NZ-India FTA talks to benefit from more MFAT funding: David Parker

The seemingly stalled New Zealand-India bilateral talks on Free Trade Agreement (FTA) between the two countries are set to benefit from the recent increase in funding of the Ministry of Foreign Affairs and Trade (MFAT) – the department responsible for inking NZ’s trade negotiations around the world.

“We have got quite a significant increase in the funding for Ministry of Foreign Affairs and Trade, which will enable New Zealand Trade officials to do more at once because there will be more of them,” Mr Parker said.

The Minister was in The Indian Weekender studio on Friday, May 18, immediately after the budget announcement in Parliament and spoke about a number of issues around the budget, ban on overseas buyers in NZ residential market and the current state of the art of the bilateral talks on NZ-India FTA.

Here are some excerpts from the interview.

IWK: Do you think your Ministry of Economic Development has got enough resources in this budget to keep our economy growing?

Mr Parker: Absolutely! The big-ticket items are $1 billion being spent in provincial regions. You know the way in which a country grows wealthier is by exporting more goods and services to the rest of the world so that we can import more things and afford higher standard living at home

NZ is never going to produce cars and mobile phones because our market internally is too small to do that cost-effectively. So we got to maximise the value of other things that we do now.

One of the problems of NZ is that over the past ten years is that exports have dropped from 30 per cent of GDP to 27 per cent of GDP. This is when the prior government had the ambition of lifting it from 30 per cent to 40 per cent. In my view, that outcome of going down, instead of going up, was a total failure and we need to do something completely different to prevent that in future.

It’s a simple longstanding principle of economics that the only way to grow your exports is to improve the productivity of your economy and to grow new points of comparative advantage over the rest of the world. So that we can sell higher value goods and product to the rest of the world because we certainly can’t compete on low wages and we don’t want to.

This budget meets those goals in a significant way. 

We have got $ 1bn provincial growth fund. We have got $1 billion that will go in investment that will enhance productivity in the regions.

We have $100 million in Capital Green Growth Fund to partner with businesses that are bringing forward new and efficient ways of doing things in an environmentally sound ways

In addition to that, we have another $1 billion to be invested over a period of four years for funding Research and Development Tax Credit.

Research and Development Tax Credit are effectively a tax cut for businesses that invest in research and development. We need more of that as a country. We spend 1.3 per cent of GDP on R&D, that’s half of the average of countries that we compare ourselves with. So we got to do lot better than that.

And to stimulate that additional private sector expenditure in research and development we are introducing tax credit.

IWK: With all these investments do you think your government has been able to regain the business confidence or is it still the elephant in the room?

Mr Parker: I am an experienced company director and chief executive officer. So I know the business.

In order for the business to invest, they have to have the right economic signal from government. If we want to invest in the productive economy and less in bidding-up the rental prices in South Auckland that people can’t afford to live in, then we need a tax system that incentivising research and development, rather than speculation.

Under this government, that’s what we are giving.

IWK: Is this tax cut on research and development for small businesses as well or just focussed on big businesses?

Mr Parker: Well that’s the great thing about the research and development tax credit that they are universal in nature. Every business that invests in research and development are eligible for getting tax credits. There are obviously rules that are set out by Inland Revenue Department (IRD) that needs to be adhered to. You don’t want people pretending that they are investing in research and development and getting a tax benefit from that. But yes this is for every business in the land.

IWK: Is it fair to say that the bilateral talks between New Zealand and India on the Free Trade Agreement (FTA) are almost dead or on life-support?

Mr Parker: Yes, it is fair. In respect of bilateral FTA negotiations between NZ and India, officials have not met for a number of years.

However, there is another negotiation, which is of similar effect and is a broader negotiation called Regional Comprehensive Economic Partnership (RCEP). It includes countries from ASEAN, and countries like India, China, Australia and New Zealand. That broader multilateral negotiation between a number of country rather than bilaterally between New Zealand and India is proceeding.

IWK: It means your preference has changed from bilateral FTA with India to broader regional multilateral free trade negotiation.

Mr Parker: Well we like both. But you make a fair point that bilateral negotiations are not moving at all.

I would say that there is a problem in the world with rising protectionism. Prime Minister Ardern and Mr Modi, the leader of India, have both noted that this protectionism is neither of our country’s interest. 

It means that agreement between the countries that do want to trade has become relatively important. We hope that negotiations through RCEP would go well and we can bring them to a conclusion.

IWK: With regard to our bilateral talks on FTA between NZ and India, don’t you think we need to put more political capital to challenge the bureaucratic inertia that seems to be holding the talks?

MR Parker: Yes we do, and we want to. We have got quite a significant increase in the funding for Ministry of Foreign and Trade, which will enable New Zealand Trade officials to do more at once because there will be more of them.

We have got an enormous trade agenda undergoing at the moment all around the world.

To be able to succeed in bilateral trade negotiations, we need to have more willingness on the part of India, and also requires us to have more capacity in MFAT. We have more of that now.

IWK: What do you think is holding both sides back in terms of bilateral negotiation on FTA?

Mr Parker: Negotiations are never finished till they are finished. We have been a bit disappointed with the willingness of India to enable NZ exporters to sell their goods with a reasonable level of tariffs in India.

IWK: Likewise, India is also expecting NZ to accede to their request for market access in the services sector, which is their strength?

Mr Parker: We are looking after New Zealand’s interest, and India is, of course, looking its interest and this is why negotiations are never finished till they are finished. But we hope to get a conclusion that we both can live with.

I think we have great people-to-people relations between the two countries and we hope this will eventually show up in the trade figures.