Speech to the New Zealand Investment ConferenceTreasurer
Carlton Hotel, Auckland
Over the next few days you have the opportunity to listen to a wide range of people who have, and will bring, their unique perspective to the issues that surround business and investment in New Zealand.
The Government, to the extent that it sets the environment for investment decisions, has a duty to make its perspective on these issues clear.
Many thought that mayhem and confusion would follow in the wake of the move to an MMP environment. On the contrary, the transparency of Government and the certainty this creates has been enhanced.
Until the formation of the Coalition Government, the only mechanism for making sure the Government signalled its intentions was the Fiscal Responsibility Act. As part of that process, our first Budget Policy Statement was published last week.
But much of the information in that Statement was known well before last Tuesday because of the Agreement, released in December.
The Agreement articulates the new Government's vision, and sets out our strategy for achieving that vision. The Budget Policy Statement marked the first step towards implementing that vision.
In essence, it is a vision for a healthier New Zealand, a better educated New Zealand, a safer New Zealand... a more prosperous New Zealand.
This Government envisages a country in which:
individual New Zealanders seek and achieve greater self-reliance;
individual New Zealanders can look forward to a comfortable retirement;
the workforce is highly skilled, producing goods and services valued both at home and abroad;
the business sector is dynamic and innovative;
investment is strong and works to boost employment, productivity and growth; and
New Zealanders own a stake in their future.
To deliver on this vision, the Government has developed a comprehensive strategy. It is outlined in the Coalition Agreement. Together the National Party and New Zealand First identified and agreed on four core economic principles. 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.
In short, we are committed to sound monetary and fiscal frameworks because these underpin growth.
But what distinguishes this Coalition Government is the prominence given to the value of self-reliance, and the emphasis on saving.
New Zealand and international experience suggests that sustained economic growth promises more employment, greater opportunities for the development of skills and higher incomes for people. Real growth is the opportunity to achieve greater self-reliance.
That is why we are committed to low inflation, prudent, conservative and safe, fiscal management, lowering taxes and reducing public debt.
Price stability is essential to our economic strategy.
The Government is well aware of the pressures that exporters face given an appreciating exchange rate. But looser monetary policy is not the answer to relieving this pressure. Any temporary relief would soon be eroded by rising costs. Across the political divide, first Labour and then National, agree on that.
Prudent and responsible management, as the Budget Policy Statement confirms, will be a hallmark of this Government's approach to fiscal management.
The Minister of Finance will elaborate on responsible management later this afternoon.
But let me emphasise some of the key messages... spending wisely and not simply for the sake of it is critical . . . that means establishing priorities. Delivering for the very young, and for the old, by providing increased spending in education, health, and repealing the superannuation surcharge are priorities for this Government.
And tax reductions are still on the agenda, from 1 July 1998.
Reducing debt is a priority. We want to ensure that the Government is in a strong position to withstand changes in economic conditions without having to make abrupt changes in taxes or expenses. Lower debt reduces real interest rates through out the economy by reducing the risk premium on capital. This benefits businesses by lowering the cost of investing. Further, we want to reduce the costs of servicing debt.
Our goal in the long term is, if macro-economic conditions deem it wise, to eliminate debt. Maintaining fiscal surpluses will enable further debt reduction and boost national savings.
The reality is that as a nation we must be open and outward looking if we are going to be successful. The exposure to competition from abroad provides the spur for New Zealand firms to innovate, to push out the frontiers in business practice ....to take on the best in the world.
There are a number of studies which suggest management skills are improving. Exporting firms are diversifying their markets beyond Australia. And we are seeing new firms setting up where opportunities emerge and others closing as opportunities have been exhausted.
But, it remains the case that many businesses still have some way to go to achieve international best practice.
That firms are lifting their performance is laudable. But, in an open economy, ongoing improvements are demanded. We want to see firms maintaining the momentum.
The key to maintaining an open internationally competitive economy will be:
stable macroeconomic policies;
deregulated, competitive and open markets;
quality public services provided as efficiently as possible;
and the lowest possible tax rates.
This Government is committed to innovative reform.
For instance, we need investment that boosts employment, productivity and growth. And if we increase our savings, New Zealanders will be able to take a greater stake in our future as a nation.
Let me be clear, this Coalition Government is not opposed to foreign investment.
However, we believe in the general principle that the control and ownership of important New Zealand resources and assets should be held by New Zealanders.
The Coalition Agreement has strengthened the national interest provision of the Overseas Investment Act to make it clear that land sales to overseas buyers must result in "substantial and identifiable" benefits to New Zealand.
The Agreement also makes it clear that strategic assets, such as the Electricity Corporation, TransPower and New Zealand Post, currently owned by the Government will not be sold.
These sensible restrictions aside, the Government welcomes investment that enhances the national interest.
That said, reforms such as removing restrictions on air services to and from New Zealand is important for reducing barriers to trade and tourism. To this end, the Government remains committed to reciprocal liberalisation where possible, and we are keen to pursue bilateral open skies agreements in the Asia-Pacific and beyond
To make the most of the opportunities a global economy provides we have also got to think about what we do best and how to do it better.
The 1998 Tariff Review is to proceed in line with Coalition policy: namely, the Government will determine at that time how to move towards a zero end point under a unilateral domestic tariff reduction programme. In reaching a decision on the timing of the reduction programme, we will take into account the progress, the speed and commitment being made by our trading partners.
Removing remaining tariffs will lead to the shifting of resources to more profitable sectors of the economy.
The Government wants to reduce the barriers exporters face in international markets. We intend to pursue mutual and collective liberalisation through our bilateral trading relationships, and our involvement in APEC and the WTO.
In thinking about the regulatory environment the Government must consider the trade off between social priorities and the costs of regulation on business, knowing that uncertainty imposes perhaps the most significant cost on business. This Government recognises the importance of clearly signalling its intentions.
To ensure that compliance implications are adequately identified and taken into account by the Government's policy advisers, we have demanded that all papers on policy issues that involve compliance costs must contain a Compliance Cost Statement. If the costs appear substantial, the statement is to be backed up by a more detailed Compliance Cost Assessment report.
The Government welcomes constructive dialogue on how it can best address regulatory issues.
Maintaining an open and competitive environment is fundamental to ensuring that New Zealand has an innovative and dynamic business sector. But this alone will not suffice to ensure success. The Government recognises that if business is to succeed it is important that New Zealand develops and maintains the skills of its workforce.
In rising to the challenge firms need to be able to draw on an increasingly skilled workforce. Participation in education has been increasing across all age groups. And there is evidence that on-the-job training is increasing.
But, as firms face the demand for ongoing improvement, so does our education system. This Government wants to ensure that people are well equipped to take up work opportunities, and that firms have a pool of skilled workers to draw from. Firms also need to think carefully about the training and development opportunities that they provide for staff throughout their careers.
We want to see people moving away from State dependence to independence.
Despite strong growth in employment in recent years the number of people receiving a welfare benefit has decreased only slightly. The number of employment beneficiaries has dropped significantly, but the numbers of domestic purposes, sickness and invalids beneficiaries are continuing to rise.
This Government wants to create an environment that encourages New Zealanders to move away from welfare dependency to employment. And for those who still need welfare support, we want to move away from a welfare mentality to a positive attitude and greater acceptance of social obligations.
Gaining self-reliance is not simply about getting a job. It's about recognising the contribution that each of us can make to enhance the welfare of our families, our communities, and this country, both now and in the future.
We advise our children to look to the future when making decisions about their education because we know the decisions they make now will have important implications for their future employment prospects. We should also be advising our children to extend their sights beyond their working lives.
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 of people in retirement. This Government wants to see New Zealanders enjoy a comfortable retirement.
Although national savings rates have increased over recent years, they are still beneath investment rates and as a result there is still a current account deficit. Much of the improvement in national savings has come from government savings rather than private savings.
One way of boosting national savings and managing the impact of an aging population is to introduce a compulsory superannuation scheme.
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. Westpac-FPG's recent New Zealander Savings Profile study shows that around 71% of New Zealanders accept 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.
In working towards the referendum, the first step is to design a compulsory superannuation scheme that best serves the interests of New Zealanders.
Having finalised the details of the design, a postal 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 we have the mandate to proceed, New Zealanders will be able to look forward with confidence to a comfortable retirement.
I have laid out the Government's vision, and our strategy for achieving that vision.
This Government believes that a combination of responsible fiscal policy, a sound savings strategy, a policy of openness to competition accompanied by strong commercial investment will bring large dividends to the nation.
Our vision is ambitious. But it can be achieved. If we pull together as a nation... government, business and individual New Zealanders each have an important contribution to make to New Zealand's prosperity, to New Zealand's future.
This Government's strategy will bring us closer to achieving our vision for New Zealand.