Michael Cullen: Untapped value of the single market

COMMENT

One of the most interesting aspects of the Herald's Mood of the Boardroom survey was the high enthusiasm for a single transtasman market. I share that enthusiasm.

Progress on the transtasman economic relationship stalled in the 1990s because of a lack of strong political leadership, but the Government has made it a high priority, an attitude the Australians have reciprocated.

In the past few years, Peter Costello and I have developed a strong consensus on the benefits to be gained from greater economic integration and the need to clear away obstacles expeditiously.

We have agreed to meet annually to advance a formal agenda that encompasses business law, taxation and regulation of securities, and in our two such meetings to date have taken some significant steps forward.

There is untapped value in a single market of 25 million people, particularly for New Zealand businesses. Economic integration with Australia will be a key driver of economic growth in the decade ahead.

So, too, will be how we meet the challenges of acquiring and using better technology, building and retaining a higher-skilled workforce, maintaining and expanding our infrastructure and enhancing the marketing of our products and services.

In an economy as small as ours, we cannot afford to take a confrontational approach to challenges as important as this. Those who still think in terms of a clash between grand Victorian forces of capital and labour need to be reminded that Victoria has been dead more than 100 years.

With a workforce that is more mobile - notably at the top end, but, in fact, throughout the spectrum of skills - it is foolhardy to think that we can fall out of step with the rest of the OECD in terms of labour relations and standard conditions without serious long-term consequences.

The fact is that we are facing skill shortages and relatively high labour participation rates, and there is no reason to believe that this will change.

Many firms are now achieving productivity gains, not by programmes of cost-cutting but with business practices that improve timeliness and quality, minimise costs and waste, and enable employee participation in setting and reviewing company goals. The Workplace Productivity Working Group has been tasked with ensuring that these examples are more widely known and understood.

The Growth and Innovation Framework is also driven by the challenge of how we can make the best possible use of the resources and talents at our disposal. The Government will continue to engage with business leaders at all levels on these issues. We are seeing the fruits of this engagement in the Government-business partnerships that are up and running, and in initiatives such as the Biotech Taskforce and the tertiary reforms.

There is always room for better mutual appreciation of the roles government and business should respectively play in strengthening the economy, and I welcome the Herald survey as a contribution towards that.

But surveys are blunt and limited instruments and no substitute for informed debate, just as understanding the mood of the boardroom is no substitute for understanding what is shaping the economic fundamentals upon which the future of New Zealand business must be built.

It seems that scarcely a week goes by without another sample of business people being asked whether they would like to pay less tax and whether they would like less regulation of the labour market. The results are entirely predictable and do not tell us anything new about the economy and how it is evolving.

What I would like to see investigated is the question of whether business people would prefer to be subject to, say, the Australian or the British tax regime in its entirety, since it is that, and not simply the headline rate, that their competitors have to deal with.

The same goes for labour market regulation, where our current reforms place us toward the flexible end of the OECD and not, as some are suggesting, on a path back to the 1960s and 1970s.

That is not to say we should not engage on the detail of the present bill. But business leaders and some commentators need to remind themselves of how poor their predictions were in 2000.

It is important that everyone maintains a sense of perspective. In its 2003 economic survey, for example, the OECD commented that in New Zealand, government regulation is generally of good quality, and compliance costs are not high by international standards. This has been reinforced by a number of other surveys, including by the World Bank and the Heritage Index of Economic Freedom.

There is obviously always room for improvement but that should not blind us to the many things New Zealand has got right and to the positives we have going for us.