PM takes global crisis one step at a time

By Audrey Young

The Prime Minister is warning of limits to the Government's responses to the economic crisis as he prepares to roll out infrastructure projects that could start immediately.

Speaking after outlining a $480 million relief package for small business, John Key said the role of the Government was not to become the economic engine of the country "but to do all it could to keep the engine humming, tuned and free to go up a gear".

And its actions to stave off the crisis should not undermine the economy in the future.

"This is a very fine balancing act between doing more, ensuring confidence is out there, but also making sure we don't blow up the Crown," he said.

"There is a limit here to what can happen. There has got to be a balance so we don't get downgraded as a country or at least don't precipitate a downgrade.

"A short-term sugar fix today could lead to a diet of debt later."

Yesterday's package is estimated to cost $480 million over four years and the relief it offers will begin on April 1 - though ultimately the amount of tax paid by business will not change.

More immediately, cashflows will be affected by changes to the timing and payment of provisional tax. These will give businesses an estimated $270 million extra in cashflow for the remaining five months of the financial year.

Mr Key's "rolling maul" this year began with the Resource Management Act announcements on Tuesday - though they would have been given priority by National, recession or not.

Next week, he will announce the smaller infrastructure projects that can be started immediately, such as housing insulation and upgrades, improvements to schools, and local government projects.

In three weeks, he will host a jobs summit that is expected to result in high-spending initiatives.

And in a few months, the Government will decide which major national infrastructure projects will get priority.

"We are working through systematically a series of initiatives... It just keeps on going."

But the PM said the Government would remain "open-minded" on steps that might be required as economic conditions worsen over the next few months.

Mr Key said that under current Treasury predictions, gross debt would rise from $35 billion to $85 billion in six years.

He said the decisions being made today had to "really hit the mark".

Excessive debt would swiftly bring a downgrade from credit agencies, leading to higher interest rates and lower growth in the future.

"If we borrow excessively to look after the taxpayers of today, we will end up saddling our children with a mountain of Government debt."

Yesterday's package temporarily cuts the amount of provisional tax paid by business and the penalties on firms that underestimate their liability.

It changes the rules on GST registration and relaxes compliance rules about when GST needs to be paid.

It reduces the frequency with which small firms need to pay PAYE and fringe benefit tax (once a month for PAYE instead of twice and once a year for FBT instead of four times).

Other measures include:

Ordering Government departments to pay their bills on time or even early.

Allowing short-term credit insurance to qualifying exporters by the NZ Export Credit Office.

Expanding jurisdiction of Disputes Tribunal from $12,000 to $20,000 a case to reduce use of courts and cut legal costs of small businesses.

Labour Party leader Phil Goff said the measures were a "small, useful initiative but underwhelming given the economic challenge NZ is facing".

He said they stood in stark contrast to the $52 billion package Australian Prime Minister Kevin Rudd announced on Wednesday."

Business New Zealand welcomed yesterday's package.

"Now more than ever, cash is king," said chief executive Phil O'Reilly. "Helping firms' liquidity is a very practical approach."

- NZ Herald

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