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JAN 11

Change for 2011?

With an election looming at the end of the year, 2011 needs to be a turning point for New Zealand’s economy. 2010 demonstrated that the problems brought out by the recession have not been resolved and the same imbalances that existed in the era of economic growth have persisted in the downturn.

Economists expect the figures to show that the economy grew in the last quarter of 2010, meaning that a double dip recession will be avoided, but regardless of the exact growth numbers it is clear that we still have a problem. The graph below shows that any talk of rebalancing is wrong. Lending to business and agriculture has declined rapidly while lending on non-productive housing is holding up.


Here are five key policies needed to turn the economy around in 2011:
1. Capital controls to curb offshore debt growth alongside lower interest rates – a new focus on currency stability.
2. A balanced tax system.
3. R&D support that matches or betters our trading competitors.
4. Productive investment incentives, early stage business, plant and patent write offs.
5. Compulsory savings.

These five policies are key to turning New Zealand from a debt reliant importer of goods into a productive export focused economy.

Attention to currency volatility is important so that exporters are encouraged to invest in their businesses without the fear that random exchange rate changes will trash their profitability. A balanced tax system including taxation on property is needed so that capital is used to invest in revenue and job generating businesses rather than assets.

Investment and savings incentives are needed to ensure that there is an adequate level of local capital available to firms and that there are the right signals to invest this money in the real economy.

2010 was largely a wasted opportunity to rebalance New Zealand’s economy; 2011 must see some more coherent, effective and significant changes.

tags: rebalancing, capital controls, balanced tax, r&d
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