Post-Budget speech to the EMAFinance
I would like thank the EMA for the invitation to speak here, and thanks to all of you for coming along today.
This afternoon I’d mainly like to talk to you about this Government’s agenda for partnership with business. We are committed to deepening and strengthening that partnership so that together we can grow our economy to be more productive, more sustainable and more inclusive.
Context - Economic Strategy
The context for that relationship is our economic strategy.
We’re all familiar with the strong economic growth New Zealand has seen over recent years, compared with many other developed countries.
This is the result of hard work by businesses and the workers within them over a long period of time, and that needs to be acknowledged.
But the message we’ve heard from New Zealanders is that this strong growth has not translated into the kind of improvements to peoples’ living standards or wellbeing that we would all like to see.
On a per person basis growth has barely got above 1%. Household debt is high, and rates of child poverty have not declined.
In its 2018 State of the Nation report, the Salvation Army made the point that “it is clear that the benefits of this recent strong economic growth have not been shared across the board, or trickled down”.
All of you will have seen the results of this in one way or another. We’ve seen this manifest in many ways - in the increasing demand for food parcels, in the record numbers of homeless, and in the tens of thousands of our young people not in employment, education, or training.
I do not believe these are the signs of a successful economy or society. Nor do I believe that there is anyone in our country, of any political persuasion who is happy with that situation.
Our Government believes that economic growth is a means to an end, not an end in itself. The actual purpose of growing our economy is to improve the wellbeing and living standards of New Zealanders.
To make this a reality we need to do things differently and we need to measure our success differently. You will have heard about our 2019 Wellbeing Budget that will look at both the traditional indicators like GDP but also at the wellbeing of people, the environment and our communities.
Part of the reason we haven’t seen equitable growth in recent years is because of what’s been driving that growth. We’ve relied on an overheated housing market and record immigration to boost economic growth. These drivers of growth are unsustainable, pushing the home-ownership rate in New Zealand to its lowest level in 66 years and pushing demand for already stretched public services and infrastructure to the limit.
Simply buying and selling houses from one another and adding more people is not a long-term economic strategy.
We need a just transition towards an economy that is based on growth that is more productive, more sustainable and more inclusive.
What do I mean by that?
Productive means doing more with what we have, moving our products up the value chain, and producing things in new and innovative ways.
Sustainable means meeting the needs of the present without compromising our ability to do so in the future, both in an economic and in a fiscal sense.
Inclusive means ensuring that all New Zealanders get a fair go, have a chance to contribute to our economy, and get to share in the benefits of growth.
So that is the goal of our economic strategy. A planned and just transition to a more productive, sustainable and inclusive economy, where we improve the living standards and wellbeing of all New Zealanders.
Budget 2018 within this strategy
Budget 2018 represents the first steps in this plan. We need strong foundations to make the transition our economy needs.
I am sure you have heard the highlights of the Budget by now. In this Budget we’ve identified Health, Housing and Education as those areas most in need of new investment.
We know that healthier, better educated people make us stronger as a nation. The $4 billion extra we’re spending on Health, and the $2 billion we’re spending on Education, will help to ensure that our workers are healthy and that our children and young people get the best opportunity to succeed.
In our 100 Day Plan we invested $2 billion in the KiwiBuild programme to build affordable housing for first time buyers. In this Budget the focus is on public housing. We will build 6,400 more public houses over the next four years, and we will invest significant resources to tackle homelessness.
All of this is on top of the Families Package we passed before Christmas, that, when fully rolled out, will see 384,000 middle and low income families better off by an average of $75 per week.
We are making these investments while also managing the Government’s books responsibly. In Budget 18 we have met all of our Budget Responsibility Rules, in particular:
- We’re delivering a sustainable operating surplus forecast to be $3.1 billion in 2017/18, rising to $7.3 billion by 2021/22.
- The Government is on track to reduce net core Crown debt below 20 percent of GDP within 5 years of taking office.
- We are taking a prudent approach to expenditure by limiting Government spending to below the recent historical average of 30 percent of GDP, with Treasury forecasts showing expenditure peaking at 28.5 percent in 2018/19.
Alongside making the important investments New Zealand needs right now, we are continuing to improve the Government’s fiscal position so that we can respond to any major shocks that could occur in the future, be they natural, economic or otherwise. All Governments should plan beyond the current term and take responsibility for future generations.
The Budget is clear that we can pay for every commitment we are making by taking a more sensible approach to debt reduction, the reversal of the proposed tax cuts, increased revenue from a growing economy and some reprioritisation and new revenue measures.
Budget 2018 strikes the right balance between meeting short term needs and making long-term and sustained investments. It is the first step in a plan that has in mind not just the next 3 years, but also the next 30.
Partnering with business
The Budget also outlines our plan to future-proof the New Zealand economy. We know that we cannot do this alone, and neither should we. We need the expertise and investment of all our social partners, including those in business, to turn this vision for New Zealand into a reality.
Today I want to talk in a bit more detail about some of the focus areas for our Business Partnership Agenda.
There is growing pressure on infrastructure right around New Zealand. Nowhere is that more evident than in Auckland. This city is projected to grow in size by another one million people over the next 30 years. Congestion is already costing Auckland between $1-2 billion a year in lost productivity.
In response we recently announced the ATAP package in partnership with the Auckland Council, which will see a record $28 billion worth of new investment into Auckland’s transport network over the next 10 years. This includes around $8.4 billion for the construction of rapid transit, including light rail, and also about $940 million for heavy rail improvements.
This transport expenditure is a critical part of our overall infrastructure and urban development agenda.
Delivering on this agenda will be a partnership with the private sector. Minister Twyford and I recently announced a procurement exercise and market sounding for the delivery of the next two light rail lines in this city. We are open to a range of financing options to deliver this. We welcome the interest of the NZ Super Fund in leading a consortium to do this work. Their offer will be considered alongside others to deliver the best value for money for New Zealanders.
There will be other large scale transport and infrastructure projects that we will similarly look to package up and work with the private sector to develop. We are making progress with the creation of our urban development authority to help drive through the blockages that are limiting sustainable urban development. This investment is critical for us to improve productivity and unlock our largest city’s potential.
Trade and international connections
Likewise, trade is an area in which we want to work alongside business. New Zealand is a trading nation and we always will be. With around 620,000 New Zealand jobs depending on exports, trade is a critical part of our economy. The news overnight that the EU has agreed to commence FTA talks with us, is excellent and has the potential to add billions to our economy.
Given the rise in protectionism and fears of trade wars we’re seeing in the current global environment, fair international trade rules are more important than ever for ensuring that our trading partners treat us fairly.
At the same time, we know that there is a growing concern among many people about how trade deals are negotiated – and what they actually mean in practice. We do share some of these concerns, but it’s important not to blame trade for the impact of other factors, such as technological disruption or tax avoidance by multi-nationals.
Our objective is for trade to benefit everyone. That’s why the Government has launched the Progressive and Inclusive Trade for All Agenda.
A work programme for public consultation and engagement is currently being designed and more information will be available as this process develops. We need the help of business to rebuild the social licence for trade.
The investment we’re making in Budget 2018 into the Ministry of Foreign Affairs and Trade further underlines our Government’s commitment to Trade. New operating spending of $150.4 million will allow for an additional 50 foreign policy positions to better support the Government’s extensive negotiating agenda.
Future of Work
Another area in which we are working alongside business is in our response to the changing nature of work. The full impact of forces such as new technology, automation, and globalisation are not yet understood, so we must ensure that we are prepared for, and able to adapt to, the challenges and opportunities that the 21st Century will bring. I’m extremely proud of the work we did looking at this issue in Opposition through our Future of Work Commission. It has informed our economic strategy looking toward the future.
We recently announced as part of Budget 2018 the establishment of the Tripartite Future of Work Forum. This brings together the three key partners in the economy - government, business and workers – to try to improve the use of technology, create more productive workplaces, and improve the skills and training of our workers.
This type of collaboration is common in places like Germany, where labour productivity is higher than in New Zealand. I have seen it working as an effective tool to make efficiency gains for large companies such as Air New Zealand. Its High Performance Engagement model saw unions invited to participate in decision-making, integrating workers’ shop-floor knowledge into day-to-day decision making.
This collaborative approach will be critical to ensuring we adapt effectively to any changes in technology or processes that our businesses and workers rely on.
Similarly, the Budget also sets aside funding for the establishment of the position of Government Chief Technology Officer, to help develop a digital strategy for New Zealand. Their role will be to drive our digital agenda, and respond to the opportunities and challenges of our changing digital world.
The Chief Technology Officer will focus on planning for future workforce needs and the development of new skills, responding to emerging and disruptive technologies, and ensuring all our communities are supported to improve their digital access and build equality.
Our ability to adapt to new technology is critical to growing a more productive economy. With these initiatives we will be able to harness new technologies and innovative business techniques, and respond to changes in demand for workers’ skills, to pave the way in our transition to more productive economic growth.
In the Budget we also took the first steps towards our goal of lifting New Zealand’s investment in Research and Development to 2% of GDP. We currently sit at around 1.28%, just under the OECD average. We need to do better, and particularly so in terms of private sector investment. That is why we are establishing the R&D Tax Incentive that will be worth over $1 billion over the next four years. We are currently consulting on the design of the incentive with business, with the aim of providing certainty for businesses to put the resources into innovation that our economy needs.
This is also true of our ambitions for more sustainable economic growth. We must develop new technologies if we are to meet our emissions obligations and overcome the challenges posed by climate change. This Government has set an ambitious target of transitioning to a net zero emissions economy by 2050, and we will be working with you on defining and refining our approach to reach that goal.
We are determined that this will be a just transition. It is why we are making clear our plans for sectors such as oil and gas. Nothing is changing in the immediate term for that sector, but we have to plan for thirty years ahead. This means working with industries and communities on how they can continue to deliver decent work with higher wages into the future.
To help progress this, Budget 2018 allocates $100 million for the Green Investment Fund, which was part of our Confidence and Supply Agreement with the Green Party.
This Fund will be the catalyst for private sector investment in new and clean technology.
In addition, Budget 2018 provides funding for the first year of our $1 billion Provincial Growth Fund, which was part of our Coalition Agreement with the New Zealand First Party. This will invest in local initiatives to help ensure that growth in our regions is sustainable going forward.
Again, this is about partnering with businesses. This isn’t about central government imposing top-down ideas on the regions. We want the regions to work together and come up with proposals that meet the criteria and have local buy-in.
These investments will support economic opportunity, create sustainable jobs and lift the productivity potential of our neglected regions.
The Government is also making significant investments into training and education.
Our fees-free policy for post-school training and education represents a significant investment in the New Zealand economy. We need to give our people the opportunity to adapt as the impact of forces like automation grows and as demand for skills evolves.
I want to be very clear that a major focus of this investment is on providing apprenticeships and vocational training, including for people in the workforce who have never trained beyond school before. In fact, the scheme actually provides for two years of an apprenticeship to be free.
I am acutely aware that the number one concern for businesses is the availability of skilled staff. We must work together, and with training providers to ensure we are actively developing the workforce of the future. With the nature of employment changing around them, people need support to retrain so that they can adapt their skills to areas in which jobs are in growing demand.
Alongside this we know that immigration will continue to play an important role in ensuring we have the skills we need in our economy. We will have further announcements in the area of immigration policy in the near future and you will be fully involved in the policies that develop.
As I said in the Budget, work is underway on developing a list of regional skills and labour shortages. We want an immigration system that really works for New Zealand where we match migrant skills to the regions and industries that need them. We want to ensure that any genuine skills shortages are filled with immigration levels that are sustainable.
Institutional and legislative settings
We’re also looking at some of the other wider settings within which New Zealand businesses operate, including tax settings, monetary policy, our regulatory framework, and of course workplace relations law. We need to ensure that all the various moving parts of the economy are geared towards being more productive, sustainable and inclusive.
I’m sure you’re all aware of the Tax Working Group. It’s examining the structure, fairness and balance of New Zealand’s tax system, to ensure that it promotes the long-term sustainability and productivity of the economy.
The Group’s call for submissions generated nearly 7,000 responses. It is working through a series of issues and is on track to make its interim report in September 2018, before its final report in April 2019.
In the meantime the work programme of IRD continues, including on work to crack down on tax loopholes and tax dodgers, both here in New Zealand and internationally.
In Budget 18, IRD estimate that they will take in an additional $183 million over the next four years as a result of greater compliance work. As signalled this Budget also includes the ring-fencing of losses on investment property portfolios and the closing of the loophole that allowed offshore companies not to pay GST on purchases in NZ.
We have also moved onto phase 2 of our review of the Reserve Bank. Phase 1 concluded in March, with our new Policy Targets Agreement requiring the Bank to include supporting maximum sustainable employment alongside price stability, and that monetary policy decisions be made by a Monetary Policy Committee.
The Panel is due to give its recommendations for the scope of Phase 2 of the Review shortly.
I know that you are actively engaged in several of the streams of work on improving workplace relations law. I also know that this is an area where we may not always see eye to eye. In my view it is more important to be working together when this is the case than almost anywhere else.
Broadly the Government’s workplace relations reforms aim to give certainty and fairness, improve collective bargaining and worker engagement, and strengthen the statutory rights and minimum protections of workers.
Through our reforms we aim to establish the balance between workers and employers so that everyone feels they are genuinely sharing in the benefits of economic growth.
We are enacting these changes in a careful and measured manner, working together alongside both employers and employees. I want to thank you for the collaborative approach taken already on issues such as the so-called ‘Hobbit” law, and look forward to the same approach on other issues.
In summary, we want an economy in which economic growth genuinely improves the lives of all New Zealanders. Our Government has a plan to transition our economy to one that is driven by productive, sustainable and inclusive growth. This is critical for us to meet not only the challenges we face today, but also those we will have to face in the years and decades to come.
By investing in sustainable growth and new technology; by harnessing innovative ways of doing things; and by future-proofing the settings of our economy, we can prepare ourselves to be adaptable and resilient in the face of a changing economy.
We know that this will only happen with a strong partnership with business. We have an ambitious agenda for this partnership, as I have outlined today. I look forward to working with you all to drive it forward and create the prosperity that New Zealanders want and deserve.