Tackling the top 10 taboos

Nobody wants to deal with issues like productivity and tax rates, writes FRAN O'SULLIVAN.

In some cases the reasons are purely ideological: An underlying belief that social democratic governments should redistribute wealth.

Keeping its core union constituency happy in an election year means a Labour-led Government will not deal with some issues dear to business-people's hearts.

Here's the top ten taboos our rulers won't touch - yet.

* Interest Rates: Business lobbies have been running a campaign claiming that everytime the economy hits four per cent growth, Reserve Bank Governor Don Brash clobbers it with increased interest rates. The truth is more subtle.

But former Reserve Bank chief economist Adrian Orr, now top guy at WestpacTrust, in an analysis Trans-Tasman interest rates - why is New Zealand paying more? concludes there is room for the Official Cash Rate (OCR) to be cut further in New Zealand even if the Reserve Bank of Australia (RBA) has finished its easing cycle. "We find little evidence that the NZ economy differs in terms of its business cycle position and relative inflation pressures." Orr says the interest differential is mostly because of inflation objectives and the balance of risks the objective infers.

* Growth Agenda: Missing in action - but may be dusted off for Labour's second term in Government. Not surprising perhaps when Finance Minister Michael Cullen has disowned the 2010 target date for New Zealand to get back into the top half of the OECD: "But then if you don't know where you are going Michael, any road will take you there".

This is the area when Knowledge Wavers and Business Roundtable knights concur. They know there is not a growth strategy - but they differ on the prescription.

* Aligning top personal income tax rate with corporate rate: What did New Zealanders get for the 18 per cent hike which was slapped on incomes over $60,000? Government surpluses have been rolling in. So surely it's time the Government gave the cash back to the taxpayers who earned it.

In the US the top personal rate is 39.5 per cent. The difference is the rate doesn't kick in until you earn over $297,000 - in New Zealand you pay 39 per cent once you hit $60,000.

* Government Expenditure: Capital spending - that's what the Government is bringing forward to reflect "key capital pressures" in the social sector (hospitals and schools), prisons, transport, re-equipping the Defence Force and recapitalising Air New Zealand. But why commit public funds before going to the private well? To improve the economy's prospects the Government should restore the goal to reduce expenses to below 30 per cent of GDP.

* Resource Management Act: Surely it's time for the Government to undertake a serious review of the RMA in action? As my colleague Jim Eagles notes, investors with powerful Cabinet connections can quickly drive a truck through regulatory obstacles. Maybe a parliamentary committee can take testimony recording the experiences of those less influential players.

* Entry Cost for Starting Business: Often called the regulatory framework, the myriad of incremental laws which are being heaped on business without proper consultation has a cost to growth. That is the productivity lost when time is wasted filling out forms.

* Productivity: US research attributes two-thirds of the American productivity surge since 1995 to technology investment. But Brash warns it would also require improving physical infrastructure, improving the education system at tertiary level and cutting red tape. * Attitude to Risk: Liggins Institute director Peter Gluckman wants investment in dreams. While the VC industry insists in only investing where cash flow is already established there will never be new startup industries maturing to their maximum value in New Zealand.

Gluckman has big ideas: Why doesn't the Government exert influence and get ACC and the new super fund to put even one per cent of their funds into such investments. "As long as the portfolio is broad enough, international experience shows the funds will be well rewarded in the long term," he says.

* Political Funding: Political party bagmen will soon be rattling the caketin to fund this year's election campaigns. Despite legislation, donor disclosure is a joke - donations hidden behind anodyne trust structures. Like parliamentary salaries and perks, this is one area where MPs have a tacit "no go" zone.

But the Enron debacle has cast the light on the relationships between influential business people and senior politicians. Oil company BP has pulled its political funding - if this trend catches on the pollies will have their hands out next for state funding.

* Kyoto Protocol: Labour's polling has indicated widespread business dissatisfaction with the proposal. Expect Prime Minister Helen Clark to adroitly change tact on this one by ratifying the protocol only when our major trading partners move.