Pre-Budget speech to Business New Zealand
Good afternoon and thank you for the invitation to be here today. It seems to now be the order of things that we convene before or after significant dates in the political calendar, which I absolutely welcome.
I’d like to acknowledge Business New Zealand chief executive Kirk Hope, and my fellow Ministers Grant Robertson and James Shaw.
Not surprisingly, I want to talk to you today about next week’s Wellbeing Budget, why we are doing it, what it means and what it will achieve. I’ll also run through some of the pre-Budget announcements we have made to illustrate what the new approach means in action.
After that I will look forward to taking your questions.
As you know, the Coalition Government’s first Wellbeing Budget will be unveiled in less than a week. I know you will all have heard a lot of talk about it and now it’s a reality.
It’s a reality because while economic growth is important – and something we will continue to pursue – it alone does not guarantee improvements to New Zealanders’ living standards.
It’s a reality because economic decisions made by Governments sometimes have wider consequences that are not considered or addressed.
I saw this first hand when I was growing up in Murupara, some of you may have heard me talk about this short period in my life – and while I was very young, I saw the poverty and remember the impact of privatisation of the forestry industry and lack of Government support for those affected by this dramatic change of course.
As I said when I entered Parliament, I developed a passion for social justice over many years, but in part from living through that and seeing people lose their jobs and seeing families struggle.
For all of the downsides of politics, and the negativity it attracts, I have always believed and still do, that politics is a place where you can make a positive, long term, sustainable difference.
For this Coalition Government, a key plank of delivering that change is our Wellbeing Budget. Let me talk a little about our rationale for taking on quite a different approach, and one the OECD is watching quite closely.
Firstly, the idea of incorporating a wider set of measures of success is not new. Economists and global institutions like the OECD have all noted that just because a country is doing well economically it doesn’t always follow that its people are doing well.
We all know for instance that New Zealand has seen solid rates of GDP growth over the past few years but what do we know about the quality of that economic activity and how it has been shared?
Nobody wants to live in a country where, despite a strong economy, families are homeless, where our environment is being rapidly degraded and people with mental health issues do not receive the support they need, and where we have shocking levels of family violence and child poverty.
Very few people would disagree with that statement and yet it hasn’t necessarily led to a fundamental difference to the way we’ve done things. Budget processes have remained the same, cost benefit analysis is often short term. It shouldn’t probably surprise us that we see the same outcomes or the same mistakes.
Let me give you a quick example that you may have heard before. When we first came into Government we were faced with a significant dilemma called Waikeria Prison.
The prison was run down, no longer fit for purpose and an earthquake risk. At the same time, we also had a prison population that was projected to grow. As new Ministers we were presented with options. Treasury’s preference was a mega-prison with 2,500 beds. And why? Because a simple cost benefit analysis showed this provided the cheapest per bed option.
But what if we considered a preventative approach? What if we knew for instance that one of the issues relevant to reoffending rates was inadequate housing options for released prisoners? Or mental health issues? Or drug and alcohol addiction? And what if we considered the long-term cost and benefit of investing in these as well as the facilities we still need as part of our justice system?
So that is what we did. We opted to replace Waikeria with the same capacity, but with a forensic mental health unit and additional funding for housing. A higher expense in the shorter term, but greater savings in the long run.
And that is essentially what we are trying to do with the Wellbeing Budget.
It has five priorities, which were developed using the Treasury’s Living Standards Framework, evidence from sector-based experts and the Government’s Science Advisors, and through collaboration among public sector agencies and Ministers.
These priorities, which yes include our economy, but go beyond that too, are the areas where the evidence shows we have the greatest opportunities to make a difference to New Zealanders’ wellbeing.
- Creating opportunities for productive businesses, regions, iwi and others to transition to a sustainable and low-emissions economy;
- Supporting a thriving nation in the digital age through innovation, social and economic opportunities;
- Reducing child poverty and improving child wellbeing, including addressing family violence;
- Supporting mental wellbeing for all New Zealanders, with a special focus on under 24-year-olds; and
- Lifting Māori and Pacific incomes, skills and opportunities.
The second step was to then look at Budget bids under each of these priorities, through a different lens.
We asked three big questions:
- is the Budget bid intergenerational? Will it make a difference now and for the lives of our children, grandchildren and beyond?
- does it move us beyond the narrow measures of success to take a wider set of factors into consideration?
- and, finally, is it a whole of Government approach? After all, for too long policies and initiatives have operated in isolation, sometimes with overlapping work and other times resulting in gaps in policies.
If you’re eager to see some of the results of this thinking, you don’t necessarily need to wait until Budget Day. We’ve already announced two significant pieces of work to tackle our long-term challenges.
Instead of looking solely at public housing places, we have acknowledged that chronic homelessness is often a result of multiple complex and often compounding issues. To suggest for instance that someone who is homeless needs to be free from alcohol or drug addiction, or medicated for mental health issues, ignores the impact that one can have on the other. Rather than take part in a merry dance on what issue comes first, we should instead, house first.
And that’s exactly what a well-researched and evidenced-based model called Housing First does. It houses those who are in cars or on our streets and then wraps social support around them – whatever is required – to make it stick.
Budget 2019 does that by making the largest Government investment in chronic homelessness ever, and rolling out Housing First into more centres, and funding more places.
But if we’re talking about breaking cycles, there is perhaps no better example than family and sexual violence. Every year about one million New Zealanders are affected by family and sexual violence, including almost 300,000 children.
I know there won’t be a person among us who isn’t ashamed of those numbers. But it’s not just about addressing our shame – it’s about harm, and the cost of harm. Violence is expensive, in more than one way. It, for instance, can do as much harm to a child who witnesses it, as it does to a child who is directly harmed. And that then plays out in their behaviour, and their relationships. And so it continues.
We all know we need to put in place a crisis response, but we just haven’t invested much before in breaking cycles, working with children for instance, or addressing the mental health impact of family and sexual violence. A wellbeing approach demands that we do.
And so on Sunday we announced a $320 million investment in this area. And because of our new coordinated approach, it’s an investment that will sit across eight portfolios and deliver more support services to more New Zealanders, major campaigns aimed at stopping violence occurring and major changes to court processes to reduce the trauma victims’ experience
While of course these are all initiatives designed to save money, and lives, we also have to make sure we have the resources to deliver them. And we do.
Finance Minister Grant Robertson has performed this task incredibly well. Not an easy task in the face of rising global economic headwinds.
Some of you may have heard from a speech he gave yesterday that he confirmed we will meet all of the Budget Responsibility Rules as we did last year as well. For anyone who needs or wants a reminder, these were a set of self-imposed rules to demonstrate our commitment to sound economic management covering our debt-to-GDP ratio, core Crown spending and Budget surpluses.
The reaction to his news that following the expiry of the Budget Responsibility Rules in 2022 we would be moving from a net debt target (of 20%) to a net debt range (of 15-25%) received positive and negative attention – usually a sign we have the balance right.
He also spoke a little about the domestic economy in general and some of the challenges that may be heading our way.
Our economy is strong but, as you all know we will always be impacted by global headwinds. Which of course doesn’t mean we can’t prepare ourselves to be resilient and future proof but does tend to mean that we always keep one eye on the rest of the world.
There are significant challenges facing the global economy.
The tariff war between the US and China has flared up again in the last couple of weeks, the US economy is also showing signs of slowing. And uncertainty in Europe due in large part to Brexit is ongoing adding further to the global economic headwinds we face.
All of this adds up to a global environment in which New Zealand businesses operate that is both unstable and uncertain.
Fortunately we are well positioned to face this instability and uncertainty. Although growth rates are set to be lower than we have seen in recent years, the IMF projections for New Zealand are that we will still grow at around 2.5% in 2019 and 2.9% in 2020. We are still tracking ahead of most of our major trading partners. The average growth for advanced economies in the same period is projected to be 1.8% and 1.7% respectively.
We are projected to grow faster than the US, the UK, Japan, Canada, the Eurozone and Australia. Just this week the OECD released its latest outlook which also shows us growing faster than our peers, while last week the Reserve Bank of Australia further lowered its 2019 growth forecast for the Australian economy.
We continue to have historically low unemployment and stable, low inflation. This is supported by Budget surpluses and low public debt due to our Government’s responsible fiscal management.
This all supports this Government’s economic plan which includes:
- Focussing on increasing trade and broadening our trading base to protect our exporters and economy through the introduction of the CPTPP, pursuing an EU FTA and we recently, of course, signed our Enhanced Partnership with Singapore.
- We are reforming skills and trade training to address long-term labour shortages and productivity gaps in the New Zealand economy, to make sure we are prepared for ongoing automation and the future of work – I’d like to acknowledge the work Kirk and Richard Wagstaff are doing alongside the Finance Minister on the Future of Work Tripartite Forum. So far a focus on the future of work has meant greater investment in apprenticeships and partnership with business like the skills pledge launch by my Business Advisory Council under the leadership of Christopher Luxon.
- We are addressing our long-term infrastructure challenges – and that doesn’t just mean billions in investment, but establishing long-term planning through the Infrastructure Commission.
- We are transitioning to a sustainable carbon-neutral economy. Our focus is not only having a long-term plan through the Zero Carbon Act, but also investing in R&D as the economic transition occurs.
- And, of course, investing in wellbeing because this is inextricably linked to our economic success too. You will see more on that in the Budget on May 30.
These economic initiatives are, in turn, part of the Government’s approach of finding pragmatic solutions to New Zealand’s long-term challenges.
Ultimately though, it’s fair to say we are taking nothing for granted. Our relatively solid position does not mean we should simply ride out the conditions around us. Nor do the existing parameters successive governments inherit mean we should use traditional frameworks to make decisions or measure success.
Systemic change does however take time.
My hope is though that this year, by meeting both the Budget Responsibility Rules and with the new Wellbeing Budget, you’ll see us doing exactly what is needed – setting a strong foundation for both our country and our people.
Thank you for having me here today and I look forward to your questions.