Editorial: NZ's huge exports challenge

One statistic leaps out from the New Zealand Institute's latest research paper. The country's exports, the think tank says, are 28 per cent of gross domestic product, while the average for small developed nations is 54 per cent. The contrast says much about New Zealand's economic shortcomings, most notably its failure to engage with the rest of the world. It also illustrates the need to substantially improve our performance as a trading nation if we are to raise living standards.

The size of the task suggests how far New Zealand has slipped. The goal, says the institute, must be to lift exports by at least another $35 billion in today's terms by 2020 - equal to three more Fonterras, 150 Pumpkin Patches or 500 Rakons. Even if that target were reached, exports would make up only 35 per cent of GDP.

The institute's prescription for achieving this is a more aggressive approach from the Government and New Zealand companies. That is shorthand for a sharp break from the hands-off orthodoxy that has dictated policy for 20 years. This more flexible approach must be welcomed, as other countries have hardly queued to join New Zealand's level playing field. The key consideration is what form a more aggressive approach takes, and, more particularly, the nature of the Government's intervention.

Three new Fonterras or 150 new Pumpkin Patches are not going to blossom overnight. Those companies, and their success, are the product of years of development. A substantial rise in activity by smaller companies is the more likely catalyst for greater engagement with the world economy. But the institute is on the right track in pointing to the greater, vanguard-type role that could be played by state-owned enterprises. These organisations, traditionally risk-averse, have the size and shareholder commitment to make a substantial impact in overseas markets.

Several of the institute's other proposals for galvanising exporters are more problematic. Some smack of policies deservedly cast aside 20 years ago. Take, for example, the suggestion of a tax rebate for exporters' costs in developing international markets. This, and variations on it, have a distinctly Muldoonist texture.

One of the institute's other main means of engagement is encouraging overseas investment. The carrot here would be rebates for those who bring new industries to New Zealand. There are dangers, too, in this approach, if only because those investors, having set up shop, could be lured away by countries offering even greater incentives. Ireland, however, has demonstrated that fleetness of foot in attracting other industries can lessen such dangers.

How closely the institute's thinking matches that in the Beehive may become clearer this week when the Government outlines options being considered for an overhaul of the taxation of business. Tax breaks for exporters are being considered by this "big and bold" review, as are incentives aimed at increasing investment in machinery and research. Hopefully, a pastiche of these will not be seen as more desirable than the matching of Australia's corporate tax rate of 30c in the dollar.

As reported in The Business this week, there is plenty to suggest that the New Zealand Institute's David Skilling has the ear of the Government. Justifiably so, because the time has come for a new path that, in the institute's words, is neither markets nor Pyongyang. New eras and new imperatives demand fresh ideas, and the drive to enact these forcefully. The trick is not to ignore the failings of the past.