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Article: Prebble - Where Hopes Come From

Where hope comes from

Richard Prebble

I'm often asked, "How can you be confident, positive and hopeful about the New Zealand economy?"

It's true we are a small economy. We suffer the tyranny of distance, being further from our markets than our competitors. We have no mineral wealth. Most of our export wealth still comes from agriculture, the real price of which has been falling all century.

But we do have a lot going for us, as recent events show.

It's clear the New Zealand economy structurally is stronger than it has been for over 20 years. In the last 20 months the economy has been hit by a series of shocks, any one of which a decade ago would have put it into recession.

There was the Asian meltdown. Government closed down the car manufacturing industry. And we had two years of drought, estimated to have taken $4 billion out of a $100 billion a year economy, with another $2 billion worth of losses yet to work their way through.

The old rigid economy would have been stopped by any one of those events. The New Zealand economy just gave itself a shake and carried on. A massive 30% devaluation has been absorbed without blinking.

With the advantage of hindsight, one can now say that without the drought, last year's recession not have happened.

Our floating exchange rate helped enormously. South East Asian fixed exchange rates have all either failed or pulled their economies into recession. Only Australia and New Zealand, with floating exchange rates, rode out the storm. As the Treasury credit me as the New Zealand Minister who advocated the floating exchange rate, I guess I could be expected to say that, but the facts speak for themselves.

We have pulled through some tough times, but we need to lift our game.

For a start, Government should, by way of public floats, sell about $2 billion worth of government business a year, starting with TVNZ. Our sharemarket would benefit from the additions, as it would from further freeing up of our economy. Currently, despite good dividend returns from many shares, the overall New Zealand sharemarket trades at a large discount to many sharemarkets.

We should remember that companies seeking to invest are operating globally. They can choose anywhere in the world to invest, and they make their decisions according to the returns they can make. Countries which maintain industry protection, high tax rates and tariff walls, simply will not get invested in.

I said at the outset that we have lot going for us. One advantage, in this global economy, is that we speak English.

Education also has the potential to offer us a great competitive advantage. If we could reverse the downward trend of our education standards relative to other countries, it would create many opportunities for us.

One potential advantage, currently a handicap, is governance - how we govern ourselves. There is no reason why, with fewer than four million people, no written constitution, only one chamber and a history of the rule of law, New Zealand could not be the best governed country in the world.

If we wanted, we could create an environment that made it easy for business, and therefore the economy, to flourish.

No-one overseas said that we must have an ACC Act, an OSH Act, a Resource Management Act. These are all laws that we have inflicted on ourselves.
The present political environment is hostile to business - probably not as a deliberate choice, but because very few MPs have ever run a business or been responsible for employing a fellow citizen with their own money.

There is a myth that New Zealand, has become some sort of capitalist wild west. Nothing could be further from the truth. In the last decade, the civil service and local bodies have covered this country with red tape and regulations.

Politicians have discovered they don't have to own property to control it. Now we have socialism by regulation. A farmer can wake up to find that their commercial farm is now a National Park - they still own it, have to pay rates and maintain it, but they just can't work the land commercially. It is a huge threat to the viability of the nation.

Local bodies are posing a further threat - many councils are, only a year after a local body election, pushing for 20% rates increases.

It did not occur to central and local government to think about the costs that they are creating. As the opposition vigorously calls for more legislation, more regulation and more controls, I fear for the investment environment. For my latest book 'I've been writing', I investigated the number of new regulations passed which impact on businesses. I was staggered to find that in the 1990s alone there have been more than 5,200 news laws and regulations passed which affect business. Most do not meet any sort of cost benefit threshold.

Investment is a global market. No investor is required to invest in New Zealand. No regulations can be written that can force it. We will prosper as a country only when investors regard New Zealand as a safe place to invest and one that gives a better return.

We need to recognise that the country's governance needs not be our number one handicap - it could be our competitive advantage.

We should set Australia as a benchmark and aim for a competitive margin over that country. Instead of increasing tax, we should aim to have a lower tax rate than Australia's.

The Australian Treasurer has set a goal of 30% for the corporate tax rate. Here, Labour is talking about 39% and the Alliance, 49%. My view is if Australia is thinking of going to a 30 cent corporate tax rate, we should aim for 27 cents.

Let's remember that New Zealand is a nation of small business - 50% of all new jobs created in the last five years are in small business. 70% of us work for small businesses. Most farms are small businesses - Government should talk more with farmers. Farmers and business people need to be heard for the nation to get better governance. Small business not only failed to get a mention in this year's Budget, it didn't even get a thought.

Good governance means creating an environment where the nation's small businesses can thrive. Small business is actually our hope for the future. It's what gives me confidence and optimism that New Zealand can succeed.

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