In the last general election, a strong theme was closing the income gap with Australia. Since the 2008 global financial crisis the world economy has gone through a fragile recovery and the European debt crisis has continued to introduce uncertainty into future growth.
New Zealand, three years later, is still facing significant worsening economic, environmental and social challenges. Based on Australia's accelerating economic performance, is the 2025 goal still achievable? It is becoming increasingly difficult. Our economy has under-performed.
As a country we continue to spend more than we earn.
For many people the future of New Zealand relies on resource-based industries such as agriculture and tourism. The realities are:
* We cannot accommodate a lot more cows, maybe 10 per cent.
* Tourism has a low GDP benefit per worker employed.
Industries with a high level of productivity are essential to lift living standards in NZ. For example, last year's GDP per worker in tourism industries was $35,636; agriculture, forestry, fishing and mining industries $64,004 and manufacturing $66,235.
The relative ratio of the figures is important and which sectors to focus on should be acknowledged. NZ needs to recognise the importance of niche businesses and which areas to support.
It follows that to encourage growth in the high productive industries, the following points are critical.
Research and development
New Zealand cannot rely on commodities. R&D activities accelerate the introduction of differentiated products and services. We need to improve existing products by adding value. This requires recognising the importance of development and refinement, more so than research.
There is a difference between "research" and "development". My company has products with almost 100 per cent NZ content requiring funding for more "development" which will lead to more exports. But as an exporter we also have to fund tools and dies, modern machinery, stock and market development. The policy must level the playing field and match the conditions and the reality around the protection, acquisition and exploitation of intellectual property available in other countries. The reintroduction of an R&D tax credit is critical if we believe the 2025 target is achievable.
NZ has niche products and opportunities able to be further "developed" with encouragement.
To increase productivity companies must invest in new technology. This requires the use of working capital and access to loans. A higher depreciation rate preserves working capital. It does not cut tax revenue, it just delays tax payment. Accelerated depreciation rates on productive equipment will increase the overall tax take in the long and short run. Being more efficient and internationally competitive with modern machinery will boost company profitability and lead to greater PAYE with more job opportunities. Plus more foreign exchange will be earned, reducing our external debt.
It is clear we have many talented Kiwis seeking job opportunities in Australia. Without support at Governmental level this will continue. We need policies which encourage small-to-medium enterprises to provide challenging career opportunities. My company has developed niche products, competitive manufacturing methods, and even innovative ways to load and unload containers. We would be employing more and doing better in exporting if the business climate was conducive.
New Zealand is an open economy with a small domestic market. Our geographical location disadvantages us with the costs of developing and maintaining markets, and shipping. Exporters should get market development support as most other countries do. It is naive to think the 2025 target can be reached if we don't recognise the need to grow and sustain our markets. We are small and isolated with few barriers for imports. Competition is tough.
An affordable loan scheme
Canada, Hong Kong, India, Japan, Korea, Singapore, Thailand, the United States and others have loan schemes to support export businesses. In Australia the Headway Scheme is generous and effective. Our principal Australian banks are risk averse and reluctant to lend to NZ manufacturers and exporters, preferring to lend on non-productive property.
This needs to be recognised and remedial support put in place. It would be so cost effective for the Government to provide back-up guarantees to approved manufacturing and exporting SMEs' own bank. The cost and risk to the NZ taxpayer is almost nil, but the potential benefits are great.
For the above critical schemes it is simple to implement a well publicised, easy to access fraud alert scheme. Make the penalties tough. One can refer to Australia to see its stance.
To catch up with the rest of the world we require a change in our attitudes. Changes must be radical, not incremental. The New Zealand Government - whoever it is in the next few weeks - must provide this impetus and leadership.
If the talk is of an export-led recovery, let the actions match the rhetoric. Policies must create an environment that encourages entrepreneurial activity and supports SMEs prepared to take risks. From small acorns grow great oak trees.
Scott Yates is managing director of Cee Gee Industries and an executive member of the NZ Manufacturers and Exporters Association.