Wednesday 23 May 2000

Wellington Regional Chamber of Commerce
The Ballroom
Plaza International
Wellington
12 noon Wednesday 23 May 2000

Hon Dr Michael Cullen
Treasurer
Minister of Finance
Minister of Revenue
Minister for Accident Insurance

Thank you for inviting me to speak to you today. I am pleased to have this opportunity to talk to a business audience.

It is vital that the channels of communication remain open between business and the Government. Agreement on all facets of policy will never be possible, regardless of which political parties are in office. But it is in both our interests to minimise as far as possible the areas of disagreement, and that can only happen through constructive dialogue.

I think we all accept that there are currently some major points of conflict between government and business, particularly over the Employment Relations Bill and the ACC reforms.

I understand that. The point I want to make to you today is that it is because we have differences that we must keep talking to each other as directly as possible and as often as possible.

I am mindful that the previous National Government allowed itself to become disconnected from the electorate and out of touch with public opinion. It stopped listening and paid the political price for that at the last elections.

I am determined that we will not make the same mistake. That does not mean that everyone will like everything we do. But it does mean being prepared to listen to
our critics with an open mind. And it means protecting the quality of the debate by setting straight any misperceptions which occur.

Thus last week I gave a speech designed to set the economic context within which the Budget would be presented. The key theme was that we are not on a roller coaster cycle like that of the 1990s. The growth we are experiencing is broader based, with stronger contributions from investment and exporting, and is less dependent on debt funded private consumption.

It is less inflationary because the wider geographical and sectoral composition is putting less pressure on scarce resources. Finally, the rapid growth of the second half of 1999 does not reflect a boom-bust pattern. There were abnormal aspects of the December quarter growth that will not be repeated: America's Cup, Y2K provisioning, millennium partying, election advertising and so on - all coinciding.

Even so, half-yearly growth is still likely to be a healthy annual equivalent of at least five percent, and the outlook is for falling unemployment, a reducing current account deficit and rising labour productivity.

That was transmitted as "economy slows", and in the most extreme case the headline was "economy nose-dives." A five plus percent upward nose-dive!

Perhaps worse still, an indication that the level of appreciation of the New Zealand dollar was likely to be less than in the previous economic cycle when it reached 70 cents U.S. was somehow interpreted as an attempt to talk the dollar down.

For the record, the Treasury signed off its economic forecasts for the June 15 budget last week. These show slightly stronger growth over the forecast period than was projected in the March Budget Policy Statement, especially in the shorter term.

There is also an extraordinary amount of misinformation and misunderstanding over a number of aspects of the Employment Relations Bill. Detractors of the Bill have consistently wrongly interpreted the contractor's employment status clause.
They seem to believe that this clause automatically forces contractors to become employees, regardless of whether or not they wish to be.

In fact the intention of the provision is to offer some clarification for workers stuck in no-man's land. I'm referring to those workers who do not get the benefits of being an employee - holiday pay, sick leave and so on - but do not have the freedom of being an independent contractor and being able to choose how and for whom they work.

There is no intention to force anyone to change his or her employment status, whether individually or as a group through a third party. I am confident the Select Committee will ensure the final draft of the Bill makes this crystal clear.

Let me also attempt to clear up now the cloud of confusion around the clause in the Bill providing for the liability of directors. The most bizarre rumours are circulating over what this will mean and whom it will affect.

In fact it is aimed at a narrow and tightly specified target.
It is aimed at employers and directors who knowingly breach the Minimum Wage Act, ignore statutory holidays and deliberately put their businesses into liquidation as a way of avoiding their obligations in these respects. Only under those circumstances will directors be liable to pay the amounts owing, and - even then - they will be liable to pay only what is owing under the Holidays Act and the Minimum Wage Act.

The provision was introduced to address the recent re-emergence of sweat shops in New Zealand. I refer to the woman who brought Thai seamstresses into Auckland to work in her factory. The Employment Tribunal found that over $30,000 of unpaid wages was owed the women.

But I accept that the clause, as it is currently worded, could be misunderstood at a casual reading and needs to be made clearer.

I accept also that there are other issues within the Bill that are causing genuine concern to employers. But it is important to remember that the Bill is not in its final form yet.

The Employers Federation has been quietly working away behind the scenes and can take credit for a number of changes already. And there is no doubt in my mind that further improvements will be recommended by the Select Committee. That is, after all, what the submission process is designed to achieve.

I think much of the concern over this Bill derives from the experience of the legislation to return ACC to a state funded system. But the two experiences should not be compared because there are important differences between them.

The ACC legislation did one thing. It returned workplace accident insurance to the umbrella of the state. That was what we promised on the campaign trail and that was what we were going to do. It was not up for negotiation.

Without relitigating that particular issue, I want to make the point that there is no similar non-negotiable wall with the Employment Relations Bill. Our policy commitment is to repeal the ECA and replace it with fair industrial legislation - and we are prepared to consult with business on how that might best be achieved.

Let me share with you one man's vision for labour relations:

"The aim as we see it is to create an industrial relationship environment which:

 Is based on common interest as opposed to conflict
 Protects the rights of both parties
 Is balanced in its ability to recognise both worker and employer needs and circumstances
 Emphasises productivity and encourages employment
 Fosters an attitude of respect for agreements and mutual accountability"

It may surprise you to know the author of these principles, laid out in 1986, was Steve Marshall of the Employers Federation.

The proposed Employment Relations Bill is designed to meet Steve's 1986 criteria.

I make the point to highlight just how far to the right some collective thinking has swung when the Employment Relations Bill can be seen as a radical lurch to the left.

This simply defies all sensible analysis. The ERB will bring New Zealand into conformity with key International Labour Organisation conventions while leaving our labour market still lightly regulated by the standards of the Western world.

We have introduced the Bill because it is fair. We are repealing the Employment Contracts Act because in our view it is not fair. That should be no surprise as it has been our policy since 1991. The ERB is about collective bargaining and about getting the parties around the table to bargain in good faith. Good faith bargaining cuts both ways. Under this government, bad employers and bad unions will find themselves equally in breach of the letter and the intent of the law.

That is typical of the balance we want to establish in economic policy generally. The election result was a vote for a change in economic direction. Voters do not want us to rip up all the reforms of the last 15 years but they do want us to remove the worst excesses and to rebalance the policy mix back toward the political centre.

Obviously not everyone is going to agree on where that balance should be set. I accept that. What I cannot accept are claims that we are indifferent to the state of the economy or that we would deliberately endanger the recovery for reasons of ideology.

That is patent nonsense. We want the economy to grow, we want good jobs for all our people, we want living standards to rise, we want to close the gaps between Maori, Pacific Islander and Pakeha, we want to be able to afford top class public health and education systems.

We criticised the previous government for not taking a proactive enough approach to nurturing new businesses and new export markets. We are committed to doubling the State's investment in industry assistance before the end of this parliamentary term. I will also announce in the budget a series of initiatives to promote research and development and to encourage inwards direct investment.

We have also moved to address the skills shortage.

Earlier this year we launched the Modern Apprenticeships scheme – a work-based education initiative offering young people a mentored and supported training pathway into highly valued skills and qualifications.

We are determined to dramatically increase the number of young people entering apprenticeship training. In 1999, the people who most urgently need access to skills – teenagers - represented a mere 10 percent of those in industry training.

We are investing $5.5 million this financial year to pilot the scheme and we aim to have 3,000 apprentices in training after the programme goes nation-wide next year.
This government is not prepared to sit back while so many of our young people drift off into long-term unemployment or a low-skilled future.

Business should also be supportive of the inquiries we have set up into power pricing and into whether there is true competition in the telecommunications market as both areas affect company overheads.
I have been dismayed in the last week to watch our political opponents try to use the drop in the value of the dollar to attack the Government. Basically all the world's currencies have fallen against an extremely strong US dollar.

To blame our dollar's fall on the ERB and the changes to ACC is absurd. The danger with the endless stream of what I will call Armageddon economic analysis is that it becomes self-fulfilling if it infects and undermines business confidence.

The Reserve Bank's decision last week to raise the Official Cash Rate to 6.5 percent was always going to create some nervousness in the business community.

What was lost in the rush was the positive story the Reserve Bank's May Monetary Policy Statement had to tell about the economy over the next few years.

The Reserve Bank has raised its growth forecasts for the next four years from 14.6 percent in the March MPS to 15 percent. It has substantially increased its employment growth forecasts and is expecting unemployment to go below 5.5 percent over the forecast period.

Business investment is projected to increase 25 percent over the next three years and exports by 19 percent.

The Bank expects labour productivity to rise, the balance of payments deficit to fall and inflation to remain subdued. This is a strong outlook and simply not consistent with the sensationalist pessimism that some people seem intent on orchestrating.

As you all know, business is largely driven by the state of world and domestic markets and by emerging technologies. New Zealand and other developed economies are on the upward phase of one of these long technological upswings. The growth of computer and communication technologies, integrating with the global financial equities market has set up a business dynamic that chugs on, surges and pauses, virtually independently of government activity.

So it is that there are parts of the business sector that prosper or stagnate almost regardless of what government does. It is tempting for governments to take the credit and for oppositions to point the finger, for just about every economic outcome. However, thankfully, out there in the real world, people like you simply get on and do the business.

I hope you can spare some of your precious time to talk with us more. We are certainly willing to make the time to talk with you.

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