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18 January 2009 Getting our house in order

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It is difficult to comprehend just how dark the economic clouds that are bearing down on New Zealand really are. The problem is, that with New Zealand going into recession early last year - well ahead of the global financial crisis - our economy was already on a downward track with little resilience to cope with such a massive international downturn.

Treasury is predicting zero growth, rapidly rising government debt, escalating unemployment, unprecedented falls in commodity prices, and now there is a threatened downgrade of our foreign currency rating by Standard and Poor’s, which will increase the cost of borrowing.

The Institute for Economic Research’s survey of business opinion for the December quarter, showed businesses at their gloomiest since records began in 1970, with three out of four respondents expecting worse times ahead and one in three expecting to have to cut staff within the next three months.

In his analysis of the situation, Hon Sir Roger Douglas MP (see this week’s Mid Week Politics on the homepage at www.nzcpr.com) pulls no punches: “The most challenging problem that faces the government is how it should respond to the worldwide financial meltdown which has already turned into a worldwide recession. I suspect this crisis is likely to be different from any New Zealand has had to face since World War II – much worse, longer and deeper than even the 1974-75 recession was. The facts are clear, the country requires a change of direction. My view is that on the balance of probabilities, the severity of the current global slowdown will be deeper and longer than anything Treasury has predicted to date…”[1] 

In light of the worsening state of world economies, USA President-elect Barak Obama is reported to be planning to delay many of the pledges he made during the election campaign so that he is not distracted and can focus on reversing the economic slide. Action on climate change is said to be one of the projects that he is expected to sideline.[2]

John Key would do well to follow Barak Obama’s lead and put on hold any further action on climate change legislation. This would not be too difficult given that the Emissions Trading Scheme has already been suspended, pending a select committee review.

The reality is that any climate change mitigation scheme will cost the country dearly both in terms of imposing a cost on carbon throughout the economy, as well as in job losses which have been projected to number in the tens of thousands. Given the dire state of the economy, these are costs the country simply cannot afford to bear. 

Nor is New Zealand is alone in this - every country that is a signatory to the Kyoto Protocol will be facing similar pressures, and with the leadership of the powerful European Union having just passed over to the Czech Republic, a new approach is likely. The President of the Czech Republic, Vaclav Klaus, who has long questioned the existence of man-made global warming, may well support moves to defer – or even excuse – Kyoto liabilities. In light of these uncertainties it would be prudent for the new government to shelve all climate change initiatives for the time being.

It is also vitally important that John Key wastes no time in getting our own house in order, by keeping his new government focused on growing the economy and creating jobs - rather than allowing distractions over contentious issues to interfere.

One such issue is, of course, the annual demand by the Maori sovereignty movement - whom Helen Clark labeled as “haters and wreckers” - to fly their divisive flag on the Auckland Harbour Bridge on Waitangi Day. Given the gravity of our financial situation, it is certainly a distraction that the country could well do without, but by involving himself and calling for nation-wide consultation amongst Maori over the type of flag that should be flown the Prime Minister has escalated the issue to one of national importance. Furthermore, to suggest that non-Maori should not have a say on this matter is plainly wrong. Most New Zealanders care deeply about the future of our country, especially whether that future will be as one people working for a better New Zealand, or two peoples divided by race and pursuing their own selfish goals. This is an issue that affects us all and any administration that ignores that does so at its own peril. [If this is an issue you feel strongly, please have your say in this week’s poll and encourage others to do so... go to the poll >>>]

As the government works on its strategy for dealing with the recession, it is imperative that all areas of government spending go under the microscope. Over the last nine years, the state sector has become bloated with wasteful programmes that need to be subjected to a proper audit, asking whether there are cheaper options, whether responsibility for the task could be better carried out by the private sector, or in fact, whether the task needs to be carried out at all!

The reality is that the government has become involved in a plethora of regulatory matters – often under the guise of health and safety or environmental concerns – that, to put it bluntly, are extraordinarily bureaucratic, largely pointless, and extremely costly. Two such examples will suffice but there are many. If you have your own examples please share them using the link on the sidebar.

The first example provides a snapshot of the mindless but costly environmental doctrine that the previous government imposed on small business. In 2006, without any consultation with industry operators, Qualmark, the government agency that works in partnership with the private sector to assess and rank services provided by tourism operators, expanded their assessment criteria to include new environmental criteria. This means that in order to receive their quality star gradings, accommodation providers are assessed on environmental considerations - such as whether they run a worm farm or compost organic waste – alongside cleanliness, comfort, safety, security, and other guest services! Some $300,000 of taxpayers’ money was used to fund the first two years of this initiative with a further $840,000 pledged over the next three years.[4]

This second example, which relates to reported cases of tutin poisoning in March last year, when some 22 people became sick after eating comb honey sold by a Coromandel beekeeper, demonstrates just how excessive the government’s response can be. It turned out that the honey contained tutin, a honeydew product created at certain times of the year by vine hopper insects that feed on the sap of the tutu plant. When this honeydew is collected by bees, the honey produced should not be eaten by humans. Beekeepers know about this, except it seems the inexperienced beekeeper who sold the honey that made his customers sick.

Despite there being only one other reported case of tutin poisoning in  the last twenty years  the government has created a bureaucratic nightmare for beekeepers, which involves sampling, testing, documentation, registration, and inspection, with fines of up to $100,000 and imprisonment of up to 12 months for non-compliance.[3] Given the vital importance of agriculture to New Zealand’s economic future, and the essential role of bees as nature’s primary pollinators, this new system has the unintended consequence of discouraging people from keeping bees, at a time when bee numbers need to be increased following the incursion of the varroa bee mite.

During its time in office, Labour never understood that it is the responsibility of government to remove roadblocks to progress and achievement, not to create them. What drives a country forward is not the government, but the energy and vision of millions of citizens, all pursuing their hopes and dreams, as they strive to improve life for themselves, their families and their communities. It is New Zealanders who will get this country out of the recession; business people and entrepreneurs - the wealth creators - are the solution to the economic crisis. This means that National must develop an economic strategy that promotes wealth creation by lowering and flattening taxes, streamlining and minimizing compliance costs, and ensuring that the machinery of government adopts an “enabling” attitude that encourages and facilitates growth, so that it is part of the solution rather being a key cause of the problem!  

It is imperative that these measures are designed to not only create decent long term returns on investment in jobs and growth, but that they restore confidence in the future prospects of New Zealand as well.  

It can be argued that having a national goal to inspire and focus our collective effort could also be very helpful at this time. After all, it is a strategy that works brilliantly for individuals, sports teams, and other organisations, so it is reasonable to believe that it could work well for the country. And while the National-ACT coalition agreement has gone down this path - identifying catching up with Australia as a worthwhile goal - there are some who believe New Zealand should aspire to do better.

This week’s NZCPR Guest Commentator is Paul Newfield, an executive of Morrison & Co, who has long believed that New Zealand needs a measurable goal to lift our national performance. Together with Lloyd Morrison the company’s Managing Director, they launched a campaign to promote the idea last year:

“From our personal and professional experiences we all know how powerful it can be to have an ambitious and objectively-measurable goal.  For example, it’s so much easier to focus on fitness training when you’ve made a public commitment to run a half marathon.  Similarly, when an organization wants to target its efforts in a particular area it defines objectives and Key Performance Indicators.  What gets measured gets done.

“In the absence of a measurable goal there’s always the tendency to drift.  We get distracted, our progress slows and our ambitions are subdued.  Sadly, this is what’s happened to our nation.  In 1900, New Zealand had the highest GDP per capita in the world. In 1950, we were sixth.  By 1980 we had dropped to twenty-seventh in the world.  Since then our real GDP per capita has grown at only 1.4% per annum - a rate that has seen us overtaken by five more countries.   So now we’re thirty-second in the world and, based on IMF growth forecasts, we could fall to forty-seventh by 2025.  That will put us well behind Kazakhstan and Botswana!  But because this has been a gradual process, it’s been all-too-easy for us to let things slide without facing up to the problem.

“If we are to arrest New Zealand’s relative decline, setting a simple, measurable goal for the country is a crucial first step.  We need a long term target that will inspire action and focus our minds.  And we need a highly visible yardstick against which we can regularly measure progress”. To read the full article click here >>>

The challenge for an enthusiastic new government is to make sure that it never forgets that it is the private sector that creates wealth and growth, not the government. It must avoid falling into the trap of believing that the government is the answer to all of the country’s problems. After all it was that approach taken by Labour that created so many of the difficulties the country now faces. 

This week’s poll asks: Do you believe that all New Zealanders should be consulted over whether it is appropriate to fly a Maori flag on public facilities on Waitangi Day? Go to poll >>>

FOOTNOTES
1.Sir Roger Douglas MP, The Current Situation
2.New York Times, Economy ay Delay Work on Obama’s Election Pledges
3.Stewart Haynes, Qualmark’s Dark Green Agenda
4. NZ Food Safety Authority, Tutin in Honey

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