Fran O'Sullivan: Without urgency, they're simply words

Prime Minister Helen Clark wants business to believe the Government is finally up for changing the wheels on the 747.

In Clark's words, that translates to moving to "the next level in the economic transformation agenda" to ensure more globally competitive firms, higher productivity, investment and skills levels and more innovation.

But if the Government wants the business sector to believe it is intent on a "step change" (the Government's cliche, not mine) it needs to go a lot further than simply staking out the intentions Clark enunciated through yesterday's opening statement to Parliament.

She road-tested Labour's so-called New Agenda at a recent briefing for chief executives who are members of the Hugo Group. Some CEOs, particularly those the Prime Minister consulted as she formed her post-election Cabinet, believe she is showing renewed determination to grapple with the key issues facing New Zealand.

Others believe that while she is sprinkling her rhetoric with worthy pledges to deliver, for instance, "world-class" infrastructure for Auckland and "generally lifting the level of ambition of what can be achieved for our country", there is no real evidence that the proposed policy changes will result in anything other than a snow job. Or that the Government will set national goals and measure its own performance against forecast outcomes on an annual basis.

It is fair to point out that while Clark was briefing the select group of CEOs, longtime Finance Minister Michael Cullen was preparing the ground for a rhetorical shift of his own - from promoting a Government economic agenda that has become captured by process to a more outcomes-oriented agenda, not of the reformist hues of the 1980s/1990s, but to a more internationally oriented policy process. There is little difference between the pair at rhetorical level, judging by yesterday's speech and the the content Cullen is divulging in his one-on-one briefings.

But CEOs should ask for more than the happy-clappy stuff so far on view.

If you think this is harsh, look at how Clark singled out the Hui Taumata (a big election year talkfest for Maoridom) as an indication of how the Government could attack economic change.

Nearly 12 months after the hui, there is precious little evidence that the stirring rhetoric has led to action that goes any way at all towards addressing the changes Maoridom must make to move on from institutionalised victimhood.

If business is not to fall into the trap, again, of simply being a Government cheerleader, it needs to hold the Clark Administration's feet to the fire over the economic priorities the Prime Minister has staked out.

First: A major review of the "structure" of business taxation.

Yesterday's speech omitted the words "bold" and "urgent", or indeed any changes United Future leader Peter Dunne (now Revenue Minister) spoke of when he first promoted the big concession he gained from his post-election support deal with Labour.

Clark said proposals would be prepared for public consultation mid-year. But far from being implemented next year, as Dunne last month indicated was still his plan, the proposed implementation date has already slipped to be April 2008 - coincidentally election year.

Cullen indicated the changes would be creative and bold. Not simply cuts at the margin for the company tax rate, which would make New Zealand more competitive against Australia, but a company rate which is more competitive on an international scale.

This is frankly not good enough, given that New Zealand is now so far behind other OECD countries and the Asia-Pacific nations at the headline rate level. A Government intent on bold changes would have ensured officials, augmented by private sector secondees, burned the midnight oil over the Christmas break to ensure legislation was ready to introduce this year. The outstanding issue, and probably the one that really matters, is whether Cullen can do "bold" after years of holding up the status quo.

The bold outcome would be to wipe company tax altogether and use a raft of indirect taxes to make up the revenue shortfall, including those that would promote the switch to using capital (not just cheap labour) to re-engineer the economy.

Second: A fresh look at regulatory frameworks.

Clark said feedback from the business sector suggested that higher-quality regulation would lead to more growth and investment and "we want to engage with business" on how to achieve that.

Note: The emphasis is on "quality" not on reducing regulation.

Third: New initiatives to get faster internet access and at more competitive prices.

The Government has finally woken up to the fact that Telecom's failure to deliver broadband and internet services at an internationally competitive rate is a major economic roadblock. In truth, the Government compounded the problem by not dealing to Telecom two year ago when it was already armed with sufficient evidence to become a legislative trust-buster.

Yesterday, Clark played up the international metrics which show how New Zealand has continued down the path to being a technological laggard. She portrayed, and this will be welcome by business, an intention to deal with the issue "as a matter of urgency" by addressing policy, legislative and regulatory settings.

The major challenge, as Cullen made clear, is how to deal to Telecom without attracting a major legal retaliation from the army of lawyers it has assembled: "It's the 800-pound gorilla - they're powerful, we've got to be careful what we say."

Fourth: Science and research funding will be boosted.

No detail is attached to the Government's intention to develop a more secure funding path. Its rhetoric is still focused on its own asset base, not on the type of radical tax changes that would help to pave the way for the private sector to commercialise more innovations. Business needs to push harder.

Fifth: The Government will refocus spending programmes to more directly affect productivity, innovation and export potential.

Frankly, after the instances of the Government's own mates sucking at the state teat, a change is long overdue. But even more Government spending should not be at the expense of changes such as the reduction in company taxes, which will ensure a more neutral outcome.

Sixth: Sector strategy development alongside industry will be important in key areas such as food and beverages, where a taskforce is working, and in primary sectors that face challenging international market conditions.

These are code words for reintroducing policies that look suspiciously like a rerun of the state-trading enterprises. It will be difficult to make sensible changes on this score without attracting a backlash at WTO level from the European Union, which puts such help, mischievously, on the same level as export subsidies. A more useful policy would be to refocus New Zealand Trade and Enterprise.

Seventh: Rolling out major infrastructure programmes.

What Clark neglected to point out yesterday was that the critical decision "on how best to guarantee power to Auckland for the longer term" was supposed to take place before last year's election.

It was put to one side because the Government was worried about the electoral effect of television footage showing farmers protesting at Transpower's plan to put major new transmission lines across prime Waikato and South Auckland properties.

If the Government was really intent that Auckland should be a "world-class" city, the "firm decisions" would have been taken last year.

The Government has also signalled an intention to deliver on long-promised roading projects. But already the rising oil price has reduced fuel consumption and excise revenues, and construction costs are escalating. Imagine the outcome if the Government had cleared the roadblocks earlier.

Eighth: Meeting New Zealand's Kyoto commitments and maintaining the integrity of our environment.

Cynics will note that Clark even gave US President George Bush a tick for saying the "United States must end its addiction to oil".

She said New Zealand must also be at the forefront of the new, cleaner technologies and biofuels, and of sustainable development. But she omitted moves that would matter, such as a bid to join the US-led Partnership on Climate Change, which is focused on the new technologies, or getting out of the Kyoto Agreement.

There's plenty more of interest to business - such as the Government's intention to lift the value of the tertiary education spend and move ahead on trade agreements.

But the Government will have to make a much bigger "step change" and apply some urgency to convince business that what is on offer is a "New Agenda" and not simply "Catch-up Time".