Social Democracy under the Southern Cross: New Zealand in the 21st Century

Nightingale Lecture Theatre
University of Southampton
Southampton, England

Thank you for the opportunity to speak to you today on the topic of Social democracy under the Southern Cross: New Zealand in the 21st century.

I would like to express my appreciation of the University of Southampton’s academic interest in New Zealand, and its organisation of this lecture series on the “new” New Zealand.

It’s perhaps ironic that this forum has been initiated by the School of Humanities’ Centre for Imperial and Post-Colonial Studies. For the very term the “new” New Zealand implies that we have well and truly cut those imperial apron strings, and are well beyond the post-colonial period too.

Only last week, on 26th September New Zealand marked the centenary of long forgotten Dominion Day – the day on which we formally ceased being a colony of Britain and became a dominion within the British Empire.

Little in effect changed that day. New Zealand had been self governing to all intents and purposes for more than half a century. Our first Parliament was elected in 1854.

Solid constitutional change came later when we ratified the Statute of Westminster in 1947, making it abundantly clear in law that we had full competence over our own affairs.

Social democracy under the Southern Cross has a long history in New Zealand. The New Zealand Labour Party is New Zealand’s oldest political party, and celebrated its ninetieth birthday last year.

Labour was first elected in 1935, and governed for fourteen years. We have been in government for 34 of the 72 years since 1935, and the Labour Government which I lead is New Zealand’s fifth.

Historically Labour has been the party guaranteeing fairness, security, and opportunity. It built on the legacy of the Liberal Government of the 1890s and early 1900s. That Government introduced women’s suffrage – making New Zealand the first country in the world to do so; industrial conciliation and arbitration; the first publicly provided workers’ housing in the world; and the old age pension.

Coming in to power at the end of the Great Depression, Labour in the 1930s legislated for a comprehensive welfare state covering social security, health care, public housing, and education. Our mandate to this day has been to run a strong enough economy to provide good public and social services.

The New Zealand paradigm built by earlier Labour governments came under tremendous strain from the 1970s on when the country’s economy faltered badly. The entry of Britain to the EEC took away guaranteed access to this market, on which we were over reliant, and exposed our old style protected economy with its overwhelmingly primary commodity exports as inadequate to maintain high living standards.

New Zealand went through painful years in the 1980s and 1990s, as neoliberal policies were applied, first to the economy and then to social policy. We went from being the most protected and regulated Western economy to arguably being the least.

In 1991, unemployment rose to over ten per cent, the labour market was deregulated, social security benefits were cut, market rents were applied to public housing, and user charges were applied to public hospital services. The cost of tertiary education to students rose steadily in the 1990s Hands off was the name of the game in the economy.

By the time my government was elected in 1999, voters were desperate for change.

The first three-year term of our government was spent resetting the compass for New Zealand’s direction, so that the fairness, opportunity, and security New Zealanders traditionally valued could take pride of place again. The second term built on that work, while our third term has seen a lot of work done around sustainability in its widest sense.

The result of eight years’ work in office has been the reassertion of social democratic policies, with which I believe New Zealanders are fundamentally more at ease than those of the neo-liberal variety of the late 1980s and 1990s.

The benefits of these policies are also very obvious.

New Zealand is close to its longest run of economic growth since the Second World War, with the economy 28.3 per cent larger in the year to June 2007, than it was when Labour was elected in December 1999. Average New Zealand economic growth under Labour has been 3.4 per cent per annum, which compares well over the same period with growth in Australia of 3.2 per cent, the United States of 2.5 per cent, the United Kingdom of 2.7 percent, the OECD of 2.5 per cent, the Euro area of 2.0 per cent, and Japan of 1.7 per cent.

Our unemployment has halved, and now sits at around the lowest levels reached in the OECD. Latest figures put the rate at 3.6 per cent, and that has been achieved at the bottom of the business cycle.

Our major family tax credit package, called Working For Families, has dropped our child poverty rate to below the European Union average.

We are investing heavily in education at all levels, particularly in early childhood education to boost participation and quality, and in tertiary where affordability had become a significant issue in the 1990s.

On 1 July this year, we made all three and four year olds eligible for 20 hours free early childhood education in teacher led centres. This is an important step, not only in improving the uptake of early childhood education especially amongst Maori and Pacific communities, but also in making it more affordable for working families.

Our tertiary students and graduates now enjoy interest free conditions on their student loans, provided they stay in New Zealand.

The numbers in skills training in industry have doubled, and we have a particular focus on school to work transitions through trade and vocational training.

We have increased the minimum wage eight times in eight years to ensure that all workers can benefit from the growing economy.

Health has absorbed rapidly growing funding, as we move to achieve shorter waiting times for elective surgery, support the care needs of our older citizens, and provide more affordable primary care for all New Zealanders. The cost of seeing a doctor and getting prescription drugs has fallen dramatically.

In housing, having re-established a fair rents policy for the public stock and increased the number of homes in it, we have turned our attention to the vexed issue of housing affordability.

We have already implemented a mortgage guarantee scheme for those who can afford repayments but struggle to save a deposit, and we will be piloting a shared equity scheme next year.

We are now planning a Housing Affordability Bill which will give local councils the power to require developers to provide affordable housing. The government is practising what it preaches in this respect by requiring thirty per cent affordable housing in a large subdivision of 3,000 sections it is undertaking in Auckland.

As well, the new Kiwisaver savings scheme has spin offs for aspiring home owners.

New Zealanders traditionally have had low rates of savings, other than in home ownership.

We do have a universal pension scheme, paid at age 65 at a rate of no less than two thirds of the net, average, ordinary time wage for a couple, and pro rata for a single person. This rate enables our older citizens to live in dignity and participate in society.

New Zealand Superannuation, as our pension is called, is now underpinned by a dedicated fund, invested in each year from the government’s sizable operational surpluses. It will be drawn from at the height of the demographic bulge, when post war baby boomers reach retirement, to cushion the fiscal impact of pensions on the reduced proportion of taxpayers in the population. The philosophy is for government to save now to save universal pensions for the future.

Private savings over and above the universal scheme however, certainly boost living standards in retirement, and we have designed new schemes to encourage them. In the first place, employer subsidised superannuation has been reintroduced for the core public service with good take up rates.

But the major innovation has been the Kiwisaver scheme, which was introduced in July this year.

Under this scheme, all employees signing on to a new job are automatically enrolled in a quality assured savings scheme, which requires them to save four per cent of their income. While they will have a short period in which to opt out, the expectation is that making the mechanics of saving simple will lead to good take up rates. For those who stay in the scheme, employers will be required to contribute to their Kiwisaver accounts, and in four years time will be matching the four per cent employee contribution.

Every new account will be kick started with $1,000 from government. Savings will be locked in until retirement, or may be drawn on for a first home deposit. In the latter case, the government will contribute another $1,000 per year for up to five years of savings to help with the deposit.

After five years in the scheme a couple, where each earns half the average couple’s income, would have a $35,000 deposit for a home. If they continue saving towards retirement, they will, at age 65 have doubled the value of their universal pension

Delivery on social policy which provides opportunity and security is fundamental to a social democratic programme. In our government’s agenda, delivery for families young and old is one of our three top priorities. An aspect of the new New Zealand is our innovation in social policy

But we need a strong economy to do that well. Good social policy is resource intensive.

So another of our top three priorities is achieving economic transformation, by building a qualitatively different economy which produces goods and services the world will pay a premium for.

Those who knew the old Kiwi economy would hardly recognise it today.

Tourism competes with the dairy industry as the top export dollar earner.

The turnover in the screen production industry in recent years has almost equalled that of forestry and of horticulture.

International education, the technology sectors, the marine industry, and niche manufacturing are all important second tier export earners.

In wine, New Zealand competes well at the premium end of the market.

We launched Kiwifruit to the world as an exotic fruit and set the standard for quality and branding, commanding a premium price.

Meantime our mega dairy co-operative is the world’s largest seller of internationally traded dairy products, and along with our meat industry has made considerable strides in lifting the value of what it exports – in dairy’s case by focusing on the development and branding of functional foods.

New Zealand has been unusual as a developed economy in having such a large primary sector base. But that base itself is being transformed beyond recognition, as it must be to thrive in the 21st century.

Our relatively small land mass and first world living standards combined mean that our commodities will find it increasingly hard to compete on volume and price in a more open agricultural trading system. The low cost, high volume producers stand to be the big winners from a successful WTO round.

So we have to be more strategic, innovative, smart, and skilled in how we take our primary industries and indeed our whole economy forward.

Our time in government since 1999 has been marked by a strong focus on education and skills; science, research and development; exporting; and on the enabling technology and creative sectors which help lift the value and profile of our industries and of New Zealand as a whole. The hands off days have gone, as our government engages with a wide range of stakeholders to strengthen the economy.

Current priorities are heavy investment in the transport infrastructure; far reaching telecommunications changes to get faster cheaper broadband services; getting more effective commercialisation of our innovations; improving the business tax regime to encourage more investment; working with major sectors like food and beverage and tourism on higher value strategies; and lowering the barriers to our trade through bilateral and regional agreements - and through the WTO’s Doha Round if it can be revived.

As I said earlier, we have been working hard to ensure that New Zealand is more sustainable in the widest sense, including economically and socially.

But central to the ability of all nations to make economic and social progress in the 21st century is achieving environmental sustainability, particularly to meet the challenge of climate change.

My government has for many years accepted the importance of this issue, and the need to contribute to solutions.

New Zealand is neither an economic giant nor a global superpower. It is a small nation, with a proud history of being a responsible international citizen which acts on its values.

We ratified the Kyoto Protocol, even though it poses major challenges to us. Of our top four trading partners, two – the European Union and Japan, have ratified, and two – Australia and the United States – have not.

But we do believe in being part of the solution to global problems,

As a major primary producer, we have much to lose from unstable and extreme climatic conditions. We are also a nation with a very long coastline along which many communities dwell. Our neighbours on the small South Pacific atolls are in an even more dire situation.

Our problem in meeting our Kyoto commitments is that around half our greenhouse gas emissions come from our agricultural sectors. There are neither quick nor easy solutions to lowering these emissions – although we will be world leaders in the research into how that might be achieved.

As well, the combination of a high exchange rate and low commodity prices have led to land being deforested for the more profitable pastoral agricultural uses – which both diminishes our forest sinks and increases methane emissions.

This has resulted in New Zealand facing a liability in the first Kyoto commitment period. We will take responsibility for that, but we are also taking action to enable us to reduce emissions further in the future.

In economic terms, sustainability can be a key competitive advantage for New Zealand. In today’s global marketplace, consumers are increasingly concerned about ethical and environmental issues, and the carbon footprint of products and services is becoming an issue. To protect our markets and our nation’s reputation, we need to act pre-emptively.

Important sectors of the economy – notably tourism, the wine industry, and agriculture - are already developing long-term strategies based on achieving sustainability.

New Zealand Winegrowers, for example, have set the goal of having 100 per cent of their industry operating under independently audited sustainability schemes by 2012.

Grove Mill winery in Marlborough reported a 100 per cent rise in sales to the UK supermarket giant Sainsburys after becoming the world’s first CarboNZero certified winery.

The tourism industry contributes close to nine per cent of GDP and just under one in every five export dollars we earn. Sustainability is at the heart of the Tourism Strategy 2015 which the sector is finalising this year.

But while all these initiatives are encouraging, as a government we recognise that we need a comprehensive set of climate change policies– ranging across policies for forestry and agriculture, and the energy and transport sectors.

Nearly two weeks ago I had the pleasure of launching one of the results of the work we have been doing on that, our Emissions Trading Scheme.

This scheme will be comprehensive in that it will cover all sectors of the economy and all greenhouse gases.

Putting a price on emissions through the scheme will, over time, change investment and consumption patterns, so that we develop an economy and lifestyle with lower emissions.

But we have also recognised that for the scheme to be sustainable it must be designed to be fair both between sectors and to consumers. That is why we have decided to phase the entry of sectors into the scheme and have also committed to providing low and modest income families with assistance to adjust to the higher electricity costs which arise from putting a price on carbon.

We believe that taking action is not only the right thing to do; it is the smart thing to do.

New Zealand has an enviable reputation as a country with a clean and green environment, high achieving and honest people, an inclusive community, and a commitment to peace and justice. But we are also an economy a long way away from most of our markets.

So our international reputation and positioning is priceless. Failure to protect our reputation for being clean and green would pose a considerable economic risk to New Zealand.

That is why I have set out the challenge to our nation to become the first truly sustainable nation on earth – and to dare to aspire to be carbon neutral.

To that end we have set some medium and long-term objectives and targets.

•By 2025 our target is to have ninety per cent of electricity generated from renewable sources.
•By 2040 our target is to reduce by half per capita emissions from transport.
•We aim to be one of the first countries to introduce electric vehicles widely, and;
•By 2020 we aim to achieve a net increase in forest area of 250,000 hectares.

Achieving those targets will move us significantly towards our vision of New Zealand becoming carbon neutral.

With this programme our electricity sector could reasonably be seen as carbon neutral by 2025, the rest of our stationary energy sector by 2030, and our transport sector by 2040.

In a fast changing world, environmental issues have leapt to the top of the global agenda, along with trade and terrorism. The big challenges nations large and small face defy national solutions and demand multilateral action.

New Zealand is a firm multilateralist – as small countries must be. We depend on a stable, rules-based international environment. We don’t have hard power, only soft.

Our changing world has seen us increase our focus on our immediate neighbourhood and broader region. New Zealand’s web of foreign relationships and connections is unrecognisable from that of sixty years ago.

In the South Pacific, we have worked on an ambitious regional plan focused on growth, development, and sustainability. The Pacific’s small economies run the risk of even greater marginalisation and dependency in a globalised world.

And in the twenty-first century, fragile states can become havens for criminals, through money laundering and the drugs trade – and even unwittingly assist financial flows to terrorist organisations. Good governance, economic and social stability, and environmental sustainability are increasingly the focus of Western development partnerships in the region.

The past four years have seen us playing a significant role maintaining law and order in the Solomon Islands, which has become our biggest development partner.

Over the past seventeen months, we have had troops and police in East Timor again, after the serious breakdown of law and order there.

Last November we had to respond to chaos in Tonga following serious rioting, by securing the airport to ensure links with the outside world and providing policing support.

These episodes, and the fourth coup d’etat in Fiji in the past nineteen years which occurred last December, remind us that democratic institutions are dependent for their stability on democratic values and the rule of law, and can be easily shaken where those have not firmly taken root.

The new New Zealand is also heavily engaged in East Timor. As a longstanding ASEAN dialogue and development partner, we took the further step of acceding to ASEAN’s Treaty of Amity and Co-operation in 2005. That was the key to securing a seat at the new East Asia Summit as a founder participant.

East Asia has been the main focus of our bilateral negotiations for free trade agreements. We have now concluded FTAs with Singapore and Thailand; and have a Trans-Pacific FTA with Singapore, Brunei, and Chile.

We are currently negotiating FTAs with China, Malaysia, and all of ASEAN. New Zealand has reasonable prospects of being the first developed country to conclude an FTA with China. Given that we are an overwhelmingly open economy, and that our major exports face significant tariff barriers in China, we see this as a highly desirable outcome.

Overall we are seeing our relations with East Asia grow and develop at a fast rate. Asia overall accounts for forty per cent of our trade. It is a source of tourists and migrants. Our universities and cities have many linkages with Asia. Increasingly we feel at home there.

There is a further new dimension to our outreach to the region – and that is through interfaith and intercivilisation dialogue.

In May this year, we hosted both the world’s first regional symposium on the UN’s Alliance of Civilisations initiative, and the third regional interfaith dialogue, bringing together multi-faith delegations from South East Asia, Australia, New Zealand, and the South Pacific.

As so many conflicts in the region and worldwide relate to tensions between faith communities, so a solution to those conflicts may lie in seeking to increase understanding between faiths. And overall we all have reason to be concerned about the extent of polarisation between the Western and Islamic worlds.

New Zealand can be seen as a relatively honest broker in this respect, with our even-handed policy on Israel and Palestine, and our non-participation in the war in Iraq.

At home too we are emerging as an increasingly multi-ethnic, multi-faith society which, by world standards, lives harmoniously. The new New Zealand’s population is 14.6 per cent Maori, 6.9 per cent Pacific peoples, and 9.2 per cent Asian. Peoples of European descent now number under seventy per cent.

Modern New Zealand and our world today are light years away from that earlier era which saw New Zealand function as a dominion in the British Empire and an offshore farm for Britain itself.

Today we have a sophisticated economy, a multicultural society, and a great deal of confidence in the part we can play in the wider region in which we live.

We maintain close contact with those who form part of our wider community of values in Europe and North America, and we engage fully and willingly in international efforts to make our world more sustainable, more peaceful, fair, and just.

The creative sector of our society is flowering across all art and cultural genre, and playing a big role in both reflecting and defining New Zealand’s unique identity.

Our high level of social cohesion and inclusion, and our international good citizenship was recognised in May this year with the release of the Global Peace Index, compiled with the support of the Economist Intelligence Unit.

New Zealand’s ranking was second only to that of Norway, and reflects our social democratic government’s strong commitment to peace and security at home and in our relations with other countries.

The Index rated levels of peace for over 120 nations across 24 indicators, ranging from a nation’s level of military expenditure to its relations with neighbouring countries and its level of respect for human rights.

Its report commented that “New Zealand’s lofty position in the Global Peace Index partly reflects its lack of internal and external conflicts and its very good relations with neighbouring countries”.

It pointed out that New Zealand’s stable political scene and its measure of domestic safety and security all contributed to our high ranking.

This to me is a vote of confidence in social democracy in the new New Zealand. It gives me considerable pride to address you tonight as Prime Minister of our small but remarkable country.