Q and A: Don Brash

Former Governor of the Reserve Bank of New Zealand and former National and Act Party leader Don Brash was recently appointed to the advisory board at Hastings-based financial advisors Stewart Group. Hawke's Bay reporter Andrew Ashton caught up with Mr Brash on a trip to Havelock North and found out the experienced former politician still sticks to his guns.

What are the national monetary priorities you believe need to be in place to allow business in New Zealand to thrive in a free market economy?

I think the most important single thing for improving the prospects of business in New Zealand, particularly those in regions like Hawke's Bay is to get a more consistently lower exchange rate.

The New Zealand exchange rate has been almost certainly too high for quite a long time. It's not just that it fluctuates - and it does that too - but above the fluctuations the level of the exchange rate has almost certainly been too high. It's better than it was but the level has been, on balance, too high.

The evidence for that is partly in the ongoing current account balance of payments deficit. We've been spending more overseas each year than we've been earning overseas each year. The last time we had a surplus in the balance of payments was 1974 - that's a long time ago.

That in itself for me establishes that there is a tendency for the dollar to be too high. Now if the NZ dollar were lower this would be particularly useful for regional New Zealand, which tends to be export orientated.

The second point I would make is our corporate tax rate is among the highest in the developed world.

I think there would be benefit in getting both a lower exchange rate and a lower tax rate.
Getting the real exchange rate (rather than the nominal exchange rate) is not something you can get down by tinkering with interest rates. In my view, one of the quickest ways of getting real exchange down would be to run a tighter fiscal policy, running more consistent budget surpluses, that would force the Reserve Bank to have lower interest rates to keep the key inflation target on track.

Over the years, have you changed your opinion on what is required for business to thrive ?

Not for quite a while. Over the last two decades, no, I think the exchange rate is crucial, the tax rate is crucial.

I guess the other thing that's important, particularly for small businesses, is the imposition placed on small businesses by government regulation.

Businesses find the bureaucracy, the red tape, the rules and regulation quite a pain.
I was for example chair of the committee that designed New Zealand's GST, way back in 1985 - the minister of finance at that time, Roger Douglas, was absolutely committed to reducing the compliance costs imposed on small businesses by GST. His instructions to the committee was design the GST that minimised the compliance costs on small business, and it doesn't take a genius to work out that you do that by having one rate- no exceptions - and that's of course what we have in New Zealand.

What would be the main thing you would like to see introduced to help boost business in New Zealand?

I would find ways of reducing compliance costs, getting the exchange rate down and I'd put the tax rate down.

But let me add this on the compliance costs issue, that's made up of a whole range of different issues - some of the things that should be able to be done quickly are taking an inordinate amount of time.

My son was involved in building a house for him and his wife in Auckland some years ago. They were building a house consistent with the district plan, there was no departure from the district plan required, but it took months and months to get approval. That should have been a rubber-stamping exercise and that sort of frustrating bureaucracy is very tough for small businesses to handle.

Do you believe that free market economics can still thrive under a Labour-led Government?

Absolutely, because the alternative is more government involvement and I think now the problem is that there is too much government involvement. I see no reason why not.
David Lange, a former prime minister in a Labour Government, once said mankind has never found a better way of producing goods and services than the free market and he's right.

I'm quite convinced the market is the most efficient way of producing goods and services - it might not produce the social outcomes that we want, in which case we do have policies that distribute income to the people that in some way have been disadvantaged or lost out in that free market environment.

Finally, explain how you see your role within Stewart Group and what you are looking to achieve?

I have been asked to join the advisory board. I think you would have to ask them why they invited me to do that but I think my background and experience can help the group.