‘Rapid adjustment to economic reality’

Press, 9 November 1984, Page 1

‘Rapid adjustment to economic reality’

By

OLIVER RIDDELL

in Wellington

“A more rapid, adjustment to economic reality, with pain for some and benefits for others” is how the Minister of Finance, Mr Douglas, sees the Budget in his introduction to it.

He said that gradual change had not prevented New Zealanders from suffering a continued erosion of their living standards, hence the “more rapid adjustment.” It was essential to focus on the over-all strategy. While some businesses would face higher costs, these would be generally the businesses that had benefited in the past from Government handouts. The Government had been even-handed, said Mr Douglas. All productive sectors were being placed under equivalent pressure to adjust to a changing world. The over-all- effect of the Budget on business would

be to lower pressures on interest rates and reduce inflationary pressures. While some individuals would in the short term face a higher cost of living and increased taxes, there would, in the coming period, be comprehensive tax reform which would benefit them.

The Government had also recognised the need to help those on low incomes who were most vulnerable.

The Family Care programme and increased help to beneficiaries and other low-income earners, together with the health, education, and housing measures, would contribute to achieving the long-term object of a more just society, and the short-term object of protecting lowincome groups from the adverse effects of change. Mr Douglas said that the Budget should not be seen in isolation. It was one of a series of moves to bring about sustainable economic

recovery and increased employment. The measures in the Budget were a significant step in the programme to bring about a substantial reduction in the fiscal deficit. This reduction might reduce spending power in the economy in the short term, he said. It would certainly, however, help provide a sound basis for recovery. It would lessen much of the pressure that fiscal policy put on monetary policy; it would be part of a more balanced policy mix that supported a significant improvement in the balance of payments and in achieving low inflation and increased employment, said Mr Douglas. The substantially reduced deficit would lessen uncertainties about future Government policies, because it would be seen as an essential step towards addressing the country’s mounting debt-servicing problems at home and overseas.

Mr Douglas said that the fiscal programme was not limited to reducing the fiscal deficit.

Spending and taxation decisions also had to be determined by the need to improve ' the efficiency with which the Government achieved its social and economic objectives. The comprehensive taxation reform, in the next 18 months .would reinforce the Budget’s positive allocation of resources, he said. Introducing the goods and services tax, Mr Douglas said it would allow the tax reform that had been talked about for many years to take place. A broadening of the tax base would allow high marginal tax rates, through the income tax scale, to be lowered. That would, in turn, reduce incentives for speculative rather than productive investment, and would encourage the creation of wealth and jobs, said Mr Douglas.