"Kiwis cannot relax"

Plaza International Hotel.

Six years ago one of our newspapers published a Tom Scott cartoon which now hangs in my study at home.

It depicted the then new-born Employment Contracts Act as a huge salt water crocodile with the hapless chair of the Labour Select Committee desperately clinging to its back while the croc rampaged out of control devouring all in its path.

As with any major and far-reaching reform, many people at the time were convinced the Employment Contracts Act was a sure recipe for mayhem and disaster.

There can be no doubt about it, the National Government's labour market reforms of 1991 broke new ground.

It had as pervasive an impact on the institutions and practices of the labour market as did William Pember Reeves Industrial Arbitration and Conciliation Act of 1894.

It took nearly 100 years to change the law of the labour market in the face of nearly 20 years of mounting evidence the old system was not working.

We can't afford to wait that long in the future.

Our economic success will in part be measured by our ability to be nimble footed enough to meet rapidly changing markets.

Through the ECA, the National Government changed the fundamental nature of industrial relations in order to support the competitiveness of New Zealand businesses.

The Act didn't turn out to be a destructive monster. Rather it gave employers and employees the freedom and flexibility to choose their employment relationships to suit their own circumstances.

Increasingly the Act is willingly accepted as part of the wall paper of the "new" NZ economy.

The Act and its principles of choice, flexibility, neutrality and fairness are still central to the coalition Government's policy to sustain high economic growth in New Zealand.

But it is not time to lie about and congratulate ourselves on the success of the ground-breaking reforms of 1991.

Ground breaking policy does not stay that way for long.

The rest of the world - and our neighbours Australia and Asia in particular - have not stood still in the past six years.

Too few New Zealanders understand how fast the fundamental shape of our economic destiny has changed in just 20 years.

For a start, much of our wealth, our standard of living, is derived from exports. We can not improve behind a fortress economy some political parties still pine for.

In 1970, 36 per cent of New Zealand's exports went to the UK. Barely 6 per cent do now.

The 12 major European countries took just on half our exports in 1970. That proportion has sunk to 16 per cent.

Asia took 13.5 per cent in 1970. They now take nearly 40 per cent.

In 1970, just 8 per cent of our exports went to Australia. More than 20 per cent do now.

The importance of these huge shifts in our export destinations lies in the dramatically different economic structures of the UK/European markets and the Asian/Australasian markets.

The former are prone to bureaucratic intervention and regulation. The latter are free wheeling and free market.

If we are to compete successfully in Asia we will need to model our policies and performance on Asian rather than on European economies.

Australia is faced with the same imperatives we are. It is responding rapidly and has recently reformed its industrial relations framework as radically as New Zealand did six years ago.

An increasingly competitive world economy has caught up with many of the policy initiatives we took in the early 1990s and in some cases has passed New Zealand.

If the Employment Contracts Act is a crocodile, I would say it is swimming more slowly these days, in a faster moving river.

Against Australia, our relative competitiveness has decreased since 1992.

Over the last 12 months Australia's GDP has increased 3.8 percent compared with 2.1 percent in New Zealand's GDP with similar inflation outcomes.

The cost of labour in manufacturing has risen at a faster rate in New Zealand than in Australia.

A symptom of our declining competitiveness is our deteriorating balance of merchandise trade with Australia since 1994.

Meanwhile, Australia is lowering its cost structure rapidly to meet competition from the Asian economic giants.

Their reform in telecommunication and energy, for example, have surpassed ours.

In part, the trickle of middle-range companies to Australia in recent months may well be an expression of improving cost profiles for business across the Tasman.

The economies of scale of being 5 times larger than New Zealand are becoming compelling. Unless we can build solid competitive bridges for New Zealand's Australasian businesses we could well see more of this trans-Tasman flight.

In this respect, the significant progress of labour market reform in Australia is a real threat to our relative competitiveness.

I don't think many people in New Zealand realise, let alone accept, that the Australian workplace legislation is almost as good as our ECA, with all the productivity increases and improved competitiveness this implies.

To a significant extent these changes may go to the heart of New Zealand losing some of its relative economic competitiveness with Australia.

We will have to address this in policy terms very soon in my view.

The ECA was intended to create greater efficiency, productivity and economic activity by enabling rapid adjustment to changes in the labour and product markets.

In a fast-moving international environment, obviously it is equally important that the Act itself has the same flexibility to adjust to rapid change.

Some areas of the Employment Contracts Act need fine-tuning to ensure the original intention of the legislation is not undermined over time.

There are some signs that Employment Court decisions may be adversely affecting employment prospects and flexibility in our labour market.

Some Court decisions are clearly inconsistent with the principles of the Act - choice and flexibility.

There is plenty of anecdotal evidence that small and medium sized employers are shying away from employing new staff because of the uncertainties in the personal grievance procedures created in part by some Employment Court decisions.

Perhaps the most graphic illustration was last weeks decision by the Court of Appeal in Principal of Auckland College of Education v Hagg. Mr Hagg claimed he had been unfairly dismissed because his fixed term contract was not extended or renewed. The Employment Court agreed - with significant implications for the flexibility concepts in the ECA.

The Court of Appeal did not agree. Last week it reversed the judgement of the Employment Court, in a tersely worded decision. In the process it discarded the rule based structure established by the Employment Court as inconsistent with the ECA.

If there was ever an example of what the Coalition Agreement refers to as judicial activism in the employment area, the Auckland College of Education v Hagg case is it.

That case will be taken into account as part of a review of more than 1500 Employment Court and Court of Appeal decisions.

The aim is to find out whether Parliament's intentions have been clearly expressed in the legislation. If not, we need to clarify it in order to narrow the opportunities for the judicial activism we seem to be seeing in the separate court jurisdiction framework.

The issue of employers' and employees rights and obligations, with respect to personal grievances and procedural matters, has been highlighted for immediate attention.

Critics of the way the Act is being interpreted say dismissals are being overturned which would have been substantially justified had they been done in a procedurally correct manner.

But I am also duty bound to ensure the interests of employees are fully protected against the deprivations of the unscrupulous employer.

At present many of the obligations and rights of employers and employees are unclear, scattered through a range of a legal decisions and subject to continuing legal challenge.

Clarifying those obligations and making them more explicit in the Act may help to reduce the number of personal grievances - 4160 during 1996 - which proceed to the Court and the Tribunal.

You will remember the Employment Contracts Act extended coverage of personal grievance procedures from only union members to every member of the New Zealand workforce.

That is from about 400,000 people, to well over 1.7 million now.

Personal grievance applications have consistently made up the bulk - about 78%- of applications to the employment tribunal. Ninety per cent of those relate to the dismissal of an employee.

Our aim is to seek to further encourage employers and employees to resolve disagreements themselves and remove some of the cost and uncertainty of present processes.

I will be looking at initiatives to remove the incentive to file for personal grievance in the expectation of an out of court settlement to avoid litigation costs.

There is also a need to provide more information, so it is clear to the parties how the law applies in practice.

However, we must balance the need clarity and precision against the need to avoid a degree of prescription which can unduly restrict freedom of the parties to agree an employment contract.

The Coalition Agreement also proposes to bring other employment legislation such as the Holidays Act and Wages Protection Act together under the umbrella of the Employment Contracts Act

Reform is needed in the Holidays Act. Many employers and employees experience difficulties applying its provisions to modern day work practices.

The current legislation is too inflexible for the needs of modern industry.

There is absolutely no intention of reducing present statutory entitlements to holidays. But how those holiday entitlements are enjoyed by employees seems to me to be a matter for reasonable negotiation.

That is the type of flexibility lots of people are looking for. I intend to open up that debate and let those with an interest argue the case for more flexibility.

I believe we now have the parliamentary support to make progress in this area.

In other areas progress has already been made.

As you know, on 1 March the minimum wage for adult employees increased to $7.00 an hour.

At the same time the youth minimum wage increased to $4.20 an hour to maintain its traditional 60 percent relationship with the adult rate.

The new rates represent a significant increase. in the minimum wage. I have commissioned research into the impact on unemployment.

The Coalition Agreement proposes to introduce `fair bargaining' to promote compliance with the underlying principles of the Act.

This includes describing the obligations to respect the choice of bargaining agent and not undermine the bargaining process by bypassing the agent, which have been underlined by various court decisions since the Employment Contracts Act was passed.

`Fair' bargaining will reflect the New Zealand experience and will not be modelled on United States or Canadian concepts of `Good Faith Bargaining'.

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We have been world leaders in our economic reforms and our industrial relations system has been an important, if not crucial, component of making them work.

Our advantage will not be maintained unless we continue to make the most of our strengths.

Nor will it be maintained if we ignore the need to undertake another round of change, of reform.

It is not time for reforming Kiwis to relax.

The focus has to be on continuous adjustment to maintain an industrial relations environment which enhances the international competitiveness of New Zealand businesses.

That is also a focus in my Business Development portfolio. Since the 21 Business Development Boards were established in 1992, more than $77.2 million in grant assistance has been approved.

Because of the Boards' current structure, it is not always easy to account for exactly what has been achieved with these funds.

A review encompassing that issue is underway.

Any future assistance to industry must be focused on areas where it will do most good - areas where it will enhance business performance and international competitiveness, just as our industrial relations framework must do.

If we can continue to introduce freedom and flexibility into industrial relations, and if we can make the labour market perform even better than it has in the last 6 years, then we can look forward to more jobs and higher real incomes for everyone, and New Zealand will retain a top position in a competitive world.