More than one policy recipe for rising growth

By COLIN JAMES

The bluntest message to business from Helen Clark's Government these past two-and-a-half years has been: coexist with your workers. The sweetener has been an invitation to the waltz - "partnership" in the jargon.

This heady mixture has produced an odd couple. From white-hot rage this time two years ago, many in business have found they can do business with the Clark bunch - some even sing its praises.

To some extent that is the work of a benign economy and comfortable bottom lines. As those tighten over the next year there will be more scope for National and Act.

Business New Zealand has reduced the main question in the election to this: how can we best ensure first-world health, education, superannuation and environmental outcomes for ourselves, our children and our grandchildren? Answer: faster economic growth.

But that doesn't say much. All parties other than the Greens agree and there is now a consensus across the National/Act-Labour divide that 4 per cent growth a year is achievable and desirable.

But even if they mostly agree how fast the cake should grow, parties can't agree on the ingredients or the oven temperature.

Essentially the Government (Labour plus Jim Anderton) rests its economic case on stable macroeconomic policy, judicious regulation and "economic transformation" through active supply-side interventions.

National and Act, though, insist that tax cuts and deregulation are vital.

Both Labour and National agree on free trade. Both want a new World Trade Organisation round and both want free trade agreements with the United States and any other countries prepared to tango in earnest. Jim Anderton is uncomfortable about free trade but does not push that.

Act of course backs free trade. But the Greens, on whom a second-term Clark-Anderton Government might depend, take part in street fights against free trade. Even Labour would like, though it does not push to the limit, some gestures to "fair" trade, such as protection for workers, the environment and the Treaty of Waitangi.

An open economy imposes limitations on fiscal policy. Both major parties accept that taxes cannot be too high for fear they will deter investors, but they differ on fiscal stance.

They agree on running Budget surpluses. But Labour insists on especially high surpluses to finance Michael Cullen's piggy bank - the superannuation fund. The Greens voted against the fund but if it stays they will push for it to be invested locally and in green and socially constructive businesses. Anderton also wants more of the fund invested locally.

National and Act would abolish the fund, in part to finance tax cuts and, in National's case, also some additional spending, notably to "rescue" district health boards from mounting deficits.

Tax cuts would, National and Act believe, produce a better return for the economy than a government fund locked up in world financial markets.

National proposes to reduce the top personal tax rate to 32c and the company rate to 27c by 2006, with a top rate of 25c for both in 10 years. It would also give a tax rebate for long-term savings of up to $100 a fortnight. Act wants to move immediately to a 28c company rate and top personal rate and a standard income tax rate of 18c.

National and Act believe tax cuts are needed to attract and keep investment and entrepreneurs. Act insists there is a direct link between low tax rates and faster growth.

fxdrop 3, 60 C ULLEN disputes this. Some high-growth countries have higher tax rates and takes than New Zealand, he says. And he says comparing the headline rate misses out many add-ons or compulsory levies for companies and individuals in other countries, including Australia.

Not that Dr Cullen intends tax increases. He would "investigate" converting a portion of income tax into a dedicated health tax, which could be used as a backdoor way to raise total income tax if health care demand does not stop rising faster than GDP. He insists it would not come into force until 2005 so any rise would be in the parliamentary term after next. Otherwise, Labour's credit card pledges no rise in income and company tax and GST.

Dr Cullen has also insisted he sees no cause to repeat this past term's petrol and cigarette excise tax increases, though he has refused to rule them out.

Mr Anderton has carried over the Alliance's fascination with a financial transactions tax, a Democrat policy. The Greens want income tax partly replaced with eco-taxes on some activities.

Have tax, will spend. Labour aims to keep spending in the current 33-35 per cent of GDP range. National aims over time to reduce it below 30 per cent. Labour's "prudent" target under the Fiscal Responsibility Act is to have gross debt around 30 per cent of GDP where it now is, and will borrow back up to that level to fund "deferred maintenance" in infrastructure. National's prudent target is gross debt below 25 per cent.

There are deep differences over regulation. National and Act opposed the Government's tightening of the Commerce Act, regulation of the electricity industry and some other regulatory initiatives. National would introduce a Regulatory Responsibility Act to force a cost-benefit analysis of all proposed regulations. Act would have a "bonfire of regulations".

National and Act fiercely opposed the renationalisation of accident compensation and would deregulate it again.

They even more fiercely opposed the Employment Relations Act and other workplace legislation. National proposes a near-reversion to the old Employment Contracts Act, though retaining the ERA's good faith provisions.

Labour's quest for equity in the workplace would in a second term result in yet more legislation: a holidays act rewrite; protection for very vulnerable workers when an activity is contracted out or sold; a review of redundancy laws; a mechanism to examine pay equity between men and women in comparable occupations, though not a commission with mandatory powers, as was enacted, then repealed, in 1990; administrative support for bids for multi-employer agreements; protection for workers in contact with hazardous substances; a minimum employment code for contractors to the state sector; a "fine tune" of the Employment Relations Act; and ratification of ILO measures, one of which might allow general strikes.

National and Act would oppose almost all of that.

Another gulf divides the two sides on the Resource Management Act. National late in 1999 proposed some liberalisation of the act. The Clark coalition reversed all of that and increased legal aid for objectors. Labour would rely on best-practice benchmarking. National and Act would liberalise the RMA.

The two sides differ on other environmental issues. National would allow sustainable logging of native forests, which the Labour coalition banned. National and Act would not ratify the Kyoto protocol on climate change until that was done by Australia and the United States.

Labour - and, of course, the Greens - are strong advocates of environmentalism and the Clark coalition developed energy, waste and biodiversity strategies, imposed a moratorium on marine farming licences and brought down legislation to greatly extend marine reserves. A biosecurity strategy is promised.

Environmentalist thinking infuses the Government's draft transport strategy issued this month. The strategy ranks economic efficiency as only one of five objectives alongside "sustainability, integration, safety and responsiveness" and wants the transport system "eventually [to] take responsibility for all the costs it imposes on society as a whole".

A cycling and walking strategy is to be developed and rail is applauded. But all is not green: the petrol tax rise this year goes partly to build roads in Auckland (some by public-private funding, which is also a National and Act enthusiasm) and in the burgeoning forestry areas of Northland and the East Coast.

fxdrop 3,60 N ATIONAL, having acquired environmentalist and former adviser to Simon Upton, Guy Salmon, is redeveloping its energy and waste strategies but leans more to market-driven measures and economic incentives. Act takes an even more market-driven line.

National's proposals include a plan to sell the state-owned farming corporation, Landcorp, to create a fund to promote sustainable land management. (This incidentally highlights another left/right divide: Labour has stopped privatisations.)

So where does profit come in Labour's approach? In its supply-side interventions. This is another difference with the right, though National has been moving since 1999. Labour and Anderton have an array of initiatives under way or promised:

Real funding increases for government research and development plus centres of excellence and incentives for private sector research.

Venture capital for startups, incubators and facilitation of "clusters".

Tax impediments to innovation are to be hunted down and eliminated.

Enticement (with money) of big foreign companies into joint ventures with small local high-tech operations.

Sector task forces of industry executives and bureaucrats to identify roadblocks and prioritise "whole-of-government" mitigating action.

"Protection" promised for next term of existing industries while they evolve "in response to new opportunities and to maximise their potential contribution to exporting, production and employment".

Backing for development projects identified by regions (for example, a wine centre of excellence in Marlborough).

A slightly more assertive immigration policy, coupled with backing for the Kiwi Expat Association project to link local companies with New Zealanders in key positions abroad.

Tripartite talks (government, business, unions) on how to lift productivity.

Reorienting tertiary education to boost quality in the wake of the successful lift in quantity in the past 15 years, and to channel funds to courses seen as directly contributing to economic transformation.

A boost in skills training from 93,000 people last year to 250,000 by 2007, with everyone under 19 in some form of post-compulsory education or training.

Promotion of e-commerce and e-government.

It is these sorts of initiatives and the "partnerships" the Labour coalition and Anderton have formed as a result that have soothed and even wooed business. Moreover, it has been done at relatively modest cost and produced some real results.

Many in business were also looking for some tilting of the playing field.

Act spurns nearly all of those Clark coalition initiatives.

But it was National minister Max Bradford's "bright futures" programme late in 1999 which started down the route Labour has travelled. Bill English says National would keep schemes it thinks are working, but would consolidate the plethora of agencies and weed out schemes that aren't working.

Specifically, National would "refocus" the Crown research institutes and "introduce innovative, private sector funding arrangements" - and develop the startup support schemes. It would "create a world-class investment promotion agency", which is close to Labour's intentions. Both National and Act would actively seek out skilled migrants.

Coupled with tax cuts, liberal labour laws and a reformed RMA that might logically be enough to match the Clark coalition's cuddling up. If so, National might expect a late surge of support from business, especially small business.

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