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PM's Post Budget Speech In Auckland

Rt Hon Helen Clark
Prime Minister

POST-BUDGET SPEECH
TO


Auckland Chamber of Commerce

Ballroom
Carlton Hotel
Auckland


1.00 pm
Friday 16 June 2000

Thank you for the opportunity to address the Chamber today.

The new government’s first budget was presented yesterday, and by now you will be well aware of its contents. In my speech today I want to paint the bigger picture around the budget, to illustrate how it fits into the vision the government has for a more prosperous and decent New Zealand, and to talk about some of the pressure points in the business-government relationship which I hope we can work together to resolve.

Many times in the run up to the last election I spoke about a vision for New Zealand which saw

 the economy growing sustainably

 the economy being diversified beyond its primary commodity base into a producer of goods of ever greater sophistication, commanding higher prices in world markets

 economic transformation being driven by higher levels of education and skill, by greater investment in science, research, and development, and by a national commitment to productivity and innovation.

I said that as a result of sustainable growth and the development of a higher value economy, I hoped to see

 more people gainfully employed

 higher standards of living across the board

 the development of better quality public services

 more resources for our beleaguered biodiversity, and

 the development of a strong sense of national identity backed by confidence in ourselves as a nation of achievers and talented people in every field of endeavour.

That vision is within our grasp if as a nation we determine to buy into it.

We have after all scenarios before us of a buoyant international economy; of real strength in our export sector; and of economic growth stretching over the forecast horizon. All these factors should strengthen our confidence that a better quantity and quality of life can be achieved for our people.

Yet despite the fundamentally positive outlook, we are told that business opinion is gloomy about the future. We are told that business doesn’t like certain government policies. We are told that the effect of those policies will be to drive down business confidence to the extent that the gloom becomes a self-fulfilling prophecy and drives down economic growth.

I am sure you will agree with me that that would be a most unfortunate scenario. But together we have it in our power to see that it does not eventuate.

I can assure you that the government I lead is listening to business and seeks positive relationships with it. We have a lot to talk about. We know that a vibrant private sector working alongside governments prepared to invest in the country’s education, skill, research, and infrastructure base helps to build the successful economy our country longs for. So we need to build up our confidence in each other – and our understanding of each other’s needs.

From the mid 1980s many New Zealanders felt cheated by the political process. Too often they felt that they got the opposite of what they voted for. In all truth they often did. By 1999 trust and confidence in our democratic process was at a low ebb.

That background cynicism and disempowerment had a powerful effect on Labour’s preparation for government. We determined not to over-promise and we determined to make our position on even controversial matters very clear. We did not fudge our positions on personal income tax, or the future of ACC, the Employment Contracts Act, the West Coast forests, or the F16s. We sought a mandate and we are privileged today to lead a government.

What I must emphasise is the balanced and moderate nature of the programme Labour took to the electorate, and my total commitment to keeping that balanced and moderate programme on course. It is my firm view that New Zealanders voted for a change of direction and a correction – but they did not vote for a revolution.

In that context, it is worth noting that

 the Reserve Bank Act has not changed

 the Fiscal Responsibility Act has not changed

 the government is budgeting for good surpluses over the forecast period

 government spending is actually decreasing as a proportion of GDP, and

 the government is committed to promoting open world trade.

We are also committed to increasing our national investment in education and skills, in economic development, in quality public services and infrastructure, and in nurturing both the natural environment and our unique arts, culture, and heritage.

This makes ours a classic Third Way government – committed to a market economy, but not to a market society. New Zealand is, after all, a nation, not just an economy. And advanced nations must address broader hopes and aspirations for inclusion, participation, empowerment, fairness, opportunity, security, and identity – as we are doing.

The particular pressure points between the government and business have been identified as tax, ACC, and the Employment Contracts Act. The list bears a close resemblance to that which our political opponents highlighted prior to the election.

On the first two our pledges were very specific and have been implemented. Corporate tax is untouched and there is an extra six cents in the dollar step on income earned above $60,000. That has helped generate the revenue for the investments and surpluses outlined in the Budget.

On ACC, we reinstated the single public fund with a lower average levy rate than was payable under the privatised scheme. Further improvements will be made to the scheme within the framework of the levy set.

The changes to industrial relations law are rather more complex. The general direction of the change is well known to those who have followed the debate over the Employment Contracts Act in the 1990s. We have sought a more level playing field in industrial relations and we have sought to build an industrial relations climate in which the parties deal with each other in good faith.

Our policy was translated into a 187 page bill. At no time has the government ever asserted that the bill was perfect in all details. Clearly it was not. It has been exposed to lengthy scrutiny in the select committee, where some five hundred submissions have been heard.

Through that process a cluster of issues of most concern to employers was identified. I have made it clear that reasonable concerns will be accommodated. Alongside the select committee process government ministers and MPs have continued to listen to and talk with pragmatic voices in business and in unions. We do have proposals to make through the select committee process which we believe will go a considerable way towards dealing with the reasonable concerns which have been raised.

Our desire is to see sensible changes made so that the bill can proceed to become law and give greater certainty to industrial relations and the business climate. Because we do want to move on to work together with business, as with other sectors of society, to maximise the potential of this country in which we are privileged to live.

And it is in this context that I hope you will find a number of the measures outlined in the Budget exciting.

First on education and skills. The transition to a higher value and sustainably growing economy demands that we do more.

Here in the Northern Region of the Employers’ and Manufacturers’ Association, the latest survey of business conditions suggests that forty-four per cent of employers surveyed are reporting difficulties in recruiting skilled labour. The skills shortages range all the way from illiteracy and innumeracy to low levels of comprehensive trade and technical training and to a shortage of relevant tertiary qualifications.

We are addressing these problems in a number of ways.

First there is our flagship Modern Apprenticeship Programme, aimed at getting more sixteen to twenty-one year olds into structured workplace training. We are funding apprenticeship co-ordinators to guide and support both employers and young people through the red tape of industry training. Our programme is modelled in part on the successful apprenticeship trusts established in the engineering industry.

More funding is also going into the Industry Training Fund; into vocational and technical training for senior secondary school students (including through study in work-based environments); and into improving basic literacy skills.

In the coming year both Skill New Zealand and the Department of Work and Income are being specifically required to work with business in all our regions to identify skills gaps and find solutions to them.

In the last election campaign the cost of tertiary education to students and families emerged as a huge concern. We believe the cost has had two adverse effects on the economy: it has kept participation in higher education and training too low and it has exacerbated the brain drain from New Zealand.

For these reasons we are investing much more in access to tertiary education. The extra funding for courses is designed to enable the institutions to stabilise their fees next year – a big change from the exponential leaps in fees in recent years.

Removing the accrual of interest on student loans while full time students and part-timers on low incomes are studying has also eased the cost of borrowing for education considerably.

These new investments in our human capability are a very important component of our drive to build a stronger economy and better living standards.

But we are making other investments as well to secure that future. Because if we don’t, we will fail to develop the job opportunities for our workforce and will see so many of our best and brightest continue to leave.

We believe there are real opportunities to boost the development of new and expanded economic sectors through direct investment in science and research, through the industry and regional development programme, and through a more strategic approach to international direct investment.

An extra $43 million a year will go into research, science, and technology. Of that, $11.8 million goes into a brand new grants programme for private sector research and development, and an extra $9 million goes into Technology New Zealand for their grants programme.

At this stage, the government has opted for a grants approach rather than tax deductions for two reasons. Grants can give assistance where tax deductions can’t to innovative firms in their start-up phase which have not graduated to taxpayer status. Tax deductibility for research and development requires very careful design to ensure that there is genuinely an increase in research and development, rather than creative accounting to minimise tax liability without a commensurate increase in research and development. The latter clearly has adverse implications for the revenue base without necessarily adding benefit to the economy. The planned overall review of the tax system may look further at this issue.

Trade New Zealand and the new Industry New Zealand are being funded to promote investment in New Zealand. Trade New Zealand will be expanding its International Direct Investment Promotion Strategy, and Industry New Zealand will have a strategic investment support service to identify and promote major investment opportunities in New Zealand.

These initiatives recognise that New Zealand has to be much more proactive in recruiting and retaining investments. Ireland, for example, did not get where it is today by passive publication of brochures for investors. It headhunted the firms and the sectors it wanted to expand and attract. So must we.

Industry New Zealand will also employ industry specialists to identify firms or groups of firms with significant growth potential and have a grant programme to support their development. It will have a capacity for early stage financing, and will back a national database to match investment “angels” with investment opportunities.

This week’s regional growth figures might suggest to some that regional New Zealand’s economies need little attention. After all, they have just outclassed the metropolitan centres ! We are all aware, however, of the extent to which regional New Zealand, even more than the economy as a whole, rides the commodity cycle. Its economies need to diversify and have value added to them to build the base for more sustainable growth.

That is why we will help fund the development of regional economic strategies and the promotion of investment into the opportunities identified in those strategies. This is the Third Way approach to regional development which sees the regions themselves determining their future development and central government working as a partner to support their initiatives.

It has certainly been encouraging to see the emergence of so many regional enterprise agencies which bring together local businesses and chambers of commerce, Federated Farmers, community organisations, iwi, and local and regional government. Central government has been the missing link, to the extent that its programmes and policies have often failed to synchronise with local development and aspirations. That is what must change.

The strategy we are following overall is to promote economic growth and development based on increasing our productive capacity. This stands in stark contrast to the consumption led growth of recent years. The last government followed a pattern of cutting personal income tax to stimulate consumption. Alas, without an increase in the productive base, we ended up shooting ourselves in the proverbial foot by stimulating an appetite for imports which our exports could not pay for. The sorry state of the current account is testimony to that.

We now have a unique opportunity to work our way out of that conundrum, because of the very strong position our exporters, including our tourism industry, are in.

Murray Horne spoke common sense on Wednesday night’s television news when he said:

“We’ve got two economies at the moment. We have a very strong export sector and quite a flat domestic economy – and to a certain extent that’s the way it had to be to correct the balance of payments. We have to earn more and spend less overseas.”

I do look forward to the day when the efforts we are making now to transform and broaden the economic base and educate and upskill the workforce of the future pay off in terms of a more acceptable current account position, and an economy in which both the export and the domestic sectors can thrive.

The Chamber’s invitation to you to attend today carried this exhortation:

“Staying away will not help. Participate and make a difference.”

In as many words, that is the challenge I am issuing today to business. Government can’t do without you – and, in the final analysis, you can’t do without us. We have to have a relationship with each other – so let’s do our best to build a good one based on mutual understanding of each other’s positions and operating environments. There is no shortage of goodwill on our part to do that – and I hope there is none on yours. We won’t always agree, but it would be more constructive to be talking directly rather than shouting past each other in the news media. If we all make an effort to rise above partisan political agendas and focus on how to create the strong and sustainable economy our country yearns for, then we can say we made a difference for the better.

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