Treaty debate 'hurting economy'

By KEVIN TAYLOR political reporter

Debate on Treaty of Waitangi issues such as the foreshore and seabed may affect economic growth, says a Treasury paper on risks to the economy.

The paper also suggests that cutting the top income tax rate is the best way to encourage investment, and it calls Auckland's transport situation critical and a possible constraint on growth.

The October paper says the Resource Management Act is causing delays to projects but giving priority to major projects - as the Government has been considering - may delay smaller ones.

It said growth could be "adversely affected" by treaty debates on public access to the foreshore and seabed, extending the Queen's Chain, access across private land to those areas, and Maori participation in the management of natural resources.

The emergence of the paper comes at a crucial time for the Government as it grapples with the final details of the foreshore and seabed legislation, a possible inquiry into the treaty and a stunning poll reversal following National leader Don Brash's attack on race-based policies.

National deputy finance spokesman John Key called the paper, which his party obtained under the Official Information Act, an indictment on the Government because it highlighted so many areas of concern. He had never seen a Treasury report talk about the treaty as an economic concern before.

The paper reveals Treasury's concern back in October about perceptions - particularly from overseas - of treaty debates and their impact on economic development.

The report said people could perceive New Zealand's property rights were "less secure" and that may delay or stop potential development of oceans and allocation of water for hydro power and irrigation projects.

"The size of the impact on growth is uncertain but could potentially be quite large."

Mr Key said Treasury was clearly indicating that the treaty and its present application could have significant impacts on growth.

"In particular, they are highlighting that the ambiguity of its application could severely limit foreign investment in New Zealand."

National was handed ammunition on tax rates to use against the Government. The paper said lowering the top marginal income tax rate was the "best way to encourage investment in human and physical capital".

Mr Key said the paper also highlighted the fact that the RMA was a "major red light" to investment.

But it warned that making significant inroads into delays on major projects would require reduced public participation in the RMA process, a strong weighting on national priorities over other factors, or special statutory deadlines which could include appeals.

A spokeswoman for Finance Minister Michael Cullen said last night the Government was trying to protect property rights.

"One of the reasons that the Government did move to address the foreshore and seabed issue through legislation was specifically because there were difficulties with the uncertainty that the Court of Appeal decision created."

On Treasury's support for a lower top tax rate, he said Treasury and the Government did not always agree.

During a question in Parliament on the Herald's Mood of the Boardroom survey published yesterday, Mr Key asked how Dr Cullen characterised Treasury's advice that "echoes the call of businesses for lower tax rates".

Dr Cullen replied that when the Government increased the top tax rate it was told the move would "stop economic growth in its tracks".

"Four years in a row we have equalled or exceeded the OECD average - in the same way that under [US] President Clinton eight years of continuous economic growth followed the increase in the top tax rate."

Treasury's views

Transport: Auckland's problems are "critical" and may constrain growth.

Energy: Electricity and gas sector changes should meet power shortage concerns.

Resource Management Act: Consent process holds up development.

Treaty: Debates over foreshore and seabed, Queen's Chain, public access and Maori participation in resource management may hold back growth.

Tax: Lowering the top marginal income tax rate is the best way to encourage investment.