By Alex Tarrant
The ball is in the hands of the private sector for the next move in New Zealand's growth story, as the Reserve Bank warns New Zealand's potential growth rate is falling due to a lack of business investment.
Prime Minister John Key said the government was focussed on getting its own balance sheet in order, and indicated it was not willing - at least in the short term - to step in with further policies to foster investment above and beyond current moves like reducing business compliance costs and investment in transport infrastructure.
The state of the global economy was the primary factor for when consumers regained confidence and businesses decided to undertake more capital investment, Key said at his post-Cabinet press conference on Monday.
He was asked about the Reserve Bank's comments last week that subdued investment in capital over the last four years had reduced New Zealand's capacity to grow.
Reserve Bank Governor Alan Bollard said businesses had been scarred by the global financial crisis, and had moved to consolidate their balance sheets. That meant there had been low levels of innovation and risk-taking, which inhibited potential growth, Bollard said.
“I’m not 100% sure what could be done about that other than what we are doing, which is, firstly, the government’s got its own balance sheet in order," Key said on Monday afternoon.
“That should give businesses confidence - that we’re not going to be either taking more money out of the economy from a borrowing perspective than we otherwise would, and we’ve lengthened our balance sheet," he said.
That meant there was more confidence about the health of the government’s borrowing programme and its own fiscal position, he said.
Companies themselves had got their own balance sheets in order, were holding a lot more cash, and had restructured their businesses to be in stronger shape.
“I think what they are concerned about, if I can speak generally for companies, is, it’s just a very uncertain time. No one’s quite sure what’s happening in Europe, no one’s quite sure what that means for China and Australia," Key said.
“Confidence levels are quite low in lots of countries – it’s not unique to New Zealand," he said.
Will govt step in?
Asked at what point the government might step in to help foster more investment in the economy if businesses continued to hold off, Key replied that it would have to be asked, if businesses were not investing fast enough, what was the rationale for them not investing?
“I think the arguments there are, the government needs to look at what it can do to give them confidence," he said.
“I think, firstly, the government building infrastructure, trying to reduce compliance costs, lowering company taxes, are all initiatives that are important in terms of getting them to invest.”
General business confidence surveys asking whether the government was on the right track in terms of the economy, like the Mood of the Boardroom survey before the election, were “pretty supportive of where National’s going.”
“So we can’t make them invest if they think the international environment is weak. But we can do our best to point out to them that we think we’re getting in the [strongest] shape we can," Key said.
...not in the short-term
Asked how long the government would wait before acting further if business investment stagnated, Key replied:
“Well I don’t think we’re in that position. In fairness we’ve grown in nine of the last ten quarters. Yes, that’s been relatively anaemic growth, and that reflects this very sluggish international position. But I think, before you see New Zealand companies really leaping into substantial investment, they are going to want to have more confidence about what’s happening in the global economy.
“They’re going to want to see Europe on a stronger footing, and they’re certainly going to want to see some recovery in the United States," he said.
While activity in Europe may remain subdued over the next 5-10 years, the numbers emerging from China and the US were more positive.
Asked whether his answers meant the ball was in the court of the private sector for next move, Key replied:
“I think [the] question is, is there some magical lever that the government can pull? I think the answer to that is, I don’t think there is something we can do in the very, very short term.”
The government was doing a “fair bit” of investment in infrastructure like roads.
“I think the private sector [is] taking quite a lot of confidence in what the government’s doing. Speeding up things like the RMA...are really important, because they’ll help them," Key said.
“But...it’s just like New Zealand consumers are currently saving, and have been for the last three years. It’s a reflection on a slightly different anticipated environment. There’s just a degree of uncertainty in the minds of businesses and consumers," he said.