Budget should focus on new initiatives for growth Dominion Post, 17 May 2010 By Graeme Harrison

This week’s Budget will do well to focus on new initiatives to expand export-led growth rather than just shift money around, argues Graeme Harrison.

Bill English will deliver this week’s Budget against a background of an improving, if fragile, economy and rising business confidence.  The latest National Bank business confidence survey released at the end of last month showed a net 50 percent of firms expected an improvement in the economy over the next three months. How things have changed since this time last year !  With the worst of the great recession behind us, now is the time for some bold new initiatives which should seek to capitalise on this confidence and set the basis for new investment in sectors showing global promise.

Inevitably much attention will be focused on changes to the tax structure and on government spending in health, education and welfare.  Certainly attention to the tax system is required to improve the investment climate and to match ? or even take a march on ? developments across the Tasman.  And poor quality government spending is a drag on the fiscal situation which has flow on effects to other parts of the economy.  But tax changes and reduced government spending will not of themselves grow the economy.  What is needed more than ever at this time in our history is new investment in sectors – some new, some existing – which create value.

The Prime Minister highlighted some of these in his recent Statement to Parliament – sustainable agriculture, forestry, aquaculture, energy and ? yes ? mining.  All of these sectors, with the right policy framework and matching investment from both public and private sectors, are ripe for expansion.  That’s because all of a sudden, the world wants what we have here in New Zealand.  Within one generation (25 years) world GDP is expected to increase by as much again as it did in the past 200 generations.  The world’s population is set to grow by one third.  Many in the developing world aspire to attain within their lifetimes the standard of living we in the developed world enjoy today.  This cannot occur if the global supply of most resources especially food does not increase sharply.

Almost all global natural resources are becoming increasingly scarce.  New Zealand’s natural resources are among the world’s richest.   Many of those ? including water, and everything that grows from forestry to agricultural products- are perpetually renewable.   We are sitting on a unique opportunity to achieve a huge and permanent economic step change through a major increase in exports.

Why do we need this ?  Quite simply because the structure of the economy in New Zealand is not sufficient to provide for the aspirations of New Zealanders.  Why else do so many of us, and not just our best and brightest, leave our shores for greener pastures across the Tasman ?  Growing our economy is not about lining the pockets of a few.  It’s about opening up whole new areas of job creation for the many.  It’s about creating more enterprises able to compete in global markets.  It’s about developing activities which could, if sensibly managed, contribute quite dramatically the funds needed to improve social outcomes.   There is a clear link between growing the economy and funding a world class health, education and social welfare system.  Money for hip replacements does in fact grow on trees ? and on the land, under the land and in the sea.

The challenge of this week’s budget is not just about balancing the books nor even about making New Zealand a better place to invest.  We need to focus on growing the pie rather than sharing out the pieces. We need to build the commercial partnerships and structures that can turn new opportunities into value and profit for re-investment.  The Government has a big role to play as a motivator and co-investor but these new ventures need to be driven by business.

New Zealand is unique.  No other country has our level of development and our society’s aspirations with such a small population and so far from major markets.   But the opportunities open to us are also unique. For once history is on our side.  New Zealand has what the world wants.  Against an improving economic outlook the time is right to invest for the future and achieve a huge and permanent economic step change by opening up new sectors for further development.