Growth Outlook Key Test Of Budget

"The key point of interest in next week's budget is whether New Zealand is on a path to meeting the government's economic targets", Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

The government's commendable goal of restoring New Zealand to the top half of the OECD income rankings within a reasonable period of time requires sustained annual per capita growth in gross domestic product of 4 percent or more.

The forecasts in the December 2001 Economic and Fiscal Update projected trend per capita growth of only 1.5 percent.

The New Zealand Institute of Economic Research is forecasting annual per capita growth of only 1.25 percent in the period 2005-2031.

Many in the business community have argued that policy changes since 2000, coming on top of policy slippage in previous years, have tended to weaken rather than improve New Zealand's medium-term outlook. The government has disagreed. The budget will contain projections which, if credible, will be a test of whether the necessary improvements are occurring. The effects of the alternative policies favoured by the government should be registering in the medium-term outlook.

In addition to an ambitious goal for economic growth, the government has set a goal of achieving full employment, defined by the prime minister as an unemployment rate of 3 percent. Since 1996 unemployment has fluctuated but has not significantly reduced. Budget projections for unemployment will indicate whether current growth, labour market and welfare policies are promoting full employment.

"In the event of shortfalls between the budget projections and government targets, there is an even stronger case for reorienting policies in the directions recommended by the OECD and IMF in recent reports on New Zealand and by business organisations", Mr Kerr said.

In its submission on the 2002 Budget Policy Statement, the Business Roundtable had urged the government to give serious consideration in this year's budget to:

… restoring the goal of reducing central government spending to below 30 percent of GDP; … moving towards more uniform rates of income tax at a lower level, with a maximum of 25 percent being a medium-term goal;
… aligning the top personal rate with the corporate tax rate;
… undertaking a thoroughgoing review of the value for money being obtained from major spending programmes, focusing on the gap between what is being achieved by government spending in major areas and desired outcomes;
… setting up expert task forces to undertake a fundamental review of the major regulations that the recent ministerial review of business compliance costs determined were imposing the greatest costs on businesses; … privatising government entities that supply private goods and services;
… not proceeding with the New Zealand Superannuation Fund; and
… not ratifying the Kyoto Protocol in advance of major trading partners and in the absence of sound analysis. The submission concluded: "Failing such measures, we suggest that the budget will not contain a credible growth strategy. In that event it would be disingenuous of the government to continue to maintain it is serious about restoring New Zealand to the top half of the OECD income ladder." For further information:

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