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Detail on boosting productivity, employment needed

Wednesday, February 2nd, 2005

Detail on boosting productivity, employment needed

The Prime Minister's address to Parliament yesterday created an information vacuum, the Employers & Manufacturers Association (Northern) says.

Details of measures to boost productivity, savings, investment and getting more people into the workforce, were notable by their absence, the association says.

"The PM gave little information on how New Zealanders standards of living would be substantially boosted, and our long standing investment, savings and productivity deficits addressed, said Alasdair Thompson, EMA's chief executive.

"The Government has let four years go by without capitalising on solid, consumption-led growth to bed in policies that would increase Kiwis' per capita incomes.

"Thankfully at last, we are seeing the acknowledgement of the need for increased productivity, investment and savings.

"To achieve these, the Government first needs to concentrate on policies that give New Zealanders a reason to invest in business, especially in exporting.

"With the right policies in place, people will be keen on investing in business, and on saving to increase their investments.

"The added investment will boost productivity which in turn will increase per capita incomes and further promote savings.

"It's not just a matter of promoting household savings to be invested by Government or others. More needs to be invested in business, and much more needs to be done to make this attractive.

"The Government thus far has created more red tape and spent more on bureaucrats. Government administration is growing nearly twice as fast as the economy overall. In the September year 2004, Government grew 8.7% while the economy overall increased 4.6%.

"There's been no commitment earlier to promoting savings or reducing business costs and taxes to promote more investment.

"However business is certain the fairest route to higher productivity, investment and savings is to reduce business tax rates.

"Lower business tax rates attract productivity boosting investment in both skills training and new plant and equipment.

"The retention of more company earnings in this way is a certain form of saving that's being ignored.

"On the same day of the PM's address, the Wall Street Journal reported Holland is to cut its company tax rate again. Interestingly it also said the effective company tax rate is often more important than the headline rate. For example, though the company tax rate in Portugal is 27.5%, down from 37.5% five years ago, US companies there paid an effective tax rate last year of just 9%. US companies in Ireland paid an effective tax rate of 8% though the company rate is 12.5%, according to US Commerce Department data.

"It's not so difficult for government to cut the company tax rate since it is largely a withholding tax that's credited against local shareholders overall tax liabilities.

"Business welcomes the PM's undertaking to increase the rate of depreciation on some business tools, and to encourage more people back to work. It's a start, though New Zealanders deserve far more detail, and cutting the company tax rate should be a cornerstone of our economic development plan."


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