Media release

Thursday, May 20

Focusing on growth only way to deal with “dead rats”

Today’s Budget is the most radical in years and represents a big bet on delivery of the required impetus for the Government’s growth strategy, says Deloitte chief executive Murray Jack.

Finance Minister Bill English’s second Budget today included changes to personal and corporate taxation rates, an increase in GST, and changes to taxes on residential investment property and buildings, along with a return to fiscal surpluses earlier than previously forecast.

Mr Jack says this year’s Budget offered the opportunity to chart a strategic direction for the economy, given that last year was more about weathering the storm of global financial crisis.

“The strategy clearly focuses on raising New Zealand’s productivity and growth rate,” Mr Jack says.

“This is the only way the Government can deal with the ‘dead rats’ it has inherited, such as interest-free student loans, working for families, and the entitlement age for superannuation.

“But let’s be clear: if the economy does not reach sustainable growth levels there will be no choice but to peel back entitlements without resorting to unsustainable levels of borrowing – and the debacle in Greece has shown us where that road leads.”

The key planks that the Government is relying on to generate greater growth are:

·         tax changes,

·         constraining its expenditure,

·         and limited improvements to spending on research and development.

But whether the last of these measures has gone far enough is debatable.

“There is still no full-scale commitment to building world-class R&D environments in our areas of competitive advantage – agriculture and food production. This will take much more money than is currently on the table.

The focus on larger entities receiving R&D assistance seems counterintuitive to the obvious needs that small businesses and start-ups have.

“We are, after all, a nation of small businesses and this is a sector still under extreme pressure.

 The Government’s commitment to constraining expenditure is welcome, particularly as there is little evidence of fast-growing economies with Government spending over 40% of GDP.

“The Government recognises this by limiting increases to below the rate of inflation for a sustained period, and diverting spending from low value areas to higher priorities.

“But it could have been more aggressive. Staff numbers in the core public sector are coming down, but not by the rate of adjustment experienced in the private sector during the recession.”
 
ends

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