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UNCLAS SECTION 01 OF 03 WELLINGTON 000068 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/ANP AND EEB, STATE PASS TO USTR, PACOM FOR 
J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV PREL NZ
SUBJECT: NEW ZEALAND'S PRIME MINISTER HOSTS JOB SUMMIT IN HOPES OF 
STIMULATING BUSINESS AND STEMMING JOB LOSSES 
 
WELLINGTON 00000068  001.2 OF 003 
 
 
¶1. (SBU)  Summary.  With New Zealand's unemployment rate expected to 
exceed 6 percent by 2010 and to remain around this level until 
mid-2012, Prime Minister John Key opened a Job Summit in Auckland on 
February 27.  Key invited some 200 participants from business, 
labor, government and NGOs to develop the "top twenty" ideas with 
the potential to save or create tens of thousands of jobs and 
protect New Zealand from the worst effects of the recession.  The 
top three ideas to come out of the Summit are: a nine-day 
working/fortnight (10th day funded training), a joint 
government/private industry investment fund to help financially 
distressed firms and a bike path running the length of New Zealand. 
The ever worsening deficit now at NZ$8.4 billion will severely limit 
the Government's funding options for these ideas.  The 2009 Budget 
will be released on May 28, 2009, which gives the Government 
approximately 90 days to access funding and viability of the 
proposed ideas.  End Summary. 
 
Context 
------- 
 
¶2. (U)  The New Zealand Institute of Economic Research (NZIER) in 
its latest quarterly economic outlook (March 3) is warning that 
recovery from New Zealand's current recession may not be on the 
horizon until around 2012 and a return to 3 percent annual growth 
experienced by NZ prior to the current recession is not likely until 
¶2013.  As the economic outlook weakens, NZIER's jobless forecasts 
now predict the unemployment rate to exceed 6 percent (currently 4.2 
percent) by this time next year and to remain around this level 
until mid-2012. 
 
¶3. (U)  Although NZIER's analysis paints a "moderately pessimistic" 
prognosis for the economy, "the current recession is not yet 
forecast to be as deep and long (as last major recession in 1991) 
and the likelihood of unemployment moving into double figures is 
still extremely low," per NZIER.  Over the next year, the 
combination of lower interest rates (than in 2008), lower petrol 
prices, still relatively high wage inflation, scheduled tax cuts 
(April 2009) and net plus immigration should all help stimulate a 
modest increase in private consumption.  "The upturn will be 
gradual, as consumers remain cautious in the face of rising 
unemployment."  With economic growth in New Zealand's trading 
partners expected to strengthen in 2010, there is optimism that 
export volumes would follow, particularly in the main export - 
dairy. 
 
The PM's Job Summit 
------------------- 
 
¶4. (U)  With the current pessimistic economic backdrop, Prime 
Minister John Key marked his 100th day in office on February 27 by 
opening a Job Summit in Auckland inviting some 200 participants from 
business, labor, government and NGOs to a brainstorming session 
aimed at generating the "top twenty" ideas with the potential to 
save or create tens of thousands of jobs and prop up shaky Kiwi 
businesses. 
 
¶5. (U)  The top three ideas to come out of the Summit are the 
nine-day working fortnight (two week), a joint government/private 
industry investment fund worth hundreds of millions of dollars to 
help financially distressed firms and - the surprise item - a bike 
path running the length of New Zealand.  These are just three of the 
twenty main ideas to emerge from the Job Summit meant to buoy up the 
economy. 
 
¶6. (U)  Prime Minister Key intends to give priority to taxpayer-paid 
training subsidies for businesses that cut a working fortnight to 
nine days, with nine days' pay and the tenth day for training.  He 
has ruled out the Government entirely paying the wages for the tenth 
day, saying: "I think it would not be possible to fund it (tenth day 
wage) 100 per cent."  The Government was more likely to pay for 
training rather than offer outright wage replacement.  The cost to 
the Government of paying a one-day-a-fortnight wage subsidy has been 
estimated at NZ$320 million a year.  This scheme anticipates 
coverage for upward estimates of 100,000 workers though no details 
have yet been confirmed.  Lower estimates have the scheme assisting 
as few as 10,000 workers.  In Key's closing remarks he said he 
wanted to investigate this idea without delay. 
 
 
WELLINGTON 00000068  002.2 OF 003 
 
 
¶7. (U)  The summit also considered Mr. Key's idea to complete the 
"Te Araroa" walkway to traverse the length of New Zealand and a plan 
for a country-wide bike path to course through national parks. 
Under the plan, NZ$50 million would be spent to employ 4000 people 
to build the national bike path.  The most expensive proposal from 
the summit was for an equity investment fund involving the 
Government and private banks as partners. 
 
Joint Business/Government Fund to Aid Distressed Enterprises 
--------------------------------------------- --- 
 
¶8. (U)  After intense debate, the country's private banking sector 
also came up with an offer of a joint fund with the Government to 
help financially distressed firms through short-term equity 
injections.  The fund - if it gets off the ground - would result in 
the banks putting in NZ$1 billion and the Government matching this 
amount.  Given the banks' strong credit rating, the fund could 
borrow another NZ$8 billion to create a $10 billion nest egg to deal 
with companies that had good, long-term prospects but needed equity 
to survive in the short term. 
 
¶9. (U)  The move came after Reserve Bank Governor Alan Bollard took 
the unusual step of publicly warning the private banks that they 
should not underestimate the anger in the corporate sector about 
their behavior since the global credit crunch hit international 
financial institutions.  After Mr. Bollard's statement, the banks' 
executives reacted saying they had already lent out NZ$3.6 billion 
in corporate credit in the last quarter, funded by NZ$4 billion from 
their Australian parent companies.  The banks said they were 
committed to continue lending on the same basis in the future to 
"creditworthy" businesses.  The banks have also offered to develop 
over a longer period an equity growth fund to make "quality" 
investment in small- to medium-sized businesses.  Prime Minister 
John Key said the idea of a joint fund was one that had come solely 
out of the Summit and the Government would consider it carefully. 
 
¶10. (U)  Other major ideas to come out of the summit include: 
--A freeze on regulation making and enforcement activity reduced to 
minimum acceptable standards. 
--A moratorium on the introduction of minimum air and drinking water 
quality standards until that could be afforded. 
--A NZ$60 million fund to boost tourism numbers set up by the 
private and public sectors. 
 
¶11. (U)  Many of these ideas were in line with the Government's 
broad economic policies such as bringing forward and fast tracking 
big infrastructure project spending and getting more people into 
education and retraining causes.  The complete list of proposals can 
be viewed at: www.beehive.govt.nz/feature/summit. 
 
Public Reaction 
--------------- 
 
¶12. (U)  Employers and labor unions agreed that changes to working 
hours may be a workable solution.  The Employers and Manufacturers 
Association's David Lowe said, "the number of businesses considering 
a four-day week was increasing (prior to the Summit) and companies 
which need to make changes to stay in business were facing a choice 
between downsizing or simply asking everybody to take a day off 
without pay."  Lowe said businesses preferred to make as few changes 
to workforce as possible and saw the nine-day/fortnight scheme as an 
across the board plan that would negatively affect business and 
workers minimally.  Andrew Little, secretary of the Engineering, 
Printing and Manufacturing Union (EPMU), the largest private sector 
union in NZ, said, "talk about a four-day working week (i.e., fifth 
day unpaid) has now evolved (post Summit) into consideration of the 
nine-day/fortnight scheme and I think there is a willingness by 
labor unions to explore the idea and look at the potential costs for 
training." 
 
¶13. (U)  The news media's reaction to the Job Summit was relatively 
tepid.  Out of the 20 Summit recommendations, the media's reaction 
ranged from mildly mocking (regarding the bike path) to stressing 
the obvious - need to save jobs and stimulate the economy.  Overall, 
the media categorized the proposals as blandly generic but saw the 
joint business/government equity fund as having the most promise as 
long as details can be worked out quickly. 
 
 
WELLINGTON 00000068  003.2 OF 003 
 
 
¶14. (U)  The opposition Labour Party's leader, Phil Goff, was 
critical of the (National) Government's decision not to invite 
Labour to the Summit and noted that there was a "overly strong 
public relations element" to the gathering.  Nevertheless, Goff 
supported the overall intent of the Summit. 
 
Wither the Funding 
------------------ 
 
¶15. (U)  As the Government attempts to implement some of the ideas 
generated from the Job Summit, it faces the equally onerous task of 
finding sufficient funding to launch the schemes.  At the end of 
February, the New Zealand Treasury reported that tax revenue was 
NZ$1 billion below forecast in the six months to December 2008, 
leaving the Government with an operating deficit of NZ$6.2 billion. 
This amount is NZ$8.4 billion (the amount the Government needs to 
borrow) worse than expected before the election and NZ$2.4 billion 
worse than the Treasury's latest forecast before Christmas.  The 
main reasons for the operating deficits according to Treasury are 
tax revenue being NZ$1 billion lower than forecast, investment 
losses (mainly from Superannuation Fund - so called "Cullen Fund") 
being NZ$4.9 billion higher than forecast, and $2.4 billion in 
losses recorded by Accident Compensation Corporation (ACC - personal 
injury coverage) because of a change in the discount rate used to 
measure the ACC's unfunded liability. 
 
May Budget Will Indicate Which Ideas Find Favor 
--------------------------------------------- -- 
 
¶16. (SBU)  New Zealand's Minister of Finance Bill English will 
deliver the Government's 2009 Budget on May 28, 2009.  As a result, 
the Government has given itself at least 90 days to ascertain which 
of the 20 ideas generated from the Summit it can comfortably afford 
to fund considering its widening deficit.  It may be necessary for 
the Government to borrow the required funding from international 
sources but Mr. English has previously sounded a cautious note about 
the effect additional debt would have on the country's overall 
credit rating.  The May Budget numbers will clearly spell out the 
fiscal extent to which the Government can go to implement the Jobs 
and Growth initiatives in its desire to protect New Zealand from the 
worst effects of the recession. 
 
Comment 
------- 
 
¶17. (SBU)  Most commentators agreed there were no silver bullets 
evident on the Job Summit conclusions and recommendations, but 
credited Key with reaching out to assemble a cross-section of the 
country's business elite, union and academic leaders, and relevant 
GNZ officials.  The opposition Labour Party complained that they 
were not included in the Summit, but their new party president 
(Andrew Little of the EMPU) was credited for proposing the nine-day 
working fortnight, which was one of the better-received suggestions 
coming out of the Summit.  How the ideas generated from the Summit 
are translated into the May budget will be an indication of whether 
or not Key's Job Summit was a success or merely a talkfest.  End 
Comment. 
 
KEEGAN