INTERNATIONAL COMPETITIVENESS

  • John Luxton
International Trade

WAIPUNA INTERNATIONAL HOTEL, AUCKLAND

Special guests, ladies and gentlemen. Thankyou for giving me the opportunity to talk with you today. The New Zealand forestry industry is an important one which over the last decade has grown rapidly. But it is still a New Zealand industry with much potential yet to realise.

New Zealand Radiata represents probably over 90% of our exotic forests and has a clear competitive advantage with at least 20% better growth rates than any of our competitors' tree stocks.

Likewise you have critical mass similar to the dairy and kiwifruit industries, amounting to about a third of the world market for your particular product.

My original parliamentary electorate used to contain Lichfield and the original 180ha of commercial radiata forest plantings. At the time of that initial planting the electorate was represented by the then Labour MP for Rotorua who spent much of his maiden speech on the topic of "speculators wasting the people's money by planting small trees of the wrong species in the wrong area". How wrong he was!

Today I want to talk with you about improving our international competitiveness and the role of Government in achieving this.

Role of Government

As a country it is vital that we increase the size of our economic cake. Economic growth is very important if we are to increase our standards of living and meet our social and environmental goals.

So what is the role of Government in this?

After all the Government does not create wealth, it merely transfers it at a cost. We need businesses of all types to invest in people, jobs and ideas to add value. Good government does have a role to play in making the size of the cake bigger but getting a bigger government doesn't give a bigger economy. In fact it is quite the reverse generally. The smaller the Government, the faster the growth.

Government needs to continue to work on a trifecta of areas - reducing the size of government, freeing things up and working to improve trade opportunities.

The first leg of the Trifecta is to reduce the size of Government in the economy. Since the early 1990s we have progressed from 42% of GDP to about 34% this year.

To achieve this, we need to continue to privatise sectors that are not core Government activities. In the recent budget, the Treasurer announced the privatisation of Government Property Services, and some small power stations. He also signalled that other assets may be privatised on a case by case basis. I believe other activities owned by Government need continual reassessment, including local government assets, such as power companies, television companies, ports, airports and Local Authority Trading Enterprises (LATES).

This means we need to continue to shift public attitudes about public ownership. It never ceases to amaze me that those most critical of the political process seem to be those most adamant on having politicians controlling large public assets in our community.

Perhaps we as New Zealanders should focus more on the outputs that we expect, rather than on the inputs. If we do this, the ideological position of the left, obsessed with ownership issues may move to a more common sense point of view, focussing on better services for New Zealand families.

Secondly, we need to continue to contract out services that private enterprise can do better. Government, both local and central, can sometimes do some things well. But again if we could focus more on the outcome of what gets done, rather than who does it, New Zealanders will be better off.

Papakura City Council is to be congratulated on their leadership in local government. It is a good example of what can be achieved for both ratepayers and the community. It creates a win - win situation by lowering rates and improving services. Some of the wishy washy so called "do gooding" councils would do well to follow suit. The gains for wider Auckland would be great if they followed Papakura's lead.

Why aren't the citizens who are quick to complain about private sector price movements more vocal when rates move up 3, 4 or 5 times faster than inflation?

Thirdly we need to continue to improve Government's efficiency in the core roles that it still undertakes. There is still room for improvement in both central and local government. Interestingly, almost all areas of government services have improved as we have reduced the size of Government. The major areas of tardiness have tended to be those parts of the state which are still dominated by collective employment contracts, such as in education. We should not underestimate the boosts to the economy that the freedom of the ECA has bought.

This Coalition Government's programme has contained increases in Government spending to $5 billion. All other outcomes from last year's coalition talks would have resulted in far greater spending plans. Further tax reductions are planned and we are carefully managing key macro settings and providing a stable economic environment which, in recent months, has seen the exchange rate corrected to a more comfortable level for export sectors such as yours.

Calls for increased Government spending will only result in higher interest rates, more volatile exchange rates and eventually higher tax rates. Being in Government means taking some hard decisions. This Government is containing spending, despite lobbying by well organised professional groups, and is still on track to reduce tax below 30% of GDP.

The second leg of the Trifecta is to free things up more.

We need to have a free, open and competitive economy to lower society's costs and allow the productive sector to get on with the job. If we don't we will become uncompetitive and our businesses and families will suffer.

We have seen many benefits from competition in sectors such as transport, telecommunications, airways and supermarkets. We have brought in postal deregulation, are undertaking tariff reforms and moving further on energy and occupational regulation reforms.

But there's still a need for further reform. We still need to free things up so that we get the investment that we need to get things done. This is particularly important for investment that comes from overseas. Your industry has been a major beneficiary of this investment which has been a major support for the rapid growth over the last decade in forestry exports and jobs.

We need to continue to free things up so that we get the innovation that we need. We need to free things up so that business is not constrained from doing things because of unnecessary regulation and compliance costs. My ministry is working hard on this issue.

It is especially important that we free things up in education, immigration and employment areas so that we can improve the skills and expertise of our work force.

We live in a different world from that of 10, even 5 years ago. Globalisation means that decisions made and happenings on the other side of the world can impact on our businesses here like never before. Be it environmental activities to save owls in the US, development investment in Russia, or financial market movements.

I note that currently trade is growing at three times the rate that production is around the world. About one third of that trade is intra company, within multi international conglomerates, which highlights their increasing importance.

Today capital, skilled people and technology move freely around the world to where they get the best return. We have to make sure that we can attract as much, or as many, of these three key ingredients onto our shores as possible.

Coalition Action:

Despite perceptions, the coalition government is delivering. For example some current initiatives include:

In my own portfolio, Commerce, we have two major tariff reviews underway which will directly impact on the cost of doing business. The Post-2000 Car Tariff Review will be completed by end 1997 and other non-car tariffs by mid next year.
I know how keen exporters are to reduce tariffs because they understand that they are additional costs on them. For example, currently tariffs cost about $3000- 4000 per average new car. Cheaper cars for New Zealand's families and businesses will improve our international competitiveness.

In the area of freeing things up and compliance cost, we have a Quality of Regulation Interventions paper in the Cabinet process. It is looking at ways of changing the current incentives in our public service and legislative processes to ensure we reduce compliance and regulatory costs.
If we are to improve the quality of our regulation interventions, it is vital that we have the incentives for the lawmakers right. Currently they are not.

Over the last decade we know this to be the case, because as we have tried to deregulate and reduce compliance costs, we have actually added over 3600 regulations and 1600 pieces of legislation.

Were they needed? Are they effective? Have they actually generated more wealth for New Zealand? I believe that until we get an appropriate vehicle that will change the current incentives in a durable, authoritative and credible way, this cumulative burden will continue to increase. The Fiscal Responsibility Act is perhaps a good model for providing this. It has provided a real discipline on all parties involved, required disclosure, and given the incentives to prevent any administration of the left or right getting too out of control. And it works.

I am therefore supportive in principle of a Regulatory Responsibility Act which will provide a frame work to improve our regulatory interventions and management in a similar manner to our fiscal interventions and management.

Regulation can be good, but if we are to improve our international competitiveness, we cannot afford to continue to simplistically add to our increasing body of laws.

This is not sustainable in an increasingly changing world.

Commerce is also reviewing a range of specific pieces of legislation including

Resource Management Act 1991, by 1 December 1997
Building Act 1991, by 1 March 1998
Health and Safety in Employment Act 1992, by 1 December 1998
Privacy Act 1993, by 1 July 1998
Human Rights Act 1993, by 1 July 1998
Meat Act 1981, Dairy Industry Act 1952 and related legislation governing food safety, by 1 March 1999

As the Minister responsible for competition policy we are looking at whether we can improve parts of the Commerce Act framework, for example in the area of penalties and remedies.

The Treasurer and Minister of Finance recently announced initiatives to reduce compliance costs in the taxation area.

Minister of Energy, Hon Max Bradford, is reviewing the competitive arrangements in the electricity sector with a view to increasing competition in both retail and wholesale markets. Review due for completion December 1997

Minister for the Environment, Hon Simon Upton, is reviewing implementation of the Resource Management Act and, along with Commerce, its impact on compliance costs

Minister for Local Government, Hon Maurice Williamson, is reviewing the role and functions of local government.

Minister of ACC, Hon Jenny Shipley, is working with complex issues in that area, and as Minister of SOE's is continuing with the sale of non-strategic commercial assets

Hon Jenny Shipley, as Minister of Transport, is reviewing options for delivery of roading services to improve the quality of the roading network and its ability to support growth. Interim Officials report is due November 1997.
The Hon Jenny Shipley will no doubt seek to provide new impetus to what is a very busy work programme within Government as incoming Prime Minister next month.

And as I mentioned before, we need to free things up in and for the rest of our primary sector. If we are to have growth, we cannot afford to have out biggest export earners constrained by statute from receiving additional investment in processing and marketing. Farmers and growers deserve greater freedom to evolve, expand and progress their industry structures in a managed way so that their industry returns can improve.

After smaller and more efficient Government, and freeing things up a bit, the third leg of the trifecta is to continue to push in the international arena for free trade.

We need to continue our push in the international arena for freer trade through the likes of the Cairns Group, APEC, WTO and Bilateral free trade agreements. These are currently being worked on with the likes of China, the USA and South American countries. We need to have better access to markets and we are getting it, although not as fast and as much as we would like.

Recently we have passed the Trans Tasman Mutual Recognition Arrangement and have signed a new Australia New Zealand Government Procurement Agreement (NNZGPA) giving more ready access to government purchases on both sides of the Tasman, a market worth over $30 billion. Improved air transport arrangements have also been negotiated with a range of countries.

My colleague, Hon Dr Lockwood Smith, Minister of International Trade, will be talking to you later on forestry investment and may update you on our efforts within APEC to further free up trade in forests products around the Pacific Rim.

Conclusion:

This Government's economic growth programme has made and will continue to make progress, despite political sideshows that sometimes appear in the media and a change in leadership. All this despite the biggest constitutional change in our country's history for over 140 years.

We now move into our 7th year of growth with some optimism. The last 6 years averaged about 3% growth in GDP per year and provided a quarter of a million new full time job equivalents into our economy. The previous 15 years averaged less than 1% per year, and that was largely funded by increasing indebtedness. In contrast, today's growth is despite repaying public debt, reducing tax rates and increasing spending in social portfolios.

But like any good business, Government cannot rest on its laurels. It must continue to provide vision of a better tomorrow, with leadership providing direction and economic stability for vital sectors of the economy, such as the forestry industry. Change happens in politics just as it does in the rest of society. We need to make the most of the opportunities and build on our solid base.

Finally, I believe Government is playing its part to improve international competitiveness. I am sure that your industry will continue to grow as long as it also continues to work itself at being internationally competitive. Thank you.