Speech to Ohariu-Belmont Campaign Meeting,Treasurer
New Zealand has recently had a recession and it has caused a great deal of uncertainty among New Zealanders about their future prospects. The economy is a big election issue because it is the vehicle for the choices and aspirations of New Zealand families and businesses. National's policies are creating jobs and better incomes. The policy of Labour and Alliance will choke the growth, threaten people's jobs, and cut their incomes.
Today I want to talk about where the economy is going.
All of the current forecasts are for good, solid economic growth over the next three years.
When the government opened the books three weeks ago the PREFU showed we will have many more jobs, continuing strong economic growth, lower levels of debt, lower taxes and more money available to spend on education and health. Remember these forecasts have to assume no policy changes.
Treasury's forecasts - under current policies - are that we will have economic growth of 3.5% to March 2001, 3.3% the following year, and then 2.9% - 10% over the next three years.
By March 2003, our economy will have grown from $100 billion to $120 billion.
In the three years from March 2000 till then, 115,000 jobs will be created - more than 700 a week.
Those forecasts are credible, even conservative. Some private sector economists are picking growth of 4% next year, and they are all starting to say we're going to have a very strong September quarter result.
We have confidence in that future because we've seen substantial adjustments in New Zealand which have made us a lot more adaptable, because we're seeing more of that change going on, and because conditions for growth, including exports are pretty good.
In fact the key factors for growth are already positive.
The world economy is strengthening and our export markets are picking up. World demand is increasing. Treasury's forecasts were based on positive September Consensus Forecasts, which showed growth in our top 10 trading partners this year of 3.2%. Since then, forecasts for growth in our main trading partners have increased further to 3.4%.
Our dollar is very competitive against the US and Australian currencies, and interest rates are still historically low. Those factors all provide a real boost to exporters.
The recovery in the Asian economies has meant tourists have returned to boost the growth in numbers from Europe, Australia and the US. September tourist numbers are up 7.5% on the previous year and are at an all-time high.
The return to Asian growth has also seen demand for imports from those countries increase, and improved the prospect for higher commodity prices.
That's why there is growth now and why there will be increasing growth in the future.
The best thing about this is jobs. New jobs don't just happen. We're a nation of small enterprises. If you have three staff already, taking on one extra person involves a big risk. The decision to employ is made by people who are very committed to their product or their service and often have their life savings on the line. They're not about greed and exploitation - they're about success and growth.
That's why National backs them. We do everything we can to make that decision easier for the person through reducing costs such as ACC, and through having flexible employment law that allows them to make decisions that suit their own business and the person they want to employ.
Labour doesn't understand that. Their policy is wrong and so is their attitude. Repealing the ECA and nationalising ACC will destroy jobs. Industries like Artel Industries have told Labour that and they're speaking on behalf of thousands of businesses. Helen Clark today is trying to claw back the damage from her union-ACC policies - but it's just electioneering - favouring a few high profile businesses, over thousands of others.
Labour politicians have worked hard to sanitise their anti-jobs policy but in the end they can't help themselves. Forty percent of the Labour Caucus are former union organisers. They came mainly from the 1980s where the main weapons were strikes. Strikes don't create jobs. Labour wants to bring division and conflict back into the workplace when we've learned to live without it.
Another thing National has done, and we will continue to do for growth, for jobs and for people's incomes, is lower tax.
We will reduce taxes for everyone earning over $200 a week by cutting the middle rate to 20 cents up to $40,000 on 1 April.
Labour will make everyone who earns over $200 per week pay more tax than National. Labour would collect $2.4 billion off these families over the next three years.
That means he is going to take money off people on $20,000-$30,000 a year. The rhetoric about skilled people and value added means nothing when he has a high tax policy that will punish anyone who is a bit smarter than Dr Cullen and who does well.
Our approach to the economy is quite straightforward. Grow the cake, and share it. Labour and Alliance are fighting over who is going to eat it.
And as I said earlier, the economy is bouncing back - strongly. Economists are now starting to say we are going to have a very strong September quarter result.
The ANZ says it now looks as if the September quarter had growth of over 1%, Westpac is predicting growth of 1.2 % for the quarter and Deutsche Bank believes it may be as high as 1.5%.
Three recent sets of figures are the hard evidence behind this view.
1. The pick-up in jobs in the September quarter. 23,000 more full-time jobs were created, with unemployment falling to 6.8%.
2. The very strong September quarter retail figures - up 2.3% on the June quarter, and 6% on the same period last year.
3. The growth in exports in the September quarter trade figures - up 10.5% from the June quarter and 8% on the same time last year.
Looking ahead, the National Bank's survey of businesses in October found that a net 39% thought their own businesses would improve over the next 12 months, with a net 45% of exporters expected to increase sales.
And the most recent job ads data showed the number of advertised jobs up 35% in the last year. ANZ's job ads series increased 2.3% in October, the 14th consecutive monthly increase.
We also know that primary sector production is soaring because of a good winter - and milk production, for example, has set an all-time daily record - that there are strong tourism flows and transport companies are reporting growing volumes.
These exporters are helped by the lowest interest rates in 30 years. Our short term rates are 0.5% lower than Australia, whose Reserve Bank have recently raised rates.
This week our Reserve Bank will be issuing its monetary policy statement. The Bank has the job of managing inflation for strong sustainable economic growth.
Independent analysts have been picking all year that interest rates will rise because the economy is growing strongly and this will increase inflationary pressures. Analysts are now picking the overnight cash rate will rise by half a percent on Wednesday. These are already incorporated into market expectations.
A rise in the 90-day rate has also been incorporated in the pre-election forecasts.
Mortgage rates have risen recently by ¼ of a percent and an increase in the cash rate may mean some small rises if banks take the opportunity to push up their margins. But the Reserve Bank, the Treasury and analysts forecast a stable future track for interest rates.
They are saying we won't be seeing the big lurches in interest rates that were a feature of past economic cycles. Nor will we see interest rates reach the high levels that they did previously, 20% under Labour in the eighties, and 11% in the mid-nineties. Market expectations are that the 90-day rate might reach 7%.
This steady outlook is at risk if a Greens/Alliance/Labour Government go on the spending binges they are promising. Families lose either way.
The left have proposed $4-6 billion spending. If it's financed by increased taxes, it drops the incomes of families; if it isn't financed by increased taxes, then that government and New Zealand will have to borrow.
And either way, too much spending means interest rates rise more than they have to. Mortgages hit 20.5% in 1987 under Labour.
Labour can talk to business groups about driving growth and economic performance. But there's a real contradiction, a credibility gap, between this talk of growth and all the other policies they promote.
Put it this way - they talk about growth and jobs and helping the worst-off.
But just about every policy they run has the opposite effect - these policies will stifle the economy, cost jobs, and ultimately hurt the people at the bottom.
Raising taxes, renationalising ACC and putting costs back up for businesses, and giving unions more power is not going to help one business or create one job - and even Dr Cullen has given up arguing that it will.
And I'd like to know how taking more taxes out of people's pockets can make workers better off.
Summary - lower taxes, more jobs, low interest rates - these will help every business and every family - because every New Zealander has the right to participate in a growing economy - it's only fair.