Minority Government's Policies for Progress programme

  • Dr Lockwood Smith
Foreign Affairs and Trade

Dr The Hon Lockwood Smith Staff Club Massey University Albany Auckland

Ladies & Gentlemen. Thank you for joining me for the announcement of the final instalment in the National-led Minority Government's Policies for Progress programme. New Zealand's status as a country dependent on trade makes it appropriate that this final instalment - the wrap-up instalment - concerns trade and investment.

May I say at the outset, it's good to be back on a university campus, nearly three years after I left the education portfolio. And it's good to be back on this new campus of my university, Massey. One of the new programmes I will be announcing today will have very real benefits for the international marketing of this, one of New Zealand's most innovative tertiary institutions.

Minority government under MMP is not easy compared with majority government under first past the post. People who were once political opponents have to work together to find common ground around the Cabinet table. Sometimes agreement cannot be reached and a new Government needs to be formed between elections. None of that should have come as any surprise to those who supported MMP. It certainly didn 't come as a surprise to those of us who supported FPP.

It is to the great credit of the Prime Minister, Jenny Shipley, that our Policies for Progress programme - some elements popular, some elements unpopular - has been able to be brought together in the MMP environment. It shows that the National-led minority government can deliver the good government that New Zealanders deserve. With some give-and-take with our supporters in parliament, we have been able to advance new policies for both the short and medium term.

The Prime Minister identified four main goals of the Policies for Progress programme:

to make a difference with social assistance which genuinely breaks cycles of disadvantage; to ensure low-income people are not taxed to pay benefits to the better off; to improve business competitiveness and increase the living standards of New Zealanders; to strengthen our economic and fiscal management.

In education, we announced yesterday a greater focus on reading and mathematics to ensure every child develops sound skills in these areas. Nearly $20 million over three years has been allocated for this purpose. In housing, we reduced state rentals, to bring them into line with changes in market rentals and to reduce inflationary pressure on housing costs. We decided not to proceed with some changes to asset testing for retired New Zealanders in long-stay hospital care, because we believed it would have been unfair to treat people differently based solely on who they chose as the provider of their care. At the same time, we raised asset testing thresholds and announced that elderly victims of violent crime would be exempted. The under-sixes health policy remains under review. But it is the economic management and business competitiveness side of the package which is of most interest to this audience.

Many argue there has been a degree of overspending by the Government in the last two years. Combined with the drought and the impact of the Asian Economic Crisis, the Government's books were not as strong as we believe they should be. Our immediate response was to announce our intention to sell Contact Energy Ltd. The proceeds from any sale will be used to pay off debt. That will reduce our interest bill, freeing up funds for further debt repayment, tax cuts and sensible social spending. But, looking further out, that sale alone will not lead to sustainable fiscal policy for the long term.

As the State Services Commission reported last week, population growth and changing demographics will put greater pressure on fiscal policy through the first half of next century. Clearly, a response of some sort is required: raising tax, means-testing social services, cutting core Government services to the bone, or a combination.

The Labour Party has given the public a useful insight into its thinking by announcing its intention to respond by increasing tax. While its declared increase in the top income-tax rate would clearly not raise the required revenue, the party deserves some credit for its strong statement that that is the way its policy development is going. Obviously some of the additional revenue, that Labour would need, would come from a corresponding increase in the company-tax rate. Otherwise it would have a major tax avoidance problem. But other tax policy changes would also be required to fill the gap between its tax promises and its spending promises.

The National-led minority government does not believe that tax rises assist in boosting economic activity and job creation. Instead we saw potential for low-impact changes to superannuation.

With the exception of a freeze during the fiscal crisis of the early '90s, for the last ten years superannuation payments have been adjusted only for changes in the CPI, cost of living changes. This has ensured that the spending power of retired New Zealanders has been maintained over time. But there has also been an arbitrary floor on super payments of 65% of the average wage.

In recent years, the average New Zealand take-home wage has increased quite dramatically because of pay rises and tax cuts. It's meant that take-home pay has increased much faster than prices. That is a good thing. Compare it with the opposite: prices rising faster than take-home pay. But it means that floor for super payments of 65% of take-home pay has already been broken. To maintain the floor would have required us to begin making additional increases in super payments on top of the regular cost-of-living increases.

The Government therefore saw an opportunity to improve our fiscal position by $2.4 billion over ten years by deciding not to proceed with those additional wage-related increases, while still going ahead with the cost-of-living increases to protect the purchasing power of the pension. The move was not popular. But it is important to understand that, while those additional increases will not go ahead, saving $2.4 billion over ten years, the real value of super will be maintained over time because of the continued cost-of-living increases. And this is exactly how the system has worked since 1993 when the freeze ended. There has not been an adjustment for wages for a decade.

As we look further to the future, a taskforce has been established to consider the issue of superannuation long-term. It is critical we maintain sound fiscal policy for the long-term, in order to ensure New Zealanders continue to enjoy our current very low interest rates.

To be competitive internationally, it's also critical that New Zealand exporters face the lowest possible cost structures. That is the thinking behind our commitment to progressively reduce tax to 30% of GDP and reduce compliance costs. It's the motive behind our review of the Resource Management Act, and our roading and electricity reforms.

It is also why Policies for Progress included the commitment to abolish all tariffs by 2006. Along with the removal of the ban on parallel importing, that will ensure that when our businesses buy inputs, they pay no more than the world price. It also means New Zealand families can get the goods they value at the lowest possible price.

To assist our tourism industry, Policies for Progress included a $12.5 million boost to off-shore promotion of New Zealand. In immigration, we

announced a new multiple-entry, three-year, renewable business visa. And we announced improved procedures for business migrants.

In my area of Trade, I have already announced a study into a new Kiwi Innovation proposal to assist our small and medium sized businesses raise capital. The idea is to find a way for ordinary New Zealanders to more easily invest in small and medium sized enterprises, which are innovative and have export potential. A similar programme is operating in Sweden. Kiwi Innovation would involve establishing an Innovation Market - a public market including a virtual share trading room on the Internet. Once given membership by purchasing shares in the Innovation Market, the public could invest in the various businesses listed. Only companies which would have been researched by internationally recognised venture capital experts would be floated on the Innovation Market. The companies would be innovative, growth-orientated, have strong business potential, and would preferably be in the early stages of commercialisation.

Today, I have five new initiatives to announce, completing the Policies for Progress programme. It is a modest package, of common sense, practical initiatives the Government can take right now.

The first involves attracting new businesses and investment to New Zealand. All countries, except those like North Korea, recognise the benefits of foreign businesses and investment in creating jobs. In New Zealand, it is a bipartisan issue. Both major parties recognise that investment equals new jobs. Labour's trade spokesman, Mike Moore, regularly quotes the fact that one in three New Zealanders owe their jobs to investment from overseas. The more investment we attract, the higher our living standards will be and the more jobs that will be created.

Therefore, I'm announcing today that the Government will prepare a "New Zealand Inc" prospectus to present New Zealand as offering a unique combination of an open business environment and a good lifestyle. When New Zealand is competing for attention in a crowded global marketplace, we need to feature all our strengths even to be noticed. It will be another useful tool for both the public and private sector when promoting our country. The prospectus will be produced by Trade New Zealand and be available both in hard copy and on the Internet. Combined with this announcement, Trade New Zealand will also establish a programme of visits to New Zealand by up to 50 potential high-worth investors from overseas. They will be hosted in New Zealand and presented with business opportunities here. Some will be given red carpet treatment. The programme will be based around key events in 1999/2000 such as APEC and the America's Cup. We want them to consider New Zealand as a location for some of their business operations, or to

invest in productive New Zealand enterprises. The cost of the prospectus and the visits programme will be approximately $1.5 million.

My second announcement concerns overseas students. You'll be aware that the Government announced last week a quadrupling of the quota for Chinese students, from 1,000 to 4,000. To ensure our education institutions have assistance in getting those extra students, Trade New Zealand will employ extra staff in Beijing, Shanghai and Guangxhou. In addition, we will be fast-tracking the production of promotional material in Mandarin. The Government also believes that there is potential to increase the number of international students we receive from South America. We'll therefore also fast-track the production of promotional material in Spanish and Portuguese. The cost of the new staffing and promotional materials will be around $400,000.

My third announcement concerns North America. It has always been a vital and attractive market for New Zealand. With the Asian Economic Crisis, it is becoming more important. We will be spending $550,000 to fast-track our Trade New Zealand-led direct mail and website campaign, targeting the food service sector and consumers. We expect to double the number of food professionals to be contacted, and reach another half million consumers, to introduce them to New Zealand food and beverages.

My fourth announcement concerns the Ministry of Foreign Affairs and Trade. We intend to finance additional visits by top quarantine officials to high priority markets like China and South America to ensure we have the best possible information on their Sanitary and Phytosanitary regulations. That better information will be available to exporters and we will also be able to clearly identify more non-tariff barriers. The Ministry will also expand its trade policy research into major issues for New Zealand exporters such as the proposed APEC Food System. We will also expand our trade scholarship and technology transfer programmes to Least Developed Countries, in order to help them comply with World Trade Organisation rules. The cost of these initiatives will be $450,000.

Finally, the Government believes we can do better in coordinating our off-shore operations. We want to identify key markets with potential and design integrated strategies to ensure we get maximum returns from our efforts. At this stage, we have identified three markets. Our biggest market of Australia was an obvious choice. A second strategy will be developed for South America and a third for China. The idea is to better integrate prime ministerial and ministerial visits, with trade policy initiatives such as negotiating better bilateral access, with New Zealand trade, investment, education and tourism promotions, with sporting and cultural exchanges. We want to ensure that all our efforts

do the most possible to lifting our profile in key markets in South America and China.

Initiatives such as these may not always make the front page of the newspapers. But they are common sense, practical initiatives which will provide a modest degree of assistance to our foreign exchange earners. It's been good to be here at Massey today. I look forward to answering any of your questions about Policies for Progress or the Government's programme more generally.