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Budget Growth Forecasts Ring Alarm Bells

Budget Growth Forecasts Ring Alarm Bells

"The budget figures for medium-term economic growth in New Zealand should ring alarm bells", the executive director of the New Zealand Business Roundtable, Roger Kerr, said today.

"Earlier policy reforms and recent favourable conditions have helped New Zealand weather the international downturn and maintain a robust fiscal position.

"However, over the next decade the economy is expected to grow by only around 28% in total, an annual average growth rate of barely 2.5% a year. In no year does the forecast growth rate exceed 3.5%.

"This contrasts with the performance of the economy in the decade to 2002 when it grew by 42%, or an average rate of 3.6% a year. Clearly the trend growth rate is falling rather than rising, in line with business sector warnings that too many government initiatives have been anti-growth.

"This outlook means that New Zealand is nowhere near achieving growth rates consistent with the government's top priority goal of restoring average incomes to the top half of the OECD rankings. With this week's budget in Australia confirming the Australian economy is likely to continue to achieve annual growth rates in the 3-4% range, the gap in trans-Tasman living standards looks set to widen.

"Worse, the budget does not foreshadow measures capable of arresting this slide, such as a lower government spending ratio, much greater private sector involvement in bottleneck areas like electricity and transport, and a serious attack on welfare dependency.

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"A raft of small-scale grants, taskforces and summits does not add up to a credible growth strategy.

"The Australian government has used its operating surplus to cut taxes. If it is serious about its growth objective, the government should be cutting taxes in ways that would do most to increase growth, as recommended by the McLeod Review. Measures to improve the tax treatment of company superannuation schemes and small and medium-size businesses are welcome but minor in their impact.

"There is no sign that the government recognises that increasing regulation of business and roadblocks like the Resource Management Act are creating an uncertain and hostile environment for private investment.

"Regrettably, the gap between the government's goals and its actions is not closing", Mr Kerr said. "It is now clear that the failure to build on earlier policy improvements, coupled with the backward steps the government has taken, mean that New Zealand is losing ground. More credible growth policies need to be implemented with urgency."

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