do most voters,” explained non-executive director Joanna Perry. “The trouble is a lot of people will forget that she is unproven and make assumptions (in their gut!) about these things.”

A legal boss summed up the general sentiment from CEOs: “Jacinda is a very likable person. She is politically very savvy.

“She seems to care greatly about issues many Kiwis care about – social injustice and our environment, for example.

“She is a game-changer in this election.

“However, she is very young, and while that appeals to many, for others in an uncertain world we may feel safer with the more experienced hands of Bill English.

“Some may not see him as exciting, but experienced.”

Agribusiness: Greener Pastures Under Trump? (NZ Herald)

Tim McCready

Donald Trump says his Administration is “pro-agriculture,” but the rising protectionist sentiment in the United States brings with it a significant amount of uncertainty. This is particularly true for agribusiness – an industry highly dependent on global trade and one which has benefited in the past from freer trade.

Two-way trade between our two countries reached $16.1 billion in 2016, making the United States New Zealand’s third-largest individual trading partner. The US is a major market for agricultural products, and is our largest market for beef and edible offal – worth over $1 billion.

However, with the possibility of border taxes in play, a US-backed Trans-Pacific Partnership (TPP) off the table, and ongoing North American Free Trade Agreement (Nafta) negotiations, the future potential of New Zealand’s trade with the United States is uncertain.

Charles Finny, former official and trade negotiator agrees. “At this stage US policy beyond withdrawal from TPP and a strong preference for bilateral agreements is still unclear, and following the recent visit of Todd McClay to Washington DC a bilateral FTA seems a possibility,” he says.

“But would that be as good a deal as was proposed for TPP? It is too early to tell whether the Trump era trade policy will be good or bad for New Zealand.”

TPP: a leadership vacuum and new opportunities

One thing that was evident throughout the Trump campaign was that America would pull out of TPP. Trump frequently criticised the deal labelling it as “horrible,” a “bad deal,” and a “death blow for American workers.”

While a TPP that includes the US is at this stage off the cards, eleven Asia-Pacific nations – including New Zealand – remain dedicated to ensuring the regional free trade deal goes ahead. The absence of the US has created a vacuum in global trade leadership which China has been more than happy to fill by supporting the Asean-led 16-nation Regional Comprehensive Economic Partnership (RCEP).

For American agriculture, the TPP represented an opportunity for agricultural exporters to trade with what is now a very lucrative Asian economy. The American Farm Bureau Federation estimates that the deal would have boosted annual net farm income by US$4.4 billion.

There is concern in the US that other economies are in a prime position to take advantage of America’s lost opportunity. While in some cases the US is paying significant tariffs in Asia, New Zealand, for instance, is working towards the elimination of tariffs on 99 per cent of exports to key Asean markets by 2020.

The US Meat Export Federation believes its members will see a reduced market share in Japan – their largest export market if the US fails to strike some kind of Pacific trade deal soon. “What we’re worried about is 18 to 24 months from now when [Australia] can offer competitive prices and volumes on cuts that we now are supplying, but at duty rates that are double-digit lower, that really represents a handicap [to US exports],” says the Federation’s Senior Vice President for the Asia-Pacific, Joel Haggard.

The longer this disparity goes on, the bigger the disadvantage could be to the United States, and the greater the advantage to its competitors – including New Zealand.

Recognising this, Darci Vetter – who served as America’s chief agricultural trade negotiator under President Obama said:
“You want to have the best level of access at the time they start forming relationships with buyers and so the timing on this is critical and we’re going to be way behind New Zealand,” he says.

Tim Groser, New Zealand’s ambassador to the US and a former NZ trade minister who worked relentlessly to get the TPP across the line agrees.

“This is a competitive game and of course we aren’t going to sit in a hole and do nothing on these non-TPP fronts because everyone is in this game and if you fall behind you are in a competitive disadvantage.

“At the end of the day we’re all economic nationalists. Our responsibility is to look after our own country’s economic interests.”

Border taxes: sparking a trade war?

Also in play is a border tax on imports into the United States.

In a bid to support Trump’s commitment to increase American competitiveness and prevent jobs moving overseas, some congressional Republicans have put forward a proposal to apply a border adjustment tax (BAT).

The border adjustment tax is considered by some to be a critical part of tax reform, as it will mean that companies can no longer deduct the cost of imports, creating strong incentives to bring supply chains and research back to the United States.

While the introduction of a BAT would impact all sectors, agriculture is expected to be one of the hardest hit due to the amount of materials and inputs farmers rely on that come from outside the US – including fertiliser, fuel and chemicals. Moves to retain the entire value chain within the US could also spark a trade war, with countries like China and Mexico moving away from the US and instead buying their agricultural commodities from other countries.

The levy has divided Congressional Republicans. It is said that Trump is also against its introduction. And there is a question of the legality of the proposed BAT, with critics arguing it would violate United States commitments under World Trade Organisation rules which the US has signed up to.

“Any border tax adjustment runs the risk of breaching commitments made by the US in the WTO or regional/bilateral agreements,” explains Charles Finny.

“Without a detailed proposal it is impossible to comment on the trade law implications of such a policy. But if it appears to be in breach of commitments then the US should expect a challenge from a number of trade partners.

“How the Trump Administration reacts to any challenges will be interesting to observe.”

NZ-US FTA: No major impediments

Trump’s “America First” strategy has had an impact on the US involvement in regional and multilateral trade agreements. But Trump has stressed that he is not opposed to all trade agreements, and is in favour of individual deals on the proviso they can be quickly terminated “if somebody misbehaves.”

Early in his presidency, Trump told Fox News “believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one. There won’t be a whole big mash pot.”

Last month, New Zealand Trade Minister Todd McClay visited Washington for talks with Trump’s Administration.

“I’ve welcomed their interest in an FTA as a demonstration of the good shape our trading relationship is in,” McClay later said.

He saw no major impediments to a trade deal with the US.

Whether Trump sees things the same way is anyone’s guess.

Capital Markets: Direct Capital spurs private equity market (NZ Herald)

Tim McCready talks to Direct Capital’s managing director, Ross George about the firm’s latest capital raising, lessons from past investments, and the state of NZ’s private equity industry
Late last year, Direct Capital raised its fifth private equity fund in New Zealand. Since it began in 1994, the firm has raised $1.2 billion, with its latest $375 million fund coming almost exclusively from existing investors in just two months.Herald: Direct Capital’s first fund was raised in 1994 — 23 years on, what has changed most in the New Zealand private equity industry?

Ross George: When Direct Capital began, private equity was a very established industry offshore, but it didn’t exist in New Zealand in a formal sense. We had to go out and explain who we were and what we wanted to do with investors, advisors, and private companies. Now Ryman Healthcare, Scales and NZ King Salmon are on the sharemarket — people know they came from private equity, and the private company market is well regarded by investors. One of the most positive changes has been the New Zealand Stock Exchange. When we started 23 years ago, you couldn’t necessarily invest in companies and then list them — the stock exchange said they were too small.

Around the world, all successful markets mirror their economies and their company stock base. The stock exchange here has now grown substantially by appealing to a broader set of companies, and it means you can keep them here in New Zealand.

Herald: You’ve just finished raising your fifth fund in the last quarter of last year. How did it go?

Ross George: We had a two-month window, and we were easily able to raise it. We wanted to cap it at $375 million, but could have raised significantly more. Over 23 years we have performed very well for investors. The feedback we receive is that we don’t take inappropriate risk, and that our performance has been consistent and very good relative to other categories. We are in the fortunate position of being able to go back to our existing investors and raise capital. That’s real recognition of our performance and just how big the private company opportunity is.Herald: What is unique about the private equity industry in New Zealand?

Ross George: In New Zealand, you can find yourself investing in the top five companies within a sector. We have managed to invest in Ryman Healthcare — the biggest in its industry, Scales — the second biggest apple producer in the country, and King Salmon — the largest salmon producer. In Australia, you’re more likely to invest in the top 15. Economically, New Zealand is doing very well, and there are a lot of good opportunities. But it’s a double-edged sword. We’re not the only ones that have noticed New Zealand is going well — the global corporates have noticed too. There is now a real desire to be here. Also, private company owners in New Zealand tend to be older than offshore. In our size bracket, that’s a real feature. As owners near retirement age, they might want to sell down but remain a 20 per cent shareholder, or change their role but stay on the board. We can work with them to understand how they want to change their life — because more often than not they don’t want to stop working abruptly.

Herald: Direct Capital’s investments have been across many different sectors — from technology and e-commerce to forestry and pharmaceuticals. Are there any particular areas you’re targeting for this fund?

Ross George: You can’t just choose an industry in New Zealand and invest in it. There are some areas such as food and primary industries that dominate in New Zealand and that we get a lot of recognition for.

These will always be a cornerstone of our funds, but we try to follow big long term trends. Food for Asia is a big trend that we think will suit us into the future. In the short term, New Zealand has done well economically over the last decade, and there has been a lot of money spent on infrastructure.

Although we’re not an infrastructure investor ourselves, we do invest in companies that provide services into the industry.

Herald: NZ King Salmon was one of your most recent exits, listing on the NZX and ASX last year. What was it that appealed to you about the company?

Ross George: NZ King Salmon is a company with good insights into how to run a primary industry. When we did due diligence on the company, we liked that it had its own hatchery, farms, processing plant, brand, and export operation. If you put that in the context of other primary industries, it has every step covered. It is a real pleasure to turn up in London and see Ora King salmon on the menu, and you think that started from the production of an egg by the one company. When we came to listing it, that was a really appealing thing. The main comment from the institutions is that this is how a lot of other primary industries should be organised.

NZ King Salmon has been a stellar performer for a long time. It produces a premium product that doesn’t have a commodity price attached to it, and can sell every kilogram of salmon it produces. The issue now is how it continues to grow. It’s a very large employer in Marlborough, and because it is a year-round employer it’s a sought-after place to work. The only problem is that it can’t grow its production enough. The government and regional councils talk about growing regional businesses that can create employment, but there has got to be enabling tools and legislation to allow them to do it.

– NZ Herald

By Tim McCready