Budget Highlights Need For Growth Policies
The budget confirms that recent economic conditions have been relatively favourable but its weak feature is the mediocre
medium-term growth outlook", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.
Over the five years to 2005/06, the economy is projected to achieve average annual growth of 3 percent. Many
commentators expect the Australian economy to grow by close to 4 percent a year in the same period.
Even more disturbing, growth beyond 2006 is projected to average only a little over 2 percent and the unemployment rate
remains stuck at around 5.5 percent.
"This outlook falls well short of the per capita growth rates of 4 percent or more that are needed to restore New
Zealand incomes to the top half of the OECD rankings and achieve the government's goal of full employment", Mr Kerr
said. "Indeed the income gap with Australia looks set to widen. The economy's longer-term performance is showing no
signs of improving. It should be doing so by now if the government's economic programme were sound."
Mr Kerr said it was pleasing that the government had kept within its fiscal limits, which had helped sustain business
and financial market confidence. However, it planned to maintain total government spending (including local government)
in New Zealand at around 40 percent of gross domestic product, which was far too high to be consistent with goals for
"Australian government policies as confirmed in last week's budget are much more growth-oriented, with an emphasis on
lower government spending, privatisation, tighter welfare policies, and greater private provision and funding of health
Mr Kerr said it was also disappointing that the government had rejected the growth-oriented tax proposals of the McLeod
tax review, in particular moves towards a lower and flatter income tax structure. The Business Roundtable had hoped for
more progress on international tax policy in the budget.
It was also striking that the budget showed no recognition of the regulatory and other cost burdens on businesses, which
will be increased by government plans to ratify the Kyoto Protocol, expand the role of local government and further
regulate the labour market.
"The mediocre economic outlook confirms business sector arguments that, despite some positive elements, the government's
overall programme has been anti-growth, and that problems of high unemployment and welfare dependency are not being
adequately addressed", Mr Kerr said.
"A multitude of schemes and bureaucracies does not constitute a growth strategy. The government should recognise that
its approach is not working and reorient policies in the directions advocated by the OECD and the IMF and by New Zealand
business organisations. So-called 'third way', hands-on policies are being abandoned in Europe. In going into the
election, the government and other political parties should be setting out a more ambitious vision and credible
longer-term strategies for dealing with the challenges facing New Zealand."