What should be in the Budget from a business point of view?

The New Zealand Herald. 12 May 2003

Most businesses want the same sort of things that all New Zealanders want – a growing economy, offering plenty of well-paid jobs, in an environment which enables everybody to enjoy the fruits of their labours in safety.  

The bad news is that, after growth of more than 4% last year, the outlook is for sharply slower growth this year and next – the result of the weak world economy, the drought, SARS, the rapid increase in the exchange rate, and the power crisis.

Worse still, the Treasury sees nothing on the horizon which will lead to markedly faster growth in the next decade!  While the numbers will no doubt be updated in the Budget on Thursday, the projection last December had the highest growth over the next decade being that in the year to March 2003 – which is now behind us!  By the end of the decade, the Treasury projected growth of little more than 2%.  At that rate, the gap between living standards in New Zealand and living standards in Australia which emerged over the seventies and eighties won’t reduce – indeed, it will continue to grow.

Some of the solutions to this problem lie well outside the scope of the Budget, though not outside the control of the Government.  Late last year, Business New Zealand announced that a business employing just 20 people would be faced with increased costs of about $44,000 a year as a result of recent Government policy changes in a whole raft of areas – changes to the Holidays Act, the Local Government Act, the OSH legislation, and so on.

The Government’s total failure to remedy the serious deficiencies in the Resource Management Act is another major problem for the business sector – and indeed for all of us, because of the effect which that legislation has on impeding the construction of new roads, new power plants, new factories, new residential sections, and so on.

Compliance costs, and the overall cost of new regulations and laws, are a major headache for the business sector, and need to be dealt with.

At the same time, most of these issues are not the direct responsibility of the Minister of Finance.

But the Minister does have a direct responsibility for the tax system.  And here the business sector should be getting a reduction in the company tax rate.  At 33%, the company tax rate in New Zealand is now one of the highest in the Asia-Pacific region.

Similarly, a personal tax system which results in people earning more than $60,000 per annum paying almost half their income above $60,000 in tax (income tax and GST) is certainly not going to encourage our brightest and most enterprising people to hang around in New Zealand.  If we want these people to stay in New Zealand to encourage the growth which will benefit all of us we should be looking at reversing the sharp increase in the top personal income tax rate which this Government introduced in 2000.

The business sector also needs good infrastructure – particularly good roads and a reliable power supply.  The roading system in Auckland is a scandal and the traffic congestion which results is costing the economy $1 billion a year, on the Prime Minister’s own estimate.  The roads in some other parts of the country are also seriously deficient – especially around Tauranga/Mt Maunganui.  There is no excuse for the Government to be salting away billions of dollars for investment in overseas share and bond markets while inadequate roads drive major companies to expand facilities in Australia rather than in Auckland.  This too is the responsibility of the Minister of Finance, and so far at least there is no sign that he is taking this responsibility seriously.

I am not suggesting that the Government should invest Budget surpluses in building roads of marginal value.  Rather, I am suggesting that the overall rate of return on fixing our roading problems is almost certainly well above the rate of return to be earned on foreign shares and bonds.

There is no need to elaborate on the problem of a reliable power supply.  That problem is obvious for all to see.  Again, it seems daft for the government to own 100% of the electricity grid and more than 70% of the generating capacity of the country and still to be facing serious power shortages, not just this year because of drought but potentially for years to come.  And re-creating the old ECNZ or suppressing market signals is assuredly not the right way to fix the problem.

Finally, the business sector needs a well-educated workforce.   The Minister of Finance claims to agree, and has announced small amounts of government support for industry training and a few additional teachers for our schools.  But this kind of tinkering falls well short of fixing the basic problems afflicting our school system which, despite very large increases in government funding over the years, continues to churn out thousands of young adults unable to read properly, unable to write properly, and unable to perform even basic arithmetical functions.  What is needed is not just a few more millions here and a few more millions there, but some fundamental changes to the school system – changes aimed at improving the qualifications of teachers, at driving measurable standards, and at providing more parental choice.

It is clearly a scandal of the first order that the reading skills of New Zealand nine-year-olds were, in 2001, judged to be the second poorest among English-speaking countries.  And while that may seem of little concern to the business sector, it suggests that the quality of those people entering the workforce in a few years time won’t be up to scratch.

Yes, the business sector needs some big policy changes in this week’s Budget.  Sadly, it is not likely to get them.

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