Numbers. Lots of numbers. That is one of business’s central needs from Helen Clark and Michael Cullen when they get back to the Beehive. Too much uncertainty is bad for business.
Why numbers? Because what ministers decide can change the operating environment. Government strategies, frameworks, plans and legislation have to be quantified into threats, taxes, costs, windfalls and opportunities if a business plan is to be complete.
There is much quantifying to do. This is a very busy government, despite its age. In December alone it landed two draft strategies and three discussion papers on climate change and energy, its fiscal parameters and a swag of lesser items.
The reassuring news is that 2007 is the cabinet’s “consolidation” year, between the post-election “policy” year and the pre-election “selling the message” year. So fewer new or revised strategies are likely.
But there are plenty of numbers to fill in yet in the 2006 crop.
CLIMATE CHANGE AND ALL THAT
The biggest uncertainties are in the complicated interlocking climate change and energy packages. Here are some:
* If there is to be a cap-and-trade-based emissions trading system, what will the cap be, how will it alter over time and what will the market rules be. And/or will there be a carbon charge, on whom, at what rate and when?
* Will there be a tax on carbon lost when forests are harvested and/or converted to dairying? On what carbon measurement criteria will it be set? What will the bounty be for planting trees? Will farmers face a tax on nitrogenous fertiliser and a bounty on nitrification inhibitors and, if so, how much?
* How will offsets be calculated — how many trees make up for a cow or a gas-fired power station? How quickly will Energy and Climate Change Minister David Parker’s mooted environmental standards be developed to require regional and local authorities to limit emissions?
* What will be the building code’s energy efficiency requirements for commercial buildings? What will they cost and save?
* If the “social costs” of road freight are to be charged, how will they be calculated and how much will they be?
* What will electricity cost if new generation is to be mainly or wholly renewable? Targets for biofuels added to petrol and diesel are due in January. What will that cost?
* And, given Parker’s determination that the energy shift will be gradual and not make local operations internationally uncompetitive, what will that do to the numbers? Exclusions effectively neutered Pete Hodgson’s carbon charge.
Past performance suggests business will still be waiting for some answers at the end of 2007 and that the government will retreat under pressure, adding to uncertainty.
But the Beehive pressure on officials these past three months and Clark’s aim to make climate change part of our “national identity” raise some possibility of decisions on target in May, in time for the Budget.
THE TAX BUDGET
The 2007 Budget is already earmarked as the tax Budget — or at least the business tax Budget.
One number we know: a 30 per cent headline company tax rate in April 2008.
We also know from the half-yearly economic and fiscal update’s projections on December 19 that the ballpark figure for total revenue cost to the government is around $1 billion.
Cutting the rate will cost around $540 million. That leaves $460 million for tax credits for export and skills development and research and development, ministers’ preference among the other options (though such subsidies muddy the tax system). But where in the 7-15 per cent range will they be set? Guess lower rather than higher. Target for decisions: February-March.
Most of the large business tax work programme detailed by Revenue Minister Peter Dunne last March is now enacted, close to decision or, as in the case of the controlled foreign company (CFC) tax, out for discussion. Overall, officials calculate, Cullen’s tax changes mean that by 2008 he will be taking $2-2.5 billion less off business annually than if there had been no such changes.
One small December addition was tax deductibility for approved employee superannuation schemes in addition to KiwiSaver schemes. Fine, except that the voluntary nature of KiwiSaver fogs the numbers of those likely to take it up and keep it up. And will it become compulsory? Place your bets.
On personal tax there is a resounding silence (though $360 million is budgeted for threshold changes in 2008). Personal tax matters to business because it affects disposable income, and therefore pay expectations, and recruitment, including, in today’s tight market, from overseas.
SPENDING OR INVESTMENT?
Cullen, being Labour, is happier spending.
Some big needs of business are being met, most notably roads, energy security and other transport infrastructure (except for a standoff with Toll on rail). Likewise on energy security.
The government is active on free trade and Trevor Mallard has refocused New Zealand Trade and Enterprise on helping companies sell and operate offshore.
But health, education, welfare and housing get the lion’s share. Helen Clark briefly tried calling that “investment” last Budget time — and, indeed, some of it, especially in education but also in aspects of health and social welfare, does produce an economic return. But business would see most of it as consumption spending and thus, in effect, a cost.
And when we focus on real investment, building a long-term future for business through science and technology, this government has gone backwards.
Spending has fallen as a proportion of GDP to 0.55 per cent, well below the OECD government average — quite separate from the fact that private sector research is far below the OECD benchmark, partly because tiny New Zealand is by necessity mostly a technology taker.
There is some prospect of higher real science spending in 2007, notably in climate change research. Also, business’s research and development tax credit will not be offset against the science budget, so will represent a net gain. The Venture Investment Fund promoting commercialisation of research has been rejigged.
But “economic transformation” demands a quantum leap, as, for example, in Singapore. Business has begun to pick up on this policy gap, as Business New Zealand’s sponsorship of a technology conference in October evidenced.
There is also still work to do on the capital markets and on foreign investment.
REGULATING THE REGULATORS
Business also says it needs better quality, and less, regulation. World surveys rank this country mostly well on that score (and on ease of tax law compliance) and ahead of Australia. But the small business advisory group still rated the government only 5.8 out 10 in its report in December.
The Resource Management Act still poses problems for some projects and the 2005 changes, notably ministers’ expanded power to issue national policy statements for major projects and to force consistency in multi-council consents such as cellphone towers, have yet to fully flow through. Labour’s deference to local and regional councils is central to this issue.
There also labour law rigidities: a complicated Holidays Act, the slow change in health and safety enforcement culture and firing dud employees (a better drafted bill from Wayne Mapp last year might have passed). Forget change while Labour is in power.
There are still immigration bottlenecks, though the accredited employer scheme has helped alert employers to plug workforce holes. Immigration Minister David Cunliffe says he is keen to fix glitches and is easing visa requirements (though not fully to business’s liking). July will be the time to mark him. Part of his problem is Winston Peters.
Midyear is also Lianne Dalziel’s self-imposed own deadline to complete her “regulation review” assessing ease of compliance, quality of drafting and fitness for purpose. The first progress report in November left many unanswered questions.
And there are the commissions. Paula Rebstock’s reappointment ensures the Commerce Commission’s aggressive approach will continue. The Electricity and Telecommunications Commissions’ top jobs are vacant — a recipe for continued uncertainty in those turbulent arenas.
And much work remains to be done in intellectual property and computer systems security, increasingly critical factors of doing business in the cyber era.
PPPs AND ALL THAT
Business would also like a bigger slice of government action: in road building and in secondary health care, particularly. Don’t hold your breath.
Among other uncertainties:
* How many marine reserves are to be created and how will that affect commercial fishing? A bill has been stalled now for several years.
* Will advances be made on the single economic market with Australia?
* Will ministers and departmental CEOs carry through on Cullen’s demands for constraints on public sector hiring?
* Will there be some relief from rising local body rates out of the current review? (Answer: probably not.)
GETTING ON OR NOT
There is a bigger question: Can business and the government get on better than the constantly negative reading in business conditions in the National Bank survey implies?
The answer, ministers say, lies in the “work with the government on common interests” approach taken by Business New Zealand’s Phil O’Reilly, Peter Neilson at the Business Council for Sustainable Development and to some extent by the Auckland Chamber of Commerce’s Michael Barnet.
They stand their ground, which ministers respect, but they also get movement which relentless opponents, like Federated Farmers’ Charlie Pedersen, don’t. This coming year could be a test of how well the common interests approach is working for business, as distinct from the government.
And don’t look for a soft-touch replacement for Cullen. He is likely still to be economic supremo this time next year — and at election time in 2008.