Mini-Budget only tinkering, says economist

Press, 26 November 1980, Page 6

Mini-Budget only tinkering, says economist

The economy _ needed "drastic measures,” not the tinkering announced by the Minister of Finance (Mr Muldoon) in the mini-Budget last evening, said Professor R: Manning, an economist at Canterbury University. The Government should stop trying to create jobs and let the market "sort it out." All the Government was doing was shifting jobs from one sector to another.

The public-sector job-crea-tion programmes would only divert funds from the private sector and create unemployment there. This was “simple-minded Keynesian policies” which had been disproved by events in New Zealand and other countries.

New Zealand politicians persisted with them because they wanted to appear to be doing something but they would have no effect on unemployment. The Government appeared to be taking a “cynical” approach to unemployment. W o r k-exploration programmes and pre-employ-ment courses might prepare voung people for work but he did hot see any Government policy that would create jobs for them.

The Government was not facing up to the real issues and neither was the Labour Party, Professor Manning said. One ’of the most critical things [was for the Government to get tax rates down. The Government would have to cut spending and reduce subsidisies to large companies. The tax' measures announced by Mr Muldoon would only bring tax levels closer to those of last year.

Inflation resulted from the Government’s “buying more than it has been honest enough to collect in taxes. Inflation has increased taxes without Mr Muldoon making this public or having it voted through Parliament,” said Professor Manning.

The director of the Canterbury Employers’ Association, Mr N. M. West, said the mini-Budget was a carefully thought-out document which would provide an impetus for activity in employment and consumption. The most heartening aspect was that there seemed to be a realisation in

’all camps that an an adjustjment in taxation was better than increases in wages, (which would find its way into prices. The suspensory-loan [scheme for small business [was “very imaginative” and [should produce valuable 'results, particularly as it was aimed not just at creatling new jobs but maintaining them. Mr Muldoon said after delivering his mini-Budget in Parliament that the criteria for a general wage order application by the Federation 'of Labour early next year would include an agreement: by the Employers’ Feder-, ation and the F.O.L. that tax cuts would be taken into account. reports the Press Association.

The issue of how big a tax cut the Government was prepared to give was largely irrelevant.

“If there is a 1 per cent reduction, then 1 per cent will be taken into account; if there is a 10 per cent reduction, then 10 per cent will be taken into account,” he said.

He summed up the miniBudget as a move across the board tp offset the effect of fiscal drag. He believed that the measures would be felt throughout the economy fairly quickly. “It is not a major act of stimulation but I think the whole economy will feel it and individually I think the psychological effect of it will be good.”

The measures would also have a psychologically good effect on wage and salary earners: “It is designed to have that sort of effect.” Coupled with the 13 per cent wage rise in the latest round of award negotiations, the tax cuts were bound to have some effect on consumer spending between now and Christmas. Mr Muldoon said.

The Leader of the Opposition (Mr Rowling) said that the mini-Budget had been prepared with an eye more on next year’s General Election than the state of the economy. The tax cut was an “absolute necessity” because the Government had taken the taxpayer “to the cleaners” by riding on the crest of a

[wave of inflation. The Government was now preparing Ito give some of it back in 'February but by then the [further benefit would be swallowed up by increasing inflation.

He saw a disparity in the revised tax system which he doubted the public would welcome: a person on the average weekly wage of $lB4 would get $2.37 as a concession but a person with a taxable income of $17,600 or more, and that included the Prime Minister, would get $7.27.

The leader of the Social Credit Political League. (Mr [B. C. Beetham) said that the mini-Budget would do nothing to correct the underlying causes of New Zealand's economic woes.

He welcomed the shortterm measures to ease unemployment but was concerned that the Government was attempting to supply solutions rather than allowing people to solve their own prdblems.

The aid to small businesses was "close to an insult because of the usual bureaucratic approach.” A reform of the financial system which would give small business access to 1 o w-interest investment money across the board would do more, and on a permanent, not an ad hoc, basis.

New Zealand’s export problem could not be solved in the long term by exporting -more and more of "a static to diminishing cake.” It should be solved by strengthening internal growth and exporting from this instead of stripping down internal living standards and job opportunity, Mr Beetham said.

Subsidies for job creation were no substitute for policies which would allow business itself unaided to provide work for people wanting jobs. The tax concessions would give back to people only money which inflation had given to the Government. Less than half of the taxation increase coming from inflation had been rebated, said Mr Beetham. The research director for the Employers’ Federation Mr W. Poole, said that the

mini-Budgets* “positive” ap- * [proach to employment creation, with emphasis on ;youth employment and training schemes, would be welcomed by employers. The impact on available work of accelerating publicworks programmes would < also be welcomed.

"Emphasis on employment [in small businesses through |suspensory loans associated [with job expansion is a definite novelty, not without [some risks for the businessIman at first sight,” said Mr [Poole. I The reduction in income ‘tax, said to be designed to offset the effects of the escalating tax scale, would be too late to have much effect in this fiscal year for anybodv.

I For the employer paying [provisional tax, the burden lof taxation on the plough backs of profits, investment, and growth would not be eased visibly until about next September and the impact on employment would be slow for this reason, Mr Poole said. The Public Service Association’s secretary. Mr B. Tucker, said the mini-Budget seemed to contain many palliatives but nothing that attacked the fundamental cause of the main problems: Unemployment arid inflation. . ■ “It’s a great | pitjf pore V ; as not done to redistribute the tax burden. [ which has been transferred increasingly in recent years on to the shoulders of wage and salary earners while, companies haw’ ’ a field?, day,” said Mr Tucker. i The executive director of the Retailers’ Federation, Mr B! Purdy, said the miniBudget was “important in creating more confidence and stimulating retail activity” but the' federation would have liked to have seen some tax relief for business to assist with the problem of financing stock. The assistance for small businesses was in danger 'of being very selective. Tax relief might have been rndre helpful. >; • Mr Purdy said he was surprised that no family-benefit adjustment had been made “but the employment f policies give the appearance of being more imaginative land productive than previously;!’