Speech to the trans-Tasman Business Circle: The Road Ahead for the New Zealand Economy
Thank you for the invitation to speak today.
It is fitting to be addressing the Trans-Tasman Business Circle on the road ahead for the New Zealand economy. More than ever the relationship with Australia encompasses some of our most important connections; economically, socially and politically. It is with Australia that New Zealand has often sought to navigate the challenges of global engagement.
So it is no surprise that as we have found a way to manage COVID-19, Australia and New Zealand have adopted similar approaches.
We have both adopted elimination strategies that have seen the health impact of the virus mitigated more than in almost any other two countries, and seen our domestic economies recover at a pace not thought possible this time last year.
For New Zealand it means that today we have unemployment at 4.7 percent and trending downwards, economic activity at levels higher than before COVID, and Standard and Poors upgrading our economy to AAA rating, the first credit upgrade for any country since the pandemic began and the first for New Zealand since 2003.
This is not to say that everything is perfect in the economy - it is not, and I will turn to some of those issues in a moment. But it is a demonstration that the decisions that we have made over the last year, in the face of enormous volatility and uncertainty, have put New Zealand in a strong position.
I have recently completed a post Budget tour that took me from Whangarei in the north to Invercargill in the south and many points in between. What I saw was resilience, recovery and a lot of cranes.
There is a lot happening, and I had some 2019 nostalgia as the Q&A at each of the events invariably began with questions about lack of access to skilled staff.
It is a “good problem to have” as the saying goes, but it does allow us just for a moment to reflect that the strong public health approach we took was the best economic approach and has allowed us to live lives of relative normality, albeit with significant impacts felt unevenly across our country and our people.
And so any speech on the road ahead for our economy has to start on the immediate obstacle on that road- COVID-19. My first message today is that the same decisive, science led, least regrets approach we took last year is still the best approach for dealing with COVID-19 from both a health and economic point of view.
Because sadly, COVID-19 has not gone away. As we look around the world and see significant spikes linked to the Delta variant we all know that we are in a very serious phase of the pandemic.
We see it not just in Europe, but also closer to home in our region. Places that we had looked to for their response to COVID are now struggling under the weight of fresh outbreaks and restrictions. Last week Taiwan had 804 cases of COVID-19.
In Fiji, the health system is struggling to cope (and we along with Australia are providing support to them) and, of course, Sydney is in the midst of a challenging outbreak and the restrictions that responding to that requires.
Our first and foremost job remains to keep New Zealanders safe. But I want to acknowledge the difficulties that many people and businesses are still facing as a result of the measures required to do that.
A huge part of New Zealand’s success in keeping our people safe comes down to the way individuals and businesses have responded in supporting the elimination strategy and dealing with the disruption it has caused.
The continued uncertainty produces its own sort of fatigue and I am well aware that it is no easy task for businesses trying to plan, hire, invest and expand in the current economic environment.
But my second point today is one of hope when it comes to the road ahead for the economy in dealing with COVID. We have a pathway to locking in the strong position we find ourselves in today, and building a path to further reconnect New Zealanders with the world.
The Prime Minister outlined the broad parameters of this approach in May, and will have more to say about this in the coming weeks, but I will briefly outline the key points today:
· Vaccination remains the key. In New Zealand we have adopted a different strategy than countries who were facing a spiralling death toll. We were able to use the lessons we saw around the world to create a vaccine rollout programme that will work for New Zealand. This means having enough of the highly regarded Pfizer vaccine for all New Zealanders to have two doses before the end of the year. It meant focusing first on our border workers, then our health workers, then our most vulnerable, before we look to the rest of the population. This is different than many countries, and it means on some league tables we appear lower down than we might, but it is, I believe, the right strategy for us. Given it is a mass vaccination programme at a scale never before contemplated in New Zealand, it is going to have some bumps in the road. But I am confident we will meet our goal to have everyone who wants to be vaccinated done by the end of the year.
· Reconnecting. Since the Prime Minister outlined our plans in May we have established the trans-Tasman and Cook Islands travel bubbles. We always knew these would have their challenges, but they are an important step to show that we can progressively open up quarantine free travel. We are continuing to look at how we can do that with other countries, as vaccination rates rise and where it is safe to do so.
We have also been working with public health experts and modellers on how we can progressively and carefully move to use the increased safety provided by vaccination to reduce our reliance on strict measures such as lockdowns and mandatory managed isolation and quarantine. I use the word reduce because we need to be clear that restrictions at our border will be with us for some time as the pandemic continues to evolve around the world. As Professor Sir David Skegg has said, the experience at our borders changed materially after 9/11 and so too will there be a new normal after COVID.
But that doesn’t mean it will remain as restrictive as it is now. There are opportunities as vaccination rates increase here and overseas to refine our approach. In the coming weeks, we will share the information and advice that we have received and give everyone an opportunity to hear directly from the experts. We will also provide the government’s proposed response to that advice, so that people can see the proposed pathway forward.
What I can say today is that our response will be based on ensuring our people are as protected as possible through high uptake of a reliable, safe vaccine while managing the risks of the virus entering the country through a safe, smart border. This approach will continue to give us options - and in a world where COVID variants are presenting so many challenges, options will stand us in good stead.
· Support for Businesses. In the meantime we continue to provide support for businesses and people to work through COVID 19. Building on the success of the Wage Subsidy scheme, there is still support available for those who are affected by disruption. Just last week we triggered the Resurgence Support Payment for businesses affected by the brief alert level rise in Wellington. As of yesterday, that had supported 2,622 businesses to the tune of $4 million.
We continue to fund the Air Freight Subsidy Scheme to ensure our exporters can get goods to market. So far that scheme has underwritten more than 7,000 flights carrying over 136,000 tonnes of airfreight worth around $10 billion.
Our critical worker scheme has seen 17,000 people enter New Zealand to support businesses and other organisations to keep the economy moving. We will continue to work with businesses on opportunities to expand the number of people we can bring in to support our recovering economy.
On a practical level the targeted support we have made available through our COVID Fund continues for example to the tourism sector, and through initiatives such as the free apprenticeship and targeted trade training programmes that have seen more than 135,000 New Zealanders take up those opportunities.
I have dwelt on COVID because quite simply it would be ridiculous not to do so given its impact on us, and that impact will be felt for some time to come. I appreciate we all want certainty - precise dates and times for things being normal again.
We will try to give as much of that as is possible, but that is not easy in a fast moving pandemic, and we do not want to mislead you or send signals that see you make decisions we will all regret. We will, as we have through COVID, keep providing updates, keep listening and keep responding swiftly and decisively.
I do want to spend the rest of my time today outlining some critical aspects of the path for the New Zealand economy as look to the future with and beyond COVID.
So much of our efforts over the past year, both individually and as a country, have been about a return to normality. Getting people back to work.
Getting our children back into schooling and household routines. And we as a country have worked hard in order to be able to enjoy something like our normal lives in recent times.
At some stage, however, we need to reflect on whether ‘normal’ is all that we want in terms of the economy. Our strong economic performance is excellent news but we shouldn’t pretend the pre-COVID economy was perfect.
It was imbalanced. Too much of our economic expansion was based on unsustainable increases in house prices, and high levels of population growth. This has been to the detriment of our economic stability, creaking infrastructure and levels of wealth inequality.
Too many jobs were created in the low-wage economy and not enough of our firms are exporting into international markets or developing new technologies and products at the global frontier.
Our economic development in recent years has also been uneven. Although headline unemployment levels looked reasonably positive prior to COVID-19, Māori and Pacific unemployment took around 10 years to return to its pre-Global Financial Crisis level, and those ‘normal’ levels of unemployment are still far higher than the rest of the population.
Our economic model has not been, and is not, sustainable. We cannot ignore the constraints of our natural world in terms of our climate, biodiversity and our waterways.
Even though this has been clear for some time, the report of the Commission for Climate Change represents a watershed in our public debate. This report sets out the sort of path New Zealand will need to take in order to do our part to mitigate the global challenge of climate change.
I highlight these long-standing issues, not in order to lower our ambitions for the recovery, but rather the opposite, to suggest we ought to be lifting our sights and ambitions. Yes, we want things to return to normal in the sense of overcoming the challenges of COVID-19, but at the same time, normal can be better.
As I see it, our government’s economic goal is to improve the wellbeing of all New Zealanders, through creating a high wage, low emissions, job rich economy. To do this we will focus on a number of key strategic areas;
· Increase productivity through large scale investment in skills, research and innovation, infrastructure, building international connections and reforms of critical underpinnings of productivity such as our planning, water and immigration systems.
· Lift the value and increase the diversity of what we produce and do, and who we trade with.
· Transition to a low carbon economy and seize the potential of new technology and innovation to lead this transition.
· Realise the economic potential of our Maori and Pacific communities and businesses, small and medium enterprises and entrepreneurs
Budget 2021 saw us invest significant resources as we work towards these goals, including a $57 billion pipeline of infrastructure spending, a $300 million boost to NZ Green Investment Fund to crowd in private capital to support new technologies to lower emissions, and a further investment in our comprehensive reform of vocational education to lift skills.
I will talk in more detail about this strategy over the coming months, but for today I want to focus on a handful of critical areas of focus to support these goals.
Immigration and Skills
Immigration has long contributed socially, culturally and economically to New Zealand, and our society is better for it. It can be an important source of skilled labour and new ideas, helping to boost innovation and productivity.
However, as COVID-19 has severely disrupted international travel and movement, we have a rare opening to reassess the place of immigration in our economic system.
We do need to consider that immigration has had an outsized role in our economic development in recent years and in some important ways that impact has not always been positive.
One concern is that parts of the business sector have become too reliant on continued access to low skilled labour and there have been fewer incentives to increase productivity through investment in capital and new technologies.
At the moment we are hearing widespread concerns from the business sector as to the availability of labour, particularly given the necessary restrictions to inward migration as part of our response to COVID-19. It is not our intention that inward migration should switch from one extreme to the other.
There are areas of high sectoral growth and requirements for specialist skills that New Zealand is unlikely to be able to be able to fill on its own. As I said earlier we are working closely with those sectors that are struggling with skills shortages during this period in order to prioritise what places are available within MIQ.
However, we also need to be clear that this is the right time for an immigration reset.
Alongside this we want to work with businesses as to how they can attract new workers, whether that is by improving pay and conditions, being more flexible about fitting work around childcare obligations or helping workers fulfil their potential by helping them to access skills and training.
We will work with industries and businesses to support the upskilling of our workforce. That is the purpose behind the Free Apprenticeships programme, the reinstatement of the Training Incentive Allowance, the Flexi Wage Programme, and Mana in Mahi, to name but a few of our active labour market policies.
Industry Transformation, Transition and Innovation
Later this year we will be setting out our Emissions Reduction Plan as a key step towards our commitment to a net zero emissions economy. You have my commitment that those for whom the transition will be the most challenging will not be left to face that challenge on their own.
The Just Transitions work is focused on those regions that are disproportionately affected by the need to mitigate climate change.
The Government will support the business sector throughout the transition to a greener economy using whatever tools are available to it.
This includes work to improve access to capital for SMEs whose potential for growth is not being supported by New Zealand’s shallow capital markets. There is also a role for the Government in providing direct support to innovative new businesses.
In doing so, we have to acknowledge that some of these firms may fail. That is the nature of these sorts of investments.
The important thing is that we support a wide and diverse range of projects, such that the impact of those that do succeed makes all the difference.
We are already working with a range of sectors through Industry Transformation Plans.
These plans are designed collaboratively by businesses, workers and the government to identify how to lift productivity, add value, increase exports and employment opportunities in transition industries and in areas of existing advantage.
This work has produced collaborative strategies within the Agritech and construction sectors and further plans are in train for digital technologies, advanced manufacturing, food and beverages and forestry and wood processing.
New Zealand also needs to develop new industries that can help us to address the problems of the future and which provide economic opportunities for their employees.
Getting the most out of our existing public research system is an important part of this challenge, as is developing deeper linkages and collaboration between CRIs, universities and industry.
This sort of industrial policy has long been out of fashion in New Zealand, and usually invites certain historical comparisons.
Let me be clear that the idea is not to go back to ‘think big’. Instead, the idea is to learn from what we did in the past and to learn from other countries that have supported high-value industries with great success.
We will support industries in an open and strategic way, which is better aligned to the direction we want to be heading in as a country.
I want to finish today by talking about how we work to achieve these goals for the New Zealand economy. COVID has made very clear that we are truly all in this together. The role of the Government is not just to set the direction of the economy and sit back to see what happens.
We are, and want to be, an active partner. This does not mean we need to or should do everything. Rather that public investment is crucial to achieving the sort of society that we want to live in.
What we want is to work in partnership with groups across society and the economy to achieve our country’s goals. This means businesses large and small, workers, iwi and Maori groups, local government, community organisations and social enterprises.
We have seen how our country’s stock of social capital (our trust in each other and the connections in our communities) has driven our positive response to COVID. The same must now also be the case for our economic recovery.
There is sometimes a tendency to think about the relationship between government and business as being dominated by regulation – that it is a dynamic defined by the prevention of particular activities. I’m interested in ways we can work together; where public investment can open up new economic possibilities and crowd-in capital from the private sector, rather than crowd it out.
What this economic strategy is about, as much as anything, is providing a clear direction as to the major challenges we think this country is going to need to address and where we are keen to see the energy and creativity of our business leaders brought to bear.
I look forward to continuing to work together on this path forward to an economy that truly delivers wellbeing to all its people.