No stimulus in Budget for significant or accelerated economic growth
The 2012/2013 Budget is at best a “housekeeping” Budget.
It maintains the status quo which is, “forwards steadily but cautiously so as to be risk free” and “without flair or courage but reliance on traditional safety nets (donors).”
It would have been good to have seen in this 2012/2013 Budget document some brave new direction, some bold new initiative.
This is not a Budget which promotes significant, accelerated economic growth which is what is needed at this time.
“Business as usual” is fatal because business as usual is getting the country nowhere.
The country has potentially a very good future. The leadership just needs the courage to take it there.
With no significant new business developments apparent, our nominal and real GDP languishing, tourism only growing at a moderate 6% a year against inflation of 4%, our people leaving for higher paid jobs overseas, our basic pay still at $5 per hour, what is needed is an all out effort or some urgency given to business development, not small scale development but something that is going to lift GPD significantly, generate new revenue other than from local taxes and levies and higher paying jobs. With depopulation a very serious matter, what is vital is not just significant growth but accelerated growth. Incremental development at a snail’s pace on a small scale is the wrong strategy when around 1,000 Cook Islanders are leaving each year.
The rest of the world is suffering a recession and any suggestion we should tighten our belts and adopt austerity measures is to succumb to fear. Our best strategy is growth.
If depopulation is not addressed and quickly, then within five years the “face” of the Cook Islands will change and this change may be irreversible. Near a quarter of the population will be made up of NZ Europeans with about 10% from Fiji and the Philippines.
On Page 16 of Part One of the 2012/2013 Budget Estimates, government outlines its priorities in economic development and infrastructure for further economic growth.
Priority is given to underwriting the Air NZ flights. This is no evidence that this is stimulating any significant growth in the tourism sector or any other sector. What “trickle down” has there been and what new private sector developments has this generated? In fact we are now paying an increasing dividend (up to $13 million) to prop up Air NZ when surely if the flights were a raging success, we would not be paying any amount at all. Leader of the Opposition Hon Wilkie Rasmussen reported to this session of parliament that on a flight he made from LA to Rarotonga there were just 6 passengers. So how does paying more make sense?
More money is going into tourism marketing to grow visitor numbers. However while visitor numbers are increasing moderately, tourist spending is not. In fact VAT is down and the claimed estimated average spend by tourists of $227 per day requires clarification. What does this figure include? Enticing some of the 100,000 plus tourists who visit Rarotonga each year to spend more by visiting the northern and southern group islands, will be very difficult given the high air fares and shipping costs.
Putting more money into fishing is a good strategy. However, government is supporting small scale fisheries. Resources should be targeted at developing (over time) our own deep sea fishing capability as this is an area where significant growth and increased revenue is possible because our deep sea fishery is actually under-fished.
The Pearl industry is in recovery mode with the returns from investment some years off. The potential returns from sea bed minerals development is also some years off.
In terms of infrastructure investments, government there is no clear explanation in the Budget how these will result in or stimulate new growth, new businesses, new commercial ventures and most importantly new money. Where are the existing plans for new private sector growth that will take advantage of the costly investments in upgrading airports, harbours, the water and roads? At the moment the only likely revenue in sight is from taxes on locals for using the new infrastructure such as may be based on water meters and increased vehicle charges, increased airport landing fees and higher port fees for local transport operators.
Strangling significant growth are; high interest rates, high inter-island travel costs by air and sea, a lack of seeding finance and business friendly “start up” packages.
What is the point of having marvelous infrastructure with no significant government or private sector economic development to go with it? People continue to leave meaning a shrinking base of tax payers to pay off the big infrastructure loans.
The time has come for government to stop thinking “small” and start thinking about generating significant growth. Failing this, government should consider how best it can support or make it easier for the private sector to generate significant growth. For instance government could stimulate the construction sector if landowners were to erect buildings to rent long term to government ministries. Banks should be able to loan the money to landowners if government were to guarantee long term tenancy to cover the period of the loan. Local tradesmen and builders would benefit and the money would stay in country.
Government should consider beefing up the BTIB into a Ministry for Business Development and giving it just one mandate-get new businesses off the ground! -Charles Pitt

Herald Issue 608 21 March
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