Waitomo District Chamber of Commerce and IndustryFinance
Thank you for inviting me to speak to you this evening. It is an interesting time in politics as we near the mid-point of this parliamentary term and now have the focus of a by-election in your electorate.
A number of the Opposition parties have been talking up their chances, or should I say hopes, in the Taranaki/King Country seat. I can assure you National intends to remain the strongest party both in this electorate, and in Parliament.
National, through my good friend Jim Bolger, has represented this area for the last 26 years, and our candidate, Shane Ardern, will provide the electorate's new voice in Parliament.
The National Party, and Mr Ardern, understand the needs of this electorate. The provincial economy depends on export-led growth - just as New Zealand's progress does.
It is only through good economic and fiscal policies - through a framework for growth - that we can get that result.
Our policies have delivered for New Zealand, and they will continue to. That is what I want to speak to you about tonight.
With the Reserve Bank's projections released yesterday, a near complete range of private and public forecasters' views is now available.
On balance these forecasts say that the economy will continue growing, and that growth will accelerate from the middle or end of this year.
The Reserve Bank is projecting growth of 2.8% in the year to March 1999, and 4.2% the following year and says business activity should pick up from late this year.
To quote the Bank: "Looser monetary conditions are expected to boost business profitability by improving both domestic demand and the international competitiveness of New Zealand exporters. Rising business profitability will induce firms to increase investment and employment."
The Government is currently working on its economic forecasts for this year's Budget. As you probably know, Treasury's assessment earlier this year was that growth would be 2.7% this financial year, and around 3.5% in 1998/99. It had previously been picking growth next year to get beyond 4% and the effect of Asia has been to delay this higher growth.
But growth of around 3% or better is still strong - and even the more pessimistic forecasts for growth of 2.5% are hardly bad.
To put these figures into some sort of perspective, world industrial production in the four years to 2001 is expected to average 2.2%.
Looking at our recent history, from 1980 to 1993 New Zealand averaged only 1.4% growth. We are now doing much better than that, even at the bottom of the business cycle and even with an external shock like the Asian financial crisis.
This does not mean National is satisfied by merely doing twice as well as we used to. We will work to improve the growth potential of New Zealand's economy.
The overall economic outlook is driven by a number of strong positive forces for growth.
1. The lagged effects of easier monetary conditions over the past year and the strength of our main markets mean the prospects are good for exporters.
2. Tax reductions will provide a real boost to workers' take home pay and consumer confidence, and are backed by the removal of the surcharge.
3. The one-off AMP share give-away worth $1.25 billion will also support the domestic economy.
4. Major events such as the America's Cup increase investment and will bring tourists.
5. The Government is committed to a huge range of reforms to improve competitiveness and boost growth potential.
The seven month Government accounts confirm that the economy still has momentum. As at January 31:
the surplus was $1,762 million, $569 million higher than forecast; debt was $24.29 billion, $461 million lower than forecast: net worth $9.232 billion, $511 million ahead of forecast.
Treasury is now saying that some of this positive variance will be reflected in this year's Budget surplus which will also be boosted by one-off factors such as the lower than expected Equiticorp payout.
Asia and Trade
An improved export performance, which should be further underpinned by yesterday's easing of monetary conditions, is one of the key drivers for economic growth.
There is no question that the Asian financial shock is having a negative impact on world and New Zealand trade. However prospects in other major export economies remain positive.
For example trade figures for January showed a sharp fall in some markets compared to January 1997, including a 61.7% plunge in exports to Korea. But these were offset by growth in other key markets like Japan (20%) and China (18.2%), meaning exports to Asia were only 6.3% lower than January 1997.
And total export growth was not down - it rose by 3.8%, with manufactured exports up 8% on January 1997 reflecting gains to the US of 20%.
Further, the terms of trade index - which measures how many exports are required to buy our imports - improved by 2.1% in the December quarter, reversing a three year trend of general deterioration.
Pastoral based exports - 36% of all exports - are of vital importance to our economy.
Weak world commodity prices have been a problem for farmers. This has been offset to some extent by the fall in the New Zealand dollar over the past year. ANZ Bank's commodity price index for January was down nearly 10% in world terms but was 6% higher when measured against the Kiwi dollar.
Since February 1997 the trade weighted index had decreased 11% from 68.5 to 61.2, and that was before yesterday's Reserve Bank easing. This afternoon the TWI was below 60.
More importantly to farmers, the New Zealand dollar had depreciated 16% against the US$ and 17% against the pound in the from last February, and following yesterday's easing the cross rate against the greenback has moved to 56.2 cents US.
Asia may have a negative effect on world commodity prices because of reduced demand. However, much of New Zealand's pastoral exports are destined for regions which have strong domestic economies: the EU (lamb/dairy), USA (beef) and China (wool).
So while commodity prices have been trending down in recent years, the outlook for most commodities is positive. This is true for Beef as prices are expected to rise from a low base in the latter part of 1998 due to an expected turnaround in the US beef market.
Lamb prices are expected to hold up during 1998 after being pushed along in 1997 by the BSE problems in Europe.
Wool is expected to have mixed prices in the future, dependent on type. However if the Chinese market picks up this year, there is high expectation that wool prices will remain positive throughout 1998.
Some dairy exports to Asia, like milk powders, are at risk, however, dairy exports can be diverted to other markets if demand in Asia was to decrease.
The commodity prices for dairy products like butter, casein and skim milk powder could be effected by Asia, but prices are dominated by Europe and there are positive signs.
The Asian downturn has affected exports of by-products, most of which go to that region. Hide exports to Korea, for example, have decreased substantially in the short term.
Prices for these products are set in the international market and I'm not about to stand in front of you tonight and promise the unattainable. The Government cannot tell US hamburger manufacturers how much to pay for our beef.
Nor am I going to badmouth Auckland, or promise you in provincial New Zealand that there is some way we can benefit you and have the rest of the country pay.
That is the approach of Dr Cullen or Ms Clark, who change their tune according to whatever audience they are speaking to.
You know that in an open economy we can't favour any region or industry. That would mean costs being imposed on someone else.
But what helps you as businesspeople and producers - lower costs and a more competitive economy - also helps everyone else in the country.
Programme for growth
We will do all we can to maintain economic momentum and confidence.
While we are ranked 4th in the world for economic freedom behind only the city-states of Hong Kong, Singapore and Bahrain, this Government is determined to address a number of commercial and business areas where we know we can do better.
There is an exhaustive list of measures designed to reduce costs in the productive sector in the BPS. Its major components are: reducing tariffs - which should have a direct effect on farm costs and profitability; ACC reform; developing a Regulatory Responsibility Act to lower compliance costs on business; roading reform; improving the effectiveness of producer boards; introducing greater competition in electricity, and investigating the sale of a number of non-strategic assets.
We have made it clear that expanding and operating businesses is not a core function of government. Education, health and welfare are much higher priorities and we would rather that businesses are in the much more dynamic hands of the private sector.
Our approach has been straightforward - delivering growth and a more internationally competitive New Zealand.
Under National, and the Coalition government:
we are in our 5th year of surplus net public debt has been more than halved from a peak of 52% of GDP to 25.1% 250,000 jobs have been created inflation has been consistently low. net public foreign currency debt, -- $13.7 billion at 30 June 1993 ? has been eliminated. growth will average, on Treasury estimates, 3.7% from 1993 to 2001. by July tax cuts and increased family support will total $3.8 billion net worth - the difference between what we own and what we owe - has reached positive levels for the first time government spending has decreased from 42% of GDP to 35% while per capita spending on health and education has risen
Let me reiterate. The growing economy and the Government's fiscal discipline has allowed us to pay down debt, reducing the burden on our children; increase spending in key areas like education and health; and give tax cuts, all at the same time.
It is not a case of social services being run down for tax cuts or to pay back debt. Rather it is the opposite case. For example, reducing debt costs frees up more money for necessary social spending.
Back in 1987/88, under Labour, the interest on debt cost the country nearly $5 billion. Of total Government spending, 21.5% went on debt servicing.
That year every New Zealand man woman and child was paying $1,502 in interest on debt. That figure is now less than $700.
In the single year ended last June, $631 million less was spent on servicing our debt. At the same time $398 million more was spent on health than in the previous year, and $386 million more on education.
By this July, a single income family with three children earning $35,000, just over the average wage, will have received a total of $98 a week more in the hand - $5,000 a year - as a result of tax cuts and family assistance improvements since July 1996.
That's a major gain for lower and middle income working families, and they deserve it. They?re the people who earned the money in the first place.
Labour and the Alliance are against that. They want to increase tax.
Helen Clark and Jim Anderton still think a dollar is more valuable to New Zealand in their hand than in yours. It is fundamental to their goal to increase the size of the state, and boost the bill for dependency.
That must be why they say the government can't afford to let New Zealanders keep more of their own money.
I say - look at the record.
The truth is that higher taxes will over time reduce the money for health. Higher tax reduces international competitiveness, reduces economic growth and weakens governments' ability to fund social services.
Reduce the burden on the economy. Our tax take, at 35.8% of GDP last year, remains, inclusive of the 1996 tax cuts, almost 4% higher than Australia's, and vastly up on the 27% we used to pay in 1972. Help grow the economy and create jobs Provide a fairer return for paid work and more incentive to increase skills and education Mean higher incomes and greater choice for people to spend or save Increase national savings and increase investment Reduce our dependence on foreign savings and thus reduce the current account deficit.
Lower taxes are, in my view, the most constructive way any Government can tackle the problem of low national savings, and alleviate present pressures on the current account.