Speech to The Waikato Business Summit

Thank you for inviting me here to speak today. I’d like to acknowledge the Mayor of Hamilton Andrew King, MP Jamie Strange, Deputy Mayors and City and Regional Councillors.

It is a privilege to be here in the Waikato, and Hamilton in particular. This region is experiencing high levels of growth which are the envy of other parts of New Zealand. Projections show Hamilton is well on its way to being a city with more than 200,000 residents by 2034 and 225,000 by 2041, effectively adding the current population of Palmerston North to the city in that time.

This growth is partly due to Hamilton’s strategic location in the Golden Triangle, along with Auckland and Tauranga. This area is extremely important to both this region’s and our country’s economic growth.

This Government wants to help this city grow with a new policy platform to tackle housing and transport bottlenecks, while driving regional development and sustainable growth opportunities.

But before I go into our priorities for the next three years, I want to provide an update on a project which the Hamilton City Council applied for funding for under the previous Government’s Housing Infrastructure Fund, in the Peacockes area. The previous Government did have some good ideas, but it shouldn’t take a housing crisis for a Government to act.

The funding sought would open up residential land for 3,750 new houses in the Peacockes area within the next 10 years, rising to a total of 8,400 homes in this area in 30 years’ time. As you know, the land is already zoned and designations are in place.

And I’m pleased to be able to tell you today that Ministers have accepted the business case for Peacockes. Final documentation is being worked on by officials and Hamilton City Council staff, and the Council still needs to consult the community through its long-term plan process. But we expect that construction can start in earnest when long-term plan approval is gained in June.

Within this plan, a new southern link road, connecting to the existing State Highway 1 on the western side of Hamilton, will swing past the southern edge of Peacockes, also linking a new Airport Employment zone with the eastern side of the city.

From my perspective the theme of today’s conference, ‘From Change Comes Opportunity” could not be more appropriate. I am humbled by the privilege and opportunity that is presented from being in Government and being the Minister of Finance.  It is most certainly a change – and one that I am relishing.

Earlier this week at Waitangi, we also saw the opportunity that comes from change. Jacinda Ardern became the first female New Zealand Prime Minister allowed to speak from the veranda of the Upper Marae. It was an historic moment which I was privileged to witness first-hand.

There was a different feeling at Waitangi this year. A spirit of respect and inclusion replaced some of the rancour and divisiveness of previous years. From both the Government and Maori there was an expressed desire to work together identifying the opportunities and challenges that we need to face up to as a country.

The Prime Minister called on Maori to hold the new Government to account over how our policies dealt with social depravation, mental health, the environment and generational equity. It is not for me to repeat her speech word for word to a different audience. But I do want to paraphrase a few lines she gave towards the end of her address, regarding the need to work together on addressing the issues we do face as a nation.

She said that, as a Government, we know our nation’s failings and we have an idea of what we want to do to fix them. But we won’t always, alone, know exactly how to change things. For that, we will come to you. Now, the Prime Minister was referring to Maori, but I wish to convey that message to this audience, and the business community across New Zealand as well.

We will ask you to help us; we will form partnerships together because we cannot – and should not – be doing it alone. And as we get out to speak to more of you, there will be none too small who we don’t ask for advice and to work alongside us as we look to grow this economy in a sustainable and fair way.

Broadly expressed, the economic strategy of our government is to improve the wellbeing and living standards of New Zealanders through sustainable, productive and inclusive growth. We will be responsible with our management of the economy running sustainable surpluses and reducing debt as a proportion of the economy.

Now you might think those sound like catch phrases.  But they are our guiding principles and behind each of them is a set of plans and policies that we will be developing and rolling out, with your, and the rest of New Zealand’s, input and help.

Our Budget Responsibility Rules will ensure that we keep Government spending at about 30% of GDP – in line with the two previous governments. And we have set a target to reduce net debt to 20% of GDP within five years of taking office. This will ensure the Government remains well-placed to help the economy respond to large economic shocks or natural disasters.

Treasury’s Half Year Economic and Fiscal Update released in December shows we can achieve these goals.

With our policy programme, we are setting out to “do this”, but we aren’t setting out to do this alone. As a Government, we have a set of policies which we believe are needed at this point in New Zealand’s economic story to give every New Zealander a fair chance to contribute to, and benefit from, our prosperity.

There is no denying that we came in to Government against an interesting economic backdrop. I know you will hear from other speakers today on the overall economic environment, but suffice to say the high level indicators in the economy are positive and all the more so in comparison to other places in the world.

But that’s not to say everything is perfect or that we cannot do better. In particular, New Zealand needs to address deficits in both our social and physical infrastructure.

During the election campaign, by far the biggest issue raised with me about the economy was that too many people had missed out on a share in the prosperity that we as a nation were creating. I received this message from boardrooms to smoko rooms around the country.  No one is comfortable with high levels of homelessness or child poverty in a beautiful and prosperous country such as ours. We don’t want to see home ownership and financial security as the privilege of the few.

Too many people are missing out, and New Zealanders want to see that change. We have heard that message, and as a government we are committed to addressing it.

That is why the centrepiece of our mini-Budget before Christmas was a Families Package that unashamedly targets those on low and middle incomes. While tax cuts might sound attractive, right now the priority is to provide better-focused support particularly to those who are raising children. We have introduced a Best Start payment for children in their first three years and boosted Working for Families. Our package will see 385,000 families better off by an average of $75 per week. It also includes a Winter Energy Payment to support low income and superannuitants to keep themselves warm over the winter months.   

This is the beginning of addressing those concerns about inequality that we heard loud and clear. The Prime Minister has recently announced the targets that we will be held accountable for in reducing child poverty. When we achieve these we will have among the lowest rates of child poverty in the developed world, and far better than we have seen in New Zealand in the last thirty years. We want New Zealand to be the best place in the world to be a child and these measures are a critical part of that.

But our first 100 Days has not just been about addressing inequality. They have also been about beginning the work on the other two critical elements of our economic strategy - to build a more sustainable and productive economy.

There is no one here who will be under any illusion about the need for all of us to be working towards an economy that incorporates the protection and promotion of our environment. But for too long we have seen that as a depressing and insurmountable challenge.  In line with the theme of the day this government sees that as a great opportunity.

We are already a country that prides itself on our clean and green brand, albeit sometimes in the face of evidence to the contrary. Our primary industries rely on a stable climate and our booming tourism sector showcases the beauty of our natural environment. 

Beyond this however the transition to a low carbon economy offers other opportunities.  There is the chance for New Zealand to be at the leading edge of a just transition to more sustainability. To this end two significant funds are being developed by the new government. I will return to speak about the Provincial Growth Fund shortly. But I want to mention the Green Investment Fund, established as part of our confidence and supply agreement with the Green Party to support projects and innovations that will drive sustainable development. It will help leverage private sector investment in the technologies and businesses that will address climate change and seize the opportunity of a world hungry for clean energy high technology solutions.

This fund will also help contribute to the government’s goal of a net zero carbon economy by 2050.  As part of the 100 Day Plan we have begun to establish an Independent Climate Commission that will guide the government in this journey through establishing targets and carbon budgets. This will be a partnership across the community, particularly with business.

A more sustainable economy is not just about the environment. It is also about planning ahead to ensure that future generations can share in prosperity.  That is why one of the first acts of this government was to re-start contributions to the NZ Super Fund. The previous government had not put in a single cent since 2009 to the fund that will help make universal superannuation sustainable for future generations.   We will make those contributions year on year, increasing them as a priority.

We are also going to change the way we measure success in our country.  For too long we have relied upon measuring our success simply in terms of GDP.  While a growing economy is essential to our success it is not at any cost. I like to think of this in terms of a family.  We would not consider a family to have high wellbeing if both the parents were working and earning high incomes, but one of their children had mental health problems and another was failing at school or if waste from their property was ruining the stream that runs past their house. It is the same with the measurement of our success as a country.

We need to look at broader measures. In this space, as in many others, that we can look to the Waikato for some guidance. The Waikato Progress Indicators developed by the Regional Council assess societal and environmental measures alongside economic ones to create a dashboard of the health of the Waikato economy.  We are looking to do the same for New Zealand.  And to use this to drive both how we measure success and what we prioritise in our budgets. 

Building on the work the Treasury is already doing to create a Living Standards Framework we are targeting Budget 2019 to be New Zealand’s first Wellbeing Budget that looks at our plans not just from a fiscal standpoint but our overall success as a country.

The third pillar of our economic strategy is to build a more productive economy. Low productivity has been a major issue in New Zealand for decades. In the last five years, we have had little, or no labour productivity growth and per person GDP growth of less than one percent. This is constraining business growth and wage growth.  It means we work harder and harder for little or indeed less return.

This is where our partnership with business is critical. We want to support businesses to grow sustainably, employ more people and pay higher wages. Solving the productivity challenge requires action on a number of fronts.

As a Government we have to get the overall settings right to support improvements in productivity. This is why we have set aside $42 billion over the next five years for capital spending. We do have an infrastructure deficit in our transport systems, housing stock, urban infrastructure and in schools and hospitals. We are determined to turn that around.

Again, we will not be seeking to do this alone. While we will invest as a Government in areas such as transport, housing and urban development, we are seeking partnerships with business and the use of innovative financing mechanisms such as infrastructure bonds to make the progress we need.

We are also reviving and reforming our tax system and monetary policy settings to ensure they are supporting a more productive economy. For too long our tax system has lacked balance and has encouraged speculation, particularly in housing. We want this to change, and we have charged a Tax Working Group made up of business and community representatives and tax experts to make proposals in this regard. At the same time we are moving to make the tax system simpler for small businesses and to make multinationals pay their fair share.

We are also reforming monetary policy so that it has a greater focus on the productive economy. In particular we are expanding the objectives of the Reserve Bank to add to price stability a focus on maximising employment. We know there are limits to the influence of monetary policy, but it needs to have the overall wellbeing of New Zealanders at the heart of its mandates.

The other significant contribution to productivity I want to talk about today is improving the skills of the New Zealand workforce. This was also one of the core lessons of our Future of Work project. It is the impetus behind our fees-free post-secondary training and education policy.

This is not just about more people going to university. In fact, these students will be the minority of those who take this up. The majority will be in trades and workplace-based training. It is also not just for school leavers, but those already working but who have not trained or studied before.

We are committed to learning for life. This includes a radical reform of careers advice and guidance. In the Waikato region you still have a NEET rate of 12%. This means thousands of young people not getting the skills they need to be a productive part of our economy. We will professionalise careers advice and build strong partnerships with businesses and training providers to open up opportunities for young people.

We will be an active partner to get young people skills-ready through hands-on programmes, including ensuring they have vital tools such as drivers’ licenses.

As we do this, we will continue to ensure that immigration will be a core part of meeting our skill needs. Let me assure you that where a business has a clear skill need that cannot be fulfilled by a New Zealander, we will support business bringing people here. What we want to do is change the criteria to ensure immigration policy is focussed on meeting these needs. This means cracking down on low quality courses that are exploiting international students and providing a backdoor to permanent residency. It also means reducing the number of short term work visas where there are people already available to take up these opportunities.

We also remain committed to finding new markets and opportunities for our exporters. These moves will be founded on a progressive approach to trade. This has already been seen in our determination to renegotiate the Comprehensive and Progressive Trans Pacific Partnership free trade deal, which Trade and Export Growth Minister David Parker will sign in Chile in March.

The Government did initially have reservations about the TPP. But we were determined to give our best shot at renegotiating certain areas of the deal we were concerned with. We weren’t content on not being able to legislate to tilt the housing market to favour first-home buyers who actually live here. Nor were we content with allowing foreign companies to be able to sue the Government for policy changes which might improve the health and wellbeing of New Zealanders.

As David Parker says, we came away from our renegotiations with four-and-a-half out of the five requests we had. It wasn’t perfect, but the CPTPP ended up a damn-sight better than it looked.

This is what pragmatic and progressive Governments do. We will keep this focus on pragmatism and progressivity as we work towards other high-quality free trade agreements with partners around the world, such as the EU and UK, because New Zealand is a country built on global connections and exports.

In an increasingly competitive and interconnected world, we will continue to use all these factors of our economic base to our advantage.

But that doesn’t mean we will continue moving forward just as we have been. We must be open about the challenges we still face. We have set out as a Government to address these challenges. And, we want to work with you to do this.

Work is already underway within Ministries on ways the new Government can be an active partner investing and working alongside business to develop the economy. I’ll outline a few examples.

A nation like ours, built on innovation, should not be content sitting with an R&D spend as a proportion of GDP at nearly half the OECD average – 1.3% versus the average of 2.4%. When the OECD issued its most recent assessment of the New Zealand economy last year, this is what it had to say on R&D:

“Expenditure on R&D is low as a share of GDP, most notably in the business sector. Collaboration between firms, education and research institutions is low.”

And its advice: “Increase fiscal support for business research and development. Maintain or increase long-term support for successful collaboration between research institutions and industry.”

We want to encourage this and in the Coalition Agreement with New Zealand First we have set a target of hitting R&D spend of 2% of GDP in ten years. That’s more than a 50% increase in R&D investment relative to GDP.

Minister for Research, Science and Innovation, Megan Woods, has already begun work on overhauling New Zealand’s Research and Development (R&D) regime, with Cabinet set to discuss officials’ initial findings later this month. We are committed in the first instance to restoring R&D tax credits to give firms some certainty about their investments.

This Government has also committed to unlocking the growth potential of our regions, side by side with local business. For too long, parts of the country been ignored to the detriment of their people and resources.

The Minister for Regional Economic Development, Shane Jones, will be making an announcement on the details of the Government’s $1 billion Provincial Growth Fund, also developed with New Zealand First as part of the Coalition Agreement, so I don’t want to steal his thunder. But this is another area of Government policy where we are inviting private businesses, as well as Iwi and community organisations, to be involved with us and to work with the Government on projects which will create positive economic and social legacies for our regions.

The PGF will focus on investments that drive jobs and sustainable economic growth. We want projects that will make major long-term differences to the prospects of our regions. We will not be dictating these from Wellington, but rather developing them in partnership with you.

Included within this programme will be investments that support our sustainability goals including the planting of 1 billion trees over 10 years and a focus on regional rail and road transport, neglected for far too long.

Before I finish today, and in the spirit of the Prime Minister’s call at Waitangi for robust and open debate, I want to address an issue that is on the minds of many in business – that of employment relations.

It will come as no surprise to any of you that a party called ‘Labour’ will always look to ensure that there are fair and reasonable rules around workplace relations. This is not just born of this being in our DNA, it is also part of creating a more productive economy.

We can look at workplaces like Air New Zealand and Fonterra, which have adopted high-performance engagement policies that give a significant voice to their employees, and have seen productivity growth and more harmonious workplace relations as a result. We are working with MBIE and others to facilitate these approaches across a range of industries.

We want to adopt this kind of cooperative approach on other issues, including the minimum wage, trial periods and changes to bargaining rules.

All three of the governing parties campaigned on raising the minimum wage in New Zealand. We watched over the last few years the poorest households face growing housing, food and transport costs. It’s important we address this as a country. The first move will be on April 1 this year – from $15.75 to $16.50 an hour.

We want to provide certainty to employers and employees over where we are heading. That is why we have set out our target for the minimum wage to be $20 an hour for the year beginning 1 April 2021.

We will work with employers on the timing of the increases as we head to that target throughout the next three years. This Government has its priorities in terms of wages, but your input will be listened to. Ministers will work with you in supporting small businesses through these changes.

Another example of how we’re trying to work cooperatively came about with the 90-Day trials process. As part of an agreement between Labour and New Zealand First, a compromise was reached. This is MMP.

On 90-Day trials the best research we have on this issue – by the economics consultancy firm, Motu – indicates that the previous Government’s approach made little difference, if any, to employment levels.

So, it is worth remembering that the amendments that the new Government announced a couple of weeks ago take us back to where we began with this policy – to support those in smaller businesses to be able to take people on. We will continue to monitor how this policy works.

We have set out a clear and ambitious programme to close the social and infrastructure deficits we face as a nation. And we want to work with you on that programme. My door will always be open to you to discuss how we go about doing this together.

The theme of your summit today acknowledges that change brings opportunity. I also recognise that change can bring uncertainty as well. I hope that what I’ve said to you today gives you a clear outline of the direction of travel of this Government, and that we see a clear place for business in that journey.

We have the chance right now as a nation to give every New Zealander a fair share in prosperity and to make this country a better place for all. I look forward to working with all of you on that journey.