Grow The Economic Cake, Pre-Funding Super Will Fail

22 March 2000

PR19/2000

GROW THE ECONOMIC CAKE, PRE-FUNDING SUPER WILL FAIL: FFNZ

Federated Farmers today told the Finance and Expenditure Select Committee that additional Government spending will ultimately reduce economic growth and employment, and the pre-funding of superannuation was a mistake. The federation was giving its submission on the Budget Policy Statement.

"This additional spending in the non-tradeable sector will be inflationary and lead to higher interest rates and a higher NZ dollar, making our export industries less competitive. That lack of competitiveness will reduce growth," commented Federated Farmers President Alistair Polson.

Federated Farmers pointed out to the committee that the per capita level of taxation has risen by around 41% in real terms since 1978.

"The size of Government, local and central, is a large burden upon New Zealand's export sector. The level of taxation has increased over time because successive Governments have been unable or unwilling to contain the overall level of government expenditure."

"This trend needs to be reversed. Without a fiscal policy objective that targets the actual expenditure level, there is no incentive for the Government to provide public services more efficiently."

"While Federated Farmers commends the Government for planning to run operating surpluses over the forecast period, it is concerned that this comes about through increased taxation."

The Budget Policy Statement shows that total revenue is expected to increase by an annual average of 4.8% over the next four years. Much of this increase is due to the tax changes, expected to increase tax revenue by a further $3 billion over the next three years.

Federated Farmers agreed with the Government that providing for future superannuation spending is an important issue that needs be addressed urgently.

"Federated Farmers firmly believes that continuing to repay debt would reduce debt servicing costs over time and improve the Government's fiscal position for future generations."

The proposal to pre-fund superannuation would require a commitment by successive governments to run large operating surpluses for this purpose.

The proposal lacks the essential element of political consensus, and is therefore unlikely to stand the test of time.

"As the scheme is funded by taxes, it will limit farmers and small business owners' ability to invest in their own businesses - their own super scheme - because taxation would be higher than necessary."

Federated Farmers also suggested that the Government needs to focus more upon policies that contribute to New Zealand's overall competitiveness.

In this respect, the federation commended the Government for deciding to review a number of essential areas of the economy, particularly the telecommunications industry, and the previous Government's electricity reforms.

ENDS

For further information: Alistair Polson 025-370-085 or 04-473-7269 Catherine Petrey 04-473-7269

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