THE JOYS OF SPRING & FOREIGN CURRENCY DEBTPrime Minister
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Kim Thompson, Your Worship the Mayor Margaret Evans, Bob Simcock, Tony
Steel, distinguished guests, ladies and gentlemen.
I'm very glad you invited me here today, because today is a truly
wonderful day for all New Zealand.
As you might have noticed, I am full of the joys of spring this lunchtime
and with very good reason.
Something happened today that has changed our nation's financial
position in a symbolically important way and hopefully for all time.
To explain the significance of this day we have to go back to 1857. In
- the first General Assembly
had recently been established in Auckland;
- gold had been discovered at
- the Imperial troops had
landed at New Plymouth to settle down the Taranaki;
- Te Wherowhero elected
Potatau - the first Maori King; while
- the novelty of the day was
the new adhesive, non-imperforated postage stamp.
Also in the year 1857 New Zealand incurred it's first net foreign
currency debt the princely sum, for those days, of 300,000 pounds.
Exactly what this money was borrowed for is not recorded but it was
quite possibly to finance the incipient Maori Wars.
They figured they would pay it back in a year or two, but that was not
to be the case; as we all know, borrowing became addictive for successive New
- by 1864 foreign currency
debt was over a million pounds and climbing;
- the 10 million pound mark
came up around 1873;
- by 1906 had passed 50
- in 1923 we hit 100 million
- in 1954 we briefly got into
the black, but not for long;
- back in debt to the tune of
200 million pounds in 1968;
- then 500 million in 1976;
- in 1978 we hit the one the
foreign currency debt topped one billion pounds; and
- in 1981 that debt amounted
to two billion pounds!
And still it didn't stop no way.
The New Zealand Government was not dissimilar to Lord Byron who once
wrote to a creditor:
It is very iniquitous to make me pay my debts you have no idea of the
pain it gives one.
By 1990 net foreign currency debt was up to $15.9 billion and it was
costing $1.5 billion each year just to service it.
Indeed it could have gone on climbing forever if, in that year, New
Zealand hadn't elected a Government that was determined to do something about
The worst year was 1992 when the figure peaked at $16.3 billion.
Then, really for the first time in 135 years, it began to come down.
Given the magnitude of the problem there were those who thought it would
take us another 135 years to eliminate it if ever.
It didn't take 100 years, or 50 years, or 20 years, or 10 years it
didn't even take five years.
I can now officially announce that we eliminated New Zealand's entire
net foreign currency debt this morning!
With the settlement of the forestry cutting rights sale, the albatross
that has been around our necks for 139 years, has finally been plucked and
The 27th of September 1996, will go down in our economic history as the
day we eliminated net foreign currency debt.
New Zealand should feel very good about that.
Clearly all our national debt is not held in foreign currency, but it is
the foreign currency component that could be described as the 'danger zone'.
This is the segment that rapidly escalates if the value of the currency
should fall and while this is not predicted, the value of the Kiwi dollar has
Consider what happened once before.
In 1991/92 when the New Zealand dollar dropped in value by about 11%
against the currencies in which the bulk of our debt was denominated, our net
foreign debt increased by NZ$1.76 billion.
This increased interest payments by about $180 million.
So the foreign currency debt the dangerous bit if you like is gone. But
what's happening to our overall debt situation?
Net public debt in New Zealand, as a percentage of GDP, rose from single
figures in the 1960's to a high of 52 per cent in 1991/92.
This was a dangerously high level by accepted international guidelines.
Since then, the same fiscal discipline that enabled net foreign currency
debt to be eliminated, has enabled us to cut net public debt in half.
From 52 per cent of GDP four years ago to 32.5 per cent today, and 27.6
per cent next June.
The only countries in the world forecast by the OECD to find themselves
in such a fortuitous position next June are Japan, Norway and Finland.
But the good news won't stop there.
According to the Treasury's most recent projections, by 1999/2000 net
public debt will be down to a modest 13.3 per cent of GDP.
How has this phenomenal turnaround been achieved?
It has happened because the last six years have been years of rational
change, bold innovation, leading to rapid transformation, very strong growth
and effective social reform.
Our nation has evolved almost beyond recognition. From what was described
"one of the most suffocating and dreary economies in the western
world" into what the OECD now calls "amongst the most dynamic and
This was achieved because New Zealand in October 1990 elected a
Government who, when confronted with the awful facts of New Zealand's true
economic position when the books were opened after the 1990 election, calmly
set about to correct as quickly as possible the many problems we inherited.
In the first years of our term our political critics had a field day.
The Alliance predicted the end of the world as we knew it.
Labour forgot they had been Government for the previous six years and
blamed the mess on someone else, and New Zealand First loudly proclaimed it was
a conspiracy - and the world's end.
Now, they all have different songs - yes the 'gloom gang' are still
gloomy but this time they want to get back into Government to spend the
surplus, something they say they are experts at and I agree.
They are great spenders of other people's money.
They are all out of touch - the world has passed them by.
Two weeks ago Treasury issued the 1996 Pre-Election Economic and Fiscal
Update, as required under the Fiscal Responsibility Act we passed in 1994.
The document contained a complete and I would emphasis the word complete
statement of the Government's financial position.
Every single dollar we are committed to spend, every liability, every
contingent liability, must be contained in the document under law.
In the opinion of Treasury:
- after growth this year of
2.5 per cent, the economy will expand by 3.7 per cent in 1997/98;
- after growing 14.3 per cent
over six years the economy will grow by a further 13.5 per cent over the
next four years; and
- we have moved from massive
deficits and our operating surplus will increase over the next four years
to reach $6.4 billion in 1999/2000.
In the six years since we came to office we have seen the rate of New
Zealand's development and growth almost treble.
Let me remind you, in the 15 years from 1976 to 1990 growth averaged
just 1.3 per cent.
In the past four years it has averaged 3.8 per cent. Were doing three
times better than we were.
Over the decade of the 90's we will have growth of around 30 per cent;
that is to say that we will have added growth equal to another five farming
sectors to the economy.
Export earnings have climbed from $15 billion per annum to over $20
And a huge amount of this growth will have come from products and
services that were virtually unknown to us a decade ago.
As a result of this impressive, even dramatic, expansion in commercial
activity Government revenues will continue to grow and we will be able to
further reduce both debt and rates of taxation.
The first of our tax cuts came into force on July 1st this year.
Next year, under a new National Government, we will repeat those tax
The Alliance's tax policy is that if it moves, tax it.
If it still moves, regulate it.
If it stops moving, subsidise it.
The National Bank's latest economic confidence survey says that business
confidence is now 'back in the black'.
All of this is being achieved without disregarding, or in anyway
postponing, our heavy social obligations.
On the contrary, we have made significant new investments in health and
To date an extra $1 billion in health and an extra $1.5 billion in
education - and, at the same time, bedding-down a far fairer and more
sustainable social welfare system.
The opening of the books showed that the Government's programme between
1995/96 and 1999/2000 will see us spend an additional:
- $600 million on health;
- $800 million on social
- around $800 million on
We will also spend an additional $110 million on the environment and
protecting endangered species over the next three years.
All of this money is committed.
Any new policies will be on top of these commitments.
We can afford to do all of this because we are repaying debt; the cost
of debt servicing will fall by a further $1.8 billion over the next four years!
That's the most impressive statistic of all and when it comes to
priorities, in our view, it's better to spend money on social policies rather
than interest rates to international bankers.
How are we able to do this now?
The answer is simple, we have developed a modern disciplined economic
model that works.
Each year the European-based World Economic Forum issues a 'medical
check-up' on the health and fitness of the world's leading economies.
This year it rated New Zealand third in the world for economic competitiveness
ahead of the USA (which came fourth) and Australia (which came twelfth).
This is tremendous news because it is these nations with whom we both
trade and compete.
I'm told that the Forum goes further and predicts that:
the fastest growing nations in the world in the next five to ten years
will be Singapore, New Zealand, Thailand, Hong Kong and Malaysia, in that
The world is coming to recognise that there is a 'New Zealand way' of
managing an economy.
It is based on five fundamentals that can not must not be tampered with,
regardless of the temptations to do so in the interests of short-term political
First, we have an open, accessible economy; ensuring that the finest
goods and services that the world has to offer are allowed to flow freely
across our borders.
This will give our people choice, encourage innovation, spur
competition, set good example and engage our nation at the cutting-edge of
Next, we maintain stable prices.
Inflation eroded our savings, stole away the return on our investments
and inhibited growth - while rewarding nobody but the speculator and the
So let me restate that National strongly supports the Reserve Bank Act
and the low inflation target.
We are also committed to maintaining the flexible modern labour market
brought in by the Employment Contracts Act which our opponents would dearly
love to destroy.
Since the Act was passed in 1991 time lost through work stoppages has
Consider what has happened in the meat industry.
From 1986 to 1989 there were close to 240,000 working days lost
From 1991 to 1995 after the Act was passed the average yearly number of
working days lost was 5,434.
And while work stoppages have gone down, employment has gone up.
In the past four years we have created 209,000 new jobs and cut the
unemployment figure to 6.1 per cent.
Less than one per cent above what you find in the United States; the
world's strongest economy.
The fourth fundamental is what the economists call 'responsible fiscal
management', although it could be more simply described as 'a little
It is fiscal discipline that will enable net public debt to be cut in
half in just four years; from $28.6 billion in 1995/96 to $14.4 billion in
Finally, you have our commitment to a low-rate, broad-based tax system.
The tax cuts for next year will go ahead and no new taxes like death
duties will be reintroduced.
With future budget surpluses predicted to reach $6.4 billion - no new
taxes are needed.
Rather we will be able to spend more in the key areas of health and
With a strong economy we will be able to enjoy a first-class quality of
life, provide world-class social services, and meet our commitment to the
disadvantaged in society.
We mustn't throw it all away but that could well happen.
We could easily do so.
On current polling National is likely to get about the same number of
seats in the next Parliament as Labour and New Zealand First combined.
This will not be enough the govern.
If Labour and New Zealand First combine, then strike a deal with
Alliance and they'll be talking before the polls close we'll get a left-wing
Under a Government led by Peters, Clark and Anderton the only certainty
would be chaos. Here's what would inevitably happen. In short order:
- the Reserve Bank Act and its
disciplines would be undermined as a matter of Government policy;
- inflation and prices would
rise sharply and New Zealanders' savings would once again be seriously
- the Employment Contracts Act
would be repealed and we'd be back to the days of industrial anarchy;
- unemployment would climb
- state spending would
escalate, National's tax cuts would be reversed and take-home pay fall;
- overseas debt would climb
and our hard-won international credit ratings would soon fall; and
- investor confidence in our
country would evaporate and the capital to fund growth would dry up.
But it need not be like that.
The voters have a much better option, rather than going backwards we can
continue the surge forward.
But National must win every single party vote available to us.
That's why we are running the election on the slogan: First Tick
What we lose sleep over at night is those of you who have been told that
the best way to get National back into power, is to give your party vote to
It's said that if you wish to deceive, tell a whopper!
Then back it up with apparent logic, built on false assumptions and
This is exactly what ACT and its front organisation VOTE are up to when
they try and persuade you to cast your party vote for someone else in
False Assumption No. 1:
National will win at least 39 of the electorate, or constituency, seats
on October 12th (both ACT and VOTE use this figure).
This represents 65 per cent of all the non-Maori electorate seats
something National has only ever done three times before in the massive
landslides of '51, '75 and '90.
False Assumption No. 2:
39 seats would be enough to allow us to get together with a party who
had won 22 list seats and form the next Government.
It wouldn't happen.
For ACT to get 22 list seats they would need to have won more than 18
per cent of the party vote which is far more than all the minority parties are
currently polling in combination.
False Assumption No. 3:
If National and some compatible party did win 61 seats between them,
this would automatically be enough to form a majority government.
By the time the 'total of 61' situation was reached we would almost
certainly have a serious 'overhang' and the number of seats in Parliament would
have moved well beyond 120.
That is just one of the many oddities of MMP. The finishing tape
actually moves away in front of you as you approach it!
You didn't know that? All of this, I promise you, is the gospel truth.
So what am I saying here? Am I saying all is lost? That we are throwing
in the towel? No I am not. Not by a long shot.
Let me say that I have great trust in the basic good sense of the Kiwi
They may not understand the intricacies of MMP nor do the Germans who
have had the system for half a century but Kiwis are not stupid.
They do understand that the way to get their party of choice into power,
is simply to vote for it.
And as the electoral fog starts to blow away over the next two weeks I
am absolutely confident that our support will steadily rise.
And that by Election Day we'll get enough seats to form a new
Government, alone or in coalition with a party who is similarly dedicated to
the path to prosperity.
A party that will bring its own base of voter support to the coalition
I don't just think this is going to happen. I know it is going to happen
- providing the nation remembers this simple message on October 12th:
FIRST TICK NATIONAL!
I thank you once again for inviting me to address you on the 27th of
September 1996; the day when after 139 years we eliminated net foreign currency
Breath in the spring air. Doesn't it smell great today?
Thank you very much.