After so many hints that a major overhaul of the Kiwi economy was to come, Prime Minister John Key's speech today records a blow for mediocrity.
He understands the problems and articulates them well. But the solutions being proposed are feeble.
Key gets to core issue early on: “The New Zealand economy was already in recession well before the global crisis struck. Our export sector was in poor shape, having stagnated for several years. New Zealand has long spent more than it earns, resulting in a high level of debt to the rest of the world. The Government is running budget deficits caused by a slump in revenue and previous big increases in spending.
“In recent times New Zealand incomes have fallen further and further behind the countries we like to compare ourselves with, including Australia.”
And he restates the objective that Alan Bollard so casually torpedoed last week: “The Government is committed to turning things around and in particular to closing the gap with Australia.”
So far so good, but the list of reforms particularly the economic ones are piecemeal and unambitious. As the Herald’s John Armstrong says “the Government is relying on a lot of smaller things making a big difference.”
But will it? Here are my top five disappointments with this speech.
Too timid on tax
Hopes for bold moves here have been dashed with capital gains, risk-free return method and land tax all scotched. There’s a hint that rules around property depreciation may be changed and that corporate tax and top personal tax rates will come down. But there’s nothing here to deliver the “step change” Key promised.
What we need is to reward investment tin the productive sector and punish investment in second, third and fourth houses for filthy baby boomers. As Bernard Hickey so nicely puts Key might just as well have give Gen X and Y a plane ticket and said “got no house, boo shucks!”
Or compare it to Ireland where a zero corporate tax rate rising to 10% resulted in a meteoric rise in business investment and rebirth of that economy. That’s a step change.
The rise in GST makes sense but as KPMG points out it will have consequences for business, particularly tourism.
Too wee on R&D
Key: “The challenge for New Zealand is to get more of our firms using science, research and technology to deliver more valuable products and services, which in turn allows them to succeed in competitive export markets and to create new and better-paid jobs for New Zealanders.”
Spot on, but having scrapped the R&D tax break and the Fast Forward fund last year, what’s the solution, John? Again, piecemeal increases in certain targeted areas, mostly agricultural and food related, which was exactly what FastForward was doing but more boldly.
The real problem with R&D in New Zealand is not government spending but that private investment in R&D is chronically small—a result of our failing innovation ecosystem and of crapulous capital markets. Yet there seems nothing on the agenda except tinkering with CRIs rules for investing and a promise to look into equity markets to offer more protection for grannies from Mark Hotchin et al.
How do we get Kiwis saving and investing like the Aussies have?
Wither government spending?
There appears to be no commitment to lowering the tax burden – that is the total government spend. Indeed targets and numbers are manifestly missing from the whole speech. Where’s the aspiration, let alone pathway, to keep government small?
Blacker not greener
Mining the conservation estate? Irrigating Canterbury plains? Investing in oil research? Really? This is such a dumb fob to the traditional National set and will further dent our clean green image. Sustainability is entirely missing from the speech. Nothing about clean energy, eco-refits, Copenhagen, eco-tourism or clean tech (bar the speculative Global Research Alliance) or public transport. This speech confirms that under Key New Zealand will remain out of step with the global trends toward greening the economy. How embrassing and how stupid for 100% Pure.
Key’s grasp of the problems in the economy and social areas seems profoundly accurate. You can’t accuse the guy of John Bank’s blinkered views or being a Machiavellian Helen Clark.
He’s just dull. Maybe that’s what wee need—slow steady constant reform towards a more competitive economy. It’s done the Aussie’s well.
But I suspect that we need to pick up speed.