Speech notes for address to Financial Services Institute of Australasia Post-Budget analysis, Hilton Hotel, Auckland.

It's a pleasure to be here to talk to you on behalf of the Finance Minister, Hon Dr Cullen.

Overall our economy is in good health.

Since 1999 the New Zealand economy has grown by 24 per cent.
We have enjoyed the longest period of economic expansion in 30 years.

Average growth rates of over three per cent have been higher than Europe, Japan, the US and the UK and as fast as in Australia. Growth rates are likely to return to around three per cent this financial year.

We have created 347,000 new jobs. Our unemployment rate has dropped to one of the lowest in the world.

We are at the top of the world's ranking for our openness and competitiveness and for the ease of doing business in New Zealand.

According to company tax returns, profit growth averaged over twenty percent a year in 2003, 2004 and 2005, the most recent years for which data is available. For the previous eight years profit growth averaged five to seven percent.

While that result is good, it is not grounds for complacency.

Growing demand and growing incomes have also created imbalances with inflationary pressure, high interest rates and exchange rate and a current account deficit at unsustainable levels.

We need to export more by being innovative and increasing our productivity.

Interest rates and the exchange rate place real pressure on export industries though it was good to see the overall resilience of exporters in today's DHL survey with nearly two-thirds anticipating an increase in their export orders over the next 12 months.

The budget addresses directly the concerns I have just mentioned.

Deloitte's 'Mood of the Boardroom' survey saw CEO's rate key aspects of the budget rather more highly than your own survey of 61 respondents. CEO's gave cuts in the corporate tax rate, R&D tax credits, the extension of KiwiSaver and the introduction of an active income exemption for offshore investments a high rating between 3.5 and 4.4 out of 5.

The headline corporate tax rate is cut from 33 to 30 per cent. The more than
$2 billion that will return to business over four years will help businesses reinvest their profits. It improves the rewards for risk taking. And it puts us in a more competitive position with other OECD countries. Importantly it's the same as Australia's, but bear in mind Australian companies pay other federal and state taxes New Zealand companies do not.

The research and development concessions in the Budget are higher, more broadly based and simpler than the comparable regime in Australia.

Reform of the international tax regime will help stop New Zealand companies migrating overseas and improve their competitiveness. Active income earned by New Zealand resident companies from their controlled foreign companies will be exempt from New Zealand tax, encouraging them to maintain head offices and R&D in New Zealand.

Taken together these changes represent an investment of over a billion dollars a year and the biggest business tax package in twenty years.

A key challenge for the budget was not to push demand higher in an already inflationary environment, affected by oil price hikes, surging returns from agricultural commodities like dairy and rapidly increasing house prices.

With New Zealand households already spending around $1.15 for every dollar they earn, big personal tax cuts this year would have driven interest rates, the exchange rate and the current account deficit higher.

The appropriate response has been measures, which remove demand from the economy while meeting New Zealand's long term needs.

This includes the New Zealand Superannuation Fund (now over $12 billion), repayment and lowering of debt (down from 36 per cent of GDP in the late 1990s to around 22 per cent) and in this budget, the enhanced KiwiSaver initiative.

New Zealand has one of the worst saving records in the world. Year after year, we have used the savings of foreigners to invest in our economy. This has resulted in the passing over of ownership of our resources and a high and rising stream of dividend payments for investment in growing our economy, aggravating the current account deficit.

Thirty three years ago the Kirk Government established a New Zealand superannuation scheme which would have allowed the transformation of our economy.

Muldoon scrapped it.

Meanwhile the Australian government set up a scheme which has now amassed a trillion dollar deep pool of savings.

Every time an Australian private equity firm crosses the Tasman and invests here they are doing so with money saved by Australians who have been encouraged to do so through active government policies for nearly 20 years.

We need to save to build the wealth of New Zealanders and to help build the pool of assets needed for business investment.

And most importantly we need to save more, rather than consume more, which would have been the outcome of large personal tax cuts.

To be fair, Bill English recognised that in his public comments, even if John Key didn't and took the opposite line of arguing we should borrow to fund tax cuts and extra spending.

I am encouraged by the positive response that expanded KiwiSaver has already received in many quarters.

The NZX said KiwiSaver will mean more future certainty for businesses and individuals, and the matching tax credits for employer contributions will give businesses a competitive edge in attracting and retaining high value employees.

Gallagher Animal Management Systems – a very important manufacturing exporter – said "KiwiSaver is the right thing for the company to be doing – it is going to cost the company, but as a good employer, we want to do the best for our staff."

When the Herald surveyed business leaders, it found 56 per cent backed employer matching contributions.

A One News poll last week found 47 percent said they would join KiwiSaver, even before the campaign for it has begun.

KiwiSaver will make more kiwi capital available to help grow businesses. It will be simple and portable for small businesses, most of whom cannot hope to offer their staff their own superannuation scheme.

I finally want to touch on some key areas of expenditure.

Some $3 billion extra is invested over four years in the health sector improving preventative care and meeting the needs of our aging population.

Another half billion dollars goes this year into new education initiatives, including to better align tertiary education with the skills you need.

And major investment continues to be made in infrastructure to compensate for the failure to invest in the 1990's.

Annual investment in land transport has increased 130 per cent since 1999.
It's now about $2.2 billion a year.

That's pro-business as well as pro-commuter spending. It's paying for roads here in Auckland. Road spending is seven times the level it was in 1990. And expenditure on public transport is up 750 per cent, even before the new initiatives in the budget. It's the biggest programme of rail and road building since Julius Vogel in the nineteenth century.

This year's budget targeted the biggest problems New Zealand faces. It deals with our economic priorities without compromising our fiscal objectives.
Saving and investing will build on our progress over the last seven years and continue to transform New Zealand into a more dynamic and innovative economy.

Thank you.