Speech Notes For National Australia Bank Breakfast Seminar

  • Bill English

This is my first visit to Australia as an economic Minister.

The main purpose of the visit has been to establish a personal relationship with my counterparts at a federal level and I will also be meeting some of the Victorian Ministers here in Melbourne today.

I'd like to talk this morning about New Zealand's relationship with Australia, exports, and my Government's ambitions for the New Zealand economy.

New Zealand's relationship with Australia has always been important for a myriad of reasons, but not least because of your significance to us as an export market. Australia takes approximately 21 percent of New Zealand's merchandise exports and 22 percent of our services exports. Under the guidance of CER the significance of the Australian export market to New Zealand has grown dramatically.

In the 16 years that CER has been in place our exports to Australia have moved from $760 million to $3.9 billion. Bilateral trade has increased by about the same amount to reach more than $9 billion last year.

Another value out of CER is that its success has encouraged New Zealand to look at the possibility of smaller regionally focused trade agreements. Waiting for the big bang through the WTO has not yielded significant benefits for our agricultural exports.

For many New Zealand medium size businesses Australia is their first taste of exporting. You're close, you're easy to understand and you provide a real test for the competitive capacities they have developed in a small domestic market.

In the last two years the performance of the Australian economy has been vital to us. We were hit hard by the Asian crisis, particularly in forestry and tourism, and as a result many of our exporters expanded other markets - Europe and the US, but also Australia. We hope Australia will continue to show robust growth. Both of us will be looking to reap the benefits of rebounding Asian economies.

There's been some concern in New Zealand recently that Australia has done better than us and indeed in the last year it certainly has. I have just mentioned Australia's growth has been important to us and we should acknowledge how important that has been in helping us carry on through the recession.

However it should be noted that the difference has been based mainly on the performance of the domestic economy. Under the impact of the Asian crisis, Australian exports declined in value by about 2% during the 1998 year, while ours rose by 1.3% on an average annual basis. Through the 90s our two countries have had virtually identical average growth. From June '91 to June '97 we had higher peaks and lower troughs, but on average only fifteen hundredths of one per cent difference in our growth performance.

In the world scene we are both small, open economies. However, New Zealand will always be more reliant on exports that Australia. Exports are 15 % of GDP for Australia and 21 % for New Zealand - though even that ratio for us is still lower than it could be.

Which brings me to the future.

Can I first of all restate my commitment to five principles governing the New Zealand economy:

  • an open and competitive economy
  • low-rate broad-based taxes
  • price stability
  • flexible labour markets, and
  • a fiscally disciplined government

These have served us well and allowed the New Zealand economy to adjust rapidly and effectively as we saw with the recent Asian crisis.

Let me be clear. I am ambitious for the New Zealand economy and so is my Government.

Right now our economic recovery is stronger on domestic demand than on export growth, although our economists are forecasting growth of 2.9% this year, 3.5% next year and 3% in 2002.

But there's no doubt we need to do better on those growth forecasts if we are to meet the expectations New Zealanders have after 15 years of restructuring the economy.

Exports are going to be the key.

My focus is on the steps we have to take over the next 10 years to increase our export ratio, change the makeup of our exports, and therefore raise our per capita income. I can't tell you how the next decade will end, but I can tell you that it will begin with the New Zealand Government looking to those activities which it can influence directly.

I'd like to talk about five of the items on our export agenda.

To start with, we are right now getting hands on with the poorest performing part of the export sector and that is agriculture. A long-term decline in commodity prices has had a significant effect on the New Zealand economy, but also a significant social effect in our rural and provincial regions. Last year the Government raised the issue of the rules that we currently have in legislation for the marketing of agricultural products.

This was somewhat controversial at the time but since then Government and the leaders of our agricultural industries have engaged in an intensive process of looking at long term plans for turning around the declining performance of our agricultural sector. In particular we are working right now with the New Zealand Dairy Industry, which constitutes 20% of all our exports.

I must say, the prospect of a fast improving and dynamic Australian dairy industry is something of a spur to our ambition that the New Zealand dairy industry become a genuine global participant in the food business, growing as fast as its competitors and generating wealth for its New Zealand owners.

We have meat, wool and forestry industries that can do better too. Crucial to their future is the political debate around biotechnology and this is the second item on the agenda. This has become a big issue in New Zealand and it's vital to our future that we have a balanced consideration of consumer and national interests around biotechnology.

Biotechnology is one of the three legs of the current economic revolution - the other two being information technology and communications. Of the three, New Zealand can expect to be a global participant in biotechnology and that is because of our long history and specialised knowledge arising out of our agricultural sector.

In the next 10 years, what we know about our plants, our trees, and particularly our animals, will create more value and more jobs than the product themselves.

We are essentially still a biological economy. Over the last century we have taken advantage of every new technology that has come along to enhance the value of our products. In a world where the uptake of biotechnology is likely to speed up rather than slow down, we need to look to our national interests as we consider what rules we apply. It is Government's job to make sure the legitimate concerns of consumers are met. People deserve to know what their children are eating. This is a separate matter from consideration of how we can use genetic sciences to the advantage of our nation. New Zealand cannot afford to cut itself off from the benefits of genetic science.

The dynamism in biotechnology highlights the third item on our agenda - the future of research science and technological development in New Zealand.

The New Zealand Government funds a disproportionately large amount of the country's investment in research and development. Through direct funding and contracts with Government departments, at least 75% of funding for Crown research institutes is from the Government. In effect, we run New Zealand's ideas machine through it's capital investment in tertiary institutions, Crown research institutes and its ongoing funding of these organisations. I note your recent budget allocated big increases in R&D spending. We need to make these organisations we own as dynamic and as entrepreneurial as they need to be to generate ideas to feed business.

We have in the last 10 years put in place a solid foundation with our reforms in the research science sector. The next 10 years will be a real test of whether people in that sector can contribute in a way that they have long promised.

One of the features of research and development in New Zealand is the low contribution by the private sector. It is not a good record, partly because government did it all, partly because cost cutting has mattered more, and partly because we have always relied on a romantic notion of kiwi ingenuity.

But business thinking in New Zealand is changing, and we need to encourage it to change further. That's the fourth item on the agenda.

For 15 years the debate between Government and business has been about public policy issues, about market structure and regulation. The result of that is we have a business community very literate in microeconomic reform. This has shaped a culture of cost-cutting and in some cases a strong culture of independence. I can tell you that New Zealand business needed that. In the next 10 years though the game will change. We will be looking to create a strong, cohesive relationship between the Government and business as we hustle for New Zealand and the wider world market.

In New Zealand we've talked about added value for a long time, but been hesitant to make the kind of investments needed to create that value. In the next 10 years we are likely to see a strong surge in investment in research and development simply because it's needed. It's also about applying new ideas to what we already do, making the dinosaurs dance so to speak, as well as developing the new services and products we haven't thought of yet.

But we also need to think differently about what can be exported. We have a long culture of exporting products, but in fact the makeup of our domestic economy has altered, as have others, quite significantly in favour of services. More businesses are now looking at the question of whether New Zealand firms with a strong domestic base in services can export those services to the world profitably. One recent example would be Telecom's foray into the Australian market, with its investment in AAPT.

The growth potential in our own market is limited. But it is not just about bigger firms.

Changes in communications are giving global reach to small enterprises. New Zealand businesses are realising now the possibility for smaller businesses in a small economy to think of their market differently, to reach and to develop what I've seen referred to as wide shallow markets, or a sliver market.

We associate global presence with size, but now it's possible for the producer of a small product or range of products to be a significant participant in a very small, specialised global market. It's not a new idea, but it's now within the reach of many more businesses. In New Zealand this style of business will in 10 years be the rule, not the exception.

That brings me to my final item, which is people.

The next 10 years in New Zealand is going to depend less on arguments over philosophy, policy and structure and more on people, their skills, their attitudes and their talents.

New Zealand is a small open economy, but we need big open minds. We have to learn more about how to foster our talented people. We need people who are competent in the global market, we need to attract more of them and we need to keep that talent.

I come from the far South of New Zealand. Our biggest export product is our people who go to bigger, warmer places, and the same thing could happen to New Zealand. We have relatively low per capita incomes. A lot of our economy has become internationalised in the sense that where economies of scale matter, we are small so we become the branch office not the head office.

I have spent a bit of time in high schools lately. Our 17-year-olds know they have the choice of a three-hour flight to Australia, or further afield. And they read the signs - the political debate in New Zealand about higher taxes highlights the prospect of low incomes compared to their education costs.

It therefore matters enormously that Government can create a sense of opportunity - a sense of excitement - a sense that staying in New Zealand has lifestyle benefits but also provides real challenges and personal opportunity. Crucial to that is going to be a sense of national purpose, a sense that talented people are valued, while no-one is left too far behind. That's a real challenge in a nation that has long valued its egalitarian ethic.

As I said at the start, I don't know how the next decade will end but I do know how it will begin.

It will begin with leadership that is positive about New Zealand.

It will begin by understanding that New Zealand cannot rest on the efforts of the last 15 years.

It will begin by understanding that kind of economic change that has been wrought in New Zealand in the last 15 years is now normal for most developing economies - and in fact many of them have moved ahead of us in bringing competition and pressures for efficiency where they did not exist before.

We must continue down that path if only to keep up but it's the strategy, the attitude and the cohesion that will create value for New Zealand.