The Right can take heart from a consensus that low taxes would help New Zealand attract businesses. The Left can take heart that, yes, there is a role for government.
Growing up in "corporatist" and then Thatcherite Britain, I can vouch that market reforms work, which is why Britain is far stronger economically today than it was 20 or 30 years ago. And why its prime minister, Tony Blair, wants to extend them to the public sector. And why market reform is now global orthodoxy.
New Zealand’s problems simply stem from producing stuff the world does not want to buy, or at least pay enough for them.
Politicking aside, I spoke to a few top business people last week. If they can make a success of themselves, it begs the question, what tips have they for New Zealand?
John O’Hara of Auckland software company Infolink and formerly ISP Voyager became “semi-retired” aged 44. Brian Peace created utilility billing software that is now used across Australasia and North America, while his firm, Peace Software, employs several hundred.
Both have New Zealand and international experience. They offer a broader view than the blinkered Left who simply blame the changes made in the past 15 years for New Zealand’s relative economic decline.
Sadly, Helen Clark's government has rejected lower company taxes, deciding they would mean some public service being cut to pay for them. But the health service - with staff shortages and cancelled operations - appears in a bigger mess than it ever was under National and the tertiary sector has similar problems. Current economic policies are failing to generate enough growth. Farmers are cashing in on good harvests and a weak dollar, but how long will this last before drought bites as it did in the late-90s?
Something must be done, but what?
Both Peace and O’Hara see a major role for IT in generating new wealth, and the government's role as facilitator.
“We have around 200 software developers who have solid vertical market products in New Zealand," says O’Hara. "If they were encouraged offshore we would see some big gains. Commercialising and growing the value from a proven product is far more likely to be successful than incubating start-ups."
Peace says IT offers our greatest export opportunity as it is not tied by distance, whereas supplying food and manufactured goods are. But the Knowledge Wave concept was too late, the “love fest” coming at a time of IT oversupply. He says the money would have been better spent on a trade show where New Zealand firms might show off their innovations to attract onshore and offshore investors/employees/partners and ideas for getting them to the next level.
“The government role would be to facilitate this and sponsor international speakers and companies who might team up with locals in order to launch and compete internationally. There is another wave coming but you can bet the house that it won’t look anything like the last,” Peace says.
O’Hara says government could target Californian IT business people looking for a lifestyle to relocate to. "Our pitch should be simply you don’t have to live behind a wall to protect your family. A few hundred people like this would have a tremendous impact on the ability of our technical wizards - who are world class - to be able to commercialise and ramp up volumes.”
Both Peace and O’Hara see a need for industry and education to work closer together, and for lower taxes to attract industry, which would generate more revenue for public spending, not less, they say. O’Hara warns New Zealand is competing for talent with London and both higher wages and a 14% tax tate for contractors make it hard for Kiwi firms to get the best staff. Lower company tax would also pay for itself as the government would also receive more PAYE and GST payments, he says. It is far better to get 10%, 15% or 20% of a lot than 30% to 33% of very little. Irish speakers at the Knowledge Wave said when Eire had higher company tax it generated little revenue as the country then had so little industry.
Peace says when New Zealand’s top rate of income tax was 34%, we were competitive and top people had an incentive to stay here. Now, at 39%, the higher rate generates less revenue, and the rest pay the same. “It is not possible to hold high earners in the country with so much international opportunity,” he says.
“I am [also] a big advocate of lower taxes for export-earning companies. It’s so obvious to give international advantage to organisations who are based here but generating offshore income,” Peace says.
With other inducements, Peace supports tax breaks as they induce firms to come here and employ locals, but he warns against handouts as they “tend to make companies lazy and non-competitive”. He also warns of giving too much to overseas firms at the expense of local innovators, as overseas parents will strip income out of New Zealand and encourage local companies to move offshore.
O’Hara also says the Reserve Bank must refocus on growth, with Brash being paid on economic growth as well as inflation.
Peace says New Zealand has no shortage of ideas, we just tend to kill them off with bureaucracy and a lack of support by local industry in buying them. “Most large companies and the government will always go offshore for software and IT - why? Risk, they say, and yet the major international brands provide little local support and cost an arm and a leg. This is where New Zealand really hurts itself."