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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 rapid growth.

"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 and education."

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."

ENDS

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