‘Fatal flaws’ seen in economic policies

Press, 18 February 1986, Page 4

‘Fatal flaws’ seen in economic policies

Wage-fixing and Government spending were two fatal flaws in the economic policies of Mr Douglas, and the Labour Party had no means of overcoming them, said the Leader of the Opposition, Mr McLay, yesterday.

Mr McLay was in Christchurch to attend the opening of Gough, Gough and Hamer’s new manufacturing plant at Hornby.

The Government’s economic policies had encouraged high interest rates and an over-valued New Zealand dollar. As a result, fewer new factories were being built, he said.

“Investment activity right across the economy is declining, except where firms are being forced to invest to safeguard their existing operations,” he said.

The wage round had reached the stage of a wage explosion which was not only inflationary but would also lead to retrenchment in many industries, he said.

Mr McLay said Government spending must be cut if interest rates were to be controlled. "To do that they have to look at the big-ticket items like health, education and social welfare. Yet those are close to Holy Writ for the Labour Party,” he said. He also said that although the Government talked of taxation reform, the advent of the goods and services tax in October would make Mr Douglas the biggest tax-grabber in New Zealand history. The only effective way to reform taxation was to reduce the level of Government expenditure, he said.

The present wage round had shown the need for a more flexible wage-fixing system, said Mr McLay. The present system had proved to have no “teeth” for dealing with a breakdown, and unions were tending to use strike action rather than negotiation.

Internal pressures within the Labour Party would make it difficult for Mr Douglas to introduce the Necessary changes to

the wage-fixing system or Government expenditure, Mr McLay said. “If Mr Douglas wants to tackle those two problems, he is going to have to tackle the whole of the Labour party and its industrial wing.” Mr McLay doubted whether the two issues

would be allowed to develop to the point of a confrontation within the Labour Party. Unlike other aspects of the Government's economic policy, a solution to wage-fixing or Government spending could not be achieved through executive action.