Thought leader : Delivering on an Economic Growth Agenda

When Prime Minister John Key spoke at the Deloitte/Management magazine Top 200 Awards in December he promised his Government would focus on three priorities – “the economy, the economy and the economy”. He left business leaders in no doubt he clearly understood that for New Zealand to improve its ranking within the OECD, economic growth must be priority, and business must play its part. He also demonstrated grasp of the financial turmoil that is currently rocking economies around the world and its implications for New Zealand as small trading nation remote from many of its markets.
Restoring our OECD ranking is tough enough task in good economic times. The financial crisis and recession make this task more difficult as the Government’s fiscal position weakens. But tough times also provide opportunities; in particular they add urgency to the need to review low quality spending programmes, ease the regulatory burden, and revisit policy settings that under the current outlook are less compelling. In other words, the crisis means it is not business as usual and more radical measures may be required.
There are many things business would like from the Government, and very often these are driven by quite specific individual needs. The Government, however, should focus on delivering an environment in which business can prosper and support its goal of moving up the OECD rankings.
Key areas for focus should include:

Regulatory reform
First cab off the rank should be the Resource Management Act. This well-intended piece of legislation has over time become probably the single biggest brake on economic growth and added significant dead-weight costs to the economy. That the Government is moving quickly here is promising. At least as important is comprehensive programme to review all regulations in disciplined way and commitment to culling out those that fail to pass cost/benefit test. This is detailed work that required patience and endurance – execution will be challenge.

Capital markets strengthening
This sounds more like third-world-country initiative, and sadly that is reflection of the state of our capital markets. Urgency should be given to the work of the Capital Market Development Taskforce. The future role and structure of State-Owned Enterprises also needs refresh. They need to be focused on wealth creation for their shareholders and participate fully in the capital markets. Reform of our savings and investment landscape is infeasible without SOE reform.

Our infrastructure deficit in most things – from electricity transmission, water and sewage treatment, and telecommunications to roads and rail – is well known and there are plans to accelerate investment. Here the financial crisis and recession have proved helpful in focusing attention – even though this provides only hope and the appearance of action, as by the time work starts the recession will likely be over (not that hope should be underrated). Here it will be important to make good quality decisions within solid policy framework. We need the right infrastructure and with the right risk-sharing mechanisms.

Good early moves have been made on personal rates but it is the long-term destination that is important. It has taken time for our governments to realise that countries compete on tax regimes and rates. Capital and talent is mobile and where it can earn better return elsewhere it is likely to relocate. The move over the past few years to unaligned top marginal tax rates has left our tax system with perverse incentives and added significant compliance costs. There is great opportunity to reform the tax system to support an economic growth agenda.
In his remarks at the Deloitte/Management magazine Top 200 Awards the Prime Minister also warned that business should not expect to get everything it wants. If the Government delivers pro-growth set of policies, business will not be asking for much.
Business also has major role to play. The Government cannot deliver economic growth without it. Innovation, entrepreneurship, investment in fixed and human capital, leadership and heightened sense of ambition are all fundamental to driving the productivity gains and business expansion that will underpin growth in real wealth for all New Zealanders.
These are all things that are difficult to focus on with an economy in recession, demand sagging, and capacity lying idle. However, recessions pass and the recovery will be stronger and faster, and New Zealand business in better shape, if we continue to innovate, invest and have ambition.

Murray Jack is the CEO of Deloitte.

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