How the Budget can boost business confidence
By Phil O’Reilly.
This year’s Budget comes when many businesses are reporting that conditions are as difficult as during the Global Financial Crisis nearly 20 years ago. When things are this tight, businesses will inevitably spend and invest less and employ fewer people, delaying plans to grow and innovate.
Businesses will therefore want a government response that helps pull New Zealand out of the doldrums quickly, and sets New Zealand back on a path to continued prosperity.
In this context, businesses are welcoming the Prime Minister’s statement that the Budget will contain no surprises. This is not the time for virtue-signalling or splashy slogans. Businesses will value realworld actions that get us back to growth and keep us there.
Renewed growth and optimism don’t happen overnight, so the strategy that the Government presents through the Budget will also be important to help businesses plan ahead.
What are the areas of focus and what is the plan beyond this year’s books? What is the Government planning to make us more productive and resilient?
Firstly, businesses will applaud announcements that signal a thoughtful approach to an economic reset.
This includes reprioritising spending away from unproductive or wasteful activities and towards more direct and beneficial use. The updated school lunch policies, which feed more kids for less, are a good example.
Businesses will also look for initiatives that bring down overall government spending as a proportion of the economy as soon as possible.
An economic reset isn’t just about taking people out of the public service to reduce spending. In fact, that isn’t even the main lever.
It is much more about ensuring that the Government is doing the things that only it can do and then doing them as effectively as possible.
Growth-enabling regulation is a good example.
Secondly, proper accountability for public spending is another big area where Budget announcements will be welcomed. The fact is that far too many current programmes are deemed to be successful just because the money was spent.
There is often nobody being held to account as to whether that spending actually achieved the desired outcomes that the project was supposed to address in the first place.
We need to make sure that services are delivered to people efficiently, fairly and costeffectively. For example, we can learn lessons from digital government initiatives in Australia which make citizen services better, more accurate and cheaper to administer.
Thirdly, announcements about how the Government intends to better leverage its balance sheet will be welcome. Toll roads, public-private partnerships and innovative funding and financing for major infrastructure are good examples of initiatives to enable investments that both support productivity and enhance resilience.
Businesses will welcome plans to increase investment into areas that support the current focus on international growth and connections.
The science system is one such example, as is increased support for trade negotiations and international connections through trade missions and the like.
Perhaps most importantly, the Government’s social investment approach will be heavily supported by businesses.
Done well, this approach will mean more people are entering the workforce well equipped for their future and able to contribute more effectively to prosperity, wherever they might be on the socioeconomic ladder.
It is fair to say there is a mix of opinions around whether the timing of the Government’s proposed tax cuts is appropriate. They are going to happen, however, and there is a very solid consensus in the business community that we need to tax people less and at the same time have less government spending to enable people to make more of their own choices, and to enable businesses and communities to thrive on their own terms.
The biggest thing the Government could do would be to index tax brackets to the inflation rate and overcome the pernicious situation of fiscal drag.
Businesses will also welcome clear direction from the Government – whether through the Budget process directly or otherwise – about how it is going to move forward on some of the more complex problems it has inherited and that it must urgently resolve.
Examples include the future of trades training through Te Pūkenga, how we might continue to improve our regulatory settings to enable faster and more confident business decisions, or how we might ensure that our climate change settings enable continued investment in climate reduction activities.
Budgets can’t solve all of these issues. The directions they set, and the statements ministers make will, however, contribute to business confidence so that investments and decisions to hire, innovate and grow are accelerated as the economy starts to improve.