Working together to build a new economy
Good morning and thank you David and your team at Westpac for hosting us today.
And of course this is not the first time you have hosted such an event. In fact it wasn’t too long ago that I stood amongst you and spoke about our economic agenda.
I also spoke about the issue of business confidence. I called it the elephant in the room. Well I am here this morning to tell you that I have changed my mind.
Not on our economic agenda – I remain more convinced than ever that it is required, but on the issue of business confidence.
It is not the elephant in the room, it’s a flashing great neon sign with giant lights and fireworks going off behind it. We are all talking about it, and there is nothing wrong with that.
That is why this speech was the first thing I announced the day I returned to work.
Because we have an economic agenda which responds to so many of the issues that have been raised time and time again, and because if there are concerns, or issues, both within our control and outside of our control – then lets tackle them head on, and lets do that together.
But a useful place to start, is with what business confidence is actually telling us. We have taken a close look.
After all, politicians are quite attracted to anything that looks even remotely like a poll. And we are also interested in patterns and cycles. And from what I have seen, there is ultimately a business confidence paradox.
The business confidence paradox
When you line up business confidence with key economic performance measures over the last two governments there appears to be an inverse relationship between business confidence and the actual performance of the economy.
For instance, average business confidence scores under the Clark/Cullen Government were much lower than the Key/English Government, despite Clark and Cullen delivering higher average growth, lower unemployment, lower debt, larger surpluses and stronger wage growth than their successors.
We appear to have inherited a similar conundrum, we’ve run a strong surplus, have the best net international investment position ever recorded, stable and low interest rates forecast for some time which ought to spur investment and the lowest unemployment rate in a decade.
That then begs the question, if it’s not the overall economic indicators that is driving these figures, then what is? I have discussed this question with both business leaders and representatives, colleagues and officials. The answers I have had back are almost as diverse as the groups I have asked.
Some of those issues I will touch on today, but the overall sense I have is that it would be wrong to over simplify this survey and just call it out as being about party politics, just as it would be wrong to ignore it. It is telling us something, and that something is probably most accurately captured not by confidence, but certainty
As I travel around the country, the issue of certainty is an underlying theme. Whether you are a social service, a health organisation, or a business, knowing what a new government has planned is critical to your eco system. I utterly understand that. In fact, I have considerable empathy for that desire too.
As a politician with quite a diverse government and the scrutiny of a three yearly very public performance appraisal, I will take certainty when I can get it.
From a business perspective, I understand the desire for certainty in order to make decisions big and small, ranging from the risk of taking on an extra hire through to multi-million dollar investment decisions, and you need to understand that the climate you operate in today will be broadly the same tomorrow.
But certainty shouldn’t be confused for stasis and complacency, which are the enemy of progress, and for that matter the enemy of innovation.
The reality is that our economy faces a number of challenges, global in their nature, that by working together we must confront to protect our long term prosperity.
I know these challenges feel as stark and as important to you as they are to me, I know that because I have heard you raise them time and time again.
Skills shortages, lack of investment in the productive economy, a shallow national pool of capital, an infrastructure deficit, low productivity, building sustainable business practices in the wake of environmental degradation, and the challenges of what can broadly be called the future of work.
Our choice when faced with these challenges is to do nothing, maintain the status quo and hope it resolves itself, or prepare now to enhance our prosperity for future generations.
Not adapting early has caught out our economy before.
The jarring way in which we came out from under the cloak of protectionism in the early 80s saw over a hundred thousand workers lose their jobs and the genesis of many of the social challenges we are now working to fix decades later. This must not be repeated.
And for that, we need a plan.
It is time to retool our economy to make it work within the limits of our environment, shape it to deliver on the hopes and aspirations of all our people, and for our economic purpose to be bigger than just profit.
From reform of the Reserve Bank where we are including maximum sustainable employment as an objective, to getting active in the housing market, building modern transport infrastructure and setting ambitious emission reduction targets - we are renovating the existing legislative and policy architecture to bring it up to the new code our economy needs.
These are all things required for a new economy fit for the 21st century.
But as I said at the beginning, all of this does mean change, which means decision making.
Government decision making
I accept that under a true MMP government, the decision making process may appear to carry some sense of mystique. It ought not to. In fact much of our agenda is already set out in three public facing documents.
These are the Speech from the Throne, The Coalition Agreement with New Zealand First and the Confidence and Supply Agreement with the Greens.
Between them, these three documents set out the key policy areas that this Government will progress over the term.
We are an MMP government at its best and our structure ensures that on every decision a range of views are heard. The outcome reflects the breadth of input and leads to better decisions.
Hardly a model for fast and unexpected change – in fact all change is negotiated, but a model that I believe serves us well.
Business Partnership Agenda
Supporting these three documents is our business partnership agenda.
Today we are launching a publication that outlines this agenda and brings together the strands of this Government’s economic strategy.
Our overall objective is to build a productive, sustainable and inclusive economy.
On each score we have some way to go. When it comes to productivity, the OECD has said we are “well below leading OECD countries, restraining living standards and well-being”
Our expenditure on R&D is half that of the OECD average, and over the past five years manufacturing output grew by just over half the rate of the general economy.
When it comes to sustainability we also lagging behind. Between 1990 and 2016 the level of greenhouse gas emissions from the energy sector increased by 38 percent.
And on inclusivity, it’s clear that children and young people in particular are carrying a heavy load. In 2017 more than 200,000 children lived in poverty and roughly 73,000 15-24 year olds were not in education, employment or training when we took office.
We need to transition from growth dominated by population increase and housing speculation, to build an economy, that as I said, is genuinely productive, sustainable and inclusive.
That’s the why. Now what about the how. For that, I want to share with you the top lines of our economic strategy so everyone is clear about our key priorities that you can engage with us, but also so you can hold us to account against some key measurables.
First we want to grow and share more fairly New Zealand’s prosperity.
That means the gap between the highest and lowest income and wealth deciles reduces, real per capita income increases; the value and diversity of our exports grows and home ownership increases.
In particular we want to build our exports and have export led growth.
Second we want to support thriving and sustainable regions that benefit from an equitable share of sustainable economic growth. We want to see key regions show improvement in employment and income distribution figures and the number of businesses in key regions growing.
Third we want to deliver responsible governance with a broader measure of success. The Finance Minister is already working on the Government’s measures of success to ensure they better reflect New Zealanders’ lives.
Next year we will be the first country in the world to deliver a Wellbeing Budget. This process is underway and will see an overhaul of how the Budget is written and the objectives that it sets.
Ministers will bid for funding not just on the basis of what they think they need, but on how it will provide intergenerational benefits for New Zealanders.
We will also meet our Budget Responsibility Rules. These rules are not a nice to have. They are a firm guide as to how we want to manage the economy.
Some people have called for us to relax our borrowing rules or simply spend more. We won’t. The rules are an important part of ensuring long term fiscal sustainability.
Finally this Government is committed to transitioning to a clean, green carbon neutral New Zealand. We plan to put New Zealand on a clear path to a net-zero emission future and a healthy environment.
We are in the process of setting clear long term reduction targets and have been working with industry to develop transition pathways. We are actively talking to groups like the farming community about what we can do to reduce emissions while keeping industry profitable.
Now within each of these four areas, growing and sharing prosperity, thriving regions, a wellbeing approach to responsible budgeting and a pathway to carbon neutrality, there is an enormous amount of work.
This is a busy agenda.
My message to you all is this - now is the time to be involved and help shape this work for a better economy.
Industrial relations and immigration settings
In amongst this new agenda is also the work that we are undertaking on industrial relations and immigration settings – two areas that do come up from time to time.
First, I know that there are workforce pressures that many business are under. I held the small business portfolio in opposition and had the opportunity to speak directly with many business owners and with many of you here today. And I started out my time in the work force working alongside owner operators, and saw then how quickly employees can become like family members.
In fact, more than 20 years have passed since I last worked in a family restaurant in Morrinsville, but we still catch up each time I travel home.
That sentiment was captured for me on a larger scale when I was recently in the Wairarapa for the 75th anniversary of Breadcraft.
One of the founding family members approached me to share that when she was a child, she asked her father why he did what he did when he always looked so exhausted. Because he replied, there are so many families that are counting on me.
I know that a weight of responsibility comes with being an employer – I feel that acutely myself. I understand that when you need to hire someone, you want to get it right the first time, and you want to find someone with the right skills.
I also want employees to succeed. I want New Zealand to be a place where hard work brings reward.
That is why this Government is focussed on lifting wages for all New Zealanders.
Now to achieve that, we have our own part to play as employers. And I know that many of you here in this room are committed to that goal for your own workforce. In particular, I’d like to acknowledge businesses who have committed themselves to paying a living wage and those who are committed to delivering pay equity and closing the gender gap.
Thank you for taking a lead on this.
I understand the tension that addressing these issues can bring. The reality of making payroll, investing back into the business for future growth and keeping the lights on.
We face those same challenges. In some senses I am the largest employer in this room. Our budget isn’t infinite either, but we are doing what we can to lift wages for our teachers and nurses while running a surplus and keeping the books in order. Just like you would.
Like any business, the Government has to balance competing interests.
That is what we are doing in areas like industrial law too.
The underlying fundamentals of our industrial laws are working well, but we do need to address some of the imbalances that have been generated over recent years.
We have already announced the sum of our major areas of reform for this Parliamentary term. They are steady increases in the minimum wage, work on the Holidays Act, amendments to the Employment Relations Act which are already before Parliament, and the creation of Fair Pay Agreements.
This work is ongoing and of course happening with your direct input, which means when we do come to make changes, they will be pragmatic.
Let me give you a few examples of where we are already taking that practice forward.
In the coming months this Government will be bringing forward proposals to establish regional skill shortage lists.
It’s a move toward smarter immigration settings where we can respond to the needs of a particular industry and region.
In education, we are working directly with employers to make sure that our kids are leaving school with the skills they need to start working for you.
We also recently announced Mana in Mahi where we are working with businesses to get long term unemployed off the dole and into apprenticeships.
We’re paying employers a subsidy if they are prepared to take on a young person currently on the dole, and give them a chance. The response from business has been overwhelmingly positive. I want to thank those of you here today for your contribution, and encourage others to take up one of the 4000 places we have set aside.
But finally, I want to directly address fair pay agreements. They have become the source of a bit of discussion. I understand why – they are common place in Australia, but are not something we have seen on our shores. That’s why we have taken a cautious and considered approach.
We established a representative working group to develop the framework for fair pay agreements. They are due to report in November, and we will keep talking to you as the design work continues.
But taking a considered collaborative approach, has meant that there has been room left for a bit of speculation around what fair pay agreements might do, and whom they might effect. It’s time we drew a line around that speculation.
I fundamentally believe that fair pay agreements have the ability to be win-win, the chance to create a level playing field rather than a race to the bottom and provide stability to wage setting in an industry.
They are intended to be another tool in the bargaining toolkit. They are there to address areas where there is entrenched low wages and low wage growth.
But I can also tell you what they are not here to do. They are not here to fundamentally disrupt our employment relations landscape, and they will not for instance be accompanied by the ability to take strike action.
But I can say all of that – and the truth is of course, that going slowly on their design to make sure we get it right, has left a bit of a vacuum. I acknowledge that. And I want to do something about it.
That’s why I am confirming today that there will be no more than 1 or 2 fair pay agreements concluded during this term.
They will be in industries and sectors that have low pay and in which the workers are vulnerable and regularly exploited.
The vast bulk of you in this room will remain unaffected by these agreements, but you will have a chance to see how they work, the benefits that they bring, and I hope, that some of the speculation around them is unfounded.
I want to ensure the change is targeted to the industries and sectors that most need addressing, and that in doing so, we build a mandate for their use, and just why they are needed.
Announcement of PM’s Business Advisory Council
I said earlier in this speech that I wanted to shift our dialogue from responding to surveys to building a proactive relationship.
Relationships matter. In business and in politics.
On this score I want to build an improved structure for business leaders to engage with Government and to provide the leaders of your community the opportunity to join us at the helm of some of the important work that the Government is doing in this space.
Today I am announcing the establishment of the Prime Minister’s Business Advisory Council, and that Air New Zealand CEO Christopher Luxon will be its inaugural chair.
Christopher and I will be putting together over the coming weeks a team of business leaders, committed to building a new economy, to advise on matters relating to the economy, our strategy and agenda.
But this is not just a group that will provide thought leadership. Members of the group will be tasked with working alongside us to assist with addressing some of the big challenges we face.
I want the council to report to me on the issues and opportunities they see and identify emerging challenges like skills, training and migration and the challenge of scaling New Zealand businesses up and growing our export led wealth.
But in addition to that day to day work I want to work closely with and be advised by senior business leaders who take a helicopter view of our economy, who are long term strategic thinkers and who have the time and energy to lead key aspects of our economic transformation agenda.
The Council will supplement the work that business is already doing on initiatives like the tri-partite forum on the future of work, but it is fair to say that there is no formal advice stream such as this, and it’s time that changed.
This is about ensuring business has a voice at the table, but also are actively involved in leading us in our new direction.
So you may ask, what does the future hold beyond that elephant and or the giant flashing sign in lights with fireworks going off behind it. If you are asking me, a very positive future. And if you ask economists, they will say the same.
There is much to be positive about.
I am confident that by working together we can overcome the challenges facing our economy and society.
We will not be an idle Government, and I won’t be an idle Prime Minister.
We are promoting change because without change our businesses and our economy are at risk. But change does not need to breed uncertainty, not when instead it can breed opportunity.
I have confidence that our relationship will thrive, that our agenda will successfully tackle the challenges we face, and that our shared achievements for the country will leave a lasting legacy future generations will thank us for.
Now let’s get on with it.