Friday 1st February 2013
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Reserve Bank governor Graeme Wheeler has tax and regulation reforms on his wish-list to foster local savings and investment, saying they would help improve the nation's economy.
In his first public speech of the year, Wheeler told the Canterbury Employers' Chamber of Commerce the first way to lift the country's economic performance is through raising savings and investment and improving New Zealand's productivity.
"We should re-examine the factors, including tax and regulation, that diminish and distort the incentives to both save and invest," Wheeler said.
New Zealand's opposition to foreign investment and focus on putting cash into property was holding back more "productivity promoting investment," he said.
"If we are to attract new capital, entrepreneurship and investment in innovation, our policies have to stand out internationally."
The governor name-checked the ACT Party-inspired 2025 task force, the Savings Working Group and the Productivity Commission as proposing remedies to improve the nation's living standards. Savings and investment were to be the cornerstone of the government's 2011 budget until the Canterbury earthquake caused billions of dollars of damage.
Wheeler applauded the government's plan to return to fiscal surpluses and cut public sector debt, saying that gives the central bank more room to keep interest rates low.
Fiscal deficits "constrain output and employment in sectors facing international competition - sectors where productivity growth is usually higher," Wheeler said. "This is one reason why it's critical to cut back ineffective spending, and ensure that our welfare spending is targeted better at those in need."
"We've much to do in continuing to build our global linkages and addressing government spending and regulatory issues that diminish productivity and competitiveness," he said.
"Addressing these will create valuable payoffs for our future, given our massive resource endowments, our impressive agricultural and primary production engine and the potential in our education, tourism and other sectors," he said.
Wheeler also weighed in on the rising pension bill, saying government spending will be "an on-going challenge as demographic change will greatly expand government outlays unless there's a significant policy change."
The governor touched on the strength of the kiwi dollar, which recently traded at 83.86 US cents and was above 84 US cents overnight despite his own comments yesterday that the dollar was over-valued and undermining exporters and import substitution businesses. He said New Zealand was among a group of nations offering attractive returns to investors in a low interest rate environment.
He said he would go into greater detail on the impact of the currency on exporters and import substitution in a speech to the New Zealand Manufacturers' and Exporters' Association later this month.
Wheeler defended the central bank's focus on price stability, saying stable and low inflation reduce uncertainty and incentives for investors to buy non-productive assets, such as investment properties.
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