Speech to Institute of Directors (Canterbury)

  • Bill English

George Hotel, Christchurch

Next year New Zealand will grow as fast as or faster than Australia, the USA, UK and Canada. Most forecasters are picking 3.5% to 4% growth in 2000 - not bad for an economy that has been written off by our media commentators.

Today the IMF is releasing their assessment of the New Zealand economy, where it has been and where it needs to go.

It is valuable to have international organisations run the same ruler over our economy as they run over other economies so we can measure the quality of our policy.

And I am pleased to say that the IMF's assessment of New Zealand is positive. They commend New Zealand's resilience in the face of the Asian crisis and consecutive droughts. And their assessment confirms that the changes of the last 15 years mean we have a sound foundation for future growth.

The outlook for the New Zealand economy is good.

I want to tell you today about that outlook and how we can make it even better.

I want New Zealand to be a country where our children will stay and build their future.

There is no reason for us not to be. The only things that can hold us back are a lack of confidence in our capacity to succeed and changing policies that have laid the foundations for growth.

I believe in this country, I want it to go forward, and I'm going to work for that.

All of you here are no doubt working hard too - and you know that you're going to do better. That's what I hear when I talk to you. And that's what we see in the confidence surveys. The confidence surveys cover a large number of businesses; they don't rely on anecdote or commentators opinions. In the National Bank's business survey in August, 47% of businesses expected to do better, and only 8% expected to do worse. That's a net 39% who expect their business to lift in the next 12 months. That' positive.

The other figure that's really promising is the pick-up in outlook for exporters. In August a net 65% of manufacturers expected increased export volumes in the year ahead.

So people are confident about their own businesses - and they should have a pretty good and realistic insight of that.

I'm sure you know, however, that general business confidence has slipped from unrealistically high levels early in the year. It's still positive, and at 20% it's at a level that corresponds to economic growth of around 3%.

But that level means businesses' view of how everyone else is doing is rather more pessimistic than what they know of their own situation.

That is typical of most surveys in New Zealand - including those in health. Peoples' own experiences can be largely positive, but concern about the other person - a very strong trait in New Zealanders - can lead to a quite different result.

But I want to ask you a couple of questions.

If everyone's gone and all our businesses have relocated to Australia, how come we'll be growing at 4%?

If all the talent has gone what does that say about those of us who are still here?

We need to have more belief, not just in ourselves, but in each other.

This economy is forecast to grow at 4% next year - better than Australia.

Our growth rate since 1992 has averaged nearly twice what it was in the 15 years previously.

From the end of 1991 we've created 280,000 jobs - and another 100,000 will come in the next three years.

Our productivity growth has finally picked up in the 90s.

We've cut personal income taxes by 25% for low and middle income families and those families are now better off by up to $100 per week in the hand.

The Government is running surpluses again as a matter of course.

And we've got net public debt down from 52 to 22% of GDP.

That's an impressive list of achievements by anyone's standards. Through this decade we have done a lot better than we did before. So our challenge isn't to stop the rot. It's not just to do okay.

We're already doing better than okay.

Our challenge is to lift our performance further so that the economy grows by the 4% projected next year - and then stays at that level the following year, and the year after that.

It's understandable that after the Asian Crisis and droughts and two quarters of recession last year, the country's mood was affected.

But equally now, as we look forward to the new millennium, there are plenty of reasons to be optimistic.

We have just hosted the most successful APEC Leaders' meeting for many years. Leaders of half the world's population refocussed APEC on free trade and dealt with the ghastly problems of East Timor.

All the people involved with planning and running such a huge event must be congratulated - the police, airport staff, hotel staff, the public servants, not to mention the Aucklanders who put up with enormous disruptions to their city. They all showed the Kiwi can-do attitude at its finest - our ability to mix it on the international front while keeping a relatively laid back approach.

Our Prime Minister showed her political skill in not letting domestic politics overwhelm the need to facilitate political and economic discussions with subtlety and finesse in order to achieve the result we were all looking for.

APEC and the events around it have reminded us we do have a place in the bigger world.

There's a far healthier world economy with our top 10 trading partners now forecast to grow twice as fast as was expected at the end of last year. That means more demand for our exports.
A lower New Zealand dollar - it's recently been trading between 51 and 53 cents US - also helps our exporters.

Manufactured exporters' expectations are now the highest they have been since 1993.

And tourism, which has bounced back strongly this year, is expected to bring 100,000 more visitors, every year, for the next five years.

Job ads rose for the 12th consecutive month in August with 30% more jobs being advertised now compared to last August.

And the forecasts are for growth to improve - the National Bank says to 4.3% next year - and unemployment to drop to 6% in the near term.

The IMF confirm this positive assessment of the economy. In their view, the speed with which we have come out of recession is payoff for 15 years of economic reform.

They go on to comment on the challenges ahead - firstly the vulnerabilities associated with the large external deficit and debt; and secondly the need to sustain the recent improvement in productivity growth.

First I want to talk about the current account. Lately it has in part reflected our problems exporting through the droughts and Asian Crisis while imports have increased rapidly.

That's why it is also forecast to improve as exports and commodity prices pick up. Recent forecasts from the Reserve Bank and private sector economists show the current account improving from 7-7.5% of GDP in the year ending March 2000 to 5-6% of GDP in the year to March 2002.

Nevertheless, that still suggests we will continue to run sizeable current account deficits. That is largely because there are more profits and interest flows leaving New Zealand to offshore investors than flowing into New Zealand. This is because New Zealanders do not have a lot of investments overseas, and sometimes the return on those investments has not been good.

The current account deficit means that New Zealand's investment exceeds our own savings.

Clearly we want sustained economic growth, and we need investment to drive this. But low domestic savings rates means this has to be funded from offshore, and the trade-off between the necessary investment and low domestic savings is the current account deficit.

With this Government's record of six consecutive fiscal surpluses and halving debt, the current account deficit is not the bogey it was in the 80s, when it reflected a large Budget deficit and large Government borrowing.

Today's current account deficit instead reflects the saving and investment decisions of private individuals and firms.

But with the current account, or balance of payments deficit, still hovering around 6% or more, it makes New Zealand more vulnerable to changes in international sentiment.

The Government's policies, however, contribute to reducing our vulnerability. We have a freely floating exchange rate. We have no net foreign debt, so the Government's finances are not exposed to foreign exchange risk. And we have sound management of the Government's books.

Any vulnerability will not be helped by the big-spending, high taxing instincts of the Labour Alliance bloc

A National-led Government will play its part. Families and individuals also play a role through their decisions on saving. Our traditional means of saving is through housing and other real estate investments. This is part of our culture, but it is changing.

Long term low inflation makes capital gains less certain, and make it less likely that bad business performance will be offset by increasing asset values. In a low inflation, low tax environment, people will have better reasons to consider saving. More importantly those savings are more likely to be channelled into investments with higher returns. We have a record of poor investment driven by tax and inflation rather than real returns which still holds us back.

The Government will work to ensure that individuals are receiving the correct signals when making their savings and investment decisions. Joint work is currently underway between officials and the Investment Savings and Insurance Association (ISI) to examine the level of savings and patterns of investment in New Zealand. And the Super 2000 Taskforce is commissioned to examine the Government's role in retirement income.

The IMF also notes that another challenge for New Zealand is the need to sustain recent improvements in productivity performance.

New Zealand's productivity performance has improved since 1993. Better productivity is about people having better tools to do the job - skills, new plant, new technology - and its about people seeing that productivity is rewarded. As part of the Bright Future programme the Government will launch major reviews of both out tertiary and our enterprise education systems to ensure they are in tune with the changing demands on our people for skills and education.

The improvement in productivity over the 1990s has been aided by the labour market reforms of the early 1990s. This Government is committed to industrial relations law which gives every worker and every employer the chance to negotiate how to organise themselves to suit their workplace and how to share the dividends of success.

So the foundation is there to deal with any problems we face and, more importantly, to take the opportunities on offer.

We have had a framework of low inflation, flexible labour markets, quality fiscal policy, an open and competitive economy, and low tax rates because they help create growth.

Every gain in growth is important. Every time we lift our potential growth rate, even by half a percent, it makes a very real difference to the wealth of our country and the living standards of its people.

For example, Statistics NZ is projecting over the next 10 years our population grows to reach around 4.1 million.

With 3% real GDP growth per year for 10 years, real GDP per capita would rise to $29,000, an increase of over $5500 or 25%.

With 3.5% growth per year, GDP per capita would rise to $30,500.

But we can't make this progress as a nation if we just sit on our hands and wait for these dividends to flow.

And that bright future will rapidly disappear if the country decides to turn back to policies that didn't even work in the 1980s.

Answer this for yourself. Will any single business benefit from the following measures. Increased taxes, higher ACC costs, paid maternity leave and the return of union-dominated workplaces?

The opposition gives the speech about innovation, skills and the knowledge economy, but their policies betray good old-fashioned left wing instincts.

The real problem is that they think the Labour party policies I have listed are good for business. In fact Labour's policies mean less pay and less jobs. These policies turn us away from the potential to be a country where our children will stay and build their future.

The pressures of student loans, the attractiveness of other countries to our skilled people mean we need to set our sights higher, not lower.

Some things will remain the same.

We will work to balance the books and repay debt.

We will stop Government spending putting unnecessary pressure on interest rates.

We will bring income taxes down further.

We will keep an industrial relations system that allows jobs to be created.

We will keep New Zealand focussed on the opportunities in trading and competing with the world - not shutting it out.

And we will continue to deal with the reality that it is successful people and successful businesses who drive the economy and make jobs, not the Government, and the not the unions.

But there is more to do.

We will get our huge agricultural industries more commercial and driving better returns for farmers, growers and New Zealand.

We will reduce compliance costs for business - like you we want less bureaucracy and less form filling. We start next week with a discussion document on taxation for business.

We will solve transport problems. We have done the work over the last three years and can put rules in place that allow our largest regional economies to move.

We will lower business taxes - we have to be able to keep our edge over Australia.

And we will push for excellence through every area of education - we want results for children, not to be hamstrung by what we've done in the past.

With this National Government's policies the first three years of the new millennium would provide:

10% economic growth.

100,000 new jobs.

Stable inflation and low interest rates.

Lower public debt.

Lower taxes.

And this is at a minimum.

This is the benchmark we are setting ourselves, and it is what you can measure our political opponents against.

I am confident that if we work at it, we - this Government, you here, New Zealand - will go forward.

The alternative is the policies, and results, of the 1980s.

That's no contest.

Thank you