Richard Inder: The going could get tougher for business

Business can take little comfort from this election.

Even before the result, or lack of it, business was facing an unsettling cocktail. The economy was slowing, but buoyant consumer spending and rising energy prices were fuelling inflation.

Now the odds are on a Labour-led coalition filling the Treasury benches, it seems unlikely there will be a let-up on these macro trends and businesses are likely to face an altogether tougher environment.

Last week, Reserve Bank Governor Alan Bollard hinted that an expansion of Government spending could force him to leave interest rates at their current level for longer or lift them even further.

Certainly a National-led government could have sparked the same response from Bollard. But National's proposed tax system would have spurred entrepreneurship and investment and innovation. Its spending plans for infrastructure would have more speedily removed many of the roadblocks to economic growth.

In short, a National-led coalition would have created a framework more closely tuned with boosting business investment and hence productivity (how much we produce for every hour worked). It is only through such an increase that we can sustainably lift our wealth and living standards.

Labour's planned expansion of the Working For Families welfare package will impose marginal tax rates of up to 60 per cent on the vast majority of families. This will help to entrench the acute skill shortages, identified by the the Herald's Mood of the Boardroom survey as one of the greatest challenges now facing business leaders.

With such a harsh impost the incentives to seek a promotion, do more overtime or train outside work for a better job will be much reduced. The incentives for young people to make a future in countries with more favourable regimes will also rise. Employment regulation will continue its swing away from policies that have played a key role in New Zealand's economic revival since the mid 80s. The influence of the Green Party could see the introduction of a series of punitive environmental taxes.

For financial markets the result is not that rosy - indecision and instability. Even if Labour manages to cobble together a coalition, the rainbow of initiatives sought by the minor parties could spell legislative deadlock. And it is doubtful, on the initial count at least, that National could do any better.

A return to the polls within a year remains a possibility. There is however, some cause for hope.

At the very least, there seems to be broad party support for cutting the company tax rate. United Future, Jim Anderton's Progressive Party, New Zealand First, the Maori Party and National have all indicated support for a cut from the headline 33c to 30c in the dollar.

Act is advocating a deeper cut.

Business can only hope that such consensus will lift such a helpful policy up the legislative agenda.

Meanwhile, telecommunications policy may be in for a shakeup.

Just before the election, Communications Minister David Cunliffe hinted at some sort of separation of Telecom's lines and retail businesses, if the company was unable to deliver on promises of high-speed internet uptake.

Telecom's stranglehold over the last mile - the copper wires connecting homes and businesses to local exchanges - has long been a drag on productivity.

Business can only hope that its poor broadband achievements to date will be enough to encourage Labour to take the necessary steps.