PM speech notes for Trans-Tasman Business CirclePrime Minister
Nau mai, haere mai. Tēnā koutou, tēnā koutou, tēnā tatou katoa. Thank you for having me to speak today.
To start, I’d like to acknowledge Sharron Lloyd, the General Manager of the Trans–Tasman Business Circle, the partners for this event Westpac’s David McLean, and Derek McCormack from AUT, and, of course the Circle’s founding chairperson Sir Jim McLay.
The topic I have been given for today - ‘The Future of Work and how the government is preparing for the economic challenges of the future’ – may not be punchy, but it is relevant. Countries the world over are currently grappling with digital transformation, and transitioning their economies, and New Zealand is no different in that regard. Where we are different, I believe, is in the way we are responding to those challenges, turning many of them into opportunities. But first, let me start with some context for our one way conversation.
- Firstly, the NZ economy is in good heart amid the global challenges and what many believe are new economic normals,
- Secondly, the Government and Reserve Bank are doing their bit to ensure that fitness endures and it’s important business continues to work with us too – after all, we mustn’t talk ourselves into a funk,
- The trade environment may be challenging, but there are some positive developments so I’d like to share a few insights on that front.
But first, let’s start with the here and now.
It’s the economy
All of you in this room will know that this Government’s approach to the economy is that it is not an end it itself but, rather, a means to an end. Our aspiration is that we see the benefits of a strong, diverse economy more evenly shared to lift the wellbeing and living standards of all New Zealanders and their families.
That of course means building strong economic foundations. And on that front we’re doing pretty damn well actually, especially amid global uncertainty. And while we know we’re not immune to the global situation, the strong surplus and our low debt levels give us the opportunity for further investments to strengthen the economy.
But I would never expect you to take my word for it, so let me run through a few proof points:
- So far our policies have delivered growth of 0.5 percent in the June quarter and average growth of 2.4 percent in the year ending June. That shows that the New Zealand economy continues to outperform those of Australia, Canada, the Euro area, the UK, and the OECD average – basically those we compare ourselves to.
- Also, recent data shows New Zealand’s manufacturing and services sectors are both expanding.
- We have record low unemployment and annual wage growth is at its highest level since the 2008 financial crisis. Average wages have increased by 4.2% in the last year alone.
- New Zealand continues to be a good place to do business, topping the World Bank’s 2019 Ease of Doing Business index. Our globally competitive economy is underpinned with stable political and regulatory systems, an innovative well-educated population and our proximity to 60 percent of the world’s population. We are a safe place to invest.
- And you’ll note that when the Reserve Bank announced its decision to hold the Official Cash Rate at 1 percent last week, its analysis confirmed the economy is in good shape, amid global economic headwinds. The Bank pointed out that employment is pretty much at its maximum sustainable level, residential investment is increasing and that economic growth is expected to rise next year, due to the Government’s investments. While the RBNZ noted that global headwinds have impacted business confidence in New Zealand, it also said that our investments are forecast to support and grow the economy next year.
Ultimately, we have a positive story to tell, including to investors, and one of my consistent messages is that we are a stable, reliable investment option, with plenty of success stories. Now, domestically, we all need to act like it.
That said, I really do acknowledge the current difficult global context many New Zealand firms are operating in and the challenges that presents for you. As a small, open economy we are not immune to the effects of the uncertain global economic environment. They are real and they are here.
And, as you will know, there is a risk that international headwinds could get stronger. The US trade war with China continues without any resolution in sight. Brexit is still a key uncertainty for the global trade system, with its final form yet to be concluded. Recent data out of both Europe and the US points to declines in manufacturing. I can assure you all that the Government is keeping a very close eye on developments.
However, for the reasons I have outlined, I am confident that the fundamentals of our economy are solid and that we are well placed to manage any ongoing risks. That doesn’t mean we should sit back and just wait for things to improve.
Govt doing its bit
In fact, I recall really distinctly Christine Lagarde as head of the IMF last year, giving APEC leaders very clear advice that it’s at this moment in time that as leaders we should be building greater resilience into our economies, and addressing long-term challenges. So let me now run through some of the work we are doing on that front.
It won’t surprise you to hear me say – infrastructure, infrastructure and infrastructure. There’s no question that we have a range of deep policy issues to address as a nation, but unless we get the basics right of providing decent housing, transport and health and education services, we’ll only compound those more complex issues. That’s why the Government’s Economic Plan, which you will have heard many Ministers talk about, is designed to build an economy that protects and improves the living standards and wellbeing of all New Zealanders through ensuring we get those most basic fundamentals right.
That’s why we are investing record amounts in hospital and school building programmes – including the fact that in our first two Budgets we’ve invested $2.45b into upgrading and building new hospital and health facilities- that’s twice as much as the previous government managed in nine Budgets - alongside large investments in transport safety, regional roads, and public transport, and we’ve done that while maintaining a responsible budget surplus.
Not to mention our comprehensive plan to fix the housing crisis which includes delivery of: more state houses than any Government since the 1970s, banning offshore speculators, expanding Housing First to end homelessness, a $400 million package for a progressive home ownership scheme, and making saving for a house deposit easier by lowering the deposit required for a Government-backed mortgage or first home grant from 10 per cent to five per cent. These are real, tangible, things that will help New Zealanders and their families.
But it is also a priority for us to ensure that we have the modern infrastructure we need to boost productivity and enable our transition to a low emissions economy.
This Government has established the New Zealand Infrastructure Commission. The Commission’s role is to take a longer-term view of our infrastructure needs that improves the wellbeing of New Zealanders. This includes producing a 30-year infrastructure strategy and helping agencies pursue more innovative approaches to the development and funding of major infrastructure projects.
Earlier this month, Infrastructure Minister Shane Jones welcomed the first of many updated project pipelines from the Commission. The first release of the pipeline by Treasury included a small number of capital intensive central Government agencies and had a combined worth of $6.1 billion. The latest update has an estimated value of $21.1 billion across more sectors which gives industry greater certainty to plan for upcoming projects. It means businesses will know what staffing levels they should be planning for, they will be able to better plan capital investment and they will have more information when considering potential business expansion.
Ultimately, this should all be sending two really strong signals. That we are planning for the future and that now is the time to invest. New Zealand is doing well and there are enormous opportunities if we act now. The best thing for the NZ economy at the moment is optimism, planning and investment action. We’re doing some pretty heavy lifting to shore that up in terms of spending and infrastructure investment, the RBNZ is doing its bit with record low interest rates – the private sector needs to ensure it’s on board too.
In fact, one of my staff members asked an economist earlier this week to sum up the economy in one sentence and was told – “it’s ready for lift-off”. I could not agree more.
The next question naturally follows: “so what is it waiting for” to which the response was “certainty”.
It’s a word I hear often and here’s my simple response. There is a difference between uncertainty and change. We cannot ignore the challenges we face – the skills gap, the need for a transition to a low emissions economy, our desire to build inclusive economy where businesses compete on great products and services rather than undercutting wages and conditions.
Yes this means there will be change. But the alternative is the status quo and that too would have an unacceptable impact on our economy and our people. That’s why we have laid out a clear agenda. Yes, it includes change, but by now you’ll all know what that agenda entails and how we’ll deliver it. And what I can commit to, is that while we go through change, we will consult, debate, discuss and build the consensus this country deserves.
Let me drill into one of those specific challenges I mentioned, one of the areas of “change”. One message we as a Government hear loud and clear from you who are running and operating businesses is the difficulty you are experiencing in finding workers. And it’s a challenge that is very real.
The Ministry of Business Innovation and Employment (MBIE) forecasts demand for skilled workers, including plumbers, electricians and tilers to increase by over 5,000 on average per year over the next three years.
So to make sure there are enough skilled workers to fill those roles, we have:
- made the largest single increase in Trades Academy places in recent years
- committed to a new centre of excellence for vocational education for the construction sector to drive innovation
- supported the future of the industry through our landmark Construction Sector Accord and the Construction Skills Action Plan
- created the $2000 Prime Minister’s Vocational Excellence Awards for the top vocational student in every secondary school in the country to lift the profile and status of the trades.
One recent example of Government assistance is the announcement of additional funding to support employer-led literacy and numeracy training in the workplace. This initiative came out of the August meeting of the Tripartite Future of Work Forum – a collaboration between Government, workers and business. The new funding of $14.5 million over four years means the Government will contribute nearly $45 million to the employer-led workplace literacy and numeracy fund between 2019 and 2022.
But the numbers don’t tell the story. I recently met a group of workers who were part of this programme in the Hutt. Many had English as a second language, but spoke of the difference accessing literacy and numeracy training has made in their day to day life too – one told me with huge enthusiasm that they had moved onto a digital course – he was a lawnmower by trade.
Putting a bigger focus on literacy and numeracy is something employers have told us they want. The business representatives on the Forum were instrumental in helping make this happen and I thank them.
But if we’re talking about making a dent in our skills gap – it is going to take a fundamental shift in the way we do things. We intend a legacy of this Government to be the shift we are making in trades training. We are making the most significant changes to trades training in a generation to make sure the workforce is in a place to face the future head on. Our Reform of Vocational Education, working alongside business, is putting in place a new system that will increase the number of people in trades training and plug nationwide skills gaps – it will give industry greater input into core aspects of vocational education and training. Industry and employers will identify skills needs, set standards and approve qualifications and credentials, and influence funding decisions – making the system more responsive to employers’ needs.
But addressing the skills gap isn’t enough if we don’t, at the same time, have an eye to the future of work more generally. In this space, we’ve been careful never to try and predict what the future landscape might look like but rather to prepare ourselves for the pace of change.
Future of Work
On that front, I want to update you on the progress of the Future of Work forum which was established last year in recognition of the fact that business, workers, and the government will create better solutions for economic challenges if they work together in partnership.
We’ve seen from international examples, such as in Germany and Singapore, that working together across government, businesses and workers can generate greater productivity in workplaces and allows for more effective policy making and implementation.
Closer to home, the Forum has already facilitated several successful initiatives.
- Last year it confirmed funding to support the Skills Shift in Manufacturing Initiative, created and led by the Manufacturers Network. This will provide insight into how the mix of skills needed in manufacturing might change in the future, and provide a blueprint for how manufacturers, government and the tertiary sector can work together to prepare.
- It has also endorsed a “High Performance, High Engagement” approach to workplace relations in the public sector. This is based on the concept that organisations that involve workers in change processes and decisions see better productivity and more harmonious workplace relations.
Today I am also able to provide you with some insight into an upcoming announcement for the Forum. On November 25 the Forum will publish its Strategic Assessment of Future of Work Priorities. This presents four initiatives as priorities:
- The first is Industry Transformation Plans which will ensure we add value to key sectors of our economy and leverage new opportunities. These plans – for the food and beverage, digital technology, forestry and wood processing, and construction and agritech sectors will describe an agreed vision for the future of each sector, and set out actions required to realise this vision.
- The second priority is facilitating in-work training. This will involve responding to the need for workers to acquire, maintain and upgrade skills throughout their working lives.
- The third is support for displaced workers. The future of work will mean a likely increase in numbers of workers who find that their jobs or skillsets are no longer required. We want to ensure that we make their transition between work as smooth as possible, and minimise any negative effects, such as wage scarring through a loss in earnings when they return to work.
- And the fourth and final priority is protections for non-standard workers. The future of work will mean a great number of workers in of non-standard employment, particular the increase in contractors or people working in the gig economy. We need to make sure that the increase in non-standard work does not mean a decrease in the protections for workers.
I applaud the work to date and look forward to seeing more innovative and collaborative solutions. So much of the work we are doing on the Future of Work acknowledges that we’re increasingly living in a globalised, borderless but interdependent, world. But as a trading nation, we’ve probably understood that more than most.
Internationally, of course, trade continues to be a huge part of the work we are doing. My recent flying visit to Bangkok for the ASEAN meetings and the East Asia Summit – which took on a bigger trade focus with the cancellation of the APEC Leaders’ meeting in Chile - had some really positive outcomes.
As you will have heard, we had two good results:
- an upgraded Free Trade Agreement with China that ensures that long-term we have the best FTA China has with any country and reflects the importance both countries place on the relationship and the significant mutual benefits it brings.
- and news that leaders of 16 countries negotiating the Regional Comprehensive Economic Partnership (RCEP) completed negotiation on the text as well as agreement on virtually all market access issues between 15 countries. We’ll also continue to work with India to resolve its outstanding concerns in a way that would satisfy the interests of all countries. The aim remains that India will join the agreement in 2020, once it has concluded market access negotiations with all the other participants but I acknowledge that will be challenging.
That’s the public detail of the trip – what I imagine you’ll be interested in is the tone and flavour of the many conversations I had. Overall, my talks highlighted the breadth of the relationships we already have and many identified new areas for cooperation – who knew sheep placenta cream was in such demand in Thailand for instance!
But I’d be glossing over reality if I didn’t acknowledge the impact of the current trade war between the US and China. I suspect it’s given renewed focus for RCEP – but it also highlights to me the importance of our Trade for All agenda, and maintaining social licence to trade. It’s just not a given that all nations support free trade – and it’s up to all of us to ensure as many people as possible see the benefits of it, lest borders and bilateral arrangements become more entrenched.
In summary, the Government has a plan to transition New Zealand through these uncertain times, to more productive, sustainable and inclusive growth the improves the wellbeing of all New Zealanders.
Shifting the dial on these long-term economic challenges requires us to work together. We know that partnership with business is critical for transforming the economy, and confronting the long-term challenge of responding to the future of work. I look forward to continuing to build our partnership through the times ahead.
Let me finish by repeating a simple, clear message: we have big aspirations for what we – working alongside business - can achieve with the New Zealand economy in order to lift the living standards of, and secure a strong future, for all New Zealanders and their families.
I don’t back down from that, in fact I own it. We inherited a stable economy but a country that had major challenges. We are making good progress but there is more work to do. I’m up for it and I hope you are too.