Huge catch up in business investment needed

Tuesday, May 1st, 2007

Huge catch up in business investment needed

New Zealand's poor productivity record, high interest rates and the related high dollar are outcomes of fundamental flaws in our economy, says the Employers & Manufacturers Association (Northern).

These outcomes are driving some of our best manufacturers offshore, said Alasdair Thompson, EMA's chief executive.

"But we don't accept Kiwi manufacturers should necessarily have to move some, or any, of their production offshore to low cost labour countries," Mr Thompson said.

"The high interest rates and the uncompetitive dollar make investment risky and the policies offsetting the risk are simply inadequate. The result is our poor productivity and failing growth.

"A capital gains tax, or a tax on mortgages is like using sticking plasters to cover up the symptoms of high interest rates.

"We reject the message sent by Economic Development Minister Trevor Mallard when he said recently some of our manufacturers are better off overseas, or that they should set up part of their operations offshore.

"That's no future for the 250,000 kiwis employed full time in manufacturing.

"When Fletcher Building chief executive Ralph Waters retired last year he said: 'As a country we do all we can to discourage major manufacturing investment... there are not many compelling reasons to be here.' Fisher & Paykel repeated the message last week.

"But give any manufacturer good reasons to invest more in production capability, in automation and in the associated higher skills development required to run it, and they will willingly boost investment and productivity here to keep themselves competitive.

"Other countries with far higher labour costs than ours have retained very strong manufacturing sectors, including Australia, the US, Germany and the Scandinavian bloc.

"A growth oriented sustainable environment for business, especially manufacturing, would seek to lift investment locally faster than competitive pressures were rising from so called low cost countries.

"Signaling a cut to the company tax rate to 20 per cent straight away, if not zero, would go a long way to lifting the resolve of manufacturers to keep jobs, r&d and skills development here.

"We have been recommending cuts to the company tax rate to spur investment for six years when Infometrics modeling showed how successful they would be.

"Our business tax rates compared to Asia, Australia, Ireland, Canada and the UK are high; with our dividend imputation system exporters could easily be given a zero company tax rate.

"On the other hand, our high interest rates, the highest in the western world, result largely from government losing control of its spending on administration and other overheads along with price rises of other monopolies.

"The consequence is our exchange rate, the 11th most traded in the world, has become a plaything for the world's fund managers."

ENDS

© Scoop Media