Mood of the Boardroom: Is this as low as we will go? (NZ Herald)

Senior business leaders’ optimism in the outlook for the New Zealand economy has waned.

But they remain relatively sanguine about the outlook for the global economy and within their own industries.

Respondents to the Herald’s Mood of the Boardroom survey rated their optimism in the New Zealand economy at 1.82/5 on a scale of 1-5, where 1 signifies “much less optimistic” and 5 equals “much more optimistic”.

This year’s score compares to 1.86/5 in 2022 and a far greater level of optimism in 2021 at 2.70/5.

Despite the lower level of confidence, it still stands above the record low experienced during the Covid-19 pandemic in 2020, where the score plummeted to 1.36/5.

A prevailing sentiment is that we are at the nadir of the economic cycle.

Simplicity founder and CEO Sam Stubbs says that while New Zealand’s economy is in a relatively poor position right now, the long-term outlook is more positive.

“We are where Australia was in the early 1980s — about to get slowly more capital rich via KiwiSaver.”

A professional director agrees.

“We will likely stay here for a while and then things will improve”.

Chair and co-founder of The New Zealand Initiative, Roger Partridge, says the score is reflective of a combination of excessive public spending, inflationary monetary policy and anti-growth regulatory settings including immigration, foreign investment, the labour market and Covid.

“This has battered the New Zealand economy, and left it cruelly exposed to global forces,” he says. “The next government will inherit a perfect storm of economic challenges.”

More encouraging is CEO optimism in the global economy, at 2.23/5. This is a notable increase from last year’s rating of 1.83/5, underscoring a modest upswing in confidence in the global economic landscape.

As is typical in this survey, chief executives rated optimism in their own industry higher than that for the New Zealand economy or the global economy, with a weighted average of 2.47/5. This is slightly down from last year’s score of 2.70/5.

As expected, optimism varies across different industries.

The highest confidence was exhibited in the entertainment and leisure sector — an average score of 3.7/5.

The utilities, energy and extraction industry also reflected notable optimism — 3.1/5.

Cordis managing director Franz Mascarenhas is upbeat about the hotel industry’s improving circumstances in the coming year. “With all international markets — including China — opening up, and with some rationalising of airline fares overall travel should improve,” he says.

At the other end of the scale, transportation and delivery was among the lowest scoring — 2.1/5.

Both the construction sector and the education sector received a score of 2.3/5.

Real estate scored 2.6/5, reflecting the cyclical nature of the industry.

Cooper and Company CEO Matthew Cockram, notes “a downward cycle combined with the acceleration of trends such as flexible working — and high interest rates and inflation are an unwelcome confluence of negativity”.

Domestic concerns Executives were asked to gauge their concern on various domestic issues.

Unusually for the Herald’s CEOs survey, the top five concerns all stemmed from matters related to government and its policies.

Of most concern was the level and quality of government spending, at 8.17/10 (on a scale where 1 reflects “no concern” and 10 “extremely concerned”).

While the Treasury’s pre-election economic and fiscal update (Prefu) showed economic growth forecasts to be more upbeat than the May Budget, it also noted that Crown expenses remained elevated this fiscal year, due to “decisions at Budget 2023, the rephasing of unused spending from the 2022/23 fiscal year, the response to the North Island weather events, and the increasing costs of debt servicing”.

Craigs Investment Partners chair Sir Ralph Norris, a former leading Australasian banker, predicts “government borrowing, coupled with falling terms of trade, will see New Zealand underperform the global economy”.

Inflation was the second highest domestic concern — CEOs rating it at 7.82/10.

This worry is closely linked to interest rates, which emerged as the fifth-ranked concern at 7.26/10.

Treasury’s short-term forecasts, as outlined in Prefu, forecast inflation was proving to be more stubborn than originally expected, with the prospect of interest rates remaining higher for longer until the end of 2024 — including the possibility of further hikes to get inflation under control.

“The resulting impact on economies as governments rightly seek to bring down inflation is uncertain,” says Beca executive chair David Carter.

“This uncertainty, combined with inflation pressures and increases in cost of capital, is understandably causing clients to review their capital commitments”.

A leading real estate boss adds: “Until inflation rates come under control and reduce around the world, we are going to see hardship in many businesses as they have had extra costs added to them over the past year and with sale numbers slow, so are profits”.

Rounding out the top five domestic concerns are infrastructure constraints (7.72/10) and crime (7.34/10).

A potential shift in government, as noted by some, raises expectations among business for an improved outlook in the New Zealand economy.

“The economy is not in a good place right now and the Government has hindered, not helped it,” says an advertising executive.

Sharing this perspective is a professional director, who expresses hope that there is “light at the end of the tunnel from the likelihood of a more business-aware government that understands the importance of wealth creation on our medium-term prospects”.

Echoing this sentiment, the CEO of an energy exploration firm reckons “a change in government to National/Act will improve my optimism around NZ economy but I believe we are in for a difficult global environment.”

Such concerns relating to government and the looming election have notably shifted downwards the traditional business concerns typically seen headlining this survey.

Last year, the most pressing domestic concern was skills and labour shortages, receiving a score of 9.0/10. This year, however, it has fallen to tenth position, at a lower score of 6.81/10. Similarly, immigration restrictions were a significant worry last year. They have now declined to 6.13/10 from 8.52/10.

Survey respondents were encouraged to put forward any other pressing concerns they have regarding domestic issues beyond those specifically polled.

Education emerged as an area several executives are deeply concerned about.

“Education, more broadly than just skills, is a key concern of mine,” says the CEO of a professional services firm.

“The state of our education — both in syllabus and attendance,” says social entrepreneur Anne Gaze.

“An entire cohort, a generation of children need engagement and relevant curriculum.”

Mood of the Boardroom: Act gains credibility as a partner (NZ Herald)

CEOs say Act leader David Seymour has propelled the party to be a credible partner in a National-led government If National is to form a coalition government, it is almost certain it will need the support of the Act Party.

An overwhelming majority of CEOs responding to the Herald’s 2023 CEOs Survey, some 82 per cent, agree that David Seymour’s leadership of the party has positioned the party to be a credible coalition partner.

Only 7 per cent say it hasn’t, while 11 per cent are uncertain.

Praise is directed at Seymour for his consistent articulation of positions and a clear vision for change through Act’s history of taking a firm stance on policies and issues.

CEOs were asked to evaluate Seymour’s political performance as Act leader over the past tthree years on a scale of 1 to 5, where 1= not impressive and 5= very impressive. He received a high rating of 4.01/5.

“David Seymour has been the stand-out Opposition MP this term,” says an Auckland-based CEO organisation. “This isn’t quite as high praise as it sounds and is more of a reflection on his experience and political acumen relative to others.

“Nevertheless, Seymour has consistently made clear his position on matters and there is no doubt, whether you like it all or not, he has a complete vision for change.

“This is to be commended.”

Deloitte’s Thomas Pippos adds: “David is very eloquent and seasoned, accepting that occasionally he does cross the line — he does benefit from the fact he will never be PM.”

On current polling, Act could bring around 15 MPs into Parliament. CEOs were also asked to rate the political performance of some Act candidates that could potentially be brought around the Cabinet table.

Brooke van Velden, Act’s deputy leader and spokesperson for foreign affairs, health and trade received a score of 3.62/5.

Her rising popularity has positioned her as a strong contender to potentially unseat long-term Tamaki incumbent Simon O’Connor, a seat that has been held by National for 63 years.

Nicole McKee, spokesperson for firearms, justice and conservation, received a score of 2.44/5. She has been a vocal critic of the government’s gun control measures, which she says focus on gun control of responsible owners and do not target illegal possession.

Beyond these candidates, there is a recurrent concern raised by business leaders about the party’s bench strength, with several respondents expressing worries about the limited depth of talent within the party.

The recent departure of five candidates has further escalated questions about the party’s stability and credibility.

Among the departures was a candidate who likened the vaccine mandates to Nazi concentration camps, a statement widely criticised for its instability and historical inaccuracy. Another made claims that linked vaccines to drownings. And another called former Prime Minister Jacinda Ardern “Jabcinda”.

Act policies Respondents were asked to score some of Act’s key policies that were available at the time the Mood of the Boardroom survey went into the field.

The highest score was attributed to a proposal to establish public private partnerships for road infrastructure construction — an average score of 4.17/5 where 1 equals “very poor” and 5 equals “very good”..

Many of Act’s highest-rated policies relate to education.

Its proposal for mandatory daily national education attendance reporting with a traffic light system for absences scored 3.97/5, reflecting significant support from CEOs.

Similarly, establishing a $250 million per year teaching excellence reward fund received a score of 3.87/5. Reinstating partnership schools received 3.73/5.

“Act is defying the definition of insanity by positioning for much needed structural reforms,” says Precinct Properties chair Craig Stobo.

One of Act’s more controversial proposals is to introduce ankle bracelets for youth offenders so that they can be electronically monitored.

This received a score of 3.69/5, however, 13 per cent of respondents signalled they are unsure about the policy, indicating a level of reservation regarding its effectiveness.

“Ankle bracelets don’t work,” says Skellerup Holdings CEO David Mair.

While Act’s policies were generally positively received, there are lingering concerns among business leaders regarding the pace and depth of the changes proposed.

Striking the right balance between advocating for change and effectively implementing it remains a significant consideration for them.

CEOs stressed the importance of strategic alignment and a comprehensive approach, suggesting that certain projects will require collaboration with other reforms to be truly effective.

Despite the overall support for Seymour, reservations persist with Act, especially concerning its position on issues like climate change and gun control, the latter of which is viewed as being “out of step and misguided” by one respondent.

The boss of an asset management firm suggests there is a gap in the political market for a party that believes in economic rationalism, climate change and social liberalism, but says “unfortunately, Act seem determined to play in a different space.”

A banking CEO concurs.

“I am not confident that he (Seymour) would act in the best interest of Aotearoa versus his party and backers.”

Mood of the Boardroom: Mixed reception for Greens (NZ Herald)

Business leaders are divided on whether James Shaw and Marama Davidson’s leadership has positioned the Green Party as a credible coalition partner with a Labour-led government. Some 47 per cent say their leadership has helped; 41 per cent hold an opposing view and 12 per cent are “unsure”.

When evaluating their political performance over the past three years, Shaw was praised by CEOs, receiving a score of 3.16/5 on a scale of 1-5, where 1= not impressive and 5= very impressive.

Many applaude his climate policies and adeptness at fostering collaboration across the political spectrum.

“James Shaw’s commitment to addressing climate change and efforts to achieve cross-party alignment where practicable is worthy of recognition,” says Beca chair David Carter.

Shaw’s most notable achievements include successfully shepherding the Zero Carbon Act through Parliament with unanimous support, and reforming the emissions trading scheme.

In the current term as climate change minister, Shaw has collaborated closely with company directors to shape the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act, which imposes mandatory climate-risk disclosures for large listed companies and financial institutions.

The head of a large asset management firm also acknowledges Shaw’s effectiveness in steering climate policies in a direction that is likely to survive changes in government.

“He may not be rewarded for that by his own voters, but it’s the right way to approach a problem that will require action across multiple electoral cycles.”

A prominent corporate director says, “James Shaw is impressive, and his orientation is genuinely green, rather than watermelon,” referring pejoratively to politicians who combine social and environmental goals.

Last year, Shaw was ejected from the Greens’ leadership by a minority of party delegates who thought he was too close to the Labour Party and not strong enough on climate change. Although he was comfortably re-elected six weeks later, there is concern from some CEOs that this weakened his leadership.

“James Shaw has all but become irrelevant since then — even Labour didn’t bother letting him know about his own portfolio,” responded the boss of an energy firm.

“He looks weak and is having influence in less and less policy.”

This related a government savings initiative which included $236 million for climate policy. Shaw was unaware of this until after the announcement had been made by Prime Minister Chris Hipkins and Finance Minister Grant Robertson.

In contrast, CEOs have little positive to say about Davidson, with some labelling her as an “extremist”, and expressing scepticism about her financial policies and proficiency.

For her co-leadership, Davidson received a score of 1.75/5.

“Marama adds little value,” responded a banker.

Davidson faced criticism for remarks she made at a trans rights rally in Auckland earlier this year when she blamed “white cis men” for causing violence. She later clarified that she had been in shock from being struck by a motorcycle.

“I should have made clear that violence happens in every community. My intention was to affirm that trans people are deserving of support and to keep the focus on the fact that men are the main perpetrators of violence.”

If the Greens get to play a role after the October 14 election, several Green Party MPs could be up for Cabinet jobs, among them Chlöe Swarbrick, the Greens spokesperson for a host of portfolios including economic development, digital economy and small business, whose performance was rated at 2.51/5.

Erica Crawford, founder of Loveblock Wine, says that Swarbrick is impressive.

“With some life experience under her belt, she could provide strong leadership as Prime Minister.”

Spokesperson for building and construction, energy and resources and finance, Julie Anne Genter, received a score of 2.10/5.

Policies

CEOs also rated some key Greens’ key policies on a scale of 1-5 where 1 equals “very poor” and 5 equals “very good”.

The highest score of 2.95/5 was the Greens’ policy to provide homeowners up to $36,000 in grants and loans to make their homes more energy-efficient and healthy.

They also proposed to allow landlords to deduct the tax from $18,000 of upgrades made to up to two rental properties.

Also scoring 2.95/5 is the party’s policy to develop a climate-resilient national food strategy, to ensure New Zealand’s food production is resilient to a changing climate, and work with Māori to ensure their food sovereignty aspirations are included.

The Greens have gone further than Labour on its dental policy, offering free dental care for all rather than for those aged under 30.

They plan to pay for this through a new wealth tax, paid by couples worth more than $4 million after mortgages and other debts, and individuals worth more than $2m.

This policy resonates with some respondents, although they disagree with the Greens’ proposal to fund this through introducing a wealth tax.

“They have a strong group of supporters and their dental policy seems to have been well received,” says Jarden managing director and co-head of investment banking Silvana Schenone.

A banking CEO responded that free dental care for those who can’t afford it and for children is excellent policy, “but not for those that can afford it, and not paid by a wealth tax”.

Consistent with past years, business leaders expressed reservations on the challenges faced by a party championing both environmental preservation and social issues.

“I am concerned that any coalition opportunity would be held hostage to the need to ram down more extreme positions, which would inevitably lead to instability,” says an agricultural industry leader.

“The pivot to social issues without credible solutions has taken the Greens to a different political space and possibly relevance,” says the chair of a management consultancy.

“The Green Party could contribute so much to sizing and solving externalities like climate change,” responds another chair.

“Then their ideology kicks in with cutting cow numbers and at that point I sigh and switch off.”

Mood of the Boardroom: No shortcuts – we’re not Venezuela (NZ Herald)

The next Government could conceivably liquidate the $65.4 billion New Zealand Super Fund and renege on making offshore payments on climate change commitments to pay down costly Government debt.

But such stratagems don’t fly with New Zealand’s senior corporate community.

In the Herald’s 2023 Mood of the Boardroom CEOs survey, business leaders were emphatic; over 87 per cent sent a strong message that liquidating the fund was not on. Just 3 per cent said it should be used to restore the country’s balance sheet. A further 9 per cent said they were “unsure”.

A high-profile chairperson suggested that — given the poor fiscal management seen in recent years — rating agencies would respond very negatively in such a case. “The New Zealand Super Fund and investment expertise can instead be used far more effectively to support infrastructure build.”

But New Zealand Initiative chairman Roger Partridge is in favour of “ideally winding the fund up” and paying down debt.

The fund is designed to help pay for the rising cost of providing National Superannuation payments for New Zealanders. Both Labour and National have flagged they will continue making contributions.

National’s finance spokesperson Nicola Willis said her party is committed to continue contributions.

“I do think it’s prudent and responsible to always be looking at … is that the best place to be putting our dollars now? But my intention is that we would continue contributions,” she told TVNZ’s Q+A earlier this year.

Labour has also committed to continue payments.

In its alternative budget, Act has proposed halting contributions to the Super Fund while government debt is outstanding. It suggests, “if taxpayers wish to invest in the stock market, they are allowed to do so.

“The Government should not force them to do so via proxy.”

It applies the same rationale to the government’s venture capital fund.

In 2009, the former National-led government halted contributions in response to the Global Financial Crisis. They were restarted by the Labour-led government in 2017.

Simplicity founder and CEO, Sam Stubbs, says liquidating the fund would eliminate a world-leading investment team that has provided returns to taxpayers well in excess of any debt required to fund it.

“Ultimately our increasing public debt has to be paid back,” adds Precinct Properties chair Craig Stobo. “If the public does not want to cut entitlements or increase taxes we have to sell assets. There are state assets that should be sold well before the NZ Super Fund is liquidated.”

A former banker draws a historic parallel: “Not a good idea. It would be similar to doing away with the Superannuation fund by Muldoon.”

Jarden’s managing director and co-head of investment banking, Silvana Schenone, acknowledges the complexity of superannuation. “I believe compulsory superannuation in New Zealand would assist with financial literacy and many other issues the country is facing,” she says.

Paying the Piper

A Government report has forecast we could be up a $24 billion bill leading up to 2030 in order to meet its international climate change targets.

This projection is predicated on maintaining our current greenhouse gas emissions trajectory without significant reductions, against a high international carbon price to offset emissions above the country’s target.

Under the Paris Agreement, New Zealand has committed to reduce net greenhouse gas emissions in 2030 by 50 per cent below gross emission levels in 2005; part of global efforts to limit warming to below 1.5C.

Business leaders were asked if the country should renege on these commitments and focus on investing in green technology and other direct emission-reducing measures.

A clear majority of respondents, 62 per cent, answered a resounding “no”. They emphasised the importance of such commitments as a vital aspect of global co-operation in combating climate change, and the severe implications walking back commitments could have on New Zealand’s trade relationships.

Conversely, a notable 18 per cent of respondents aligned with the idea of prioritising investments in green technology and direct emission reduction measures over strict adherence to international commitments. The remaining 20 per cent of respondents are “uncertain”.

Professional director Dame Therese Walsh says, “the credibility of New Zealand in relation to climate change globally will be significantly impacted if we do not meet our international commitments.” She notes our absence would undermine the level of pressure on other countries to do the same.

Another director makes the point that if we renege on the climate commitments our relative cost of capital will increase.

“The economy gets hit both ways on this. The only answer is to have a co-ordinated plan to deliver to the targets that the Govt does not undermine with policy decisions, like providing fuel subsidies.”

“It is not an either/or question,” says Freightways chair Mark Cairns. “We need to be doing both.”

But conversely, a notable 18 per cent of respondents aligned with the option of prioritising investments in green technology and direct emission reduction measures over strict adherence to international commitments. The remaining 20 per cent of respondents were uncertain. Precinct Properties chair Craig Stobo is sceptical of the feasibility of achieving the 2030 Paris targets, “both in terms of likely success and ballooning taxpayer costs.”

“Only 25 per cent of the globe is subject to carbon taxes or prices. We should work with other food exporters to opt out under Article 2.1 of the Agreement citing food security.”

Going further, serial social entrepreneur Anne Gaze strongly criticised the decision to sign the Paris Agreement.

“Phenomenal incompetence to have even thought of signing this! What a puffed up Minister’s ego to have done so.”