23 May 2004

The Budget - what business is looking for

Business NZ Chief Executive Simon Carlaw says the business sector should find little fault with the Government's four main objectives for the 2004 Budget.

"Investment in infrastructure and skills and a focus on the export sector and middle and low income families brings a large potential for pay-off for families and for businesses.

"But the form the investment takes is key - Business NZ expects the Government to target Budget investment that would improve our international competitiveness in the long term."

Business NZ will be reviewing the quality of the Budget in the four areas against the following criteria:

1. Infrastructure - investment should be efficient; private partnerships should be encouraged The 'Investment for Growth' funding package is welcome but will not overcome long-standing roadblocks. The RMA and Land Transport Management Act are causing significant delays and higher costs for desperately needed roading projects in Auckland and elsewhere. Policy barriers and ideological constraints on resource use also block private sector investment in the energy sector. The Budget should ensure that public infrastructure investment is efficient and private partnerships are encouraged.

2. Investment in skills to get better value A Budget targeting of current and forecasted skills shortages is timely. Business NZ will be looking for signs of action to extract better value from the tertiary sector generally. The Tertiary Education Commission needs to stop talking and start doing. There is a huge unfilled demand for apprenticeship training because of the funding cap on apprenticeship places, while other skills training is open-ended. Giving Modern Apprenticeships and industry training equal funding status with other tertiary education should be the goal. An independent, professional careers advisory service in schools would also offer better value than institutional advertising for bums on seats.

3. Export help must focus on international competitiveness The export sector is the front line of the battle for international competitiveness. New Zealand's small domestic market means Kiwi companies face the export barrier sooner than most. Too few progress to exporting. The most effective help will include globally competitive tax rates, maintaining a productive and flexible labour market, a serious hit on compliance cost reduction and sensible and affordable environmental and resource use policies. A Budget focus on picking winners or expanding bureaucracies and new border taxes is unlikely to be helpful.

4. Strategy for low and middle income families The Finance Minister has made it clear that he wants a system where works pays - where people are significantly better off in paid work than on a benefit. The current system blurs the distinction - once families earn more than $40,000 (threshold is higher for families with more than two children) they pay higher tax while losing their community services card and family and child support tax credits. Business NZ will be looking for solutions in the Budget. Possibilities include:

* Raising the thresholds at which the 33% and 39% tax rates apply (while New Zealand's top rate is reasonably low by international standards, our 33% and 39% tax brackets apply to relatively low levels of income, so we therefore pay more tax than Australians even though they have a top marginal rate of 47%)

* Phasing out family support more slowly so that middle income families benefit to a greater extent than at present

* Allowing income splitting to lessen the amount of family support needed for low to middle income families

* Flattening the tax scale to smooth the significant step up from the 19.5% bracket to 33% at $38,000 and then the 39% tax bracket at $60,000

'Making work pay' is an important strategy that needs to be underpinned by an environment that produces good jobs. That environment is increasingly a global one - it is not sustainable to ignore the greater competitiveness of other nations. In this week's Budget Business NZ will be looking for a focus on delivering a New Zealand economy that is sufficiently competitive to sustain better-paying jobs for Kiwis in New Zealand.

ENDS

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