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Budget needs focus on generating revenue

Budget needs focus on generating revenue

16 May

Budget initiatives announced so far have focused on cutting costs; cost cutting is important but to really fix things we simply have to earn more say the New Zealand Manufacturers and Exporters Association (NZMEA). This Government has been at pains to point out that the economy needs to shift its balance towards savings and investment to support the tradable sector. Now is the time to put some policy in behind the rhetoric.

NZMEA Chief Executive John Walley says, “Given that we are forecast to have a $17 billion dollar deficit this year a bit more than tinkering is needed. The way to turn this around is to earn more through exports.”

There are several factors holding back larger investment in the tradable sector:
• The high and volatile New Zealand dollar;
• A tax system that promotes speculative investment in land and buildings over investment in the tradable sector; and
• The lack of any productive investment incentives.

“A one percent annual rise in the exchange rate costs the export sector around $200 million net; a change of 5 percent is considerably larger than any likely savings from Kiwisaver or Working for Families schemes,” says Mr Walley. “We must better balance fiscal and monetary policy to enhance investment and export earnings. Inflation controls in the domestic economy should lean heavily on prudential controls such as loan to value ratios, and not interest rates, to keep the pressure off the exchange rate.”

“A capital gains and/or land tax is needed to level the tax rate across all forms of income. Tax harbours incentivise investment in land and buildings over investment in productive activity which generate jobs, wealth and tax revenue. This must change.”

“Exporters operate in a competitive market environment. Countries with a strong export focus offer many incentives including investment in research and development and early stage investment in the tradable economy. New Zealand must match these incentives and a Research and Development Tax Credit would be a start.”

ENDS

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