11 February 2004

Government Must Acknowledge Failed Policies

The time has come for the government to acknowledge that it has been pursuing failed economic policies, New Zealand Business Roundtable executive director Roger Kerr said today.

Mr Kerr was presenting the Business Roundtable's submission on the Budget Policy Statement to the Finance and Expenditure Committee at parliament

"The government's own projections make it clear that it will not achieve its 'top priority' goal of increasing sustainable growth and returning New Zealand to the top half of the OECD income rankings under current policies.

"The key statistics are as follows. Over the ten years 1993-2003 (March years), real (production-based) GDP grew by 3.6 percent a year on average. Real per capita GDP growth averaged 2.5 percent.

"These improvements, and improvements in New Zealand 's productivity growth rates, followed the economic reforms of the 1980s and early 1990s.

"By contrast, for the period 2003-08, the projections underlying the Budget Policy Statement are for real GDP growth averaging 3.1 percent a year and average real per capita GDP growth of 2.2 percent a year.

"This suggests New Zealand 's trend growth rates are declining, not rising.

"The finance minister has said that there would be evidence of his success or failure in raising the trend growth rate by the middle of this year. That was a realistic timetable, given that the government is into its fifth year in office and has enjoyed favourable economic conditions. Yet there is no evidence of such success. The Organisation for Economic Cooperation and Development (OECD) in its recent report confirmed that any improvement in New Zealand 's growth performance "is still not in sight".

"While the government says its top priority is growth, large expenditure increases are planned. It is clear that 4 percent plus per capita growth (the rate needed to return New Zealand to the top half of the OECD rankings in a reasonable time frame) cannot be achieved with total government spending (central plus local) at around 40 percent of GDP. The government is planning to spend a high and increasing proportion of the 'growth dividend, leaving little room for increases in after-tax wages and other incomes.

"Furthermore, its plans for the upcoming budget, which include tax cuts for low income earners, are focused on income distribution, not wealth creation and growth.

"If the government were serious about growth, its tax policy should be directed at cutting high marginal tax rates and taxes on capital income, as the McLeod Tax Review of 2001 recommended.

"The export sector is under pressure from the high dollar. Curbing spending and rising regulatory costs are clear options available to the government for improving export competitiveness. Instead, past and planned actions, like the proposed amendments to the Employment Relations Act, are adding to costs.

"There is now ample evidence that the government's policies are not resulting in higher sustainable growth. It is time for that fact to be acknowledged, and for changes in direction, on the lines recommended by the OECD and business organisations, to be implemented," Mr Kerr said.

The NZBR submission on the Budget Policy Statement is available online as a PDF file on the NZBR website

http://www.nzbr.org.nz/documents/submissions/submissions-2004/2004_budget_policy_statement.pdf

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