3. Promoting sustainable, broad-based economic growth

More work is needed if New Zealand is going to have an economy in the future which creates well paying jobs sustainably, fairly, and in a way which is flexible enough to face emerging challenges. Businesses in New Zealand are comparatively easy to establish, and generic business regulation is relatively benign. However, these settings also expose New Zealand businesses to higher levels of competitive pressure from off-shore businesses. This might suggest that improvements could be made to:

  • business taxation, including around ease of compliance for SMEs; and

  • competition policy, particularly around ensuring fair competition between small and large businesses, and incumbent business models versus new entrants.

In both cases, it might be asked if there is a level playing field between New Zealand businesses and their offshore competitors. It may need to be carefully assessed whether non-domestic businesses are able to secure an advantage over domestic businesses because of favourable tax of competition policy treatment, and whether a more level playing field would be better for the economy.  

In addition, sector-specific regulation can raise costs unnecessarily, or simply prevent new technologies and business models from bringing new benefits to the economy.  This is often the case where outdated regulation has not kept pace with technology, government policy objectives or evolving consumer demand. Regulation tends to be developed in response to the ‘problem of the day’ and as a result inadvertently entrenches prevailing business models by ruling out the possibility of new technologies and other innovations.

There may be advantages in a more systematic approach to identify and address outmoded business regulation that stifles the potential for economic growth. MBIE is undertaking a systematic review of regulation, and the Ministry of Transport is looking at updating its regulatory approach. Could more meaningful gains be achieved from identifying areas of duplication and sharing key learnings more widely? This could occur in a number of ways:

  • Creating a senior ministerial role within the major party in government. The UK Government has in the past created a similar role, where a designated minister and officials had the power to veto any regulation they determined placed an unnecessary burden on business, NGOs or even the public sector.

  • Establishing an independent commissioner for regulation, with an open mandate to identify, and recommend responses to, systemic regulatory failings.  

  • Improving knowledge and building a better relationship between those who regulate and those who are regulated. This could be as simple as requiring officials to spend up to 10 days a year on the frontline alongside those who have to implement their rules and regulations.

It may also be worth asking if there are gains to be made from specifically supporting small businesses. Small businesses tend to be the real innovators within an economy. They can add vibrancy by bring new ideas, challenging old business models and repurposing old skills until their new approach is adopted by others and accepted as mainstream.

Is enough being done to support small business? At a general level perhaps more could be done to engage with small business on their own terms. Streamlining interactions with government, moving to online compliance and other initiatives could help small businesses manage what is most important to them – time.

Government procurement is a mechanism widely used overseas to support small businesses. Given New Zealand’s small domestic market (and distance from international markets) a more sophisticated approach to the role of government as customer could help supply the level of demand that encourages growing businesses to move to the next level. In the first instance this might simply involve levelling the playing field. Some current government procurement practices can unnecessarily favour scale or existing supplier relationships, or take a non-commercial approach to key terms that risks excluding SMEs from competing.    

We also need a fresh look at how we measure the success of our economy. A strong economy needs to be flexible, sustainable, fair and makes New Zealanders better off. However we tend to measure its performance solely by GDP which simply looks at levels of spending. While GDP is a recognised measure, a myopic focus on it can lead to poor investment decisions by government. Treasury is starting to look wider with its Higher Living Standards work looking at economic growth, sustainability, equity, social infrastructure  and managing risk together, but we are yet to see results from that.5 Taking this further may improve genuine sustainable economic growth but the Government must identify what it is measuring and how.

To fully address the arising challenges of sustainable growth, we will need to consider effective use of physical and natural resources, including climate change (see below). New Zealand may be reaching the limits of exploiting the competitive advantage of its natural resources such as fresh water, and risks damaging its profile as a good international citizen if it fails to take meaningful action on global issues such as climate change. Some key considerations affecting this are:

  • First, business regulation needs to include minimum environmental standards to ensure sustainable and responsible use of natural resources. This may require additional investment in scientific analysis to ensure the best decisions are made.

  • Second, limiting resource use means a need to get greater value from our resources. Under-utilisation carries costs not just for the environment but for the economy as a whole. Issues such as expectations of continuation of historical use rights and path-dependency will need to be overcome to achieve this.

  • Third, despite significant unemployment and limited natural resources, innovation and restructuring frequently focuses on labour cost reduction. When businesses do not face the costs or benefits of their actions on the environment and society it can lead to decisions which increase unemployment and lower wages, when changes which improve resource use could have greater benefits. While the Government highly taxes income some environmentally damaging resource uses aren’t taxed at all. The Government needs to ensure the right balance of incentives.

An economic development policy that does not squarely address these issues is unsustainable, and will not deliver the step-change in growth that New Zealand needs.

Discussion questions:

  • How do we ensure the economy delivers new and higher paid jobs in the future?

  • How can regulation ensure a level playing field among all businesses? Large vs small businesses? Domestic vs international businesses? Established vs emerging businesses?

  • How can the quality of sector-specific business regulation be improved?

  • How can government procurement practices help SMEs grow scale?

  • How should the Government measure the success of the economy?

  • How can businesses’ environmental sustainability be improved?

5   Treasury, Higher Living Standards, http://www.treasury.govt.nz/abouttreasury/higherlivingstandards