Solutions for NZ

Following on from the NZ Institute / NZX draft document from Economy on the edge: Swan dive or belly flop? Or as another Jason commented – How can we take this to the next level?

A draft strategy for coming out of the crisis stronger –Download Full Document here is a closer look at one section; but first some other comments on the wider political environment in NZ.

The global credit crunch is an opportunity for politicians everywhere to show real leadership and especially in NZ where we have some unique challenges.

NZ has a general election on November the 8th and we have two politicians (Clark & Key) in the hot seat. So far the big wins go in favour of the Prime Minister who is clearly relishing the chance to step up.

That other candidate. The one who used to be a successful derivatives trader at Merrill Lynch and SHOULD know more about this type of crisis appears to be alternately smug and clueless.

Could it be that the very paradigm Mr Key was clearly successful in – might be his Achilles heel in this election campaign? Being good at abstract structured finance might not be such a good qualification for leading the real economy? (*See note at bottom though)

It is not just me who thinks so either: Over at Hard News / Public Address Russell Brown writes

“I’ve been telling anyone who asks that National is 75-25 odds on to form a government. I think it’s evident that those odds shifted Labour’s way on Friday: it’s just not clear how much.

And not just because of the polls per se: the 3News report on the poll results was more damning than the numbers themselves, which must be weighed against the thumping lead that messrs Colmar and Brunton gave National two nights later.

It was the look. Key was interviewed sitting down and, as is sometimes case when he’s nervous, his diction started to go off the rails (“the issues that matters to New Zealanders”). He looked a bit spooked. Clark, by contrast, was standing, smiling and enunciating every word like she meant it.”

The Deposit Guarantee Scheme announced over the weekend by the Reserve Bank will help but it highlighted the difference in vision between the two parties.

At this point I should disclose that I am a Green Party voter and while I am more sympathetic towards Labour than National this is a time for a bi-partisan approach.BTW I’m picking that the Greens will get 7-9% of the vote this election and the Maori Party will do much better.

Dr Pita Sharples is altogether a much more savvy politician and very capable thinker than Tariana Turia who always used to take 1 step forward and 2 steps back.

If Labour and National in particular (as the largest parties) work together on a smarter economic future for NZ then we can filter out some of the less important factors to pick a winner on the day.

Although my guess is both parties will need to form a minority governement leaving the Greens and the Maori Party with the balance of power.

Returning to the Draft Document here Perhaps some of you had a read over the weekend – on page 11 of 18 – italics and emphasis are mine

The focus of the proposed solutions on the real economy is deliberate, and reflects the particular nature of New Zealand’s exposure to the global crisis.

Unlike many other developed economies, our immediate exposure is to the impact of the credit crunch on the real economy rather than the liquidity and solvency of the banking sector.

The proposed New Zealand response is therefore fundamentally different to the measures recommended in other countries.

100% tax depreciation on capital investment
Given New Zealand already faces deep productivity issues, a reduction in capital investment when capital is scarce is a real risk to our medium term competitiveness. Firms are already cutting capital investment. Without any incentives to accelerate such investment, any delay will in turn delay the timing and strength of the economic recovery. The opportunity is to accelerate that process, and thereby strengthen our new champions.

We propose that for the next 24 months (through to 31 December 2010) capital investment and IT spending be allowed a 100% depreciation write-off for tax purposes.

For firms to invest meaningfully in capital, they either have to have been well managed with strong cash flows, or still have access to credit or equity.

We can therefore expect that the firms that take advantage of this tax window will be the ones who will drive the economy forward, and around whom the economy should recalibrate.

As someone who works on the edges of IT sector I understand how much effective capital spending and capability improvements can have in this area.

Build flexibility and smarts into your business system using IT as an asset and platform. I spend most of my time unlocking IT capabilities so that marketing and sales can deliver the results we expect.

Happy to provide more services in this space as well so I agree with the direction as long as we all utilise the existing and new systems rather than thinking we just have to buy a license which never gets us very far.

I’d be interested in what you think about this as a policy direction. But even more important read the full document and go over to the main NZX blog to add your feedback and ideas.

*National has adopted one of the ideas in the draft strategy at least in spirit if not directly. A small win for Mr Key. Go here to keep reading.