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ICANZ / Vision Manawatu Breakfast meeting

24 August 2000 Speech Notes

Embargoed until: 7.30am

ICANZ / Vision Manawatu Breakfast meeting

Thank you for the opportunity to be here this morning.

This has been touted as a business breakfast in my role as Associate Minister of Finance.

However, I can’t come to the Manawatu and pretend not to be the Education Minister because education plays such a vital role in the Manawatu economy.

I understand from my colleague Steve Maharey that one in six people in this city are employed in education or related science and research areas.

Massey University, which has its head office here has more students than any other tertiary institution in the country and is a major contributor to local economic development.

As Minister of Sport, I know a lot about the Rugby Academy and on this trip I am being briefed on other attempts to attract more of a sporting industry to the city.

I think one of the facets that appears to be working well in Palmerston North is the will and the ability of different organisations to work together to develop an economic vision for Palmerston North and Manawatu.

It is an approach that we are also working hard on in government. It is vital to us, that we maximise efficiency and do not double up in the use of resources where such doubling up is unnecessary in order to deliver good services.

We spent nine years in opposition developing social and economic policies that are important to a centre-left philosophy.

All our Ministers are brimming with ideas within our portfolio areas on how and where improvements can be made. In Government, we are faced with the hard task of making those improvements while working within quite tight fiscal constraints.

As Associate Minister of Finance, it was one of my jobs within the Budget process to say no to my colleagues.

But generally speaking, there was a good deal of responsibility in this area. There was a buy-in from my colleagues to the spending limits in the order of those signalled in the BPS and to a robust and growing operating surplus. This is not withstanding the $200 million unappropriated spending commitments most of which was discovered post BPS. Budget Ministers also chose to implement pledge card items including superannuation increases, income related rents and interest free student loans up front and leave some flexibility in the out years, rather than front load with discretionary areas and face tighter limits in out years. So I think it's fair to say that there were not any huge surprises when the Budget was read.

We are committed to sustainable, long-term economic growth. We recognise that New Zealand businesses have to compete in fiercely competitive markets – domestically and internationally. We want to make the job of business easier, not harder. We want businesses to thrive, to create employment and to contribute taxes.

I'd like to summarise some of the aspects of that Budget and our general policies that may be of interest to you.

In the business and industry development area, I think the previous administration made a virtue of standing on the sidelines and watching while businesses failed and regions floundered. Our approach is more hands-on. We are committed to taking an active role in the economy to support good ideas and good people. It is also important that we try to restore the faith of the regions in central government.

The Budget reflects that approach and commitment, with secure funding of almost $332 million provided over 4 years, and a more active business development programme, with an export development emphasis.

The core features of that business development programme are skills enhancement, promotion of research and development, and strategic partnerships between the government and the private sector.

The government firmly believes that the new environment will prove attractive to foreign investment. In the past, too much inward investment has been directed at buying existing assets and enterprises.

There are some benefits in that, typically associated with technology transfer, access to export markets and better integration of global production and marketing.

The national benefits are, however, greater if the same volume of inward investment is on greenfields ventures or directed to expanding existing enterprises.

A new organisation – Industry New Zealand – is the vehicle for the coordinated delivery of services to business. It will take a leading role in identifying resources and opportunities for economic and regional development and it will initiate programmes that capitalise on identified strengths.

Industry New Zealand will be formally established later in the year. Until then, the Ministry of Economic Development will manage the programmes it will administer.

The first of these programmes, Regional Partnership Programme, has already been announced. It will help revitalise provincial economies by boosting employment and helping to promote sustainable growth.

Regions can apply for funding for:

 Up to $100,000 for strategy development
 Up to $100,000 for building capacity
 Up to $2 million for major regional initiatives.

Regional development is NOT about the government subsidising poor performing regions.

It is about assisting regions as they develop their own strategic vision to maximise the opportunities and skills and natural advantages that already exist.

This is not about giving handouts for one-off projects. Any proposal for funding must be part of a well thought out strategy, drawn up in consultation with a wide range of business, government and community groups. Proposals have to contribute to long term growth in the region I am talking about initiatives that might enhance local resources, infrastructure or tourism proposals.

Another programme we have got up and running is the Industry New Zealand Enterprise Awards Scheme. This is the one that helps good business ideas become reality. Small businesses and entrepreneurs can apply for 50% of the total costs of a project, and the scheme will fund up to $10,000 in any one year. Funding can cover such things as feasibility studies; prototype design; business planning; market research; business appraisal; and mentoring.

The third programme that’s underway is the Industry New Zealand Up and Ready Scheme. This is designed to improve innovative small businesses and entrepreneurs’ chances of raising finance in the early stages of development.

We’ve all heard too many stories about really good ideas that didn’t get off the ground because of a lack of start up finance. This scheme will give applicants the skills to know how and when to access funding, likely criteria for funding, how to assess risks and returns, and how to present a proposal.

I have outlined three of the first initiatives to come out of Industry New Zealand.

This is the first lot of new programmes to be put in place and there are more to come, including:

 Industry Specialist Support aimed at helping firms with high growth possibilities to realise their potential.
 Strategic Investment Support Services which will identity major New Zealand investment opportunities; and
 The Angel Network where experienced business people mentor up and coming businesses.

Another area where Government can assist business is in research and development.

In the 2000 Budget, we raised government expenditure in this area by more than 10 percent in this year alone. This is the largest ever increase in Government support for private sector R&D. We have put up $11.8 million for a new grants scheme, plus $8.5 million for the business assistance schemes already run by Technology New Zealand.

The grants scheme is aimed at increasing the level of private sector investment in R&D, particularly amongst small, medium and new enterprises. Starting on September 1, the grants scheme is a one-dollar-for-two proposal so the Government pays one third.

This scheme is capped at $100,000 per business, for new expenditure only, but open to all enterprises. If the money gets spent we will increase it .

There has been widespread comment in recent months about the low levels of confidence in the economy. Interestingly, my colleagues and I have not found this in our visits to and talks with a large number of New Zealand businesses over the last 2-3 months. We have found most businesses to be fairly sanguine about their short to medium term prospects. Most expressed concerns about the prospects of businesses other than their own.

Some commentators have put a large part of the blame for the loss of confidence at the door of the new Labour-Alliance Government. I think the Government would accept that in the initial, hectic period of government formation we may not have consulted or communicated as effectively with business as we could have done on issues such as ACC and employment relations changes. But as you would have seen, we have moved deliberately and purposefully to manage issues of concern.

However, there needs to be a reality check on the causes of the uncertainty of the last 3-4 months. Much of the uncertainty stems from factors beyond the control of the Government such as increases in the price of petrol, the fortunes of the US stock market, and interest rate-setting by Al Greenspan and Don Brash.

Against this backdrop of uncertainty, the 2000 Budget was an important and timely statement of the Labour-Alliance Government’s pro-business, pro-investment and pro-growth approach. As I said earlier, we are committed to policies that will result in sustainable, long term economic growth for New Zealand. We recognise that New Zealand businesses have to compete in fiercely competitive markets – both domestically and internationally. We are about making the job of business easier, not harder. We are keen to drive down costs faced by business, while at the same time creating an environment in which innovation is able to flourish.

We also recognise the need for overseas investment in New Zealand if our economy is to meet long term growth targets.

Crucial to long term economic growth is a skilled workforce.

As Minister of Education, I am overseeing improvements to the education system so that this country has the skill level to meet the demand that investment opportunities will provide. This starts off at early childhood education level where we're aiming to increase participation especially of Maori and Pacific children. In our schools, we will make a major investment to improve literacy rates and give all kids access to the modern technology that they will need to be able to navigate when they reach the workforce.

The new apprenticeship system and tertiary education changes will encourage excellence, reduce waste through duplication, and will help develop the workforce needed in a modern economy.

I'd like to use the rest of the session to answer questions.

ENDS

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