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Government Must Reassess Growth Strategy

Government Must Reassess Growth Strategy

“One stark fact stands out from the Budget: New Zealand is not in sight of climbing back up the international income rankings”, Roger Kerr, executive director of the New Zealand Business Roundtable said today. “This should be the central focus of Budget analysis.”

He was referring to projections indicating that economic growth in the period to 2010 is likely to average only 2.9 percent per annum, well below the government’s 4 percent plus target.

On a per capita basis the growth outlook is also below the average rate achieved since the early 1990s.

While the Budget states “New Zealand must lift its productivity levels”, labour productivity projections in the Budget show no such trend (indeed forecast labour productivity growth to 2010 has fallen to 1.4 percent on average).

Mr Kerr said that the government had commendably made raising New Zealand’s relative living standards its top priority goal. But by 2010, 10 years after it had the chance to build on the earlier economic reforms, no improvement seemed likely.

This outlook confirmed what the Business Roundtable had been saying: government policies are focused on redistribution of income, not wealth creation, and excessive spending, taxation and regulation are holding New Zealand back.

“Rapid growth required high levels of economic freedom and small government to encourage investment and entrepreneurship”, Mr Kerr said. “Yet core Crown expenses have increased by a massive three percentage points of GDP (from 29.2 to 32.3 percent) in the two years to June 2006. The so-called “razor gang” review of base spending appears to have produced little or nothing - it is not even mentioned in the Budget.”

Mr Kerr said that with public debt down to prudent levels, there was ample scope to reduce taxes by constraining increases in government spending and funding more capital projects through private investment, debt and asset sales, rather than out of current revenue. The minister of finance’s emphasis on the cash position was a throwback to old-fashioned budgeting and made no economic sense.

“The decisions to maintain planned roading investment and issue infrastructure bonds are welcome, as is the proposed regulatory review”, Mr Kerr said. “To be meaningful, however, it will need to roll back the recent explosion of business regulation and focus on ‘big ticket’ areas such as labour law, the RMA and network industries.

“Overall, the Budget lacks vision and a strategy to reverse New Zealand’s declining international competitiveness and trend growth rates”, Mr Kerr said.

“The government has said it wants a better rapport with business. Meaningful engagement and wider public debate are urgently needed to develop a more effective growth strategy that will allow New Zealand to match the performance of Australia and other more successful countries.”

18 May 2006


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