Cullen's third Budget needs positive message for business

By MICHAEL BARNETT*

Wanted: a Budget that encourages small businesses to get out there and do it ...

Finance Minister Michael Cullen will deliver his third Budget on Thursday. If it follows the pattern of his first two, businesses will be presented with a fiscally conservative document, short on surprises and slanted towards rhetoric on economic change without supporting action.

But if Dr Cullen wants to show he has been listening to the pulse of business, he will know the time is ripe for some aggressive and innovative action to help business lock in sustainable economic growth.

We all agree with the rhetoric: small-to-medium sized enterprises (SMEs) are the future powerhouse of the economy.

But performance is falling well short of potential. Fewer than 10,000 businesses generate most of their wealth by exporting. The populist idea of New Zealand as an export-led economy is in fact a myth.

The talkfests held around the country over the past 12 months have delivered a single, simply worded message:

There is a big opportunity for the Government to do something of historical significance to build a new tier of high-earning world-class export-focused industries - to turn myth into reality!

Despite the overwhelming view of businesses, it seems the Government has ruled out the traditional route to higher growth of cutting taxes to rates below competitor nations. If that's the case, some innovative and radical (for New Zealand) alternatives need to be considered, such as:

* Revisiting fiscal policy. The stimulus of the $1.4 billion investment programme needed to modernise Auckland's transport system would boost growth across not only downstream industries, but a wide spectrum of investors seeking First World destinations.

* A strategy to attract new investment. Last year's Budget highlighted the case for transforming the economy to get our living standards back into the top half of the OECD.

But as reports have emerged of what action steps comparable smaller countries have taken to lift living standards, it is plain that we need not just to double current rates of growth but sustain the effort for 10 years or more. To catch up with the pay scales and productivity rates of other developed nations, expanding the economy as fast as possible will not be fast enough!

Instead, the challenge for the next few years is to have a campaign to attract sufficient foreign investment to lift productivity enough to stop us sliding out the bottom of the OECD.

* Clusters and incubators. Cluster development is touted in almost every top-performing country as the industry growth tool.

Our burgeoning superyacht, electronics, software, film-making, and education export clusters are exciting niche examples of what local businesses can do.

Faced with the evidence reconfirming the enormous potential to develop growth-focused industry clusters by the likes of Industry New Zealand, Competitive Auckland and regional economic agencies in Christchurch and Wellington, the question for Dr Cullen's third Budget becomes: what will the Government do to boost the performance of Industry New Zealand and other economic support agencies to enable businesses to get there and just do it?

* A campaign to unshackle SMEs from unnecessary red tape.

Yes, if Dr Cullen wants to use this third Budget to unveil a positive message to business, it will contain surprises. Otherwise it is likely to end up like the first two - another missed opportunity.

* Michael Barnett is chief executive of the Auckland Regional Chamber of Commerce

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