Jim Eagles: Big issues still crying out for action

The growth strategy outlined in this year's Budget is akin to putting mag wheels and an in-car satellite navigation system into the same old Holden Barina and sending it out for speed trials on an increasingly badly pot-holed track.

Many of the initiatives are useful: greater investment in state research, extra spending on education and training, more trade promotion, improving the quality of state sector management and a bit more money for seed capital.

Some are merely for show: a small business summit, yet more advisory services and studies of best practice in employment relations.

But either way they tend to miss the point that, like a racing car, a successful economy needs a powerful engine and, as with time trials, faster growth can only be achieved on a good track.

The engine of economic growth in New Zealand is business but it continues to be held back by excessive Government regulation and inadequate infrastructure.

Once again the Budget has acknowledged those problems yet done nothing to resolve them.

Right now, for instance, New Zealand has significant problems with its transport and energy systems which are clearly holding back development.

So is the Government investing some of its huge surplus into infrastructural improvements? No. It is spending $550,000 on an infrastructural stock take and a $1 million on research into transport pricing.

Two years ago the Ministerial Taskforce on Business Compliance Costs established that the complexities of the tax system were a major headache for business.

So, is the Government going to do something to ease the pain? No. Having already conducted a phone survey of 2000 businesses, held 15 focus groups and sent tax inspectors to visit small businesses it is now going to issue a discussion paper on tax simplification some time in August.

Several surveys of business have identified the Resource Management Act as a major obstacle to development.

So does the Government's major economic statement of the year have something significant to say on the subject? No. The Budget reveals that there will be a training and accreditation scheme for councillors and commissioners involved in RMA decisions.

The seemingly endless procrastination on anything solid which might be positive for business contrasts sharply with the alacrity with which the Government has moved on less helpful policies such as more generous holiday provisions, stricter workplace safety rules, a more rigid labour market or higher minimum wages.

Similarly, the reluctance to invest money in the economic infrastructure is remarkably different to the ease with which around $1.5 billion has been found in this Budget for social services.

But perhaps even more worrying than the lack of action on pro-business policies is the failure to take the opportunity provided by healthy surpluses to improve the track on which our businesses must perform by cutting Government spending.

No one could quibble with the Finance Minister's remarkable success - so far - in restraining the spendthrift ambitions of his colleagues. His refusal to spend surpluses before it is clear they are permanent is admirable. But that does not alter the fact that under Michael Cullen's watchful eye the size of the tax take has increased enormously.

The actual income tax rates may not have changed since his initial boost to the top tax rate but inflation, wage rises and economic growth - commonly known as fiscal creep - plus increases in the likes of road user charges, petrol tax and liquor duties, have seen more and more cash taken out of the pockets of companies, investors and consumers.

All that money is not available to be invested, used for new ventures or spent on new washing machines.

New Zealanders have for some time been more heavily taxed than countries with which we traditionally compare ourselves such as Australia and Ireland. The Irish continue to reduce their tax as a proportion of GDP and to lower company tax.

Australia's Treasurer, Peter Costello, cut company tax in his previous Budget and this time used his surpluses to trim personal tax rates back to eliminate the effects of fiscal creep.

But Cullen is hanging on to every cent.

True, he has hinted that the next Budget may see more money handed back in benefits and lower taxes for low and medium-income earners - though definitely not businesses - but that is likely to be too little and will certainly be unnecessarily late. Small wonder that the Budget forecasts for economic growth suggest New Zealand will continue to fall behind Australia and Ireland.

The Government is correct in believing that investment in research, education and training, trade promotion and venture capital will help the economy grow.

But its sensible moves in that direction will never achieve their potential so long as businesses which might exploit extra skills and innovations are deterred by unnecessary red tape. And the New Zealand economy will never be able to get up to full speed so long as 37 per cent of the wealth continues to be in the unproductive hands of the Government. This is by no means a bad Budget. But it is not a good one either.

The fortuitous economic circumstances of recent years gave the Government a chance to put some power behind its rhetoric about economic growth. Sadly it has not taken that opportunity.

As a result our good old Barina will continue to fall further behind the likes of Australia and Ireland as they zip round the track in their streamlined Ferraris.