Speech To Pakuranga Rotary ClubAttorney-General
Thank you for inviting me to speak to you this evening.
You have asked me to speak about what happens next in the economy, and how quickly we will be able to shake-of the effects of Asia. I also want to remind you just why the economy matters, and why the Government wants to lift New Zealand's level of sustainable growth.
GDP figures released on Friday showed that the economy grew by 0.7% in the three months to December. This came on top of a bounceback of 0.6% in September and means that a solid recovery was under way through the second half of last year.
Even the troublesome current account defied predictions with the deficit shrinking in the December quarter due to an improvement in the invisibles balance.
We all know that the start of 1998 was very difficult. This time last year many Asian economies were in turmoil, log markets and tourism, for example had dried up, we had a severe drought down the entire East Coast - and Auckland was especially gloomy because of the power cuts in the CBD.
Twelve months on the Asian region has stabilised, talk of a world recession has passed, and most parts of New Zealand have now seen some rain.
Many of the international risks which were around in 1998 are still present. There are still question marks about the performance of Japan, the world's second largest economy, and countries like Brazil and Russia. The EU economies are predicted to slow this year. A stable Chinese currency remains very important to stability in Asia.
But despite the doom and gloom most commentators got caught up in in 1998, the international economy has proved to be a lot more robust than previously expected, and importantly for us, momentum in both the US and Australian economies has been much greater than expected.
The international consensus forecasts show growth for our top ten trading partners at 2% for calendar 1999, compared to an expectation of 1.5% just 4 months ago, (and a Treasury expectation of 0.8% in the DEFU).
What the last 12 months has also shown - and what we should not lose sight of - is that New Zealand's economy now is far more resilient than in the past.
It has meant a lot of hard work for our firms and employees, but the country has come through a severe trading shock and is now facing a very bright start to the new millennium.
The Government knew New Zealand was as well-equipped as possible to deal with economic shock.
We had a framework which would allow our economy to rapidly adjust to the testing circumstances.
That wasn't an easy message for people to hear last year. But we weren't taking a blind punt, nor were we being ideological. We had a plan. It was a commitment to a framework which we knew worked. A framework for growth.
No matter what economic scenario eventuates, our framework means that firms are well placed to deal with uncertainty stemming from the global environment - and to take any opportunities on offer.
Our five fundamental policies for growth - an open competitive economy, low-rate broad-based taxes, price stability, flexible labour markets, and a fiscally disciplined government - based on economic common sense, will continue to deliver real gains for New Zealanders.
Economy and people
This Government wants to help New Zealand families. Our policies are about making things better for Mum, Dad and the kids.
We don't want a country where people are envious of their neighbours.
We don't want a country where people have to rely on their neighbour's work for their income.
In New Zealand we all care about the person next door. There will always be government help for those in need - we are spending $13.8 billion on such assistance this year.
But a solid future for families doesn't come from benefits. It comes from the economy. From our firms and the jobs they create.
We want a country where people have the opportunity to look after themselves.
We want a country where people can have jobs, and where they value education and jobs for their children.
Where they can keep as much as possible of their hard-earned income.
That's why this Government has a fundamental commitment to a strong, vital, growing, economy. We want more firms employing more people, paying more wages and creating more wealth.
Much has been achieved by New Zealand since the National government got our economic framework established at the end of 1991.
Growth of 37% (22% in real terms) has created 268,000 more jobs.
The average wage has risen from $542 to $654 and real average household incomes have increased from in $47,400 in 1991 to $55,200 today.
As well as having higher incomes, consumers - and all New Zealanders are consumers - are facing much lower prices.
All the economic changes we have made have been about lowering costs and increasing growth as we have sold government businesses, increased competition in areas like electricity, and introduced parallel importing.
Take the key family purchase, the house.
Short term interest rates have dropped from 8.2% at the end of June '98 to around 4.7% now, leading to sharply lower lending rates. This fall in floating mortgages from 11.25% to 6.5%, is saving $70 a week for families with a $100,000 loan on their home.
Look at what has happened to the second most expensive purchase, the family car. In the Budget last year we announced an end to car tariffs. Overnight $6,000 dropped off the price of medium sized cars.
And the reduction in prices doesn't stop there. Today, just about every house expects to have colour televisions and video recorders - and they can afford them.
We should remember these gains for average families when the nonsense is talked about protecting ourselves from the real world. What that means is putting up prices for New Zealand families.
Mums and Dads want health services and education for their kids.
We are spending nearly $2 billion a year extra on increased health services this year than in 1991 - that's more than $500 extra for every man, woman and child. And children under 6 no longer have to pay to go to the doctor.
Education spending has been increased by $1 billion in the same time - $300 extra for every New Zealander.
This Government has also made one huge change for families. We have lowered taxes.
From July 1 1998, a single income family on the average wage with three children was keeping $98 a week ($5096 a year) extra from its pay packet because of tax cuts and increased family assistance.
With four children, they are $125 a week ($6500) better off.
With three children and an income of $10,000 a year, they gain $72 a week.
With three children and an income of $50,000 they gain $45 a week.
Our political opponents, who like the idea of government spending ahead of family spending oppose tax cuts because they believe it is taking income away from the government.
They have the mistaken belief that the government has first call on peoples incomes.
The people who have first call on their incomes are those who are earning the pay.
Lower taxes mean people keep more of their earnings, lower costs for our businesses, and mean more growth and more jobs.
That is what the rest of the world is realising too.
Look at Japan, Australia, Germany - and Tony Blair's modern Labour in Britain.
Then look at the left-wing here.
In 1996 Dr Cullen was decrying the tax cuts that have left a family on the average wage $98 a week better off, not just because Labour wants high taxes, but because they claimed it was going to drive interest rates up.
Tax cuts are there perennially, while interest rates fluctuate, but he may just have noted that they are presently at 30 year lows - and quite considerably lower than the 20% plus mortgage rates people had to pay under Labour.
When you combine the tax reductions with the interest rates savings over the past year, these are the results.
With an $80,000 mortgage and a $35,000 income, a family with four children is now $174 a week better off - $118 from the tax changes and $56 in interest savings on a 20-year mortgage.
With a $100,000 mortgage and a $45,000 income, a family with two teenagers and one child still at primary school is now $164 a week better off - $94 from tax changes and $70 in interest savings.
There is still a lot of work to be done. We want higher growth, more jobs, and better incomes for New Zealanders.
But the way to get these isn't to rob Peter to pay Paul.
It is the private sector which creates the country's wealth. It is our firms which supply the goods and services. It is our firms which create the jobs and incomes.
Providing people with benefits is not the best option. We need a welfare net, but New Zealanders want jobs, not benefits.
The government doesn't have any money of its own. Our money is yours - the taxpayers, the people with the ideas which get us ahead, the responsibilities for getting the work done, and the families.
As I said earlier, we are committed to supplying quality social services.
That does not mean we need to take more and more of your money to pay for them.
We want to lower tax rates and give everyone possible the chance to enter paid work.
Again, growth, and jobs - along with good budget housekeeping - is the way to provide what the country wants.
The easiest thing a government can do is spend money. Governments proved that through the 70s and 80s.
But look at where that left us. By 1991, net public debt peaked at 52% of our GDP.
In 1991 we were spending more on interest on debt than we were on education or health.
Today, debt has been more than halved as a percentage of GDP- it is under 25% - and with the sale of Contact it will be around 23%.
Our approach means we have been able to lower taxes, increase spending in health and education and police, and lower taxes all at the same time.
Running Budget surpluses and repaying debt have been at the core of fiscal policy since National came to office. This year, 1998/99, will be our sixth year of surplus - and it will be a good one.
In this Budget we will continue to build on the framework which has worked so well for us through the 90's, and we are confident we can provide higher growth, more jobs, and higher incomes for all New Zealanders who want a better future.
The economic outlook, shows what can be achieved in the new New Zealand.
Growth picked up by 0.7% in the three months to the end of December. Since then: Private sector forecasters are now picking the economy will increase by around 3% this year and 4% next year. The NZIER last week predicted growth averaging 3.4% over the next four years. Business confidence is at a five year high. Export intentions and investment are positive and forecasters are picking an increase in exports as the world economy recovers. Consumer confidence is up. Advertised jobs are showing strong growth, up 2.9% in January and 2.7% in February. The sharemarket made strong gains at the start of the year with the SE40 bouncing back well over 2000. And over 250,000 NZers have pre-registered for shares in Contact. January's trade figures show a continuing rise in exports, with some very large gains into the US and Europe. House sales in January were up 26% over January 1998. January tourist numbers were the highest January month total on record. Jan 1999 5% higher than Jan 98. You will also not have lost sight of the opportunities provided by APEC, the America's Cup, Millennium events and Sydney Olympics next year. While growth has resumed, inflation is at its lowest level in 30 years. And interest rates are at similar 30 year lows. The Reserve Bank has confirmed that inflation pressures are low, and it is projecting interest rates to stay at current levels for the next 2 years. As for the Government's books, the January Financial Statements show revenue tracking well above forecast.
The operating balance is $522m ahead of forecast, net worth $816m ahead, and debt lower by $411m (at 24.8% of GDP).
And a week ago we announced the sale of 40% of Contact to Edison Mission Energy for $1.2b, three times the book value.
In May's Budget
We will be able to maintain surpluses
We will be able to continue to repay debt.
We will be able to maintain our spending plans for high priority areas.
And we will be able to look at further tax cuts
This Budget will build on the progress made throughout this decade, taking us further towards our goals ? growth, employment, opportunity and security for all New Zealanders.