Dialogue: Government will have to rethink business policy

By DANIEL SILVA*

What does the Government have to do to restore business confidence?

Prime Minister Helen Clark has asked her colleagues to go on a smoked salmon offensive to charm business leaders. Deputy Prime Minister Jim Anderton is busy setting up Industry New Zealand to dispense grants and loans to selected businesses. And Finance Minister Michael Cullen is conducting secret negotiations with Motorola over a possible large incentive for that company to set up a branch in Christchurch.

Yet business confidence continues to be very low.

Gilbert Ullrich was one of the few business leaders who welcomed the election of this Government, saying soon after the election that business was buzzing. He now says - in a recent Dialogue article - that the Government is driven by ideologies the rest of the world abandoned years ago.

He is right, but goes on to ask for more Government support - intervention - in the form of export subsidies and payment guarantees.

The Government would be foolish to listen to Mr Ullrich or to other businesspeople who ask for more corporate welfare.

Proponents of the knowledge economy slogan were upset when the Government broke an electoral promise to introduce tax write-offs for research and development.

In response to their concern, the Prime Minister said the Minister of Finance's decision would be reviewed. It should not be. When a tax write-off is involved, your next overseas holiday becomes research and development. That is one of the reasons Australia has recently decided to curb its research and development tax incentives.

Likewise with export payment guarantees. Such guarantees are simply schemes for taxpayers to compensate exporters stupid enough to sell to people who do not pay their bills.

The decision to hand out grants to selected applicants will not create a vibrant economy. It will provide employment for a few bureaucrats in central and local government and will generate some fees for consultants who can write submissions.

Not much business skill is required. Just claim that harebrained ideas that were commercially rejected by banks and other investors are environmentally sustainable, culturally safe or likely to contribute to the knowledge economy. In most cases, a small cheque will follow.

Businesses have legitimate expectations from governments. They expect not to be taxed more than comparable businesses in comparable countries. They expect a regulatory environment that is no more complex or costly than it needs to be. They expect a flexible labour market capable of responding to fast-changing conditions. They expect excellence in education and research.

This Government has hammered business on all these fronts. Taxes have gone up, even as those of Australia, our closest competitor, have come down. There has been no relief from the social-engineering red tape that suffocates enterprise. The labour market is being made less flexible through the Employment Relations Bill. The education sector is being made less responsive by the abolition of decentralised bulk-funding.

Research in the area in which we have traditionally excelled - agriculture - is under increasing attack from people who have superstitious objections to genetic research.

These are the reasons business has lost confidence in this Government. The odd grant here and there will not restore it.

Business is becoming increasingly global, even in small-scale enterprises. And businesspeople are not stupid. Those who travel extensively see the direction in which virtually all developed countries are heading. That is not the direction Labour is taking.

New Zealanders could be excused for believing Labour's "third way" pre-election talk.

Like Mr Ullrich, they could be excused for thinking this Government would be in the mainstream of modern social democratic thought. They do not deserve to be told the Government has a non-negotiable mandate every time it introduces a 1970s-style policy.

The Government does not yet appear to have come to grips with the fact the sovereignty of a modern state is much more limited than it was when New Zealand last had a similar left-wing government, in the early 1970s.

Back then, if ministers of finance thought the dollar was too low, they would simply decree that its value be higher; if inflation was getting out of hand, they could impose a price and incomes freeze; if the balance of payments was going into the red, they would stop issuing import licences.

Dr Cullen has none of those tools at his disposal. The Government will have to rethink its attitude to business or resign itself to becoming this generation's one-term lesson in socialism.

* Daniel Silva is secretary of the Importers Institute.