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MAY 14

Policies to encourage manufacturing

Last week we saw an announcement by the Labour Party called the “Manufacturing economic upgrade”. This picked up on many policies of which the NZMEA has advocated for some time now, and the outcomes of the Manufacturing Inquiry that reported last year. It is vital to all New Zealanders that politicians recognise the importance of our manufacturing sector and establish a policy response to tackle some of the issues that are slowly chipping away at the sector.

Generally the announcement recognised that things can’t be improved simply by a single policy change, and that a number of things need to change in a coordinated way: accelerated depreciation, research and development tax credits, changes to Government procurement, monetary policy reform to tackle our overvalued exchange rate, and the end of the capital gains tax exemption are some of the policy changes outlined.

Each of these changes are important to reinforce onshore manufacturing activity , for any particular manufacturer some will be more important than others, but as a package manufacturers will be encouraged to invest and develop their businesses, which is good for the balance of payments and the creation of well paid, quality jobs. For the first time in a generation the voice of the manufacturing community has been heard by policy makers, through the Manufacturing Inquiry, leading to policy informed by both practitioners and bureaucrats.

The manufacturers who spoke to the Manufacturing Inquiry were adamant that the current policy settings are not working for the sector. While some can do well, many more struggle, but with the right policy mix, the sector as a whole could do far better, which in turn would help foster innovation, high paid jobs and demand for services that support other sectors. 

While the Labour announcement was the most recent, we have seen other political parties take similar steps in framing policy t o encourage investment and export growth in the manufacturing sector, notably the Greens and New Zealand First. Currently, the National Government’s polices are less direct; favouring Callaghan Innovation grant based interventions that have been great for those who have been able to obtain grants, but do not help those who cannot. So far we have seen some increased funding to NZTE, but we will have a much clearer picture of their policies going into the election after the May 15 Budget, but thus far are unwilling to tackle the really big issues, such as the exchange rate and the tax imbalance with capital gains exemptions.

Overall we really are happy with the progress that manufacturing policies are making, particularly with the Labour announcement, these are ideas we have been pushing for a decade . NZMEA President Brian Willoughby had the following comments, “This policy release from the Labour Party is so important that if it becomes government policy it would define a shift in New Zealand’s culture. The question is will New Zealanders outside the tradable sector recognise how groundbreaking and important this is to them and their children.”

We have not yet seen details on the really big challenge: changes to monetary policy that will help balance our economy – more on that when we have seen the details from David Parker. We hope these policy upgrades are seriously examined by the Government as they are changes our economy really needs. There is little point in saying grow exports, and support export growth when nothing is done to deal with a significantly overvalued currency, without the prospect of making a return who is going to invest?

Everyone knows this, Treasury, Reserve Bank, even Government, it is not easy but things need to change. We have said it before if nothing changes, nothing changes.

tags: manufacturing, labour, exchange rate, exports, added value, niche, capital gains tax, monetary policy, r&d
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