DON BRASH WRITES

An update from National's Finance spokesman

No. 8, 14 May 2003

Tomorrow's Budget

Tomorrow, Dr Cullen will unveil his fourth Budget. It will almost certainly show a surplus of close to $4 billion (before taking account of "funnies" caused by revaluations of assets and liabilities as a result of changes in interest rates and similar factors). This outcome is largely due to the economy being quite a bit more buoyant than most observers expected a year or so ago.

But the bad news is that the economy is slowing very quickly. One commentator suggests that, whereas last year the economy grew at more than 4%, this year growth could be 1.5% or even less, because of the wobbly world economy, the effects of the drought on agriculture and power-generating capacity, the impact of SARS (both on exports to Asia and on tourism), and the sharply higher exchange rate. And of course at the same time the Government has been creating additional obstacles to growth with almost every new policy - additional costs arising from the Health and Safety in Employment legislation, from the Local Government Act, from the amended Resource Management Act, and all the rest.

One company serving the housing market has told me that in April their sales were only 72% of budget - and only 65% of the sales achieved in April last year.

Little wonder that business confidence (as measured by the National Bank) has plunged to its lowest level for more than a decade.

And because so little has been done over the last three years to build on the progress made in the late 80s and early 90s, the country's trend rate of growth is still projected by Treasury to be less than 3% a year over the next decade - indeed, tending towards growth of only 2%.

Tomorrow's Budget ought to be about doing everything possible to improve the rate at which our productivity (output per person) grows - stimulating investment in plant and equipment, solving the problems of traffic congestion, encouraging skilled New Zealanders to stay here (or return from overseas), encouraging young New Zealanders to acquire more skills, ...

Yet all the indications suggest that Dr Cullen has no plans to reduce the company tax rate, which remains one of the highest in the Asia/Pacific area; no plans to reverse the envy-driven increase in the top tax rate from 33% to 39%; no plans to make an impact on the serious problem of inadequate literacy which bedevils so many of our adult population; no plans to invest Budget surpluses in fixing the serious problems of traffic congestion. It will, I fear, be an opportunity missed. When the dust settles, we will still be lamenting that our trend growth rate is not sufficient to close the gap in living standards between New Zealand and Australia.

The Resource Management Act again

One piece of good news: at the very last minute, the Government has backed down to pressure from National, ACT, New Zealand First and United Future and changed the provisions in the Resource Management Act No. 2. That law will no longer provide special protection for "ancestral and cultural landscapes".

But the law remains a step backwards in many respects, and will do little to improve the significant problems which have been identified in the RMA in recent years.

It adversely affects businesses both small and large. The manager of one relatively small company wrote:

'I could write a book on the damage the RMA causes. The worst part is that it allows ineffective local bodies to be totally driven by bureaucrats, which makes them even more inefficient. I applied for a consent and was told I needed the consent of three separate iwi - one in the area and two downstream on the waterway that adjoined the property. "It's not a problem", I was told, "they will usually do a report and agree for $400."'

On an altogether different scale, Contact Energy is currently seeking approval under the RMA to continue using the Clutha River to generate electricity. Even though the environmental effects of using the river are, of course, clearly observable (given that the dams on that river have been in operation for many years), the hearings held by the local authority ran to 43 sitting days spread over four months, at a cost to Contact of millions of dollars. Do you think that that experience helped convince Contact to invest in new generating capacity to ease prospective power shortages?

Don Brash
http://www.donbrash.com

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