More protection to go

Press, 13 December 1985, Page 16

More protection to go

The changes to the tariff structure announced in the Government’s economic statement on farming and tariffs seem only loosely linked to farming. The strongest link may be political. Farmers have been arguing that the burden they have been made to bear would have been endurable had the Government removed protection for manufacturers and deregulated the labour market. The Government doubtless felt under pressure to make at least some gestures over tariffs and the labour market. In brief, the economic statement contains a reminder about the phasing out of import licensing; and the programme of tariff reductions that will begin next July includes a decision that tariffs on goods not made in New Zealand will be reduced to zero unless certain trade restraints apply. The Government intends to seek a reduction on tariffs on some other items, and has announced that licensing will not be reimposed on imports that compete with new products made by New Zealand Steel. Of all the 'announcements on protection, the decision on removing protection from the products of New Zealand Steel is almost certainly the most significant. The expansion of New Zealand Steel was not made on sound economic grounds and, if its products were to receive protection by import licensing, the cycle of distortion which has been the Government’s bete noire would not have been broken. Most of the items included in the list given by the Minister of Trade and Industry, Mr Caygill, and the Minister of Customs, Mrs Shields, are consumer items. The Ministers’ statement said that the range of goods was wide and included inputs to manufacturing and service industries. It would make good economic sense to reduce tariffs on items which were inputs to manufacturing and service industries, especially for re-export, but it is not yet clear how many items of this kind will be affected by the changes. Again, the connection with farming is obscure. Farmers who can

afford them will get cheaper goods too — or the goods and services tax will not increase the price, as much. These changes affect the whole of New Zealand, not just the farmers. The changes in duty to be introduced on January 1 are to be incorporated in the substantive tariff from July 1. In effect, it looks as if the Government has speeded up the tariff reduction process. The result of the reduction in tariffs will be to make some goods cheaper and this will encourage buying. Since the thrust of the farming policy will have the short-term effect of reducing exports, the Government will have to watch the balance of payments. It may be seen here to encourage imports and to discourage exports. Being realistic about the overseas market for farm produce is one thing; acting in a way that may lower earnings below what the market could yield is another — especially when import payments could rise. General economic conditions in the next few months may, of course, moderate the demand for imports by consumers and manufacturers. The Government is sore about the high level of wage settlements in the wage round and draws the conclusion that the wage settlements were the result not only of employers and unions looking back instead of ahead, but also of the present system of industrial relations. The observation is accurate enough. This Government, and its predecessor, have striven mightily to bring about changes to the wage-fixing system. This Government, more than its predecessor, removed itself as a party from the wage-fixing system. Entrenched wage relativities continued to inhabit the wage-fixing system as stoutly as ever. Doubtless, the Government will have to continue to try to get the system changed. Putting the issues before the public in a Green Paper is consistent with open government. Just as farmers were not offered a miracle to save them, the Government should not expect any miracles over the labour market either.