Strengthening the foundations of our economy

Post-Budget Speech to Trans-Tasman Business Circle

Trans-Tasman Business Circle, Auckland, Friday May 18

Nau mai. Haere mai.

Tēnā koutou, tēnā koutou, kā nui te mihi ki a koutou.

Thank you for the invitation to join you here today. I’d like to acknowledge your General Manager Sharron Lloyd, and Karen Silk from Westpac.

Introduction

I’m delighted to be able to speak to you the day after the delivery of my Government’s first Budget.

This was a Budget aimed at strengthening the foundations of our economy.

I trust that the business community is assured that this Government is committed to being responsible, to living within our means, while at the same time making the critical investments this country needs if it is to be truly sustainable, productive and inclusive.

For this is exactly what we are doing.

As you will have heard, this Budget focused on rebuilding core public services, supporting sustainable economic development and regional economies, as well as more fairly sharing the dividends of growth to improve the living standards and wellbeing of all New Zealanders.

I am very pleased to report that we can afford to do all that.

I congratulate and applaud my Finance Minister Grant Robertson for creating such a positive and responsible Budget. The delivery of an operating surplus of $3.1 billion for 2018/19 is a heartening but necessary result.

And this is only predicted to get better, with surpluses reaching an estimated $7.3 billion by 2022.

Such a surplus allows us to reduce debt. As you know, the Budget Responsibility Rules we have developed commit us to reducing the level of net core Crown debt to 20 percent of GDP within five years of taking office. 

Treasury forecasts show that we are indeed on track with that – net core Crown debt is forecast to reduce to 19.1 percent of GDP by 2021/22. This provides New Zealand with a useful buffer to respond to any natural or economic shocks in future.

This will give us a more resilient economy.

Affordable and necessary spending

While this may appear to be a big spending Budget, you may take heart that we are being responsible with that spending.

We have pledged to keep government expenditure in line with levels over the last 20 years, and we are doing so. Core Crown expenses are expected to track at about 28 percent of GDP in 2022, well below the recent historical average of 30 percent.

As Grant said yesterday, it is very possible to keep to our Budget Responsibility Rules and still make significant investments in our future.

And we are making those investments – this Budget sees major boosts for health, education, housing and infrastructure, among other things, to rebuild the core public services New Zealanders expect and deserve.

We have increased the new operating spending allowance from the Half Year Economic Fiscal Update to $2.8 billion for this year, and the new capital spending allowance to $3.8 billion. 

This is affordable, and it is necessary.

It is affordable because of a combination of factors.

First of all, revenue is higher than expected. The Treasury’s financial statements to the end of March show that corporate and income tax has been stronger-than-expected in recent months.

What’s more, profits are predicted to continue to be higher. Meanwhile GST has been buoyed by residential investment and consumption, and employment growth has remained strong.

Indeed, the most recent figures show the unemployment rate is now at its lowest level since December 2008 and is expected to fall to 4.1 percent next year. Meanwhile, wage growth is expected to remain consistent at 3.1 percent per annum on average over the next four years.

The economy is strong, and we are reaping the benefits.

We have also been reprioritising. Since coming into Government we have been reviewing budgets to ensure all Government spending and investments fit with our priorities. Within five months we have been able to reprioritise nearly $700 million of spending over the next four years.

We have announced some tax changes, which are already making a difference. We made it clear before the election that we will crack down on tax dodgers, extend the bright-line test and end negative gearing for property investors.

We are also finalising work started by the previous government to ensure foreign and multi-national companies pay their fair share of tax in New Zealand. Meanwhile we have established the Tax Working Group to look at improving the fairness and balance of the tax system overall.

This Government is taking a more responsible approach to debt reduction though. We are slowing down the debt repayment track of the previous government by two years. And for good reason. This is about balancing investment to fix our social deficit, while keeping the books in shape.

All together this means that, over the next four years, we have about $24 billion more than the previous government had planned to invest in infrastructure and social services, so we can repair the deficits that are undermining our economy and communities.

For this investment is necessary.

It has become clear that much of our infrastructure and core public services has been neglected and run-down over the last nine years.

We have seen decaying hospitals, an education system unable to cater properly for its most vulnerable students, record numbers of homeless people living on the streets or in cars, and an overloaded transport system which is bursting at its seams in our biggest city.

As business people, you know running a country like this is not sustainable. It is not responsible. And it is not what the people of New Zealand want.

This Budget lays the foundations for our economic and social transformation.

This Government is being bold in taking the action necessary to make our economy more productive and shift the drivers of growth away from population increase and housing speculation.

To transform the economy, we have to work smarter, and increase our productivity. This is backed up by the OECD, which has noted that our labour productivity is well below leading OECD countries, and this has been restraining living standards and well-being.

I’m sure many of you are aware of this and have begun the shift yourselves. You know we need to build our skills and resilience, explore new innovations and adapt to change.

Exploring innovation

This is why my Government is introducing a major boost for innovation. We have committed through the Coalition Agreement with New Zealand First to lift our Research & Development investment by 50 percent – to 2 percent of GDP inside 10 years. This funding is a significant increase, as our national investment is about 1.3 percent currently.

Yesterday’s Budget delivered $1 billion in operating expenditure over four years to finance a tax incentive for more Research & Development. This incentive will give eligible businesses 12.5 cents back for every dollar spent on R&D.

The incentive will be available to all businesses spending more than $100,000 a year on Research & Development.

We see this system as replacing the current Growth Grants model which has been available to a narrower range of firms.

The design of the tax incentive is currently out for public consultation, so I encourage you to have your say about how we can fine-tune the scheme to ensure it works well.

I’m sure many of you will find this a great encouragement to invest more in Research and Development, as you know the big benefits business and the economy can reap.

We want to maximise those benefits and future-proof our economy. A National Research Information System will ensure investments do just that.

This Government wants to back our businesses and help you to compete on the world stage.

We also want to work with you.

Future of Work

You will have heard about our Future of Work Commission. We confirmed recently that this Government will establish a tripartite forum with Business New Zealand and the Council of Trade Unions to advance projects that will improve business use of technology, create more productive workplaces, and improve skills and training.

We need to do this to prepare people for this rapidly changing world of work where we face huge challenges, such as climate change and the growth of artificial intelligence.

It may seem novel these days for business and trade unions to come together like this, but this is what needs to happen for our economy to shift and become truly sustainable. Of course, business and workers cooperate all the time every day and, of course, we all have the same aim of living better lives. It only makes sense that we come together to find the best solutions for all.

I’m sure this Forum will make a big difference in allowing us to face the future with confidence.

My Government is most grateful for your help with this. But don’t do this for me – do it for yourselves, for the health of your business, for the well-being of your own families, your employees and your communities.

Skills and training

To help ourselves and our communities better cope with the change that is coming, we need to invest in skills and training now.

That is why my Government is so focused on investing in education.

Yesterday’s Budget provided $1.6 billion in new operating funding for Education over four years – doubling the increase in last year’s Budget.

The new funding will address rising demand due to growing rolls, teacher supply, learning support, raising teacher aide rates and developing long-term strategic plans for the education system.

Another $395.8 million was injected in new capital funding for better schools and classrooms.

In the tertiary area, we have already fully funded the first year of our fees-free post-school training and education policy. This change will not only benefit school leavers but will allow all those in the workforce who have not studied or trained before to learn new skills.

We want to provide more opportunities for a wider range of New Zealanders to train and re-train as necessary.

As well as increasing skill levels, we want to address skill shortages in particular areas. This Government wants to make sure business has the workers you need, in the places you most need them.

That’s why we're working on developing lists of regional skills and labour shortages. We want the immigration system to be in better balance and to better match migrant skills to the regions and industries where they are needed most.

We want to ensure that any genuine skill shortages are filled, but immigration levels must be sustainable, so our public services don’t continue to be overloaded.

We also want to stop any exploitation of workers. This Government wants to make sure wages and conditions are fair and workers are treated with dignity and respect. I’m sure you all want that also.

We know the vast majority of New Zealand employers do the right thing by their staff, but we need to take action against those who do not. This will ensure a level playing field for good employers, so you are not undercut through unfair practices by unscrupulous competitors.

That is why this Budget beefs up the Labour inspectorate with more staff and resources. New funding will also help support frontline employment services, such as mediation services.

Modernising business

Another measure in the Budget aimed at modernising the way we do business is support for the e-invoicing framework.

This project is being supported by more than $7 million over two years.

E-invoicing is the ability to exchange information between the online accounting software of a supplier and a buyer. It creates economic benefits through faster payments and fewer transaction costs. Fewer invoicing errors help deliver better productivity.

You will remember that Australian Prime Minister Malcolm Turnbull and I agreed in March to advance work on common approaches to e-invoicing, as part of the trans-Tasman Single Economic Market Agenda.

The Budget funding announced yesterday confirms we are on track to this fundamental change.

The framework for e-invoicing relies on the New Zealand Business Number (NZBN) administered by the Ministry for Business, Innovation and Employment. More and more businesses are using this unique 13-digit identifier which enables e-invoicing and simplifies other transactions.

The system gives greater certainty of identity, more reliable information, less duplication and much-needed efficiencies.

Businesses will be able to see supply chains, build trusted networks, find and assess providers, improve customer service and a whole lot more.

This is one way my Government wants to help every small business in New Zealand to realise their potential.

Our cities and regions

We also want our cities and regions to realise their potential.

At the moment underfunding in some areas is holding us back. As you will have seen in the Budget, this Government is not afraid of making the necessary big investments in infrastructure. This will enable us to make faster progress as we go into the future.

You will have heard much already about this Government’s plans for transport, which is funded from the National Land Transport Fund. Together with the Auckland Council, we recently unveiled a record investment of about $28 billion under a new 10-year funding package aimed at freeing up our biggest city. We are planning even further into the future, for more heavy rail and a rapid transit network featuring light rail.

Budget 2018 includes investment to progress the Auckland City Rail Link, more funding for KiwiRail and further funding for reinstating the Main North Line down south following the Kaikoura earthquakes.

Canterbury will benefit also, with a $300 million Acceleration Fund to ensure faster progress for important projects, such as the residential Red Zone and a multi-use arena.  

We want to make sure that our cities thrive, and our provinces are not left behind.

This Budget formally establishes the $1 billion per year Provincial Growth Fund to support growth in the regions, as outlined in the Coalition Agreement between Labour and New Zealand First.

The Fund represents the biggest investment in the regions of New Zealand in our lifetimes. This Budget includes significant investment in the One Billion Trees programme and support for regional rail projects.

It also re-establishes a New Zealand Forestry Service (which we announced in Rotorua last Friday) with the aim of planting up to 20 million trees next year alone. These forestry projects will lift our economy, and will provide employment, as well as helping us to deal with climate change.

Adapting to climate change

For environmental sustainability is as important as economic sustainability.

In fact, both are connected.

This Government has set a target of a Net Zero Emissions Economy by 2050, with legally binding emissions reduction targets and carbon budgets to keep us on track to this goal.

This Budget sets aside $100 million of new capital funding for the Green Investment Fund to kickstart investment in assets and technology to reduce carbon emissions.

I encourage you to consider investing in these projects.

Green Investment Funds have been hugely successful in places like Australia, the UK and some US states. This will help New Zealand make a just transition to a more sustainable economy that will ultimately create jobs in new, clean industries.

My Government is not afraid to show leadership on this issue and I hope you aren’t either.

Conclusion

In summary, we are very proud of our first Budget. It is responsible. It is forward looking.

I thank Finance Minister Grant Robertson for the hard work he and his team has put in.  

He has set out a clear plan to tackle the many challenges we face and take advantage of the opportunities ahead of us with fresh and innovative thinking.

We are balancing the many priorities we face today, with the need to invest in the future.

We are taking positive steps forward, delivering not just for the next three years, but for the next 30.

I’m proud to be part of a team that believes New Zealand can be an even better place to live, and has the ideas to make it happen.

Budget 2018 is about building the foundations to make that vision a reality.

I look forward to us all working together.

Tēnā koutou, tēnā koutou, tēnā koutou katoa.