Breach of spending cap could harm growth, says Roundtable

5.47 pm

The Government's breach of its self-imposed spending cap could harm New Zealand's growth prospects, says the Business Roundtable.

Commenting on today's Budget, Business Roundtable chairman Ralph Norris said that the Government's recent acceptance of the need for economic growth and business-friendly policies was welcome.

"This required a policy framework in line with that of more successful countries rather than a series of ad hoc 'business assistance' schemes," he said in a statement.

"However, the Budget did not spell out such a framework. Its forecasts confirmed that a credible strategy is not yet in place, with annual economic growth forecast to average only 2.5 per cent over the next 10 years -- well below the Government's goal of 4 per cent a year or more and indeed below the average of the 1990s."

Forecast employment growth was also very low, Mr Norris said.

Mr Norris said that while the Business Roundtable regarded the three-year spending limit of $5.9 billion as excessive, at least the Government had shown a commendable commitment to date not to exceed it and this had been its most business-friendly policy.

The limit had now been breached, and there were clearly pressures for higher spending and taxes which would damage growth prospects.

To help contain these pressures, Mr Norris said the Government should take advantage of the projected fall in the ratio of government spending to gross domestic product to lower the target to 30 per cent in line with falling ratios in other OECD countries, rather than stay with its plans to maintain spending at around 35 per cent of GDP.

To achieve this it should revisit its "value for money" programme aimed at finding savings to offset new spending, which the budget revealed had produced minimal results. It should also pursue broader policies to reduce fiscal costs.

A top priority goal in the eyes of the business community was to get top personal and company tax rates to a common and lower level in order to make New Zealand a more attractive place in which to work and invest.

- NZPA

www.nzherald.co.nz/budget

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