Call off the party. Debt growing faster than GDP
Call off the party. Debt growing faster than GDP. New investment urgent
The cheerful news reports welcoming last year’s GDP growth figures warrant limited optimism, not euphoria, says the Employers and Manufacturers Association (Northern).
“Last year’s GDP growth and record profits for some businesses cannot be sustained as the economy is running at near full capacity and there is insufficient new investment coming through,” said EMA’s chief executive, Alasdair Thompson.
“While the economy grew 5.8 per cent last year, it was mainly consumption-led, with pump priming leading up to the election, and driven by higher commodity prices overseas. It was not due to any additional skills, technology or other value adding in New Zealand.
“Any further interest rate rises will stall desperately needed investment, while a higher exchange rate will both discourage exporters and also postpone investment plans.
“A higher exchange rate as forecast by some bank economists, is partly in response to the higher interest rate differential available here compared to the US, and partly a response to the prices paid overseas for our commodity exports.
“But our debt levels, addiction to imports, capacity constraints and the lack of investment indicate our exchange rate is still overvalued. However the present downturn in the building industry should free up construction and outfitting related outputs for diversion to export destinations.
“Boosts to the economy last year from one off factors included a Government spend up 19.4 per cent higher than in 1998, and Y2K maintenance and Y2K readiness stock piling by consumers.
“Last year’s record profits are being paid out as dividends in advance of the tax increases, and not being re-invested in new plant and equipment, which is unfortunate for the new Government’s programme.
“A further constraint on new investment is the uncertainty over higher costs caused by the renationalisation of ACC, and changes to the employment relations law.
“New Zealanders net debt on average is well in excess of $20,000 each.
“Last year’s current account deficit accelerated at nearly double the growth rate of GDP to reach $8.2 billion, or 63 cent more than the previous year. The precise figures will not be available until the Balance of Payments result is known. However they include the profits of foreign owned companies in New Zealand which are recorded as debt that New Zealanders owe overseas though they may either be expatriated or re-invested.
“Plainly a great surge of investment is urgently needed. This would restore our ability to repay debt and restore some semblance of balance to the current account situation, though it would worsen our current account deficit in the short term. Finance Minister Michael Cullen has acknowledged the lack of investment.
“The latest Statistics New Zealand investment figure in manufacturing, for example, is 18.7 per cent less in the December quarter 1999 than in 1998, the sixth quarter on end with it less than the previous corresponding period.
“To spur on investment it would be extremely helpful now to learn more details of Government’s plans for accelerated depreciation, the tax write off for R&D, and confirmation of the tariff freeze.
“We invite Government to inform business whether research and development costs, and similar business expenses, will be able to be written off in future, rather than capitalised.
“Furthermore, we invite Government to involve business in its thinking and planning, not continue down the track of the previous Government which lost its way about the same time it lost its ability to listen to the business community.
“To date, the thrust of the Labour/Alliance Government has been decidedly anti-wealth and anti-job creation.”