Economic Development Programme Will Cost NZ

Mediacom-Release-Importers-Institute

Economic Development Programme Will Cost New Zealand

The Government's economic development programme will cost New Zealand, says Business Roundtable Executive Director Roger Kerr.

At today's Importers Institute/HSBC conference, Kerr said even under the best circumstances, the programme could only have a marginal positive effect - and those circumstances didn't exist.

"If we were given an extra $100 million as manna from heaven, what could that amount of investment get us by way of extra national income?" Kerr asked. "With a capital to output ratio of 3:1, and on the assumption that the productivity of the new capital is the same as that of the capital already in place, the answer is about $33 million a year."

That was an increase in national income of just 0.033%, said Kerr. "The minister of finance, Dr Cullen, has spoken of raising New Zealand's annual average growth rate to 4% or more ... the obvious question is where the other 3.97 percent is going to come from."

However, even that increase was unrealistic, he said. "First, the investment funds involved are not manna from heaven. They are taken from citizens who would have spent them differently, and each dollar spent by the Government costs more than a dollar to raise.

"Secondly, even if no deadweight costs were involved ... resources are drawn away from other firms or industries. Resources are shuffled away from activities that can stand on their own feet and into activities that are only viable because of government subsidies. We invest more in activities that are less competitive. Resources are misallocated and potential national income is lost.

"Thirdly, each dollar taken from someone will probably be spent less wisely. The decisions in so-called economic development programmes are made not just by entrepreneurs putting only their own money at risk but also by politicians and bureaucrats risking taxpayers' money."

And finally, Kerr said administering such programmes cost money. Taken to the extreme, they could foster a culture of political favouritism such as that seen in Asia.

The programme would not even produce many jobs, Kerr said. Going back to the assumption it was funded by completely new money, it would produce only 600 jobs a year.

"Now since the Employment Contracts Act came in there has been a net increase in employment in New Zealand of around 300,000 jobs, or around 37,500 a year (not all due to the ECA, of course). With the Government's 'jobs machine' creating 600 jobs a year at most, it will take over 60 years for it to match the annual increase in employment that New Zealand has recently been achieving."

While the programme could not do as much harm as the disastrous "Think Big" programme of an earlier government, it was equally ill-conceived, Kerr said.

"[It] is no answer to New Zealand's problems, and is a distraction from the task of putting together the strategy for economic growth that New Zealand desperately needs."

ENDS

PRESS RELEASE FROM THE IMPORTERS INSTITUTE

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[ The text of full speech can be downloaded from

http://www.silva.co.nz/conference/

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