N.D.C. REPORT Call For Economy “Attuned To Growth”

Press, Volume CIX, Issue 31974, 29 April 1969, Page 16

N.D.C. REPORT Call For Economy “Attuned To Growth”

(New Zealand Frees Association) WELLINGTON. April 28. The whole New Zealand economic environment must be better attuned to growth if the country is to increase the standard of living as proposed by the National Development Conference.

This warning was made by the targets committee of the conference in its final report. released tonight. “Attitudes of mind are just as fundamental to the lin-j provement of productivity as investment funds are to the purchase of plant and buildings . . and changes in attitudes and policies related to, productivity will do much to make or break target fulfil-! ment." said the report. Xo Change Necessary The committee decided that no change was necessary in the 4.5 per cent annual! growth rate for the Gross National Product, first recommended to the conference’s initial plenary session last August.

“Everyone wants the improvements in consumer expenditure implied in the 45 per cent growth target, but it will not be enough to concentrate on increasing exports and savings, and assume that growth will automatically occur." the committee said The whole climate of opinion about productivity has to he changed in the minds of both management and labour" The report emphasised that the economy was continuing to grow at a rate which was considered by the first plenary session to be undesirably low. The achievement of a more acceptable growth rate would depend on: Reaching revised export targets set for each industry Stepping up investment. Increasing the level of savings. Implementing immediately policies aimed at promoting a more competitive and efficient economic environment which would encourage the better allround use of resources. Economic Resources The chairman of the committee. the Governor of the Reserve Bank, Mr A. R. Low. said the committee spent a good deal of its time on the problem of financial requirements and investment needs during the target period, and on the best use of economic resources in general. To meet the growth rates necessary for development, capital formation as a percentage of the G.N.P. must increase from 25 per cent in 1967-68 to 27 per cent in 197879. said the report. Overseas investments for the target years of 1972-73 and 1978-79 would be about S6om. or roughly 1 per cent of the G.N.P.. leaving 26 per cent of the G.N.P. to be financed from domestic savings. The committee accepted that such a level of domestic savings would not be easy to achieve, and might be unpalatable to the community, but the only other alternative was to attract a greater amount of overseas capital.

Basic Problem The committee said the basic problem against increased savings had been that the rewards for saving had been too low. This was mainly due to the modest levels of interest rates and the effects of income taxation and the rise in prices. It suggested methods to increase savings could include:—

Increases in interest rates of 1 per cent or more would make an impact on savings decisions. Savings in the public sector would be improved by maintaining or increasing the operating surpluses of Government and local authority enterprises by appropriate pricing of the services supplied.

Public sector saving would also be stimulated by maintaining very firm restraints «n the rate of increase of Government and local authority expenditure.

I'The ration of taxation to , ! G.N.P. could be increased by either increasing taxation or by deferring taxconcessions in a time of ; rising incomes Tax exemptions relating to savings could be widened- i

Potential Savings In this context the commit- ' tee noted that a relatively high proportion of tax revenue in New Zealand came from taxes on income rather ! than taxes on goods. A pro- ; gressive shift of emphasis towards commodity taxes would leave more net income and 'therefore more potential sav- ! ings in people's pockets. ' The most effective type of savings—contractual savings (where a person commits himself to make regular weekly or monthly payments) —i should be encouraged. The committee said a combination of some or all of these measures, if adopted, with sufficient vigour, would! in time result in the required increase in savings but would still not solve the problems of channelling them to those sectors and industries contributing most to economic growth. The committee did not recommend the most profitable lines of development for the economy because of deficiencies in the information supplied to it about returns on investment. It said it would be better to allow long-term market considerations to determine the pattern of investment more than in the past. System “Too Rigid" “The present financial system has become too set and rigid." it said. “A more rational distribution of funds could be achieved by ‘loosening up’ the loan market, alt-; ering some attitudes towards overseas investment, and altering the structure of such

as the development Finance Corporation." Dealing with overseas investment the committee said! the prospects for net Govern-; ment long-term borrowing were not good in the light of: the need to repay or refinance .existing Government debt. The committee felt that it was mainly in the area of new overseas private capital jinflow that any changes in! policy should be made. Economic growth should allow for an increase in the range and number of projects in which some degree of overseas participation was desirable or even essential. Climate Cautious Despite official policy in I this matter having been one

of encouragement, the climate at the administrative level had been cautious. There were some disadvantages in allowing foreign capital into New Zealand, particularly where direct overseas investment had led to the domination of a sector or industry to the detriment of the country as a whole. But one possible wav of overcoming this difficulty would be to establish special institutions or modify existing institutions to act as channels through which overseas funds could be brought to New Zealand and then re-lent to local industries. This proposal deserved earlv consideration. “The ability to achieve long-term goals in New Zealand will continue to be susceptible to changes in export prices, which are impossible to predict with certainty," the committee said. Continuous Review To enable the targets to be kept under continuous review. and be subject to amendment and extension in the light of changing events; and prospects, the committee recommended the setting up; of permanent consultative machinery This should consist of sector councils co-ordinated by a national development council.

"Within the central co-' ordinating planning machinery there is room for a body) which would serve as a source of economic advice to I the National Development! Conference and through it to: the Government,” the com-: mittee said. “Any such body should! work closely with the coun-> cil’s secretariat, which could best be located in the Trea-j sury.”