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Michael Cullen Whanganui Eco. Development Speech

Whanganui Economic Development Corporation Breakfast
Wanganui Function Centre
Wanganui Racecourse
Purnell Street
7.15am Thursday 25 May

Hon Dr Cullen
Minister of Finance
Minister of Revenue
Minister of Accident Insurance

Speech to the Whanganui Economic Development Corporation Breakfast

Thank you for inviting me to speak to you this morning. I welcome the opportunity to talk face to face with to business audiences in all regions of the country

Manawatu-Wanganui is one of the three top performing regions in the country – I don't know exactly what you are doing right but it is something that needs replicating in other areas. Our regional development policies will encourage better information sharing between private enterprise and local and central government so poorer performing regions will benefit from the experiences of their better performing neighbours.

Rural and provincial New Zealand will be among the first to gain from the Government's proactive approach to economic development.

The government’s vision is to work with the private sector and with local communities. The government is not setting up a lottery to pick winners. Rather we want to create the kind of environment that supports initiative, innovation and lends a hand to good ideas.

We need a much more constructive attitude to investment. In the past investment was viewed as rotating around the sale of existing assets to new owners. The theory was that they brought 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 taking place in rural New Zealand – throughout our agricultural, forestry and fishing industries.

We are committed to doubling the State's investment in industry assistance before the end of this parliamentary term. In next month's Budget I will also announce a series of initiatives to promote research and development and to encourage inwards direct investment.

We are setting up an Incubator Development Programme to be managed by Industry New Zealand. The programme aims to provide capable individuals and small businesses with skill-based assistance to develop their ideas to the point where others can invest in them.

We know we need to shift from being a simply resource-based economy to a true knowledge based export economy. We will do this by levering off our natural endowments and creating strong competitive advantage – all focusing on meeting the needs of increasingly discerning global customers.

The previous government left business to the not-so-tender mercies of global market forces in the mistaken belief that markets create a natural order of things. Employers freely concede the last government did little for manufacturers and exporters and probably less for small businesses.

For too long New Zealand exporters were forced to make their own way while the government tried to convince other countries to lower trade barriers. The result was that New Zealand stood unique in the developed world in refusing to put a value on its own people, products and industries. So while New Zealand businesses have been exposed to the chill wind of full market forces with minimal tariff or subsidy support, our trading partners have continued to protect their markets and provide financial support to their exporters.

Business leaders tell me that one of most important areas where the government can really assist is to help sell their message to the rest of the world. The global community needs to know that New Zealand offers the very best in the world.

We want to be a government that moves forward with business, not one that watches indifferently from the sidelines.

The election result was a vote for positive change. We are not going back to the past but there is a real need to rebalance the policy mix. Social policies should not be seen as the second cousin to economic initiatives.

The proposed Employment Relations Bill is part of the package to reclaim the middle ground in industrial relations. We have introduced the Bill because it is fair. In our view the Employment Contracts Act is not fair and its repeal has been our policy since the ECA was introduced in 1991.

Even members of the National Party, speaking to their conference recently, made the call that the ECA was too extreme and should not be put up as National's alternative employment legislation.

The Employment Relations Bill finally brings New Zealand into line with ILO standards. By international comparison our labour market will still be very lightly regulated.

Employers tell me they have concerns over a number of clauses and it's true there has been something of a furore over the contractor's employment status clause. Some people seem to believe this clause automatically forces contractors to become employees, regardless of whether or not they wish to be.

The clause defines "employee" as "any person of any age employed by an employer to do any work for hire or reward under a contract of service". The common law already provides various rules to distinguish between "contracts of service" which is an employee and a "contract for service" – independent contractors.

The Bill does not override the common law definitions nor is there is any intention to force anyone to change their employment status.

I would like to quash another rumour circulating over this aspect of the Bill, in regard to unions and Labour Department Inspectors. Neither can force independent contracts to become employees. Both are powerless to act without the express permission and authority of the people concerned.

Two other aspects of the Bill troubling some employers are the issue of directors' liabilities and the power of unions under the new law.

The clause in the Bill providing for the liability of directors is aimed at a very narrow and tightly specified target. We have introduced it to address the disturbing re-emergence of sweatshops in New Zealand.

In a nutshell, 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 these obligations.

Only under these circumstances will directors be liable to pay the amounts owing and even then, they will only be liable for wages owing under the Holidays and the Minimum Wage Act.

With regard to the issue of union power, let me say this: the Bill treats all parties equally. It provides that employers, employees and unions must deal with each other in good faith. This forbids any behaviour that is likely to deceive or mislead other parties to the employment relationship. The Bill makes each party accountable to all of the other parties for breaches in these obligations.

For instance if an employer is unhappy with the behaviour of a union or one of its employees, he or she can take a case to the Employment Relations Authority.

Because of these controls and sanctions no one party can be said to have too much power.

We need to remember that the Bill is still very much in its draft stage and will
not take on its final form until the Select Committee reports back on the submission process. It is worth repeating here that groups representing business have been working with government policy makers behind the scenes and can take credit for a number of changes already.

I would expect even more fine tuning to come about after the Select Committee has considered all of the submissions.

Recent surveys have cited changes to employment legislation and ACC as the catalyst for a drop in business confidence, despite many positive economic indicators: predicted half yearly growth at an annual rate of above five percent, falling unemployment, a reducing current account deficit and rising labour productivity.

I think it is fair to say much of the concern over the ERB derives from employer's experiences during the passing of legislation to return ACC to a state funded system. They should not be parked in the same lot, as there are very important differences between the two issues.

Our policy for ACC was to return workplace accident insurance to the umbrella of the state. We promised it on the campaign trail and consequently introduced the Bill that did that one thing. Returning ACC to the state was not up for negotiation.

Our policy commitment for employment relations is to repeal the Employment Contracts Act and replace it with fair industrial legislation. Unlike ACC, there is no non-negotiable wall with the ERB. We are prepared to work and consult with business on how we can achieve fair labour laws that sit comfortably in New Zealand.

And as we strive to create a fairer New Zealand, changes to the accident insurance law are an important step in the Government's programme to improve health and safety in the workplace for all.

I am extremely concerned at the number of New Zealanders who are killed or injured at work. Everyone should have the right to expect that every effort is made to ensure their safety at work.

Lifting safety standards in the workplace is the key to both a better working environment and reducing the overall cost of ACC.

The new ACC gives employers the opportunity to lower their premiums through injury prevention and better hazard management. We want to reward employers who make their workplaces safer.

Under the old system, some employees were actively discouraged from reporting accidents as it could affect their premiums. Conversely some smaller firms with no commitment to health and safety ended up with no claims purely as a matter of luck.

The new legislation recognises your efforts to improve workplace safety standards by allowing premium discounts based on a safety management practices assessment or through the accredited employer programme.

We are committed to creating a world beater accident insurance system with average employer premiums cheaper than you were paying to private insurers.

Finally I would like to touch briefly on the role of the tax system in the government's vision for New Zealand.

tax plays a vital role in achieving the kind of country we want to live in. It produces 80 percent of Government revenue -- revenue that is needed for essential services like schools, hospitals, defence, the police, and social welfare.

To raise the necessary revenue most effectively, the tax system needs to function well. It needs to be efficient, coherent and easy for people to comply with.

Moreover, the tax system must raise that necessary revenue at the least possible cost -- to the taxpayer, to the economy and to the tax administration.

And, very importantly, the tax system must also be perceived by taxpayers to have integrity. If that integrity is perceived to decline, so too will voluntary compliance with the law, along with revenue.

One of the Government's main tax priorities, therefore, is to protect the revenue flow. We are doing this in several ways -- by closing legal loopholes as they emerge, removing opportunities for tax avoidance, and regularly updating and improving the law.

By way of example, a taxation bill introduced last week attacks tax avoidance on several fronts. The bill prevents high-income employees from seeking a lower tax rate through use of a company, trust or partnership as a shelter for what is clearly employment income.

It also legislates against the abuse of credits for tax paid in another country.

Another priority for the Government is tax simplification, or making the tax system easier to comply with and easier to administer. This will cut costs all around and ultimately strengthen voluntary compliance.

We are approaching tax simplification from several directions.

For example, last week's taxation bill introduces major simplification measures to make GST more workable, for those of you who collect this tax on behalf of the Government. This will also reduce the associated compliance costs.

The changes include raising the threshold for compulsory registration from $30,000 to $40,000. As a result, an estimated 25,000 people and businesses will be able to opt out of collecting GST and making returns, if they so wish.

The bill also makes it easier for people who file returns to make adjustments for items that involve both business and personal use.

Other work on simplifying the tax system for businesses, especially small businesses, will continue.

For example, we have introduced measures to reduce the penalties for late payment that make it easier for taxpayers to pay their overdue tax. Inland Revenue will also be given more flexibility in dealing with people and businesses that are facing hardship.

We are also working on a number of changes that will help businesses meet their tax obligations as part of their normal business activity. Likewise, we are looking at streamlining the information and payment requirements placed on businesses. For example, one possibility is to allow intermediaries -- such as banks and payroll companies -- to fulfil employers' PAYE obligations, should the employer so choose.

Ironically, though, tax simplification for small businesses is not so simple, because they do not form a homogenous group like salary and wage earners. What is a simplification measure for one business, therefore, may not be for another.

The Government is committed, however, to finding real, workable solutions for small businesses. We know that the vast number of New Zealand employers
are not multi-national conglomerates. They are hard working people who support our economy and our communities. They are the people who stick with New Zealand through the hard times.

No government pleases everyone all of the time but I am confident that large and small business people will find something of benefit to them in next month's Budget.


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