Speech to the American Chamber of Commerce LuncheonTreasurer
NZI Convention Hall, Aotea Centre, Auckland
Members of the chamber, ladies and gentlemen,
thankyou for the invitation to speak to you today. As the American Chamber of Commerce has a wide and varied membership, your request to the Treasurer to give an address represents an excellent opportunity to talk about this year's Budget and the Coalition Agreement.
Next Tuesday, the first public document that arises out of the Budget process, the Budget Policy Statement, will be released.
It is also prosaically known as B1. The Budget itself is B2.
Tuesday's statement will be a first; tying the Coalition Agreement into the Budget process.
The Budget Policy Statement details the Government's broad approach to fiscal management over the next three years and beyond. It also includes the Government's budgetary priorities.
The referendum on compulsory superannuation, signalled in the Agreement, is an acknowledgement of the Government's desire to increase this country's national savings and is a pivotal part of the Government's savings strategy.
The "baby boom" generation will start to reach retirement age around 2010, starting a rise in the number of people in retirement. Over the next 40 years, the ratio of those aged 65 and over to those aged 15-64 is expected to double.
Demographic pressures of this scale will clearly be a strong influence on the Government's long-term fiscal position.
The saving strategy is a central feature of its economic strategy.
That strategy is based on four key principles laid down in the Coalition Agreement. These are:
Providing sound, stable government on an agreed basis.
Ensuring there is an economic climate that is conducive to sustainable development and growth.
Maintaining an open, internationally competitive economy, supporting a strong export sector, particularly by managing cost structures downwards and continuing deregulation and policies to stimulate private sector and individual performance.
Planning for the country's future not only by ensuring that a strong economy is central to the coalition policies, but also by placing emphasis on intergenerational fairness and increasing the national savings rate by the most effective means possible.
These principles are the heart of the Government's strategy and are reflected in the policy initiatives for the next three years put forward in the Coalition Agreement.
This speech will focus on savings and the associated issue of investment.
National saving can be advanced by the way the Government chooses to manage its fiscal position. It can be advanced through the savings behaviour of individual New Zealanders.
And the business community can do its bit through continuing to invest in their businesses, contributing to the growth of our economy. To ensure that investment of our national savings is made in areas of the economy offering the best returns, an open and competitive economy will be maintained.
There are no definitive indicators of whether New Zealand is saving enough, but there are a range of different partial indicators:
Although national savings rates have increased over recent years, they are still beneath investment rates and as a result there is still a balance of payments deficit;
much of the improvement in national savings comes from government savings rather than private savings; and
net external liabilities are increasing and total over 80% of GDP.
In addition people in general are living longer, and as the baby boomers start to retire there will be fewer workers supporting each retired person than ever before.
By the year 2031, the ratio of potential workers to superannuitants is expected to have declined from 5.1-to-one to 2.7-to-one.
As a nation we have to look to managing the impact of increased numbers in retirement.
This Government is well aware that what we do will have implications for New Zealand's prosperity well beyond our current term of office. In taking decisions over the next three years, we will take a longer term view.
The Government, in taking a prudent and conservative approach to fiscal management, is doing its bit by maintaining fiscal surpluses to boost national savings. That is an important objective of this Government.
The Government cannot expect New Zealanders to plan and save with an eye to the future if it is not prepared to do the same.
Responsible and prudent management will be the hallmark of this Government's approach to fiscal management. Spending will be well-managed, taxes will be reduced over time and debt will continue to be repaid.
Prudent fiscal management is good for the economy and people. It provides stability and consistency which gives businesses a more certain investment environment.
Over time, lower debt and taxes help to increase the growth and job-creating potential of the economy.
Lower taxes increase households' disposable income.
Well-managed public spending ensures that those in need get access to income or services like health and education, while taxpayers are assured they are receiving value for money.
The Government's approach to fiscal management is orthodox and consistent. However, priorities have been re-balanced - the Government will increase spending in key social policy areas, especially health and education.
This means reducing debt at a more moderate pace, and deferring tax reductions scheduled for 1 July 1997 to 1 July 1998.
The fiscal parameters published in the Coalition Agreement projected that expenses as a percentage of GDP will fall from just under 35% in this fiscal year to 32% in 1999/2000. Net debt will fall from just over 27% this year to 18.7% in 1999/2000.
So, despite the increased spending allowed for in the Coalition Agreement, expenditure control and debt repayment will remain significant.
A prudent and responsible approach to fiscal management demands that we set limits for additional expenditure.
These limits are clearly specified in the Coalition Agreement. Over the next three years additional spending and the abolition of the superannuation surcharge will total $5 billion.
Rigorous and systematic processes are in place to ensure that spending is kept within the agreed limits, and is directed to priority areas. Further, the processes in place are designed to ensure that we get value for money spent.
In allocating additional resources, the overriding priority will be furthering the goals set out in the Coalition Agreement.
Many regard the 1997 Budget as the first great test of Coalition Government. They wonder if we can deliver. Well, this Government will deliver.
Our preparation began with the adoption of the principles and objectives set out in the Coalition Agreement. On March 4, New Zealanders will be able see these principles and objectives reflected in the Budget Policy Statement.
The Coalition Agreement provided people with the earliest possible indication of the Government's intentions, not only for the 1997 Budget, but for all Budgets during its current term of office. It is from that agreement that this Government has laid out its programme for the next three years, and our success will be measured against it.
The Fiscal Responsibility Act, and the onus it puts on Government to make its intentions clear through such documents as the Budget Policy Statement, is a further mechanism by which New Zealanders will be able to measure the Government's performance and hence demand accountability.
Five principles of responsible fiscal management are enshrined in the Act. The principles are:
to reduce debt to prudent levels by running surpluses until those levels are reached;
once reached, to maintain prudent debt levels by running a balanced budget over the economic cycle;
achieve and maintain levels of Crown net worth that provide a buffer against shocks;
manage prudently the risks facing the Crown; and
achieve a reasonable degree of predictability about future tax rates.
The Government's objectives signalled in the Coalition Agreement, reiterated and developed in the Budget Policy Statement, are consistent with these principles. The Budget will detail specific policy announcements and the revised economic outlook.
The Government is working through its economic and fiscal strategy to fulfil its obligation to provide an environment that is conducive to sustainable development and growth, more employment opportunities, and higher quality education and social services; and to boost national savings.
In return we expect each and every New Zealander to:
live up to their responsibilities; and
make a contribution to New Zealand's prosperity.
One of the things that distinguishes this Government is the prominence we give to the value of self-reliance. And gaining self-reliance is not simply about moving from welfare into employment. It's about people taking greater responsibility for their future, their family's future and the future of this country.
Ultimately each of us is responsible for our own welfare and the welfare of our families. Seeking work opportunities plays an important part in that, but taking a more active interest in planning for retirement is also important.
Although New Zealand Superannuation will remain a key source of retirement income for New Zealanders, the Government is looking to every New Zealander to make a contribution to their retirement, and thus do their bit to increase national savings.
Indeed, it seems a large proportion of New Zealanders concur. The recent Westpac-FPG New Zealander Savings Profile study shows that around 71% of New Zealanders believe that they themselves bear most of the responsibility for provision of income in retirement.
That's why the Government has signalled its intention to place a proposal for a compulsory superannuation scheme before the New Zealand public for endorsement.
If we have the mandate to proceed, New Zealanders will be able to look forward with confidence to a comfortable retirement.
In working towards the referendum, the first step is to design a compulsory superannuation scheme that best serves the interests of New Zealanders.
A core group of officials is already hard at work.
The Superannuation policy announced by New Zealand First and the principles outlined by the Todd Taskforce on Private Provision for Retirement are being used by the group as the starting point for the design of the scheme.
Having finalised the details of the design, a referendum will be held in September this year.
The Government certainly does not expect New Zealanders to cast their vote without having the time to carefully assess the merits of the proposed scheme for themselves. A public education campaign will take place over July and August following the release of an official Government document outlining the details of the proposed scheme.
If endorsed by the referendum, the scheme will be introduced on 1 July next year.
Turning to the third strand of our savings strategy. This is where you come in. With the Government doing its bit to boost national savings through prudent fiscal management and individual New Zealanders doing their bit through better retirement planning, it is important that our savings are put to good use.
The extent to which our firms continue to lift their performance, and successfully compete with the rest of the world is important to investment in New Zealand.
Maintaining an open and competitive enterprise economy is essential because an open and competitive economy drives New Zealand firms to lift their game, and provide a more profitable investment base for our savings.
Let me be clear, this Government is not opposed to foreign investment. When it is in the national interest we welcome all investment that boosts employment, productivity and growth.
But, if we can increase our savings there is likely to be less reliance on the savings of others to fund our future.
Today I have focused on savings and the related issue of investment because it is a key issue. It's not our only concern, but it is a critical issue to the future and it is an area where New Zealand can do better.
Any government can look to the short term. Any government can focus on immediate gratification and provide cash for consumerism.
A combination of responsible fiscal policy and a sound savings strategy accompanied by strong commercial investment will bring large dividends to the nation.
This Government therefore takes the longer view - the responsible view. This Government cares about our children and our children's children.
By building up our savings in an open economy we can be sure to maintain prosperity for years to come, and to ensure that New Zealanders have a share in that prosperity.