Speech to Auckland Chamber of Commerce, Sheraton Hotel, 8am, 3 September 1999Treasurer
Thank you for inviting me here today.
I've got some good news for you. New Zealand is going to grow faster than the Australia and the United States next year.
And unemployment could be down to 6% by the end of next year.
Those figures are on the back of forecasts just in the last couple of weeks from the Reserve Bank and the National Bank.
Over the past few weeks we have seen increasingly positive views emerging about the economy and where it's heading.
At first the reports, from the likes of AMP, Deutsche Bank and the BNZ were of signs emerging of a return to more balanced growth. Now we are seeing concrete forecasts of a pick-up in exports and a continuing improvement in tourism pushing us up to 4% growth next year.
Deutsche Bank's latest forecasts also confirm this path, with 3.3% growth forecast to next March, and 4% growth after that.
The domestic economy has been driving growth, creating a strong increase in imports, while exports are growing more slowly because of weaker agricultural production and prices.
However the Reserve Bank says that the economy is trending at around 3% growth this year and any slowing in growth in the last couple of months is likely to be made up in the September quarter.
Manufactured exporters' expectations are now the highest they have been since 1992. A lower dollar, low interest rates, and an improving world economy mean some manufacturers are doing well and more are optimistic.
At the moment, of course, these improvements are only expectation. They are, however, encouraging signs, and what we would expect given the continued improvement in outlook for the world economy. Growth in our top 10 trading partners is now picked to be 2.9% this year, up from 2.1% in April and 1.4% in November last year.
If world growth is good and commodity prices are up, that makes a huge difference to our export receipts.
If commodity prices are low and if there is drought, it makes it tough.
Last September, no-one thought we would be where we are today. And I'm sure 12 months ago any one of us would have been very happy to settle for what New Zealand's achieved.
In light of what we were facing last year - collapsing log and tourism markets, drought knocking around $500 million from farm-gate returns, and plummeting confidence - New Zealand and New Zealand business has done well.
That is the measure of the worth of the changes that have been made since 1984. In the 70s when we were hit by the oil shocks we had carless days and governments started on the slippery slope of borrowing and deficits that took 17 years to turn around.
After 1987 when the sharemarket crashed, the economy stalled and unemployment kept rising for four years, until it hit nearly 11%.
In 1998, the Asian Crisis and a severe drought cost us two quarters of negative growth, and not much more. Since then, we've had another summer in which drought has reduced agricultural production.
But the economy is still growing. It's growing at around 3% this year and, I repeat, forecast to grow as much as 4% next year - which is better than Australia and the G7 economies - the USA, Canada, Europe.
What will underpin this growth? What will ensure it happens?
The basics matter.
We want low inflation, flexible labour markets, quality fiscal policy, an open and competitive economy, and low tax rates because they help create growth.
This isn't some academic exercise. It's about the real world. Low inflation, keeping interest rates low, makes money cheaper for investment. Flexible labour markets help create jobs - about 700 a week all this decade. Lower taxes lower your costs and make work more worthwhile for people.
What we're always concerned about is not what the theory is, but making things work. Take the ECA, for example. We support it because it helps make businesses work and creates jobs. It also means we have a lot less strikes.
Under probing from the National Government, it has become apparent that the Opposition intends to unwind the Employment Contracts Act, although they're not quite sure how far they can do it. Already, their policy has encouraged higher levels of union-driven strike action that we have seen for some time, as unions contemplate a return to their place in the sun.
However, some policy positions have become clear. The first is that unions will have a monopoly on negotiating collective contracts. Any worker who wants the protection of a collective contract will have to join a union.
Secondly, people will be allowed to strike in favour of multi-employer agreements. This isn't legal now. What it means is that workers across a number of different companies can strike in order to achieve an agreement between the union and a group of employers rather than have an agreement just for their workplace.
These are substantial shifts and not just because of the particular nature of the proposed changes, but because of the direction they set - which is backwards.
If you put this alongside an undertaking made by the opposition on Wednesday that implementing paid parental leave will be a top priority, then the news for employers and the news for jobs is all bad. Paid parental leave will be funded by employers at an estimated cost of $100 million.
The Opposition has also promised to re-nationalise ACC. So the $200 million savings that have been made will be reversed. New Zealand work places by this time next year would be facing an additional $300 million in costs per year. These measures, repeal of the ECA, paid parental leave, and re-nationalising ACC, are anti jobs and anti business. They will make the environment fundamentally more difficult than it already is for businesses to succeed.
Higher taxes won't help business or jobs either.
I want to make the Government's position very clear. Under a National Government, on 1 April next year taxes will reduce for everyone who earns over $9,500. This will be achieved by reducing the middle income rate of tax from 21 cents to 20 and increasing the threshold to $40,000.
Why do lower taxes matter? If we want to be a country where talent is rewarded, where hard work is rewarded, where people want to stay and build their future, then we need to send a strong signal to the community that talent and hard work are valued. How can we expect to keep our young people here and set their sights high for achievement if we then turn round and tell them that on obtaining their objectives they will be taxed more highly?
The second reason it is important is because we can share the benefits of growth between those choices a government wants to make and those choices individual families and households want to make.
Throughout this decade we have been able to increase spending on social services to meet the legitimate expectations of our community for modern schools, health services, and more tertiary education, as well as pay off debt and reduce taxes. In the future we intend to continue with this. At the moment we can't offer bigger tax reductions because the Government's books are suffering from the recession, but if the economy improves faster than we anticipate our next step would be to reduce the top personal and company tax rate.
A number of commentators have taken the view that tax won't be an issue this election. Let me outline to you why it will be.
Next year a Labour-led Government would collect $800 million more tax from over two million taxpayers than a National Government would collect. That is inconsistent with enhanced knowledge, skills and innovation which we believe to be the path ahead. Tax is an issue that will effect everyone who earns over $9,500, not just those who earn over $60,000.
So the economy is picking up to 4% next year. You are starting to see the political risks to jobs and business.
So what is at the root of uncertainty in this city?
The traditional New Zealand recipe for accumulating wealth of buying real estate and waiting for inflation to do the rest no longer works.
Producers can't rely on capital gain on their assets to offset poor profits on their business.
People are having to think about new ways of using their investment.
Over this decade businesses have done tremendous work in getting viable, competitive, and on producing goods and services people actually want to buy.
The wine industry has thrived through the government getting rid of tariffs and looking internationally. Mussel exports have more than tripled since 1990 and seafood exports overall increased 15% to $1.2 billion in the past year - not because of government intervention but through developing products and markets.
It's no surprise that these are gains from our primary industries. We're good at growing things. And that's where much of our development will come too. But the real gains come from that natural advantage coupled with our bright ideas.
Our economy has transformed, and is transforming. It's estimated our high-tech industry - intellectual property and information systems - reached total sales of $5.6 billion during 1998. IT exports were up 30% in 1998.
In recent months three of New Zealand's biggest businesses have all announced important strategic changes in direction. The dairy industry, Telecom and Fletchers represent 20% of New Zealand GDP. Each has its own story, but each has recognised that it has to fundamentally change the way it does business and creates value if it is to grow over the next 10 years.
Telecom is becoming an internet company, bringing to New Zealand the best partners in the world for that business. The dairy industry wants to grow profit as well as production, so it is looking at a quite different business structure where shareholders equity is given a value and there's pressure to grow that value. Fletchers has reached the limits of growing off a capital intensive low performing resource base, and is pruning back to where it can grow from.
What the Government wants is for our businesses to be able to take the next steps, because the collective wisdom of government is not enough. We didn't tell people to look at sauvignon blanc grapes, greenshell mussels or hoki, or spreadable butter.
What we want is to ensure the ideas that are generated have a better chance of turning into products and jobs, and that costs to business are kept to a minimum.
You certainly don't need more government, but we can help where we already have responsibility.
A big issue here in Auckland is transport and traffic.
It is time we got on with the job because the economic costs of transport problems here are huge.
We have the toolkit. The Government has spent three years working on a new set of rules for making decisions on transport spending.
The core idea is very simple. Right now we can build only what we have the cash to pay for. It's the same as if we had a rule that people could only pay cash for a house. We propose to change from a cash system to an investment system. That means we can look at long-term financing, including borrowing.
The famous B/C ratio is simply a means of rationing cash - and we invest only where the B/C ratio is 4 or better, or where the return is 400%. The calculation is somewhat artificial, but investing over 30 years for a return means quite a different mindset than rationing this year's cash.
We have the toolkit - the draft roading legislation. It is not perfect yet. There is more debate. A re-elected National Government will pass this legislation next year so we can get on with solving, more sensibly, transport problems here and throughout the country.
There would be some resistance, but it is time to get on with it. Local government knows change is needed, and Auckland mayors have asked us to move. We will.
I want to acknowledge the concern so many people in business have shown for their country. My discussions with the business community inevitably turn to the issues of national concern - our growth prospects, whether we can train and retain talented young people, whether we can adapt to the new economy.
We have a common purpose, to make this a country where our children will stay and build their future.
New Zealand has started to turn around its long slide in living standards. You generate the jobs and the wealth and it is our job to help.
You will hear more of our approach to the next decade. But more important than the policy is the people. It is hard to succeed in business in New Zealand, for all the reasons we are familiar with. So if you have succeeded you are good at it.
New Zealand needs Auckland to regain its confidence. Our proposed lower taxes, better roads and lower business costs under National are the next steps.