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Source: Reuters
An independent think-tank believes New Zealand has a "fleeting" chance to use the global recession to "re-launch" itself.
And The New Zealand Institute warned in a paper on Wednesday that unless this country "radically" improved its growth prospects, it faced the possibility basic amenities could be at risk.
Those amenities could include quality free education, health services, environmental protection measures and security in retirement.
If current policies were continued, the government's books would deteriorate markedly and rapidly, and remain in bad shape even when the economy was in recovery, the institute said.
It is looking for the government to make hard decisions in the May 28 budget and joined the growing chorus calling for the next two tranches of proposed income tax cuts to be cancelled.
The tax cuts would contribute to New Zealand's structural deficit, were unlikely to do much for growth, and did not support the most vulnerable households, the institute said.
It also wants a review of some government spending, including the Working for Families tax credit system and health spending.
The aim would be to achieve the aims of the policies more effectively at lower cost.
At the same time, the institute said it was important to enhance support for vulnerable communities during the recession, for instance protecting help to low income families.
Also, relative to other OECD countries, a high proportion of New Zealand youth were not in work or education, with disengaged youth a particular risk for high-cost negative social outcomes such as crime.
Ensuring those at risk, including unemployed youth, could take part in productive work or training through the recession may be a cost-effective way to prevent costly social outcomes in the longer term, the institute said.
It wants the tax mix to be considered in a long term rebalancing to address problems of under-investment in productive areas while the housing market boomed and dependence grew on foreign funding of the high current account deficits.
Future growth strategy
Creating new sources of revenue, such as from taxes on property, would create room to finance the cost from future demographic pressures, the institute said.
A complementary approach would be to more lightly tax productive investment and savings, for example through gradual reductions in company tax and taxes on savings, while making residential property investment less attractive.
The stakes were suddenly so much higher on New Zealand having a well conceived strategy for aggressively growing the economy, the institute said.
New Zealand needed to get back to, and then above, the growth path predicted before the recession.
Investment needed to be made in areas that strengthened the exporting and overseas investment performance and in areas that boosted business innovation and its translation into higher value products and productivity enhancing business processes.
The government's announcement of a $1.5 billion investment in securing broadband access for 75% of the population was welcome, the institute said.
The government should also seek to strengthen other infrastructure that would aid this country's engagement with overseas businesses.
An example would be investment in infrastructure for transporting physical exports, such as overland transport corridors to key ports.
"In seeking to make room for these investments, government could be strategic about extracting value from assets currently on its balance sheet, for example more aggressively managing the assets held in SOEs (state owned enterprises)," the institute said.
In that matter it appears to be thinking along similar lines to the government which told the chairs of the SOEs earlier this month that profits and productivity needed to improve.
New Zealand had a fleeting chance of about two years to take advantage of the disruption caused by global recession, the institute said.
It could do that by repositioning itself ahead of other countries coming out of the recession, and attracting the business opportunities and skilled workers it would need to fuel a step change in New Zealand's growth.
"For New Zealand to use the recession to re-launch itself as a magnet for business and talent, it must immediately start putting in place high-impact policies to make that happen," the institute said.
