Despite our geographic isolation, New Zealand does have a fundamental advantage to our domestic blues, through our exports.

Having moved New Zealand’s economy wholly into the global market some years ago, the productive sector has become a key factor in the health and well-being of our country through growing the economy and enhancing the welfare of New Zealanders. Such a market place positioning also means that New Zealand is highly susceptible to the vagaries of international markets. We only have to look at the last few years to confirm that, in some respects, no matter what we do domestically, we are too small to make a real impact on global events and instead must ride the wave of uncertainty in foreign markets, economies and finances.

Despite our geographic isolation, New Zealand does have a fundamental advantage to our domestic blues, through our exports.

The strength of world-wide commodity prices has been the saviour of the New Zealand economy since the GFC in 2008, as it has sheltered the real impact on New Zealanders of world events. However, recent drops in world commodity prices, which have not been offset by an adjustment to foreign exchange rate changes, reflect our susceptibility in this area as well.

While our relative remoteness provides benefits in isolating us from a tag-along effect of being close to poorly performing economies, the cost of delivering to foreign markets and the increased focus on carbon footprints means our exporters are operating at a distinct disadvantage to foreign competitors.

Our advantage until now has been the efficiency of our operations, in some part driven by the propensity of New Zealanders taking up new technology, and a market driven efficiency through a lack of government incentives to hide poor performance.

This advantage will not last long, and the globalisation of business and technology is squeezing the timing delay before other economies and businesses catch up with New Zealand.

The problem has been exacerbated over recent years through a general lack of investment in the productive  sector, through an over-investment in the property sector, and a drop in productivity. This has been highlighted in the Tax Savings Working report earlier this year, which strongly advocated a policy shift to ease the exposure to worldwide volatility and create an environment for savings.

The Green Party have more recently focussed squarely on a lack of capital gains tax as the reason for the  obsession with the property sector, linking it to a turn away from the productive sector from which New Zealanders have earned their income.

It is clear that productivity gains and an improvement in our export sector will deliver greater wealth to New Zealand.

The Government has made moves along this path, recognising that a structural change to policy and business is required to fundamentally make a difference. While it has until now been “tinkering around the edges”, the 2012 Budget provides the platform for the fundamental changes.

Already we have seen moves towards change in government department inputs and structures with a desire to move more towards effective outputs through innovation. The recent welfare changes are also intended to remove the incentive to rely on long-term welfare.

What the export sector needs is:

  • Greater certainty relating to foreign exchange, something which is not easy to achieve, but which interest rate management in the short-term may facilitate
  • Investment in technology to enhance efficiency and international competitiveness
  • Investment in training to ensure the skills shortage is addressed
  • Enhancement of the economic relationships between Australia and New Zealand to make it easier to do business with our largest trading partner
  • A reduction in government bureaucracy and red tape to enable more time to be spent on wealth generating activities
  • Certainty for our foreign trade delegates in their roles and desired outcomes as they act as our advocates overseas
  • Enhancement of our foreign tax rules to ensure New Zealand business stays in New Zealand to drive our export growth, rather than shifting New Zealand businesses offshore
  • A policy focus on productive businesses rather than non-productive activities for wealth generation

What we need to see from the Government in the 2012 Budget is detailed development of these initiatives to drive our export-led growth, which will in turn provide further insulation from the vagaries of internal markets, economies and finances.

Further enquiries, please contact:

Greg Thompson
Partner, Tax
T +64 (0)4 495 3775
M+64 (0)21 281 7332