donald t brash : faster growth? if we want it address by dr donald t brash, governor of the reserve bank of new zealand, to the “ catching the knowledge wave ” conference, auckland, 2 august 2001. * * * fundamentally, this conference is about economic growth, and how new zealand can get more of it. many new zealanders do not see increasing growth as a high priority objective. what we want is to have access to better housing, better health - care, and better education. what we want is to protect the relatively egalitarian society of our past from increasing income disparities. what we want is more attention paid to preserving our natural environment. what we want is less stress and more leisure time. but the reality is that if we want better housing, better health - care and better education, we certainly need economic growth – we have difficulty funding our collective desire for health care and education now, and those costs look certain to rise in the years ahead. if we want to retain a relatively egalitarian society, we absolutely need economic growth – without it, too many of our highly skilled people will leave our shores, forcing up the relative incomes of the skilled people who choose to stay. perhaps surprisingly, even if we want more attention paid to preserving our natural environment, we need growth – international experience suggests that it is the relatively affluent countries which can afford to spend resources on protecting the environment. so a conference on economic growth is not " just about money " but concerns many of the issues of vital relevance to all of us. it also concerns issues which go well beyond the statutory responsibilities of the reserve bank, and for this reason i must stress that my comments this morning reflect personal views, and not necessarily those of the bank. our growth performance : much improved how have we been doing in the economic growth stakes? unfortunately, not too well if we judge from the last three decades. over that period, our growth in gdp per capita has averaged 0. 8 per cent per annum, compared with an average of 2. 0 per cent per annum in the countries of the oecd. as a result, we have slid from 9th in the oecd " rankings " in 1970 to 20th in 1999 ( comparisons made on a purchasing power parity basis, rather than at market exchange rates ), and have also been well surpassed by some countries which are not oecd members at all ( singapore being the best example ). as recently as 1990, new

the adoption of new technology by encouraging a more entrepreneurial, a more risk - taking, culture? at a minimum we may need to try to make entrepreneurs feel more loved – if not our only national heroes at least among our national heroes! we also need to foster an understanding of financial matters, and an interest in business activities, in our schools, through programmes such as those run by the enterprise new zealand trust. we need to consider whether the personal income tax structure provides appropriate encouragement to entrepreneurial new zealanders to stay in new zealand, and encouragement to entrepreneurial potential new zealanders to come here. our top rate of personal income tax is not particularly high by the standards of other developed countries, but it cuts in at a level of income below that in many countries and our tax system allows relatively few deductions. compared with the rapidly growing economies of hong kong and singapore, our top rate of personal income tax is very high. perhaps we also need to think of some more innovative moves in the tax area. the united kingdom attracts many entrepreneurial people from all over the world to live and work in that country by exempting from uk tax all income generated outside the uk for people not born in the uk. i understand that switzerland effectively " negotiates " the tax to be paid by wealthy foreigners who want to live in switzerland. it may be no accident that many entrepreneurial new zealanders have moved to these countries in recent years. another idea was suggested in the discussion paper issued by the mcleod committee recently, namely establishing a maximum amount of income tax to be paid by any individual during the course " the productivity experience of the united states : past, present, and future ", a speech at the us embassy in the hague, 14 june 2001. a new economy? the changing role of innovation and information technology in growth, oecd, 2000, page 29. of a year. the mcleod committee suggested that that might be $ 1 million. even a maximum of $ 500, 000 per annum would be more than enough to cover 10 times over the cost of public services likely to be used by a person paying that much tax, but would be a level of tax which would seem very attractive to many expatriate new zealanders and other entrepreneurial people in the us, europe and asia, from whom we are currently collecting no tax revenue at all. i strongly suspect that establishing such a maximum would actually generate significantly more tax revenue for the new zealand government than the present tax structure