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2006 Budget Most Important In Years

15 February 2006

2006 Budget Most Important In Years

The 2006 Budget will be most important for farmers since the late 1990s, said Don Nicolson, vice president of Federated Farmers of New Zealand.

“After several good years, the rural economy has slowed dramatically and the next two seasons are likely to be the weakest since 1998/99, Mr Nicolson told Parliament’s finance and expenditure select committee today when presenting the Federation’s submission on the budget policy statement.

“A high exchange rate and lower commodity prices are squeezing farm incomes, and farm expenses are increasing. The net result is a steady erosion of farm margins and slump in farmer confidence. Over the next 12 months farmers will be cutting back discretionary spending, which will hurt the rural and urban economies.

“While there is little anyone can do to reduce the exchange rate or increase world commodity prices, there is plenty the government can do in the 2006 Budget in May.

“The government must ensure its policies are improving rather than impeding productivity and competitiveness, and therefore giving farmers greater confidence to go about their business and invest in the future,” Mr Nicolson said.

Federated Farmers is concerned at the large increases in government revenue and spending in recent years, and which are forecast to continue to grow.

“By 2010 each New Zealander will on average pay $13,500 in tax, up from $8,000 each in 2000,” he said. “We are particularly concerned that large increases in spending will reduce the ability of governments to reduce tax rates and otherwise change the tax system to encourage productivity and competitiveness.

“The recently launched review of business tax is intended to result in a tax system that encourages productivity and competitiveness. We therefore support the review but it is important to note that relatively few farms are structured as companies and most are subject to the personal tax regime. We would be extremely disappointed if the review was focused solely on issues around company tax.

“Personal tax rates are very relevant for the review and we consider that the government should provide for reductions of both company and personal tax rates to boost competitiveness and productivity,” he said.

Federated Farmers also considers tax cuts are affordable – providing that spending growth is brought under control.

“We consider that the government should reinstate a target for core Crown expenses and that the goal should be to get it down by 2010 to 30% of GDP including contributions to the New Zealand Superannuation Fund.

“Currently the proportion is around 32%. It shouldn’t be necessary to cut spending to achieve the target. If spending growth were held to population growth plus inflation then the 30% target by 2010 should be able to be met.

“We also consider the quality of government spending to be important. The OECD has observed that there are important challenges to ensure long-term sustainability, matching spending to priorities and improving public sector productivity.

“Research has also indicated that New Zealand could do better at targeting government spending towards more productive expenditure rather than redistribution,” he said.

With regard to Budget 2006, the Federation’s submission questions the wisdom of some new spending that arose from last year’s election promises and deal making.

Finally, it is critical for the government to ensure that all its policies are consistent with the goal of improving productivity and competitiveness. At a time when farmer and wider business confidence has been taking hits, it is very important for the Government to send a clear message it is prepared to do its bit,” Mr Nicolson said.


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