Douglas demies business confidence badly dented

Press, 1 February 1988, Page 26

Douglas demies business confidence badly dented

BRENDON BURNS

By

in Wellington The Minister of Finance, Mr Douglas, said yesterday business confidence had been affected by the events of recent days and it was his place to be in New Zealand. But the Opposition charged that Mr Douglas had further eroded confidence with his comments made yesterday to a full audience of financial and political journalists. First, Mr Douglas confirmed that he had not been advised by the Prime Minister, Mr Lange, before the comments made last Thursday, signalling a delay in implementing the December 17 economic package. “He, as Prime Minister, always obviously has a capacity to talk about any Minister’s portfolio,” he said.

But it is Mr Douglas who has the confidence of the markets, not Mr Lange, and Opposition Finance spokesperson, Miss Ruth Richardson, asked, “Who is in charge?” Mr Douglas did not accept that business confidence had been badly dented in the last few days, suggesting journalists had created the problem.

“It was in my view that that reporting was such that there had to be some

flow on effect to business confidence and in those circumstances there was only one place I should be.”

However, he repeated he had “full confidence” ’ in the Treasury’s advice which formed the basis of the package. Mr Lange had accepted the research was found wanting.

One reason for the delay of the package was the decision to await the Royal Commission on Social Policy’s report on income maintenance.

Yesterday, Mr Douglas said this did not mean such recommendations would be accepted.

However, changes to the package seem likely to be announced this week in the controversial area of taxing the overseas earnings of New Zealand companies. This follows a report from the Arthur Valabh committee, which Mr Douglas said had suggested "timing changes.”

“I’ve formed a firm view on that,” he said. The report will go to the Cabinet today with an announcement possible by tomorrow.

Questioned if the report’s recommendations would be enough to end the threat of companies such as Brierley’s shifting off-shore, Mr Douglas said the details would have to be awaited. Miss Richardson said

the proposal to tax overseas earnings was much tougher tax law than that which applied on New Zealand-earnt income.

As the Government was seeking neutrality, she asked, “Is the Government going to persist with this distortion or does it. intend to impose a similar regime on New Zealand generated income?” In the area of superannuation, medical . and life insurance exemptions, Mr Douglas again seemed at odds with Mr Lange.

The Prime Minister said last Thursday that an article in “The Press,” arguing the immediate end to exemptions was illegal, had "technical insight.”

He said the Government could afford to do without the 3y 2 months of income that would be lost if the exemption were to be applied by April 1, rather than December 17.

But yesterday Mr Douglas said the question of tax exemptions was not an issue. He would await the discussion paper on the matter, due at the end of this month. “That’s on track. That hasn’t changed,” he said. Mr Douglas stated he did not believe international business confidence had been damaged since last Thursday.

Further clarification was needed, however. “There is an urgency to

finalise some things and we will do that.”

Mr Lange had said business would need a “sweetener,” by way of an interim tax cut, because of the closure of tax loopholes and the delay in introducing lower taxes generally. Yesterday, Mr Douglas said it was always implicit in December’s economic statement that the company tax rate would not be fully reduced on October 1, 1988. This would only be fully achieved on October 1, 1989. Yet, the statement reads: “The tax rate on companies will be reduced with effect from October 1, 1988, to an internationally competitive rate .. ’’

In such a climate of apparent contradictions and differences, the markets open this morning, while the Cabinet will Hold its usual Monday morning meeting. Mr Lange, who returned from his motor racing week-end in Timaru last evening, is likely to have a scheduled pre-Cabinet meeting with Mr Douglas. By late yesterday afternoon, they still had not spoken since Mr Douglas called from Los Angeles, en route back to Auckland.

That may attest to the shared confidence of the country’s top two political figures; the markets will answer today if they share it.