Parties scramble to pamper business in 2002 campaign

By NZPA

Friday 12th July 2002

As the politicians hit the hustings in the 2002 election campaign, the question might be asked -- which party has the policies most likely to raise New Zealand from the ranks of economic also-rans to the top half of the Organisation for Economic Co-operation and Development's (OECD) income ladder?

Incumbent Labour has had a dream run in the growth stakes, aided by a record low New Zealand dollar and bumper export prices.

It won't be such a cake-walk this time around.

The Kiwi has been one of the world's best-performing currencies so far this year and commodity prices have tumbled, taking the shine off the rural-led recovery.

City slickers have stepped up to the plate, with a buoyant housing market and strong retail sales picked to carry the economy until at least the end of the year.

But gnawing at the edges of the strong domestic economy is a worsening business outlook. And a question mark still hangs over when key export markets like the United States will pick up following a series of weak economic data and crooked accounting scandals.

This week the Institute for Economic Research reported business confidence fell sharply in the last quarter, with a net 2 percent of firms expecting general conditions to deteriorate compared with a net 23 percent who expected an improvement previously.

Latest figures also show retail sales fell by a larger than-expected 1.2 percent in May, and Treasury, in its pre-election fiscal and economic update shaved its growth forecast for the 2003/2004 year to 2.7 percent from 3 percent due to the rising dollar.

That means the political parties are up against it if they want to raise the country from its current position among the low-middle income countries like Greece and Hungary to the top half of the OECD ladder.

New Zealand would need to grow by 6 percent per annum for the next decade, or 4 percent over a 20-year period to achieve that.

It's a pretty tall target. Even in the 1990s, when New Zealand reaped the benefits of Rogernomic reforms, growth only averaged 2.4 percent.

In the words of Bob the Builder (and NZ First Leader Winston Peters) "can we fix it?". The answer is "yes we can" -- but it'll take more than a plastic tool kit.

Simon Carlaw, chief executive of lobby group Business New Zealand says there is no silver bullet.

"It is not possible for New Zealand to simply become another Finland or Ireland or Singapore.

"We have to look at a cocktail of policies and we need to do it now, we've got a lot of catch-up to do."

Taxation, compliance costs, environmental issues and employment law are all key to improving New Zealand's growth rate, he says.

And of the main parties, ACT is most in tune with what businesses are after.

ACT's key election planks include tax cuts, repealing the controversial Employment Relations Act (ERA) and rewriting the Resource Management Act (RMA) to cut compliance costs.

Its original flat tax policies have been softened. ACT will now lower the top tax rate from 39c to 33c in the dollar, the low-income rate from 19.5c to 18.5c and the corporate rate from 33c to 28c.

ACT's free trade ideal -- zero tariffs -- is unlikely to find much favour with business, however. The policy is so far ahead of our major trading partners that it would go down like a cup of cold sick with the business community.

National is also campaigning on a tax card. It will lower the top personal rate to 35c and the corporate rate to 30c from next April, with the rates set to fall by a further cent a year until 2006. It is promising 25c rates for both within 10 years.

National won't repeal the RMA but is promising to cut back on the red tape. It will also re-introduce competition in the accident insurance market and ditch the Kyoto Protocol.

Despite the large budget surplus, tax cuts don't feature in Labour's manifesto.

It is promising more money for growth areas like biotechnology, information technology and creative industries and will spin off a marketing arm from Trade NZ to attract foreign investment in greenfields enterprises.

Voters can also expect further tinkering with the ERA, with Labour Minister Margaret Wilson promising to review the act and "identify what fine tuning is needed".

Labour's policy on compliance costs is strong on rhetoric but light on detail, promising to "modernise the regulation of commerce and reduce compliance costs, especially for small business".

New Zealand First's ambitious promise is to treble exports by 2020. Inflation hawks won't be happy, as the party is prepared to put up with higher inflation to achieve that goal.

NZ First's high growth ideals also don't sit well with its anti-immigration stance. That is likely to scare off foreign investors -- and their input is crucial if the country is to grow at any pace.

The other main parties will struggle to win the hearts of the business community.

The Greens' economic policy appeals to the left-leaning population rather than big business.

Though short on specifics, the Greens will cut personal and corporate tax rates in return for wielding a big stick against businesses that aren't clean and green.

That's likely to mean higher petrol taxes and compliance costs.

The Alliance's policy is a return to the party's classic socialist roots with a zero tax rate for low income earners and high marginal rates for above average income earners.

Jim Anderton's Progressive Party is campaigning on an anti-drugs, pro-family platform with few policies on the economy. But it is promising more hands-on help for small businesses.

The jury is still out on whether any of these policies will actually boost New Zealand's growth rate.

WestpacTrust, in its latest economic outlook, says if politicians are serious about achieving high growth, they need to wean voters off instant gratification, or "what's in it for me?" policies.

"The combination of short election cycles and voters' myopic expectations leads politicians to mostly campaign on policies that redistribute wealth to the biggest pool of voters (instant gratification) rather than create wealth (future gratification)," chief economist Adrian Orr says.

Politicians should be prepared to take a longer term "inter-generation" view on growth, he says.

That means going easy on the wallet while putting policies in place that encourage foreign investment, entrepreneurial activity and saving.

A daunting task, given New Zealanders' poor savings record.

New Zealand's net external debt, according to British rating agency Fitch, is the highest of any OECD country at 166 percent of current account receipts.

A lot of this debt belongs to the private sector but savings levels among individuals are still dangerously low and personal debts high.

At the end of the day, if they are truly committed to achieving high growth, New Zealanders will need to tighten their belts -- rather than relying on the new government to come up with a quick fix.

As Grandma always said: "you can't have your cake and eat it too."

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