Former Economics Editor of the NZ Herald

Government's plans for economy leave businesses cold

"We have always said it would take five to seven years for the benefits of that to show through" says Finance Minister Bill English.
Photo / Supplied
"We have always said it would take five to seven years for the benefits of that to show through" says Finance Minister Bill English. Photo / Supplied

Barely more than a third of businesses responding to a Deloitte-Business New Zealand election survey believe the Government has a plan to raise the country's economic performance.

"No matter how often the Government talks about a plan to get economic growth, it is not resonating with business," Deloitte chief executive Murray Jack told the Business NZ-Deloitte pre-election conference in Wellington yesterday.

Finance Minister Bill English said what the country needed was "systemic improvement right across the economy, not just some rinky dink scheme that one sector or another thinks it might benefit from".

In the cause of rebalancing an economy which had got seriously out of whack, the Government had undertaken ambitious tax reform in last year's Budget to shift incentives away from debt-fuelled consumption and property speculation towards investment in the tradeable sector.

"We have always said it would take five to seven years for the benefits of that to show through. We are not proposing any significant further tax changes."

Fiscal discipline would bring Government spending down from 35 per cent of GDP to 30 per cent over the next four years. "It will be the fastest fiscal consolidation New Zealand has done."

Restoring the country's eroded international competitiveness also required broad regulatory reform. Improvements to the Resource Management Act, the Building Act and ACC lay ahead, along with a trend to fewer but better regulators in Wellington.

Labour's finance spokesman, David Cunliffe, said the election presented a stark choice between muddling through a morass of stagnation and debt on the one side and addressing fundamental challenges on the other.

These were the country's savings rate, an under-diversified export base and a long-term fiscal crunch driven by an ageing population. The savings policy announced by Labour last week would immediately reinstate contributions to the Cullen Fund, make KiwiSaver compulsory for all employees from 2014 and increase employers' contributions progressively to 7 per cent, and raise the age of eligibility for New Zealand Superannuation from 65 to 67 gradually between 2020 and 2033.

Cunliffe said this would improve the country's net external debt by 17 per cent of GDP within 20 years, taking pressure off interest rates and the dollar and boosting GDP by 10 per cent.

Labour would reform the monetary policy framework to take pressure off exporters.

"We need the Reserve Bank to knock the peaks off the exchange rate [through more frequent intervention]," he said, "and make the core funding ratio counter-cyclical." That ratio limits the extent to which banks can finance their lending from short-term foreign funding.

But Act leader Don Brash, who was governor for 14 years, said no central bank he knew of had managed a markedly improved performance on exchange rate volatility; it was just a feature of floating currencies.

Greens co-leader Russel Norman said the Greens' approach to tax policy was to tax the things you wanted less of, like waste and pollution, and reduce taxation of the things you wanted more of, like incomes.

They would put a charge on irrigation water and cut the subsidies to large emitters under the emissions trading scheme. "But when you are running big deficits you can't have big tax cuts on the other side."

Brash said there was no question it was desirable to cut taxes.

"But there is no doubt, either, that you can't do it at the moment."

The pre-election economic and fiscal update the Treasury released last week, which had a return to fiscal surplus by the 2014/15 year, rested on "rosy" assumptions about the outlook for the global economy, Brash said.

On business taxation in particular, he said Act had yet to decide between two approaches. One was to narrow the gap between the company and top personal rates, so reducing the incentives and opportunities for tax planning.

"The other recognises that capital is the most mobile factor of production, so getting the corporate rate down in a radical way is highly desirable."

- NZ Herald

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