Business as usual not good for everyone
Business as usual not good for everyone - 21 May
As long signalled, Bill English presented a business as usual budget with no real surprises. There are a few positive notes, but it does not tackle the major issues facing the tradable sector in New Zealand, say the New Zealand Manufacturers and Exporters Association (NZMEA).
NZMEA Chief Executive John Walley says, “This year’s budget comes with much of the sentiment we want to hear: rebalancing the economy, export growth, getting back to a structural trade surplus, boosting housing supply, but it contains no real follow through, no plan of action to tackle those elements of our economy where business as usual is a problem. Business as usual has growth forecasts falling below our trading partners, and a growing current account deficit. All the talk of rebalancing does not run through to the numbers.”
“The key absence from the Budget is a way to directly tackle our overvalued currency, which continues to be the major obstacle to exporter growth.”
“The Government has forecast that both goods and services export volumes will grow more strongly, largely driven by assumed depreciation in the NZ$ in the later part of the forecast period. However no policy has been set out to address this issue. “
“The positives we take from the budget were the reduction of ACC levies, some increases in R&D grants, the ability to claw back R&D funding if a firm moves its R&D offshore, some tax breaks for high R&D start up firms and the Reserve Bank of New Zealand (RBNZ) explicitly given the power to expand the use macro-prudential tools.”
“Although we are happy to see more focus on R&D in New Zealand, we believe R&D tax credits are a broader, more effective tool for incentivising R&D, which will lead to improved productivity and innovation. We have been promoting the ability to claw back R&D grants for some time so we are happy to see this, it provides an incentive for successful business to stay in New Zealand – we look forward to seeing the specific details on this.”
“The introduction of explicit and agreed macro-prudential tools is a step forward – but to be effective these need to be actively used by the RBNZ to push back hard on asset bubbles and take the pressure off the exchange rate.”
“The all-consuming focus on the Government surplus misses a much more important issue; our national debt. As a result our current account deficit is forecast to increase; already our net external position is one of the worst in the developed world (Net International Investment Position: 71.7% of GDP in 2012 forecast to reach 80.9% of GDP in 2017)."
“We have policies that encourage households to take on more debt and investment incentives remain biased towards asset speculation on land and buildings rather than productive investment. These imbalances need a policy solution.”
“We see the current account deficit continue to rise; forecast to reach 6.5% in 2017. The Treasury outlined the three main reasons for the worsening current account deficit in their economic outlook report: imports of activities such as banking and insurance increasing, exports being weak and imports rising, and private sector continues to borrow heavily overseas. All up not a great picture.”
“An increase in the current account speaks to a decline in our national economic performance. We are an export dependent nation and our future depends on export success; our policy choices need to start to reflect this.”
“We have to earn more. We need to focus more on the real and concrete, as opposed to rhetorical. We need ways to encourage export growth, much more than business as usual.”