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Speech From Finance Minister Michael Cullen

Speech From Finance Minister Michael Cullen

EMBARGOED TO 1pm

Community Trust Conference New Plymouth

February 11 2000

Thank you for inviting me to speak to you today, As you can imagine, the door to Government funding is pounded by many so it is a rare pleasure to talk to people whose reason for being is to actually give away money that the Government does not have to raise in the first place.

And give it away you do. Last year Community Trusts donated over seventy million dollars to their local communities. Thousands of projects and organisations benefit from your collective efforts: from marching teams to museums, pregnancy care to the RSA, from orchestras to shearing clubs. Money that literally saves lives to donations that simply add to the sheer joy of living.

Collectively, the eleven Community Trusts are one of the largest funding groups in the country. It is the grass root local knowledge of the trustees that enables you to contribute directly to building stronger communities. The obvious benefactors are the recipients, of course, but that additional seventy million dollars creates economic activity which in turn strengthens local and regional economies.

The obligation of trustees to prudently management their investment as if it were their own is a principle that good government must also follow. However a Government?s investment must meet many needs. Our investment must be in all New Zealanders, our investment must be in regional development as well as the growth of our larger cities, it must be in the very infrastructure that holds us together as a society.

My first Budget will reflect the high importance both Labour and the Alliance put on encouraging industry, business and regional development as a way to developing that infrastructure.

It is no accident that the first pledge Labour listed on our pledge card to voters was "To create jobs through promoting New Zealand industries and better support for exporters and small business."

Rich DeVos, co-founder of the largest direct selling company in the world was in New Zealand recently: a billionaire, a philanthropist and a conservative American businessman. You might be forgiven for not making an immediate connection of those descriptors with Labour led or a Centre Left Government. But his view on first world poverty and economic disparity mirrors our own; that the best thing you can give people in need, is a job.

Creating jobs will be our top priority in Government. We are committed to doubling spending for business development. In a perfect world we would like to spend more but this isn't a perfect world and there is an insatiable demand for Government funding which we aim to manage with compassion and prudence.

We will make an impact through industry development programs such as financing options for small and medium sized business, partnerships with local government to invigorate regional economies and promoting small business clusters so similar enterprises can share some costs or pool equipment or information.

Our hope is to make sure and steady progress. There is no quick fix solution, but there is a myriad of alternatives to the hands-off, market-knows-best dogma of the recent past. At any number of levels, from farmers and exporters to ordinary families, New Zealanders know deep down there is something intrinsically wrong with the values of the selfish individual. The general public recognised well before the economists that the radical free market reform had all but exhausted its potential.

We know we need to be in office for at least two terms in order to reap the benefits of the steady improvements we introduce. We are working hard to implement our election pledges, so even if the pace is upsetting the opposition, the agenda shouldn't be. "No Surprises" is as important a principle to the management of the country as a whole as it is a fundamental corner stone of the coalition agreement.

We gave our word to Superannuitants that we would increase pensions and we have. We promised to restore the floor for New Zealand Superannuation from 60 percent to 65% of the average wage. From April 1 married superannuitants will receive another $21.42 a week in their pockets compared to the miserly $1.66 a week they would have received under previous policies.

We are moving quickly to make the transition to return workplace accident insurance to ACC as painless as possible. It is important to pass the first part of the legislation early this year so that employers know with certainty who is providing their workplace cover before they are required to renegotiate contracts with the private sector.

The insurance industry is making an all out effort to overturn the Bill. I understand and defend the important role that lobbying plays in the democratic process. However they need to understand that while they are fighting with us over the principle of privatisation versus public provider, they are missing the opportunity to creatively and constructively engage in the debate that really matters - the detail in the new accident compensation Bill.

We are seeking feedback over the re-introduction of the accredited employer scheme whereby employers can fully manage their own risk in return for lower premiums. The scheme was abolished last year despite delivering real cost savings and injury prevention to large employers.

Injury prevention is a primary and critical aspect of accident insurance that has been missing in the furore over money. A state-funded provider has the ability, coverage and political will to develop industry wide injury prevention programmes. ACC implemented hugely successful programmes in high-risk industries like forestry and the meat industry. These programmes changed work practices and behaviours - saving lives and money. Frankly, I find it difficult to imagine a scenario which would bring private insurers together to develop and fund similar programmes

We are confident the rebuilt ACC can on average match or lower the premiums being offered by private insurers. The corporation has already reduced the unfunded liability - the cost of long term claimants called the ?tail? by 2 billion in the past two years. This has been possible by better claims management and improved rehabilitation programmes.

ACC in the past had virtually ignored rehabilitation as one of the core aspects of the three pronged approach on which the scheme was founded ? prevention, rehabilitation and compensation. It is no surprise then that many long term accident victims were left lingering in the system, creating the financial monster that became the "tail" but equally importantly, those people become victims of a double whammy, neither brought back to work nor retrained for new.

If we continue with the privatised system the insurance companies will inevitably seek to control their costs in ways that will take us down the slippery slope of litigation, both in terms of coverage of individuals and in terms of the scheme as a whole.

Already, in just the space of a few months, we?ve heard noises within the industry about reducing the areas covering accident compensation and broadening the areas of where we restore a tort based right to sue system. Within those same few months the medical association is reporting significant numbers of people who are reclassifying injuries from work to non-work. There are denials of claims and clear instances where accidents are not being properly reported because of the consequences in terms of premiums. This is unacceptable to a Government that still stands by the fundamental social contract that was struck with the formation of ACC. I will not stand by and allow this country to go back to the days when access to workplace injury compensation was available only through expensive and erratic court action.

Let me be clear. ACC is under no illusions about what this Government expects. They must deliver a scheme, which has an average premium rate no higher and preferably, less that the present risk rated average. They must behave with integrity, compassion and professionalism. I personally will accept no less than a world beater accident insurance scheme.

Let me talk now about the bigger picture, about the economy and my view of what I consider to be some core fiscal policy principles.

There is cause for caution in the economy we have inherited. True, it is picking up in fact a recent bank bulletin suggested the economy had hit a "sweet spot", with rising consumption, exports, investment and employment. But we should not overestimate the strength or sustainability of the recovery. Our external accounts remain weak and export growth is still sluggish with only just over a quarter of exporters predicting an increase in export sales.

There are some disturbing aspects to the short-term economic outlook: · the uneven quarterly growth patterns

· the unrelenting surge in imports with the accompanying deterioration in the trade balance · Asian manufacturers exporting from behind soft currencies has led to a weak performance for some local competitors both here and in Australia

· it would appear that reports of investment expenditure have been somewhat overstated. For instance, the one-off Y2K readiness expenditure and some IT spending such as cell phones and PCs were more in the nature of consumption than capital spending.

The longer-term structural weaknesses also need to be addressed, in particular: · the large current account deficit · Increasing foreign ownership resulting in the growing "wedge" between GDP and GNP which in turn means that less and less of any increase in economic activity is available for New Zealanders. · the patchy distribution of unemployment · the deterioration of services and facilities in the provinces · poor productivity growth - despite nine long years of the Employment Contracts Act · the social and economic "gaps", especially between Maori and non-Maori · basic weaknesses in the economic and social infrastructure.

So those are the problems. I repeat - there is no quick fix. However, maintaining a sound financial base is essential and I will be taking a cautious approach to future trends in government revenue and expenditure. It is important that fiscal policy changes should moderate rather than exaggerate cyclical movements.

One of the crucial lessons of the last decade is that the "economic fundamentals" have not eliminated business cycles. Over time revenue flows will expand with rising real GDP, but it is important we don't confuse cyclical upturns with trend increases.

This is a core difference in my approach to that of the previous government. They were strongly pro-cyclical in that they spent in the upturns and cut back in the downturns. That approach added volatility and exaggerated both effects.

While keeping to our legislative programme, I have been consistent in telling my colleagues that we do not have to do everything in one year. The Speech from the Throne outlined the Government?s programme over our first term, not the first year. I want to be able to bank some of the surpluses over the next two years to smooth out the cycle and to smooth out the demographic effects of the ageing of the baby-boomers.

I want to de-mystify fiscal policy so that ordinary New Zealanders can better understand the logic behind our programmes. It is important that we develop a framework to convey to the public, commentators and indeed MPs, that we do not need to act so strongly in a pro-cyclical fashion because of the consequences when the downturn in the cycle arrives.

My intention is to move towards more transparency, more consistency and pragmatism with a longer-term focus on cautious and prudent fiscal management.

We know the destination we want to get to. We want to transform New Zealand into a high value, high skill, high quality and high-income economy. We know New Zealanders have the imagination, drive, creativity and sense of enterprise this transformation demands.

The task we face is to stimulate world-class innovation, infrastructure and skills development capable of sustaining New Zealand as a leading knowledge-based economy. We have to concentrate on developing high quality value added exports. This means we must move away from our dependence on commodity production and into the new knowledge-based industries.

We have to tap into our native genius for innovation and ingenuity. We start with the formation of Industry New Zealand - likely to be the private sector orientated, operational arm of a new mini-ministry devoted to economic development. It will be a lean, private sector-orientated fighting machine, fighting for our future.

Of course one of the important and difficult issues to address is how the Government can assist to create that culture and innovation. Again we are taking a holistic approach by promoting rapid growth in venture capital provisions and promoting the industry clusters. We will also be working to make sure our legislative programme encourages good entrepreneurial attitudes.

Compared to the rest of the developed world our skill levels are low. We need a co-ordinated strategy to lift skill levels in the work force and encourage skills and training so that everyone may take their place and benefit from a strong economy.

We?ve all heard the maxim ?there is nothing permanent except change?. And while change, in particular excessive change has left a bad taste in the mouths of many; change of itself is a constant in a modern economy.

The very technology that creates new jobs and opportunities demands that our skills and education keep pace. It can be a frightening concept for many of us but we only have to look at our children to take a little comfort for the future. Its already an old saw that if you want to programme your video, - ask your pre-schooler. Learning throughout life is essential because of the dynamic nature of modern life.

. Over the past decade we have seen too many of our best and brightest going overseas ? attracted by higher salaries and career opportunities. Anecdotal evidence also suggests that our young people are leaving for good to escape high levels of student debt.

Being an isolated island nation, it is part of our culture for young people to travel and work overseas for a few years. The Big OE is an important rite of passage for many but it is vital for our country that their education and experience is not lost to us for good. We need them to come home again!

Education is an integral part of our policy. Social investment in education at all levels, is a means by which government can directly contribute to building the nation.

Finally, I would like to speak briefly about the other side of yours and my own area of responsibility ? investment. One of the great challenges of modern governments is how they share power with vast and highly mobile investment funds. The so-called finance markets can have a major impact on the stability or instability of individual economies, of whole regions and indeed ? in theory anyway ? on the global economic order.

This has led to a re-examination, at the highest of levels, of the design and operation of the international financial architecture. Nothing very much has yet come out of the global policy debate, but whatever does come out it is important to remember that financial systems are needed to lubricate investment and investment is the transmission mechanism by which we, as a society, change and improve.

My view is that we need a more constructive attitude to investment. We have tended to see investment as rotating around the sale of existing assets to new owners. The theory is that they bring the skills and technologies to add value to what went before.

The big gains, though, are when the new thinkers invest on the frontiers of technology to diversify and expand our production and employment base. I am not limiting this to the frontiers of computer technology. Too often when we talk about the knowledge economy we forget that the most intensive knowledge is actually embodied in our agricultural, forestry and fishing industries.

This government supports investment, innovation and business. However, we will not improve our economic performance by more of the same sort of hamfisted, incompetently implements and ideologically driven restructuring and that marked the last decade.

We are keen to implement a partnership approach with all the industry players to transform New Zealand into a small but perfectly formed knowledge based economy. An economy that is inclusive rather than exclusive, where big business and social capital are equally important. Community trusts play an important role in supporting both and I would like to pay tribute to your efforts as you continue to help build, with us, strong communities in the new millennium.

ENDS

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