New report outlines action to save NZ economy

By AARON LIM & MICHAEL FIELD - BusinessDay.co.nz | Friday, 10 October 2008

If our political leaders and regulators act quickly enough New Zealand can not only weather the current financial crisis, but come out stronger and growing faster than our international competitors according to a draft report released by David Skilling of the New Zealand Institute and Mark Weldon of NZX.

Amongst the major measures they propose are:  

Deferral of provisional tax payments by businesses to year end for at least a two-year Period

100% tax depreciation on capital investment for the next two years

 Incentives for skilled Kiwi expats and new businesses to relocate to New Zealand

 Creation of an at-scale SOE Holding Company to finance investment and drive global growth.

The current global financial crisis is one of the most serious events the New Zealand economy has faced for decades, according to the report.

 "It's an important national level issue that needs greater debate" Skilling said.

"What we have seen to date [from our political leaders] is not close enough" Dr Skilling added.

Skilling said the current crisis from the New Zealand perspective was far more around the real economy, and "we want to make the business environment as attractive as possible".

The draft report proposed a new structural model for managing State Owned Enterprises (SOE) without privatization, by putting the commercial orientated SOE's such as Meridian into a new holding company, KiwiCo.

"KiwiCo would be a way of unlocking a pretty significant block of assets in the New Zealand economy," Skilling says.

"We are not proposing a change in ownership, but a new structural model which will boost investment and get around the privatization debate, so that the issue can be managed in an active way", Skilling emphasized.

On the subject of research and development tax credits, Dr Skilling said that retaining them was vital in making New Zealand as attractive as possible for firms to make such investments here.

"New Zealand is one of the few countries without it [research and development tax credits], which is important in terms of internationally mobile firms which can choose to locate anywhere", Skilling says.

"Releasing the strategy in draft form is a reflection of both the urgency of the issues and the desire to stimulate a constructive conversation about the best way forward" said NZX CEO Mark Weldon. 

New Zealand politicians are not reacting seriously enough to the global credit meltdown and the country needs to take stronger action to get through it, NZX head Mark Weldon says.

"I would have hoped is a recognition that this financial meltdown... will play very negatively for our economy," he told Radio New Zealand's Nine to Noon programme.

"You would have really hoped people would have discussed how we are going to respond to it and how we will emerge more strongly."

Mr Weldon admitted the proposals included "some things that will be out there a bit."

 Proposals included provisional tax payments being deferred for 24 months, capital investment be "prioritised and incentivised" through a 100 percent write-off in the year purchase and a two-year income cap tax at 20 percent for New Zealanders returning home.

Mr Weldon told radio that they produced the report because they wanted recognition that the crisis will play out very negatively.

Political parties were not adequately discussing it and were instead playing "tick tack" over small amounts of money to taxpayers that will only fund consumption.

"It is not really in either party's best interests, politically, to talk about it," Mr Weldon said.

Labour did not want it on the agenda as it would raise questions of who the country got to where it is, while National had not been giving its "greatest thinking" to coping.

"We have endeavored to create a non-partisan set of actions and practical steps to ensure that New Zealand businesses can both keep their doors open and have strong growth prospects in the future" Weldon added.

"The response must be about more than battening down the hatches ... We should see this as an opportunity to position the economy for the longer term, as well as manage the risks."

The report suggested provisional tax payments be deferred for 24 months, capital investment be "prioritised and incentivised", a two-year income cap tax at 20 percent for New Zealanders returning home, firms be attracted to New Zealand with two years of no company tax.

In the longer term, KiwiSaver be made compulsory and the biases in the tax code that promotes housing speculation be removed.

New Zealand's response to past crises was the "insular" policies of Think Big and protectionism, the report said.

"Our lack of appropriate response then led us to the economic brink a decade later. We now face the same risk.

"We believe there is little we can do about Northern Hemisphere banks, there is a lot we can do to determine how well the New Zealand economy copes with permanent changes to global credit markets and a global economic slowdown."

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  - with NZPA