Between the lines: Action needed to match rhetoric

By JIM EAGLES

The economic indicators of the past few days have confirmed - if confirmation was needed - that the time is long overdue for the Government to match its rhetoric about the need for stronger growth with measures designed to achieve it.

In the Budget, it may be remembered, Finance Minister Michael Cullen talked of the need to lift our sustainable growth capacity to "4 per cent a year or more."

It is a little unfortunate that earlier in the same speech he revealed that the Treasury was forecasting growth of only 2.6 per cent for the year to March 2002, which - although Dr Cullen did not say so - is even further from the target than the 3.5 per cent growth forecast in his previous Budget.

It is even more unfortunate that in spite of all the eminently sensible talk about transforming the economy, the Budget contained little designed to help to achieve it.

Since then the likehood of even reaching 2.6 per cent growth has become noticeably less.

The New Zealand Institute of Economic Research has cut its growth forecasts for the year from 2.6 per cent to 2.3 per cent.

And its predictions were finalised before the release earlier in the week of the latest trade figures, which prompted the ANZ Bank to cut immediately its growth prediction for the March quarter from 0.8 per cent to 0.5 per cent.

That pessimism is readily understandable.

This country is enjoying the most favourable terms of trade for 11 years and yet, while the current account is certainly improving, we still cannot pay our way.

Export prices are 20 per cent higher than they were a year ago, the New Zealand dollar is close to its historic low, but export volumes fell 1.7 per cent during the March quarter (and but for an 8.5 per cent increase in dairy exports the fall would have been much worse).

Certainly the global trade scene is not altogether as rosy as those figures might suggest. Demand in most of our markets is slow, our currency has not fallen appreciably against our traditional competitors (notably Australia) and the powerful domestic springboard New Zealand exporters have traditionally needed has been lacking.

Nevertheless, it seems fair to ask: if New Zealand cannot increase export volumes and generate powerful export-led growth under the present incredibly favourable conditions, what will it take?

At least part of the problem appears to be that New Zealand business - with some notable exceptions - lacks the confidence, resources and enthusiasm to seize the opportunity.

Dr Cullen's Budget did not create that situation. But it did nothing to resolve it. Behind its business-friendly words the Government has done nothing practical to encourage business to innovate, grow and expand abroad.

On the contrary, most of the steps it has taken have been in the opposite direction: higher personal taxes, more restrictive labour laws, the restoration of the accident compensation monopoly, even more restrictive planning rules, tighter controls on biotech research, the raising of the spending cap and a tendency towards retrospective tax measures.

None of those measures has, of itself, been disastrous for business. But each has reduced the incentive for investors to take any risks, made it a little bit harder for businesses to try new things and provided one more reason for innovators to look overseas.

The time has now come for the Government to start reversing that trend and coming up with policies which make it easier and more attractive for New Zealand business to grab the opportunities which are out there.

Otherwise the Budget's pious hopes of New Zealand moving back into the top half of the OECD rich list will recede further into the mists of economic unreality.