Michael Cullen Speech To Japan National Press Club
Japan National Press Club
April 14, 4pm
Minister of Finance
Minister of Revenue
New Zealand: A Stable Presence in the Asia Pacific Region.
Japan is vitally important to New Zealand. It is one of our key markets - our third biggest export market and our third biggest source of imports. It is also a significant supplier of direct investment.
Japan's significance in the international arena is undisputed. It is the world's second largest economy and plays a prominent role in global and regional economic and financial forums.
For all these reasons, visiting Tokyo will always be a priority for any New Zealand Finance Minister. Our relationship with Japan is already one of our most important trading and economic relationships and we have scarcely scratched the surface of its potential.
I believe there is huge scope to develop relations further to the benefit of both nations.
So I am delighted to have the opportunity to talk to you today - to introduce myself and to acquaint you with the new Labour-Alliance coalition and its vision for New Zealand.
The economic challenge we have set ourselves is to stimulate world class innovation and skills development capable of sustaining New Zealand as a leading knowledge-based economy.
For that we need foreign investment. New Zealand is already an attractive investment destination. We have an educated and computer literate population, a stable political system, a sophisticated infrastructure, low energy costs and our public institutions are remarkably free of corruption.
The new Government is determined to build on these strengths and to make New Zealand even more attractive to investors.
One of our strategies to achieve this is to strengthen our competition and securities law. We intend to introduce a takeovers code, to improve the effectiveness of our insider trading laws, to lower the anti-competitive threshold and to impose tougher disclosure and penalties regimes.
We have already sent a clear signal of our intentions in the competition area by announcing a Ministerial Inquiry into the telecommunications market in New Zealand.
The announcement alone was sufficient to persuade two telecommunication companies - Telstra and Saturn - to form a joint venture which will invest more than $1 billion in New Zealand over the next five years. So the importance to investors of a strong pro-competitive framework is well-established.
We are particularly interested in attracting greenfields investment which brings with it new jobs and technologies. We will strengthen the foreign direct investment division within Trade New Zealand to identify potential investors and investment opportunities and to provide brokerage and consultancy services.
This is a good time to invest in New Zealand and to be a New Zealander. The economy is going through a growth surge and our export sector is looking forward to a bright year.
World demand is picking up and commodity prices have rallied in key export markets. Monetary conditions have tightened - as they have in all the major economies. But the New Zealand dollar is still competitive and interest rates are still relatively low.
All this is reflected in high levels of business confidence. Among the general public too, there is a new optimism that the country is headed in the right direction. A lot of that can be put down to the "honeymoon period" which often accompanies a change of Government. But the sense of momentum in the country is exciting and alive with opportunity.
The election result which brought in the Labour-led coalition was emphatically a vote for change. But it was not a vote for radicalism. We know that to win a second term we need to hold the middle income voters in the political centre.
That is a recipe for evolutionary rather than revolutionary change - for marking out the direction in which we want to take the country and moving slowly and steadily in that direction.
Ours is a fiscally conservative administration. New Zealand has been running budget surpluses since 1993 and this Government is determined to remain well in surplus across the economic cycle.
Treasury forecasts are for a pattern of rising surpluses over the four-year forecast period - from $1 billion in 2000-2001 to $2.6 billion by 2003-2004.
The Government's fiscal objectives were laid out in the Budget Policy Statement delivered last month. The purpose of the BPS is to set out the broad parameters in which the June Budget will be prepared.
Our fiscal objectives
To keep net public debt below 20 percent of gdp on average.
To make a down payment on the fiscal impact of the demographic bulge by partially pre-funding the costs of supporting the baby boomers in their retirement. The ratio of retired to those in the working age population is projected to more than double by 2051.
Prudence demands that we make forward provision for the spending pressures these demographics imply long before they hit. We plan to do this by putting aside a portion of taxable income into a dedicated account - the New Zealand Superannuation Fund - for the accumulation of assets to assist the country over the cost bubble.
A third fiscal objective is to keep revenues and expenditures in broad balance on average - and at around current levels, which means at around 35 percent of gdp.
We also want to use fiscal policy to soften the impact of the business cycle on the lives of our people and on the economy. We will not raise spending or cut taxes during an economic upturn. Instead we will salt away the "growth dividend" to draw on in the down times.
This should moderate the effects of the economic cycle, taking some of the pressure off monetary policy and reducing the likelihood of disruptive swings in interest rates and the exchange rate.
The Government is anxious to avoid a repetition of the mid-1990s when the export sector was placed under immense pressure by a sharp increase in the value of the dollar. We have negotiated with the Governor of the Reserve Bank a new clause into the Policy Targets Agreement to reflect this concern and are in the process of commissioning a review into the conduct of monetary policy.
But the terms of the review are strictly limited. We are strongly committed to maintaining the operational independence of the Reserve Bank, to the 0 to 3 percent inflation target, and to the maintenance of price stability as the objective of monetary policy.
These areas have been fenced off from the review.
While New Zealand's fiscal position is strong by international standards, our external accounts are weak. We are currently running a balance of payments deficit of around eight percent of GDP. That is not acceptable to me as finance minister.
There is no easy solution to the current accounts problem but we know what we have to do. We have to do two things.
We have to raise national savings. We can use the New Zealand Superannuation Fund as a vehicle to achieve this at the collective level. We need to complement this with a strong private savings profile.
New Zealanders' main form of saving is home ownership. I would hope our changes to securities law will encourage more small savers into the stockmarket. And I have implemented or am considering a tranche of tax measures to make private pension funds more attractive savings products.
The second task facing us is to add value to our export base and to accelerate the transformation to a knowledge economy.
New Zealand was forced into a painful transition by Britain's decision in 1973 to join the EC. Unfettered access to the large British market had allowed us to build our wealth on the export of three or four staple commodities. Things will never be that uncomplicated again.
Our future, as I see it, is in niche markets across a wide range of specialised goods and services. We already have a vibrant software design industry and have developed a cluster of skills in advanced manufacturing.
Our small size gives our manufacturing sector the flexibility to retool quickly and to handle short production runs. Our manufacturers can compete precisely because their smallness allows them to be adaptive and to seize opportunities as they arise.
Our industry development policies are focused on the small to medium-sized firm. We have set up a new Ministry of Economic Development to provide the policy advice, but the policies will be delivered through a separate agency - Industry New Zealand.
Industry New Zealand will not be a bureaucracy either in structure or in culture. It will have a strong private sector orientation and will be led by a board which will contain strong representation from the private sector.
We will provide direct assistance to exporters seeking to open new export markets through the provision of export guarantees and credit financing. We are also developing a range of financing options, including a venture capital fund, to assist small and medium-sized businesses with good ideas to get established.
To accelerate the transition to a knowledge economy, we will announce moves in this year's budget to encourage companies to invest more on research and development. A recent manufacturing survey found almost a third of New Zealand manufacturers had increased R&D spending in the last three years and we want to build on this momentum.
But the real action is in improving our intellectual capital by investing more in the skills and creativity of our people because it is they who give us our competitive edge.
The Government is determined to remove - or at least lower - the cost barriers to tertiary education. We have already trebled the subsidy to students in the student loans scheme and will move over time to reduce student fees. And we are putting in place a modern apprenticeship scheme to encourage more young people to go into the trades.
The new Government has got off to a strong start. The mission we have set ourselves is to lift the living standards and life prospects of our people. We can do that on a sustainable basis only if we maintain a fiscally conservative stance and only if we have a well-functioning and balanced economy.