READER REPORT:

Can you fix it: Aim to overtake Australia

NIGEL YOUNG
Last updated 11:30 10/10/2012
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PUNCH ABOVE: New Zealand should just aim for parity with Australia because we can do better.

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We asked you how to fix the economy and were flooded with responses. We'll be running these in the coming days. To contribute to the debate hit the green button below.

Any attempt to improve our economy needs to take several factors into account.

We do not live in isolation. We are a small country of four million people at the bottom of the world and are totally reliant on overseas income in order to survive. That income - in whatever form it takes - will likely always have a sizeable transport component to it, unless we can rev-up our technology industries that use the internet to move our expertise around the world.

We live in the shadow of Australia and see parity with them as important. It's not. I believe we can do better than them. In their favour they have a larger population and more mineral wealth (but a reduced market at the moment). Against them, however, they have concentrated populations in a few areas due to the inhospitable centre of the continent. That distorts such issues as land values while also adding a transport component to their costs.

We live in a world in which tax avoidance - often combined with welfare expectations - is probably the number one contributor to decreasing incomes for governments. How often do we hear of millionaires who have incomes in trusts and also have Community Services cards?

We live in a world in which there is no tax parity, particularly at a company level. This means companies can have a local name, and appear to be local entity, but are in fact registered offshore and paying a far lower tax rate to the government of that country while getting the advantages of being in this country.

The rise of internet shopping has its problems as New Zealand dollars go offshore to support overseas businesses that make no contribution to the New Zealand economy and don't employ local people. While there is often a freight component to these purchases, this has also been applied to local purchases of imported products. At the same time GST is being avoided. The advantage, though, is in generally lower prices, no GST and the convenience of arm chair shopping.

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There are other factors to consider, but these make a good start.

Parity with Australia can be attained, I believe, by increasing our minimum wage to above that of Australia's minimum and reducing our top tax rates to below theirs. We have to compete with the very low rates of the likes of Ireland where Google and others are registered, yet be fair to all other income earners in New Zealand.

The moment wage increases are mentioned however, businesses - particularly manufacturers who are trying to avoid going offshore - start getting nervous and point to the Working for Families tax-refund package as the answer.

This is why Labour's call at the last election for a minimum wage of $15 per hour - which isn't high enough because the lowest rate in Australia is now just on $16 per hour - didn't work. Because it cannot be achieved in isolation.

The Working for Families programme is not working as it provides an artificial governor on what can be earned, with pay rises being absorbed by offsets in the system. So all that is really happening is a slow shift of responsibility from the government to the employer, with the employee getting very little out of it.

In my view, this package should be offered to employers as an employment subsidy, as an employer can make far better use of a dollar than an average wage earner can.
Growth is through private employment, not through Government welfare schemes.

This would offset the fear of the minimum pay rate being prohibitive and mean that a pay rise received by an employee is a real rise with a real increase in the hand.

We should remove GST from transactions under $400 for items which can be sourced independently - this would need to be carefully worked out to avoid abuse - as this is the limit to which internet transactions can be made before incurring GST.

The alternative would be to remove the $400 limit completely, but that would incur compliance costs which, on balance, may prove to be of negative value.

I believe the courier companies - as they would be the ones collecting and processing the transactions -already want the limit raised to $1,000 for this reason. This arrangement would assist our local retailers while not making too big a hole in the Government's tax requirements.

Finally, the New Zealand dollar is far too high - a factor that everyone recognises. Rob Muldoon used to have this pegged at 65 cents to the Unites States dollar and I believe that Treasury still recognise this as the approximate optimum.

The major impact here would be oil prices and their knock-on economic effects but the answer to that is to develop our oil fields for ourselves and build a refinery that is capable of processing it.


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