Rebalancing the economy is more than a quick fix

21 June 2007

Rebalancing the economy is more than a quick fix.

The Canterbury Manufacturers’ Association (CMA) says that ring fencing losses on rental property investment should be discussed as part of a wider debate on how the tax system can rebalance the New Zealand economy, putting an end to the boom and bust cycles that continue to inflict damage on our productive sector, particularly exporters.

“It is important that the debate focuses on ways to deal with domestic inflation that will restore the balance to the economy, rather than focusing on a single one-shot solution”, says Chief Executive John Walley.

“Potential tools to fight domestic inflation include a mortgage levy, capital gains tax, variable GST, and broader tax rules like ring fencing losses on rental property, but any change must be part of a broader picture. There needs to be discussion as to a wide range of mutually supportive polices and tax rules that drive long term growth for all sectors of the economy, rather than delivering all the pain to a minority and gain to others”.

Mr. Walley says that domestic inflation is the key issue for the New Zealand economy at present, and correcting the tax treatment will shift the balance of pain and spread it more evenly across all sectors, rather than dumping it all in the laps of the exporters.

“Balance should deliver gains to all in the medium term, and for this reason we need deep debate on this issue”.

“New Zealand’s policy mix needs a medium to long-term focus and must take global conditions into account. For example, high interest rates in New Zealand would not push the currency higher, if internationally, there was not a spread in interest rates worth chasing. However, focusing on fixing one thing, such as ring-fencing property losses might help a bit, but it will not put an end to boom and bust cycles for exporters.

New Zealand’s future economic growth requires a wider policy stance against domestic inflation that will not kill off our exporters, because once they leave New Zealand, they are unlikely to return, and as each top tier player leaves, we weaken the underpinning supply chains and innovative skills and we might just lose our future in the developed world”.

ENDS

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