Why business confidence has fallen

Paul Glass has written an interesting piece in a newspaper about how falling business confidence is nothing to do with business hating Labour and all to do with their policies so far which have been, to say the least, a little unpredictable. quote:

New Zealand business confidence has fallen to levels last seen during the Global Financial Crisis.

While the magnitude of the decline is hard to explain, as economic conditions are clearly far better than during the GFC period, the direction is far easier to understand.

Some commentators have blamed the decline on businesses not getting the Government they expected or wanted.

I think that is far too simplistic and what we are seeing is that businesses are growing increasingly concerned about the coalition Government’s lack of clear strategy and poor execution of policy. We are clearly experiencing management by an unwieldy committee.

New Zealand has been blessed for much of the last two decades, under both Clark and Key, for having political leaders who were more pragmatic and less ideologically driven than the current lot. Remembering that financial resources are scarce and that expenditure needs to be prioritised, let’s look at coalition execution around a number of policies.

Policy: Free tertiary education

Cost: $1.5 billion over 3 years

Execution:

Who knew that this was one of the most pressing issues facing New Zealand but the Coalition government clearly decided it was and announced $1.5b of funding straight after the election. end quote.

A policy that pays student fees to all students, regardless of need, has the sniff of a bribe about it. It was an attempt to match Helen Clark’s interest-free student loans, but at least there were conditions around that. This is just an expensive free for all. quote

Policy: Support for overseas embassies and the Pacific

Cost: $1b over 4 years

Execution:
Clearly a sop to Winston Peters, it was unusual to see this expenditure prioritised above much-needed pay increases for teachers, nurses, and police. End quote.

Yes, and the cost of this would have cleared most of the wage demands from teachers and nurses. While this may be an attempt to keep China out of our backyard, nothing we could ever do will match China in the chequebook stakes. quote:

Policy: Labour market reform

Cost: Unknown, but will be substantial to business and employment

Execution:
Simply dreadful. Andrew Little is a cloth-cap unionist who is still fighting a war that ended decades ago. end quote

Yes, and while most employers are struggling to hire skilled staff, businesses will be concerned that these reforms will take us all back to the 1970s and clearly, there will be little or no consultation involved. quote.

Policy: KiwiBuild

Cost: $2b and rising

Execution:

There is no doubt that we have a housing crisis with affordability being the key issue. Government policies relating to restricting sales to non-residents, extending the bright-line test to 5 years and removing the tax deductibility of negative gearing are all sensible and long overdue.

The lottery system of KiwiBuild, however, is one of the more poorly thought out policies in recent times. Those who win the ballot will be able to sell their property after three years and keep the taxpayer subsidised profits. end quote.

Kiwibuild is a farce. A classic case of promising something you never expect to have to execute, Twyford is delivering bitter disappointment all around. 18 houses completed in 1 year. Madness. quote:

Policy: Water quality

Cost: Nothing much to date

Execution:

Water quality was one of the biggest issues going into the last election with saturation media coverage. Remember the issues around Canterbury’s rivers and the impact of dairying? Since then the media have moved on and so has the Coalition. end quote.

Yes. How come this most burning issue has now disappeared? I guess there are more pressing things such as allowing MPs to have nannies travel with them. quote:

Policy: Immigration

Cost: Unknown

Execution:

Poor. After promising large reductions in the number of net immigrants (relative to our population, New Zealand has the highest level of net immigration in the western world) in order to let our infrastructure catch up with our population growth, the Coalition has been at sea on this issue with no clear policy framework. end quote.

At sea? We still took in 74,000 immigrants in the last 12 months, in spite of the fact that both Labour and NZ First campaigned on reduced immigration (and people voted for it). Add to that the refugee quota being increased, and our immigration policy is shambolic. quote:

Policy: Provincial Growth Fund (PGF)

Cost: $3b

Execution:

The PGF smacks of third world politics. Yes the regions definitely need support but a poorly defined slush fund that exists to fund pet political projects probably close to the next election is a recipe for disaster.

Policy: Support for overseas embassies and the Pacific

Cost:$1b over 4 years

Execution:
Clearly a sop to Winston Peters, it was unusual to see this expenditure prioritised above much-needed pay increases for teachers, nurses, and police. End quote.

Ouch. I cannot argue with any of that. The Shane Jones 2020 election fund. quote:

Policy: Ban of oil and gas exploration

Cost: Billions to New Zealand in the long term

Execution:
It is clear that climate change is one of the biggest issues facing the world and we strongly support sensible steps for New Zealand to take a lead in this area. This policy however, which was announced without any consultation, will have almost no positive global environmental benefit as New Zealand will now have to import the oil and gas it needs. This was a clear case of poorly thought out “virtue signalling”. It gave all types of long term infrastructure business a real shock and raised the risk premium on New Zealand. end quote.

Calling it for what it is. Virtue signalling that will cost our economy for decades – and also just so the Princess could jaunt around Europe looking like a climate change activist. quote:

Policy: Tax Working Group

Cost: Unknown as yet

Execution:
It is high time that a thorough review of our tax system was conducted and Michael Cullen has assembled a competent team. Our economy has long had far too much focus on investment in unproductive housing speculation at the expense of other areas. The TWG has created uncertainty while it goes through its deliberations but this is unavoidable. end quote.

There is nothing to suggest that the TWG is doing a ‘thorough review’ of our tax system. It seems to me that the mandate is quite clear – introduce a capital gains tax of some sort. That was all it was ever about after Labour was forced, once again, to ditch its CGT policy at election time because it was political suicide.

Let’s hope CGT will still be political suicide in 2020. It is time that the government stopped pretending that there is no problem, and it is just that business hates Labour governments. Business hates uncertainty and with its raft of policies so far, uncertainty is the only thing that this government has delivered.


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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