POST-BUDGET LUNCHEON

AUCKLAND CHAMBER OF COMMERCE
AUCKLAND CONVENTION CENTRE

Chairman Dave Truscott, Chief Executive Michael Barnett, ladies and gentlemen.

First I want to thank the Auckland Chamber of Commerce for the invitation to again address this Post-Budget luncheon.

This morning when I addressed the Post-Budget breakfast I said that given the upheavals of MMP the most remarkable quality of the 1997 Budget is the sense of continuity it gives to the management of Government.

More correctly I described it as 'continuity plus' because this Budget maintains direction and adds to it.

Since the breakfast speech the Reserve Bank has issued its June Monetary Policy Statement - the contents of which were broadly consistent with the Budget.

I will talk a little more on this later.

The Budget we delivered yesterday builds on the momentum of all that New Zealand has achieved over the last half dozen years, and it guarantees the momentum of a growing, successful economy.

But that doesn't stop the doubters doubting or the Alliance's Jim Anderton saying it was mean - he always does.

It didn't stop ACT's Richard Prebble arguing for tax cuts and higher surpluses at the same time, despite the fact when in Government he never even balanced the Budget.

And I can't even recall what Helen Clark said because it wasn't relevant.

Some business leaders couldn't resist asking for more as if we were back in the seventies - the years of handouts and subsidies, and Union leaders made their predictable criticism.

That's the normal background chatter to a Budget but it mustn't obscure the fact that the 1997 Budget is sound evidence that we have made the new form of Government work for New Zealand.

In this first Budget prepared by the Coalition Government we have woven together strands of thinking from across the two parties.

Fortunately we could draw on the Coalition Agreement which sets out fairly precisely the priorities of our Government for the medium term.

For the business community the broad sweep of the Budget was designed to give certainty as to the business environment you would be working in so that you could make your investment decisions accordingly.

We gave an equally clear steer on social policy.

As the Treasurer set out in his Budget speech, if people receive taxpayer support and are able to work then we expect them to be actively seeking work.

If they receive taxpayer support to look after children then we expect that to be done properly and to ensure, for example, that the children attend school and so on.

Really quite commonsense requirements that everyone should support.

What we are talking about are the obligations we expect people to accept when they receive support.

For the Coalition such policies as the Reserve Bank Act, the Employment Contracts Act and the Fiscal Responsibility Act are a given.

This Budget confirms the Government's commitment to an open, competitive economy.

For example, next year's tariff review will do what until recently was unthinkable and set the timetable to remove all remaining tariffs well within the 2010 deadline set by APEC.

Once again we intend to lead and so encourage others to follow.

The motor vehicle assemblers asked the Government for an early review of tariffs on motor vehicles.

We have agreed and will complete that review by the end of the year, and set out when these tariffs will be removed.

On the issue of ownership of state enterprises, with the exception of those enterprises nominated in the Coalition Agreement, we will consider whether to keep them on a case by case commonsense basis.

We will start with Government Property Services Ltd and Vehicle Testing NZ Ltd.

So that answers another question for the market.

Likewise on foreign investment, we support the development of the multi-lateral agreement on investment by the OECD.

We want to assist industry by improving competition in transport, hence the Land Transport Pricing Study that is out for discussion and the recent decision to sign an open skies agreement with the United States and our willingness to look for other such agreements.

We are also quietly looking at the possibility of free trade agreements with countries as different as the United States and Chile.

Our aim is to give New Zealand business a competitive advantage where we can.

A major industry cost is energy.

You are aware of the work the Ministers of Commerce and Energy are doing to determine whether we are being over-charged for oil and petrol in New Zealand.

To further improve competition in the generation of electricity we will complete the reform of the State's generating companies to enable the private generators to compete on equal terms.

This first Coalition Budget sets out very clear direction on economic policy.

It treats all business sectors equally and we now invite the business community to show equal boldness.

The parties on the left, Labour and their fellow travellers the Alliance, are already yelping that we are going too far too fast.

We don't think so.

Quite the reverse, if we are not bold then as a small trading nation we will be left behind.

That's the same risk we face in key areas like education unless we can persuade the union leadership to join us to produce the best education system anywhere.

The key is the skill and professionalism of our teachers.

We want to do away with separate teaching groups for the primary and secondary sectors.

That's an outdated division of responsibilities.

To overcome that we are committed to implementing a unified pay system and at the same time we want to recognise the professional skills of individual teachers the same way the skills of other professionals are acknowledged.

We want to develop a pay scale that rewards excellence in the classroom.

Surely no thinking person can object to that, so I again invite the unions to work with the Government on this important education issue.

I have emphasised the business climate we seek to create and the education we want for our children together because it is the combination of knowledge and investment that provide the foundation for a successful modern society.

The Budget, and the decisions we made in the months leading up to it, are proof to all New Zealand that the work of Government has been going on.

The pace has not slackened, it has quickened.

I've been very impressed with the dedication of my colleagues in the Coalition Government.

The coherent plan set out in the Budget completes a process that began in the Coalition negotiations.

This Budget represents a substantial "down-payment" on the programme outlined in the Coalition Agreement.

Yesterday's Budget is the Budget of a successful economy, and it secures the momentum that will create further success through faster growth.

Putting the Budget together against the background of an economy at the low end of the business cycle has been an added discipline.

So the social spending flagged in the Coalition Agreement had to be quality spending.

And it had to be invested in areas that would bring a real return to New Zealanders.

We have long signalled our determination to make some real progress in the areas of health, education, housing and in crime prevention.

Investments in these areas are at the heart of the 1997 Budget's new expenditure.

I spoke of the broad approach we have taken on education and we are backing that up by investing in new schools and classrooms, more resources for teacher development, for school management and for the needs of children with special difficulties.

$150 million to $200 million extra will go to special needs education alone over the next three years.

Spending on education is now projected to increase by $1.3 billion between 1993 and the year 2000.

That's an increase of almost 30 per cent more than in 1993.

I must, however, emphasise that the quantity of the Government's resourcing commitment to schools is but one part of the picture.

We must look again at constraints to increased flexibility and performance in teaching.

The direct resourcing of schools is a good example of handing considerable authority to the local community to manage their own schools on behalf of their students.

I have visited many schools who have accepted the challenge of managing their affairs and are achieving impressive results.

I know that individual teachers want to do the best job possible and they need to be encouraged to embrace systems that will permit it to happen.

As you all here know, high performing workplaces enable individual effort to be recognised and rewarded without disrupting the fabric of the team.

Teaching need not be any different.

The pressure points in the delivery of good health services are at the two ends of the spectrum - the young and the aged.

Therefore the most significant feature of the Budget's health package is new spending to meet the demands of a growing and ageing population.

And for the young, we have delivered on the commitment to secure free doctors' visits and prescriptions for children under six.

This year for the elderly we have made the commitment to remove from 1 October 1998 income and asset testing for long stay public hospital care and the removal of asset testing for long stay private hospital care.

There is huge extra spending committed to health care to reduce waiting times, deliver better mental health services, as well as meeting the health care needs of an ageing society.

Despite all the new spending commitments predictably we have been told it's not enough by those who have never put a balanced Budget together.

This year, for the first time in New Zealand's history, the full cost of a Government's spending plans is shown for a three-year term.

We set out in the Coalition Agreement an upper limit of $5 billion extra spending on policy initiatives for the three years.

That is part of our commitment to transparency and we are working within that limit.

It sounds a lot but when spread over three years and directed in the main to the highest social policy areas it is no more than enough.

You can see in Budget '97 that, while channelling new funding to priority areas, we are managing all the State's activities in order to keep lowering expenditure as a percentage of GDP.

That means applying more and more rigour to all our spending decisions, making sure they bring the best returns possible.

That is because of our commitment to the second of the three aspects of our approach - tax reductions.

So next month low and middle income working families will have more money in their pockets thanks to an increase in the Independent Family Tax Credit.

And in July next year we will implement the second phase of our tax reduction programme, effectively reducing the middle income tax rate from 28 cents this time last year to 21 cents from 1 July next year.

The Budget includes a commitment to further tax reductions down the track, provided economic and fiscal conditions are right.

Despite the extra spending and the tax cuts, it is a testimony to the sturdiness of the New Zealand economy that right now, at the bottom of the economic cycle, we are delivering an unbroken chain of surpluses.

The surpluses are less than predicted earlier but are still robust and enable us to further reduce debt.

The Budget's projections see net Crown debt falling to 20.5 percent of GDP by the turn of the century.

That is another great achievement when you remember that just a few years ago, in 1992, net Crown debt stood at over 50 percent of GDP.

Getting Government debt down, before New Zealand is hit with huge extra costs in health care and superannuation associated with an ageing population, is a high priority.

In a few days time on 7 July, when the White Paper on Superannuation is made public, you will see the different costs over time to the State on whether you chose a savings-based scheme which will be funded up front or whether we continue with the present taxpayer-funded pay-as-you-go scheme.

That's the next big economic and social debate.

All I ask is that you consider the alternatives carefully.

Let me now deal with a media interest, namely that surveys showed that business confidence faltered in the months leading up to the Budget.

In my view that was inevitable at the bottom of the economic cycle.

I can understand that because I do not under-estimate for an instant the very real difficulties that many New Zealand businesses have faced.

The local economy has been slower and prices for many of our important exports have been down.

All of this had an impact on public opinion and confidence and, inevitably, there was going to be a period of uncertainty while the public and the media came to grips with a form of Government that while common abroad is new to New Zealand.

This Budget should put all that behind us as the clear direction we are committed to has been spelt out.

The projections in the Budget point to a strong economic bounce-back as the economy emerges from the lowest part of the cycle.

The rebound will gather momentum later this year, kicked along by cuts in interest rates over recent months and further tax cuts next year.

And not only is the domestic economy on the rebound, but the global economy is picking up as well.

The IMF is estimating average world growth of more than 4 per cent for this year and the next.

That is the fastest world growth in a decade.

After a difficult few years stronger world growth should make it a better time for exporting.

At home at the bottom of the business cycle we have still recorded growth of 2.4 per cent, which is higher than the average rate of growth New Zealand managed in the entire 20 years before the economy was put back on track.

Moreover, this growth rate comes at the end of 17 consecutive quarters of positive growth which have increased the size of our economy by 20 per cent.

That is more growth than achieved in the previous 62 quarters.

Put another way, today's economic management has destroyed the old cycle of boom and bust, instead we have consistent growth.

In the Budget the Treasury is projecting growth of 4.2 percent in 1998-99, a level of growth that will see all New Zealanders better off.

And you don't have to take Treasury's word alone on growth projections.

This morning the Reserve Bank released its own economic forecasts which, as you know, are put together independently.

As you'd expect, the Bank's forecasts differ slightly from the Treasury's in some respects.

They forecast 3.6 per cent growth in the March 1999 year with a further increase to 3.8 per cent in the year to March 2000.

Whether you choose to put more store by the Bank's projections, those of Treasury or those of the private forecasters, it doesn't change the essential story.

And it is a good story.

Every analysis that I have seen forecasts not only stronger growth later this year or early next, but also a continuation of Budget surpluses.

What's remarkable is that these surpluses are being achieved not only at the peak of the economic cycle but throughout the period.

This Budget has achieved a remarkable balance.

We have reduced the size of Government while increasing spending in key social areas, including the cost of resolving Treaty claims, and we will make further tax cuts, run Budget surpluses and repay debt.

It's a demanding agenda and I know of no other country that is achieving all of these goals.

One of the reasons for such remarkable success is our commitment to low inflation.

Inflation, which averaged almost 12 per cent over the entire 20 year period from 1970 to 1990, is now projected by the Reserve Bank to fall to around one per cent by next March.

The Bank expects underlying inflation to stay well within the 0-3 per cent band over the forecast period.

This will be positive for interest rates and the currency.

And good for business and home owners.

When bringing the Budget together we were determined to take a holistic approach to Government responsibilities.

The Budget doesn't argue for simplistic solutions as some of our critics have, rather it aims to integrate both economic and social policy.

It aims to build up social capital as well as building up economic capital.

We need to build strength back into communities by recognising those who are working to build stronger communities.

For me the Government's Budget is much more than a set of accounts tabulating income and expenditure, and setting out Budget surpluses.

Of greater importance than the accounts is the direction the Budget sets out for both economic and social policy.

Budget '97 sets out very clear directions which we will follow through where necessary in legislation and in successive Budgets.

This Government recognises that the growth we have enjoyed over the last several years is no accident.

It is the result of a determined programme of economic reform.

And as you can see in the Budget, we are not waiting passively for growth but working aggressively to set the optimum framework in which businesses can thrive.

We have exercised leadership and decisive strategy in this Budget.

However our economy, our nation, doesn't operate in some sort of policy making isolation in Wellington.

The real dynamism that produces results from the environment created by responsible policy making is a result of your efforts.

I believe my Government has done much to enhance the relationship between the administration and business and I suggest there is a great deal more we can achieve together.

As Prime Minister I want to invite business to continue to point out where you think this Coalition can realistically make improvements in its policy planning.

We have been listening, we will continue to listen.

The Government will do all in its power to set the parameters for successful business operations.

It's then up to you to provide the energy, the verve, the entrepreneurial expertise to carry through, to find solutions to your problems and build success.

The challenge I want to leave you with today is a simple one.

Emulate the All Blacks, pick up the ball and run with it. There will never be a better time.

Thank you.

Ends