POLITICS Left in the Lurch

Better the devil you know than one you don’t. Twist that bit and you get: certainty is (mostly) better than uncertainty. Apply that to policy affecting business. Businesses can’t plan in policy vacuum or flux. They don’t know what they might be up for.
Consequently, many in business wish the two big parties would form grand coalition. Change would then be evolutionary and businesses would not have to bother so much about Wellington.
There won’t be grand coalition. Even when national security was in danger in the Second World War Labour and National did not form one.
Nevertheless, after the war there was near bipartisan consensus on international policy, which lasted until the Vietnam War, Springbok tours and nuclear bans split the two parties in the 1960s. Only now, with National caving in on nuclear bans and muted on defence, is there something approaching consensus again.
There is consensus on free trade. Only the Greens and New Zealand First, totalling just 11 percent of the votes in 2005, stand outside. Businesses know their long-term plans must make them internationally competitive.
And, just as broad consensus developed around the welfare state and economic regulation and protection after Labour’s innovations in the 1930s and ’40s, broad consensus developed around the open economy after the 1980s revolution. It is also settled that the Budget should be in surplus and monetary policy management left to an independent Reserve Bank.
But on range of matters vital to businesses, there is dispute and argument. That discourages investment.
Tax is prime example. National believes in lower, flatter tax. Labour believes in higher, progressive tax to finance its mission to even up life chances.
So in office Labour raised the top personal rate and, when it proposed the now dead carbon tax, did not offer corresponding cuts elsewhere. It prefers to adjust details, such as in its March tax act on depreciation, fringe benefit tax and investment tax. These lighten business’ tax compliance burden but do not yield on the general principle.
So the next National-led government will lower tax rates and constrain spending. Fine for business initially – but will it survive reverse change of government? Maybe, just as we have not gone back to 48 percent for companies and 66 percent for people under Michael Cullen. But maybe not. Banking tax cuts into the future would be risky.
The labour market is second example. Though the parameters have narrowed since the 1990s, there are still critical differences. The next National government will make significant changes. But Labour might well reverse them.
State assets are third example. Labour won’t sell. National wants to, though would tread gingerly and would leave some bits untouched for fear of public backlash. And Labour has put the state back into banking and airlines. Labour won’t let the private sector own roads; National is sympathetic to private builders owning and operating roads for time. But note that Labour renationalised National’s only private prison.
Related to this is the fourth example, alternative funding and provision of education, health and housing. Labour is wary of the private sector. National is much more welcoming. But could investors be sure they would not be renationalised, as Labour did in 2000 with accident compensation?
Utilities regulation – particularly of energy and telecommunications – is fifth example. National favoured market forces. Labour has plunged into regulation which gets more and more micro as anomalies or blockages surface – as they are, putting energy security at risk and internet take-up in the slow lane. More generally, when Labour strikes problem, such as leaky homes, it instinctively reaches for the rulebook.
Climate change is sixth example. National is still reluctant to accept there is now increasing international political and commercial momentum which demands policy and business response here, regardless of quibbles about the science, Kyoto process and business’ competitiveness fears. Labour’s policy is in the air.
Of course, policy cannot be set in concrete. Circumstances change and policy must evolve. But “evolve” is the key word. In many areas now we have “lurch”. That’s bad for business.
Waiting for friendly government isn’t durable answer. As Business New Zealand’s Phil O’Reilly puts it, businesses are around for decades, governments for trienniums.
There won’t be grand coalition. But maybe on some big things business could build bridges between National and Labour to cut down uncertainty and make us all richer.

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

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