Budget Policy Statement Falls Short

Budget Policy Statement Falls Short of Government's Goals

“The projections in the Budget Policy Statement, which go out over 10 years from when the government was first elected in 1999, are clear evidence that its economic policies are not succeeding”, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

He was commenting on its submission on the 2007 Budget Policy Statement which was presented this morning to parliament’s Finance and Expenditure Committee.

Mr Kerr said that the government had set itself the challenge of raising the incomes of New Zealanders to the top half of the OECD range, and in the 2002 Budget it targeted a 4 percent annual growth rate with that goal in mind.

“Not one of the annual growth rates projected in the next four years comes close to 4 percent, and calculations in an annex to the attached submission show how far the government is from reaching its goal.”

Mr Kerr said the economy was being held back by excessive government spending, taxation and regulation.

The government deserved credit for maintaining a prudent level of public debt and a sound credit rating position, but it had allowed spending and taxation to spiral.

Central government spending was up this year by four percentage points of GDP compared with 2004 (from 29.2 percent to 33.2 percent on a GAAP basis), and there was no indication of a focus on whether spending programmes were delivering value for money. Government spending growth was putting pressure on monetary policy and the exchange rate faced by exporting businesses.

Similarly, New Zealand’s total tax-to-GDP ratio was now 43.3 percent according to the OECD, close to that of Germany (43.7 percent) and some of the other sluggish high-tax welfare states of Europe. It was above the OECD average of 38.5 percent, whereas the ratio in Australia, Ireland and the United States was significantly lower and the ratio in non-OECD countries like Hong Kong and Singapore was much lower again.

“New Zealand’s spending and tax burdens are far too high for fast growth. New Zealanders are over-taxed, and there is ample scope for responsible, non-inflationary tax reductions given stronger spending discipline.”

Mr Kerr said tax policy should be guided by the 2001 McLeod tax review’s recommendation that New Zealand should move to a lower and flatter tax scale. Business at large wanted to see lower personal and company tax rates, not a return to selective tax concessions which made the tax system complex and distortionary.

To strengthen fiscal discipline, the Business Roundtable was advocating the introduction of top-down tax and expenditure limits in the Public Finance Act. It also supported parliamentary consideration of MP Rodney Hide’s Regulatory Responsibility Bill.

“New Zealand has been losing ground in terms of economic freedom and hence its prospects of growth. Australia has overtaken it and the income gap between the two countries looks set to widen. If the government’s commitment to its economic goals is not to be regard as cynical, it needs to reassess urgently its economic directions and put more emphasis on economic freedom and less on intervention in its policy mix”, Mr Kerr concluded.

ENDS

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