Last week I wrote about the significance of the 2010 Budget in terms of promoting economic growth. Here is the problem that the Government is faced with, resulting from weak economic growth in the years leading up to the recession.

What we call the tradable part of the economy has not grown since 2005 and is currently around 2002 levels. This is output from exporters and those that directly compete with imports. In other words sectors like agriculture, horticulture, mining, forestry, fishing, food manufacturing and tourism. Each of these is a sector which New Zealand should be benefitting just because of its natural advantages. We have to get back to growth in this part of the economy. The Budget is an important step in that direction.

On the opposite side of the coin the non-tradable part of the economy grew strongly. In this is included government administration, retail and construction. A feature of the non-tradable sector has been its persistently high inflation, driven in particular by increasing government expenditure.

It is essential that the Government achieves a better balance between the tradable and non-tradable sectors of our economy.