Capital Markets report: Paul Goldsmith - National's less-taxing future
The year 2020 will surely prove to be one of the most dramatic and volatile years in recent history — in health, in the economy and in politics.
Many lives have been upended by the Covid-19 crisis and many businesses have been pushed to the brink by events out of their control.
The lockdown and subsequent restrictions on economic activity have come at a high economic cost.
While thankfully we have avoided the worst of the health outcomes, we are paying collectively now through a smaller economy and fewer jobs.
The Reserve Bank estimates we will face the largest annual GDP decline in 160 years and forecast there will be 150,000 job losses one.
The cost of Covid-19 will also have a longer lasting impact on our public finances. Higher debt levels will reduce the headroom available for future Governments to deliver tax relief or invest more in public services.
Budget 2020 showed Government debt rising to $200 billion over the next four years — an increase from around 20 per cent to 54 per cent of GDP — the highest level since the early 1990s.
Labour's track record of poor quality spending and burning through the massive surpluses it inherited in two years to project a Budget deficit before the Covid-19 crisis, provides little confidence they are capable of constraining spending.
This leaves New Zealand at a critical juncture. We can return to prosperity, we can restore our ambition, we can provide a good standard of living and opportunities for all — but it requires careful and competent economic management over the next few months and years.
National understands the need to reduce the economic damage in the short term with fiscal support for businesses and jobs.
However, unlike Labour, we recognise the need to act responsibly for future generations by restoring public debt to prudent levels so New Zealand is prepared for future shocks.
National has signalled a desire to return Government debt to 30 per cent of GDP in a decade, give or take a few years. The best path back to a prudent debt level requires absolute focus on economic growth and disciplined Government spending; not higher taxes.
National recognises that during an economic crisis, when we are losing thousands of jobs and businesses are struggling, increased Government spending and higher levels of debt are required in the short term.
We will increase Government spending on core public services like health and education every year, but we will have an absolute focus on getting good results for that extra spending. National also has an ambitious infrastructure plan, with a focus on transport. Properly connecting the 2.5 million people living between Whangarei and Tauranga, for example, will underpin future jobs and economic growth.
However, what we will not do is waste money on the random excess spending that is Labour's substitute for a growth plan. We will stop payments to the Super Fund, reprioritise the free fees money and be disciplined with our spending.
Stoking economic growth and increasing Government spending at a slightly more modest rate would make more prudent debt levels achievable.
The alternative on offer is to keep spending more, borrowing more and taxing more, without a plan for it to stop. That's not credible and not a sensible approach for a small, open economy to take.
National's Economic Framework has five core pillars:
●Responsible Economic Management.
●Reskilling and Retraining Our Workforce.
●A Greener, Smarter Future.
●Building Stronger Communities.
The primary source of new jobs will not be Government programmes directed by Phil Twyford, Megan Woods and Shane Jones, it will be private sector investment.
The recipe for this hasn't changed. It requires a disciplined Government creating an environment where businesses feel confident to invest and take on new staff. The core elements to restoring confidence are lower taxes, regulatory restraint, consistency and an openness to inward investment.
On each of these, there is a clear difference between National and Labour. National is determined to hold the line on taxes; Labour will increase them. We won't introduce new taxes, we will adjust tax thresholds in line with inflation, cancel the Auckland Regional Fuel Tax and not increase fuel taxes in our first term. And encourage investment, by allowing businesses to instantly write off assets up to $150,000.
We will seriously dial back the regulatory burden on New Zealand businesses and households. We will repeal the Resource Management Act, simplify Anti-Money Laundering legislation, put a hold on new regulations on businesses for 18 months and knock out two existing regulations for each new one introduced after that. Contrast that with a government prepared to increase the minimum wage when businesses were in lockdown with zero revenue.
We will also take a more open approach to direct investment because we understand the need to attract capital. We will provide certainty to those people making investments and creating jobs by restoring faith in proper process that has been lost after the oil and gas decision and the Prime Minister's ill-conceived intervention at Ihumatao.
We will restore confidence to business by being a disciplined and competent Government that promotes economic growth.
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