Politics A Dialogue of the Deaf

There is problem with the growth argument. Different people mean different things. The result is dialogue of the deaf.

ACT, the National party, the Business Roundtable and Business New Zealand want company and personal tax cuts, deregulation, privatisation and less state spending.

National’s Don Brash fixates on the Treasury’s technical projections in last year’s Budget of two percent growth at the end of this decade. That would drive us back down the OECD ladder.

ACT says slashing tax, particularly company tax, would unleash surge of business activity which could elevate us into the top half of the OECD in 10 years.

Even the Government’s helpmate, United Future, wants company tax cuts and less regulation.

Such talk sets the Government’s teeth on edge. And for two reasons:

One is ideological. Labour and the Progressive Coalition philosophically oppose National’s proposed tax cuts and the selling of state companies. They are also philosophically committed to more support for employees and the less well off.

The second reason is practical politics. The 1999 election reflected widespread discontent with the social upheaval and income disparities which accompanied the policies of the 1980s and ’90s. Revival of such policies risks backlash at the 2005 election, especially against left-of-centre government.

The Government’s peace of mind is not eased by general agreement among economists that its policy settings are unlikely to lift productivity enough to get New Zealand growing significantly faster than the OECD average and so scale the ladder.

The Government has now fudged its target. It once said it wanted back into the OECD top half by early next decade. Then it said it would take 20 years even if productivity growth doubled – very tall order. Now it is not putting date on arrival and has toned down the rhetoric.

As it has fudged, so it has become short tempered with critics.

It has focused on affirmative interventions: infrastructure, education and skills, research, commercialisation of research, promotion of joint ventures and big investments, especially by foreign companies (some tax moves are under development) and linking with high-flying New Zealanders overseas. The list is long and busy, though it is still fairly modestly funded.

Its tax priority is designed to improve the position of low-to-middle-income families. Compared with similar countries New Zealand taxes these families highly and people without children relatively less. In effect, because adults with dependent families tend to be younger than those without, there is gen-erational transfer – especially so since Michael Cullen is raising more tax overall than he needs to in order to fund his super fund.

The Government is also determined to meet health care demand out of state coffers. This is for both ideological reasons – believing that health needs should be met by the state – and for the practical reason that health presents an election-time hurdle. It is also committed to improving social assistance.

There remains, however, bothersome fact of life: business must not be discouraged. Without fertile goose, there is no egg, golden or otherwise and the egg must feed Labour’s social ambitions.

It all adds up to short fuse.

Business generally believes it has got Labour for another three or even six years. Conversion to tax cuts, deregulation and privatisation is unlikely.

Advocacy of such measures is now mostly aimed at tempering some of the re-regulation (for instance, in the new Holidays Bill and the redundancy law to come) and at prodding National back to the faith – much as the unions kept up their rhetoric in the 1990s, knowing they could not convert National, to bring Labour back into the fold.

To have practical effect, thoughtful business leaders now focus more on getting the Government to inject more urgency – and more resources – into its affirmative measures, particularly in research, education and skills development and the pitch to attract foreign investment.

You might think the Government is at ease with that. But urgency requires hard choices – ie, diversion of resources from health and social assistance. Instead of incremental steps across the board, social and economic, it means more on the economy and less on social measures.

That, too, infuriates the Government for when it hears ‘urgency’ it translates as ‘tax cuts’.

Fury leaves little room for reasoned discussion. So instead of debate on growth, we have an argument. That’s politics.

Colin James is Management’s regular political writer.
Email: [email protected]

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