O'Sullivan: Crisis in confidence is more than just talk

By FRAN O'SULLIVAN

So it's all been a media beat-up.

The commentators and unintelligent bank economists are to blame for the collapse in economic confidence, not Government actions.

Well, I've got news for the Treasurer: When you rewrite the rules of engagement you should reflect on this. Business doesn't care if you find it lonely at the top. It's lonely at the front, too.

In the past week, we've all read a plethora of articles claiming that business people are telling Michael Cullen they may have talked themselves into a funk about New Zealand's economic future.

It's not all that bad. In pre-Budget briefings Dr Cullen has had, commentators have also been slagged.

It's the age-old game of shoot the messenger - and it's all self-serving rubbish.

Two weeks ago, Dr Cullen reversed his previous intention to save Budget surpluses in times of plenty and dole them out when revenues are crunched during slower growth periods.

In bureaucratic terms, Dr Cullen had planned a counter-cyclical fiscal policy. In business, it's known as managing profits.

The Treasurer's intention had been to make a virtue out of fiscal prudence. Bank any excess now to spend later. Instead, Dr Cullen will on Thursday front-end load considerable Government spending in his first Budget.

On Thursday, Dr Cullen must convince business and credit-rating agencies such as Standard & Poor's that the forecasts which underpin his spending plans have integrity.

That's not an easy trick when the politicians have not cottoned on to why the confidence has declined. For the benefit of our terminally opaque politicians, let's restate the reasons:

Government arrogance to the Parliamentary Process: Consider the extraordinary situation where the Prime Minister has damned as political enemies those business people who are opposed to the Employment Relations Bill.

Let's reiterate why business is upset.

The bill was devised in secret by a group of unionists who unilaterally gave themselves the right to inspect employers' books. Of themselves, such lunacies are not cause for packing it in. But even the PM has blamed the fall in confidence on people openly opposing the bill.

Yet, this is business' only avenue to get changes when a Government decides employers are not worth consulting first. The parliamentary committee process was instituted so that the public could have its say and modify the effects of Government legislation.

We would rather you state categorically which aspects of the bill you will change rather than give bland assurances there will be changes.

Making inane statements on the New Zealand dollar: Dr Cullen still has to learn that the Treasurer's words affect markets.

And nothing Reserve Bank Governor Don Brash did had any effect on stopping the recent slide. The Kiwi fell to 44.65USc, its lowest level in 15 years. The low dollar is pushing up import prices. As well, mortgage rates are climbing now at 8.8 per cent from 6.5 per cent six months ago as the Reserve Bank keeps increasing the Official Cash Rate to stymie inflation growth.

Cancelling tax writeoffs for R&D and shelving the export guarantee scheme: The final story for many in the Knowledge Economy who expected implementing tax writeoffs was one business-friendly promise Labour would keep.

It hasn't and exporters are also angry that the guarantee scheme has been taken back to the drawing boards.

The Government's tax grab on smokers: Yes, they're a captive audience.

But politically it's a stupid move when the Government inherited a strongly growing economy and had already taken $400 million off those earning over $60,000. Domestic consumers are being hit hard by this unnecessary tax grab - but hey, the arts community got a huge handout, again unbudgeted.

Unilateral cancelling of Government contracts: One surefire way to worry overseas investors is to cancel valid contracts.

Jettisoning the West Coast logging contract was a dumb move. Even dumber was the decision to pull the rug from under the Sealord sale by changing the rules midway through the tender process to ban foreign bidders.

There are strong reasons to believe the Government's actions may have been ultra vires.

Preferential treatment for Maori acquirers of state assets: The Government's commercial judgment is lacking by reserving for Maori, at a discounted price, one of the four new radio spectrums.

Yes, there's plenty more. The property market has stalled; we have a huge current account deficit; the brain drain is in full flight; blue-chip companies are moving offshore; investment has been slashed and businesses are cutting back on employment.

Spending up large in the Budget may stimulate domestic consumption and underpin economic growth at forecast levels.

But there is a strong chance confidence has slipped too far for that to happen.

If that occurs, revenue will be affected, and the Government's surplus will be at risk of becoming a deficit.