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Basic changes needed for productive growth

Basic changes needed for productive growth – 21 August

The New Zealand Manufacturers and Exporters Association (NZMEA) welcome the target of doubling private research and development levels but warn that tinkering around the edges will not help it happen. The Government announced the target this morning as part of its Business Growth Agenda.

NZMEA Chief Executive John Walley says, “While our fiscal and monetary policy settings incentivise unproductive investment in assets over investment in productive activity such as research and development, not much is going to change. These policy settings have been locked into our economy for more than twenty years. This desperately needs to change.”

“The research and development tax credit was introduced in 2007 and scrapped in 2008 which dealt a blow to added value exporters and we need to see that, or something similar, restored It is good to see some investment in the Advanced Technology Institutes, but it is worth noting that better balance and incentives to invest are most efficiently delivered through the tax system.”

“There is also a wider issue around the allocation of capital in New Zealand. Debt on property is continuing to outstrip investment in the productive sector.”

The Economist has released its house-price indicators showing that New Zealand has bucked the global trend of declining house prices by retooling our housing bubble. A lack of capital gains or land tax is at the heart of this problem. House prices 66 percent overvalued compared to rents demonstrate that it is only tax free capital gains that keep property investors in the market.”

“A culture change is needed – no country has ever got richer by renting each other houses or borrowing offshore to inflate property bubbles. The Government needs to support its target with changes to fiscal and monetary policy so that we see a genuine shift away from land and buildings towards an economy based on high value exports.”

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