Dialogue: Need to welcome, reward business

By MICHAEL CULLEN*

Relief of poverty, concern about inequality and creation of opportunity are basic obligations of a modern democratic state. But they are not the only obligations, and a more expansive policy agenda has to be paid for.

The Budget, therefore, has to be concerned with cementing in an economic environment that welcomes, encourages and rewards business.

I am not talking about massive change. The days of radical and continuous restructuring are over. The suggested benefits of restructuring always tended to be overshadowed, the time required for them to appear was underestimated and the costs of transition tended to be discounted or ignored.

Of course, we need to be conscious of costs. The problem arises when cost-consciousness displaces other values, including business values.

Cost-obsessive policy does not pay sufficient regard to the human dimensions of production and consumption. The Employment Contracts Act is an example of excessive emphasis on lowering labour costs. It wasn't fair, its lack of balance made it politically unsustainable, and it did allow some elements of the business community a cheap labour option for staying competitive.

The problem is that we all know there is no future for our country in a race to the bottom on the wages front. The Employment Relations Act will reconfigure one dimension of the business framework: that around notions of dialogue and fair dealing.

The Government is determined to make sure the detail is consistent with that basic intention. We are prepared to listen to concerns over whether particular provisions in the bill have unintended and unwelcome side-effects.

The intention is that the law will not load the dice in favour of the unions, or load inappropriate risk or compliance costs on to business. It is directed at constructing sensible industrial relations legislation for a civilised and progressive society.

The regulatory environment that has emerged in recent years has also not been helpful. It has tended to help bulk buyers rather than niche innovators. The electricity review and the telecommunications review should help to re-balance that part of the business framework.

During the 1990s, levels of business activity were propped up by rapidly rising private debt. Household debt doubled, from about 50 per cent of annual disposable income to nearer 100 per cent. A lot of that debt was sourced overseas and intermediated by the banks through to local borrowers.

It is not possible to keep an economy growing by relying on an ever-expanding level of private debt, particularly if that is associated with a persistent current account deficit.

The business mix, therefore, needs to alter so there is a more consistent element of export and investment growth, relative to private consumption.

There are four big-picture features of the Budget to help create and sustain this more balanced business environment.

The first is the emphasis on encouraging and supporting young people to acquire skills. We have lowered the costs to students of the student loans scheme and introduced a modern apprenticeship programme designed to upgrade the technical skills pool.

The second main initiative is programmes aimed at industry development. Governments should not protect and subsidise, but they can lower barriers and help new industries over those that remain. Policies providing that support will be an important Budget feature.

Thirdly, the Government is determined to maintain operating surpluses over the business cycle. On current indications these will at least match those foreshadowed in the Budget Policy Statement. This takes pressure off the need to raise interest rates and, all other things being equal, contributes to a set of monetary conditions that are kinder to businesses and exporter-friendly.

Finally, there is the proposed fund to meet part of the future pension entitlements of retired New Zealanders. The main purpose is to improve public confidence that New Zealand Superannuation will be there for people when they retire. It will also have a very positive effect on capital markets.

Our capital markets have long suffered from a lack of liquidity, due mainly to the low level of private savings. The creation of a large, investable fund will inject new life into equity markets, and free up funds for investment in new ventures and the expansion of existing ventures.

Each of these elements would make a sizeable contribution to the health of the business sector. They are, however, complementary and I envisage substantial synergies will flow from them.

* Finance Minister Michael Cullen was speaking yesterday to a Christchurch business audience.