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What Is The Strategy To Fix The Weak Economy?

20 December 2005

What Is The Strategy To Fix The Weak Economy Predicted To Get Worse Over The Next Two Years?

If the worst effects of the gradually weakening economy are, as Finance Minister Michael Cullen seems to be suggesting, more than a year away, he should tell the market now what action steps he has in mind to modify the pressure on inflation, interest rates and other costs of doing business.

Responding to the just-released revised growth forecasts of higher mortgage rates and petrol prices, fewer new jobs and slower wage growth, Michael Barnett, chief executive of the Auckland Chamber of Commerce, suggested three positive steps the Government could take immediately to modify the downturn’s impact:

Put a freeze on new Government charges and levies, and block increases in existing ones;

Impose legislation to prevent local bodies raising rates beyond the Reserve Bank’s 3% inflation guideline; and, Take steps to eliminate Government profiteering from the increased tax revenue generated from rising petrol prices.

On the other hand, if Dr Cullen is expecting that Government revenue will reduce next year because the impacts on businesses are already starting to bite and therefore tax revenue is predicted to be lower than in recent years, Dr Cullen should tell us the messages he will be passing on to Government agencies of what action they should take to:

Reduce the costs to business of the 40 percent share the Government sector has in the economy; and, Increase the volume and value of exports, and also increase New Zealand’s foreign exchange earnings over the next two years.

“We shouldn’t have to wait until next year’s Budget for these action steps,” said Mr Barnett.


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