English prepares for hard slog to get Govt back in black

By Steve Boughey

Finance Minister Bill English. Photo / Paul Estcourt
Finance Minister Bill English. Photo / Paul Estcourt

Finance Minister Bill English tread a wary path when he addressed a group of around 175 business leaders in Auckland this morning.

If his audience was hoping for unbridled optimism about the business climate in the future, the man who holds the country's purse-strings wasn't about to deliver sweeping promises.

Speaking at the Herald's Mood of the Boardroom breakfast, English admitted that the current global recession made it difficult to take any long-term economic views with certainty.

"It's getting a little easier to get a fix on what the picture will be like in a month's time", he said, "but forecasting a year or more out is not so easy."

Coming on the back of the new government's first Budget in May, and its huge deficit, English outlined National's 10-year plan for the future in six areas: infrastructure, regulatory issues, education and skills, business assistance and innovation, public sector productivity, and tax.

The Budget revealed that for 2009 the deficit was expected to be $2.9 billion before growing to $7.7 billion in 2010 and hitting $9.58 billion in 2012. Only after that, was some recovery expected.

Unsurprisingly, the finance minister was quick to point out the precarious position his government inherited when they assumed the Treasury benches last November.

"There were some serious imbalances", he said, saying the primary concern for the country was the struggling export sector, which has been on the skids since around 2003.

"Our tradeables index (goods produced for international markets) has dropped around 5 per cent in those six years, while non-tradeables (goods produced for domestic consumption only) grew by 18 per cent."

He stressed that an economy could not continue to survive with such a heavy emphasis on consumption and debt, instead of one founded on the saviours of investment and export-led growth.

"Government expenditure since 2005 has been growing at about twice the rate that tax revenue has been growing", he claimed. "And while asset sales were used to get us out of deficit in previous recessionary times, that option isn't open to us now.

"We're taking a longer-term view towards recovery", English added.

His opposite number on the Opposition benches, Labour's shadow finance spokesman David Cunliffe, was quick to point out the government's tentative approach to pressing matters.

He called for the government to revisit the issue of the banks' high interest rates, and was critical of the fact that an inquiry into interest rates had been shelved.

"Many businesses represented here today are suffering because of the high kiwi dollar, and interest rates are inextricably linked to the exchange rate."

He went on to say that as a relative newcomer to this portfolio, he was "here to listen", and "maintain a dialogue" between Labour and business interests.

Taxation, along with the high cost of credit, was an issue foremost in the audience's minds.

"We're very aware that there's strong public opinion that our current tax structure is in need of review - but not a lot of agreement on what the final picture would look like", said Bill English.

When he was a shadow finance minister, English led the call for a phased programme of personal tax cuts - but in his first Budget as minister, he "deferred" the 2010 and 2011 tax cuts, in view of the fact that the government is unlikely to be running a surplus again until around 2017.

National still says it has a "medium term" goal to align the top personal, trust and company rate at 30 per cent.

In summary, English certainly was not about to promise any quick fixes.

He described the ten years we face until we achieve fiscal surpluses again as a "demoralising trudge".

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