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NZCPR
Guest Forum
Opinion piece by Charles Finny
30 August 2008
Policies
to Improve Productivity & Grow the Economy
The
major impediment to growth in
New Zealand
is our poor productivity performance.
With the general election approaching, the New Zealand
Chambers of Commerce (
NZCCI
) has just released its three-yearly Election Manifesto and we
have decided to focus on the policies needed to correct this
poor productivity performance. This
document provides a pragmatic stance on business and economic
policy issues for political parties to consider - both before
and after the election – if we are to improve our
productivity growth rate.
In
general, the business community is not looking for special
favours from government or for interventions from Government
in the economy. What’s
it wants are sound, stable policies which provide a platform
for economic growth, and an environment where barriers to
business success are removed.
That
said there are things Government can do to create a better
business environment for productivity growth.
The
Chambers suggests a policy progamme built around investment
in infrastructure; lower marginal tax rates; reductions in
government imposed costs on business; strong external linkages
and a flexible labour market.
Specific
policy proposals include:
-
leave
the existing monetary policy framework alone
-
a
review of all government spending with a view to
eliminating waste
-
a
reduction in the top personal tax rate be a priority as
part of the next round of tax cuts and the implementation
of a flatter tax structure
-
increased
infrastructure investment including the use of more
private sector investment including public private
partnerships (PPPs)
-
establishment
of a Productivity Commission
-
remove
restrictions on thermal electricity generation
-
a
review of the Resource Management Act
High
on the wish list for many businesses are tax cuts.
The tax cuts announced in the recent budget were most
welcome, but more are needed if we are to retain our
international competitiveness against countries like
Australia
.
Rather
than a pre-election bidding war on how big each party’s tax
cuts would be, we would like to see parties present carefully
considered tax packages that aim to boost the economy by
improving the incentives to work, save and invest.
Reductions in tax rates, rather than a lift in tax
thresholds, are most important here because such incentives
are increased with lower marginal tax rates.
We
would like to see the top personal tax rate reduced so it is
closer to the company rate. Around 40% of businesses are
unincorporated - for example as sole traders or partnerships -
meaning the company tax rate is not relevant to a large
proportion of
New Zealand
enterprises.
Also
on the subject of tax, the cost of complying with the tax
system needs to be reduced. As well as IRD compliance costs,
examples abound of other government-generated red tape that
needs to be cut if small business is to flourish - Health and
Safety, ACC and food labelling being just some.
A
major area where government attention will be needed
post-election is infrastructure development.
Well-developed infrastructure is a prerequisite for a
robust economy but insufficient investment over the last three
decades has left weaknesses in several areas.
This is impacting on growth and productivity in our
economy and is being felt particularly hard by the business
sector.
The
current government has attempted to fill the gap in the area
of land transport, which has been welcome, but ongoing
investment is still required and this needs to be expanded.
Looking
to the next three years it is investment in broadband
infrastructure that needs to be a priority.
If
New Zealand
is to fully participate in the knowledge economy, we need to
ensure that more homes and businesses have fast,
cost-effective internet access.
This would be particularly invaluable to small
business, many of which are home-based or located far from the
city centre.
In
the area of trade policy, the current government has made some
major achievements in advancing our bilateral trade
agreements, most noticeably with
China
but also the recently announced ASEAN-Australia agreement.
We
believe a high quality multilateral trade agreement is
preferable to a series of FTAs and so the government is right
to keep pushing for a successful conclusion to the WTO Doha
Round. In the
meantime, it is in
New Zealand
’s best interests to pursue bilateral FTAs with our key
trade partners and we believe negotiations
with
India
,
Japan
,
Korea
,
Taiwan
, US, and
Europe
should be the policy priorities over the next three years.
There is a case for further resources being directed
towards enabling
New Zealand
to increase international trade.
The focus should be on expanding
export capability and ensuring firms take full advantage of
the market opportunities that exist.
Australia
has a much better productivity record than
New Zealand
. One of the
reasons for this better performance has been the existence in
Australia
of an independent Productivity Commission.
The Chambers have been enormously impressed by the work
of the Commission and are calling for a similar institution to
be established in
New Zealand
as a priority.
In
conclusion, businesses are looking for sound policies that
will grow the economy. Here’s
hoping that as the election approaches, more light will be
shed on what policy prescriptions parties are offering to
achieve this goal.
To view the Chambers of
Commerce 2008 Election Manifesto click here>>>
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