Prebble On Govt's First 10 Months In Office
The Government's First 10 Months In Office And Act's Vision For New Zealand's Future
Saturday 5th Aug 2000
Richard Prebble Speech -- Economy
Last week the New Zealand dollar set new record low values. Not as some media report, record lows since the dollar was floated, but all time record low values. The Labour-Alliance coalition has managed to send the currency below any level it's had since our nation was born.
True, up until 1935 we used sterling, so perhaps no New Zealand politician can take responsibility for sterling value. In the years since New Zealand has had its own currency, its value has never been lower.
Approximately 38% of what we buy is imported. The currency has devalued 11% since the election so this will over time translate into a 4% drop in the average standard of living. We feel it every time we fill up at the petrol station.
Other nations have also suffered devaluation and the effect of rising fuel prices. We have seen the pictures of French fishermen blockading the Channel. No OECD nation's currency has fallen by as much as New Zealand. If we were French our truck drivers would be blockading the Auckland Harbour Bridge.
Fiji, which has suffered a coup, riots and a disaster in its tourism industry, has seen its dollar fall less than the Kiwi. Michael Cullen, our Finance Minister goes on TV to assure us that the Kiwi dollar is undervalued and that New Zealand is no banana republic.
Mind you, the government does not seem to be sure of their own supporters. The Deputy Prime Minister says that the fall of the dollar is a significant opportunity. Jim Anderton has welcomed the collapse of the dollar as only a man who has the tank of his LTD topped up by the taxpayer can do.
Michael Cullen tells us that this is a moderate, middle of the road government. What road is Michael Cullen on? What planet is he on?
The Labour-Alliance government is the most left-wing, radical government in the OECD today. The Clark-Anderton government has embarked on a risky experiment as they impose radical socialist policies on a trading nation in a global economy.
No other nation has attempted to implement such a radical socialist agenda in an open economy.
Labour's first claim is to deny that its programme is radical or socialist. This deception got them elected. I was on election platforms with Michael Cullen when he told business leaders that all Labour planned was, quote "a few technical amendments to the Employment Contracts Act."
I was on the Holmes show when Helen Clark denied that Labour planned the most radical change to our employment laws ever. Now that the coalition has passed its 191 pages of union promoting laws with its $10,000 fines on firms just for attempting to continue to work during a union strike, employers now know this government is anti-business.
There is no government anywhere in the world which in the year 2000 has nationalised accident insurance; has legislated to breach contracts; has increased income tax; rolled back tariff reforms; has halted scientific research with a mandatory 'voluntary' moratorium; has massively increased social spending; increased spending on the arts by 44%; has lifted the minimum wage by 8%; declared that privatisation has finished; started a state funded jobs machine; announced it is forming a state bank; has intervened directly in foreign investment approvals; has set up reviews of the Reserve Bank Act, telecommunications, electricity and the tax system after ruling out flat tax as an option; and has taken the country on an isolationist defence policy.
This is a radical programme and there is more to come.
Helen Clark is off this week to the United Nations where she will be discussing how New Zealand can rapidly sign up to a raft of treaties to cement in the socialist, isolationist programme. What the Labour-Alliance government has failed to realise is that their government is subject to a daily referendum on the computer screens of hundreds of currency dealers, representing millions of investors around the world.
"It's not fair" says the left, "that the decisions of a properly elected, sovereign parliament are subject to the daily verdicts of international finance and multi-nationals." Michael Cullen goes further and says that business just does not accept that Labour won the election. His attitude is clear from his words following the passing of the ECA: "We won, you lost, eat that."
Of course, Labour did not win. This is a minority government. Neither did the Alliance. To govern they rely on the Greens who deceived many voters into believing that they would be a moderate middle of the road party.
Rod Donald had made many speeches calling for parliamentary reform, for independent select committee chairs and free voting. In fact the Greens are the most radical left wing party ever elected into our parliament and in over 1,000 votes in parliament have voted against the government only 3 times.
But even with the Greens, the coalition represents just 51.9% of voters.
Michael Cullen has blamed ACT for the opposition to the government's programme and for the unprecedented collapse in business confidence. He claims that we should accept the coalition's moral right to wreck the economy.
Labour's programme has nothing to do with an electoral mandate. The Employment Relations Act was not even one of their credit card promises. It had nothing to do with fairness in industrial relations and everything to do with getting the union movement members, money and power, so the unions in turn could deliver money, votes and power to the Labour party.
The increase in income tax was not needed to finance the government's programme as they inherited a surplus. The income tax increase is the politics of envy, a sock the rich payback for Labour voters.
Choice in ACC was delivering lower premiums and better service. The re-nationalisation was pure socialist ideology.
What Labour and the Alliance and their de facto coalition partner are finding is that their self-serving legislation, regulations and controls are incompatible with an open economy. If people don't like it they can just leave - every day since the election some 214 well-educated New Zealanders have left. In an open economy, no-one can make you invest and every day millions of dollars have left New Zealand.
The moratorium on genetic research has seen the wholesale migration of our world-leading scientists. The increase in income tax has seen the migration of leading entrepreneurs.
The flight from the Kiwi dollar this year has not been lead by foreigners, they gave up on us when National made Winston Peters treasurer. It's New Zealanders who are taking out their dollars because it's New Zealanders who are overexposed to the Kiwi.
Informed New Zealanders know this government's policies will fail. The re-regulation of the employment market will be at the expense of the unemployed and those with the poorest employment record. This government's 'Closing the Gaps' policy is already failing.
As Maori are more likely to smoke, Maori are paying the bulk of the extra $130 million cigarette tax. As they are more likely to be borrowers rather than lenders, they are feeling the effects of the 50% rise in home mortgage rates. As they are four times more likely to be unemployed they are feeling the effects of the Employment Relations Act and most of the estimated 5,000 extra who are unemployed as a result of the increased minimum wage are Maori.
The coalition's response to the economic failure of its Gaps programme is to promote policies designed to create separatism. Introducing the Treaty of Waitangi into social legislation is apartheid: the legal notion that there are different laws for different races.
Minister Tariana Turia's speech has not been disavowed by the Prime Minister. Expectations have been lifted in the Maori community. As this government's programme fails to deliver, there will be a backlash.
Some in the government will seek to blame the system. So too will the coalition look for scapegoats as its programmes turn to dust.
The coalition is starting to look at it's budget for next year. Minister after Minister is finding that although the coalition has increased social spending the result is a demand for more spending, while the problems have got worse not better.
Spraying money on social problems works is like spraying fertiliser on weeds - the problem gets bigger. As Sir Roger Douglas puts it, "Don't spend money on what you don't want more of."
The coalition has destroyed one of the pillars of the Douglas/Richardson economy - the Employment Contracts Act. They claim to the holding on to the other pillars - the Reserve Bank Act and the Fiscal Responsibility Act. I doubt they can.
The demand for more social spending threatens to put the country into deficit. Either the government must break its no tax promise - and they are looking at proposals like taxing UK investment trust funds - or the surplus will vanish.
Can an independent Reserve Bank survive the Employment Relations Act? The 9% pay rise for the young doctors is just the first of many claims. An average pay rise of 5% in the health sector will absorb all of the governments extra spending - leaving nothing to compensate for the extra costs of drugs and imported health equipment caused by devaluation.
Interest rate rises by the Reserve Bank seem inevitable, so prompting a clash with the coalition. It is hard to see how an independent Reserve Bank can survive.
What New Zealand is going through is a very dangerous time. The future of our country is at stake. The notion that progress is inevitable is unfortunately false. Prosperous nations have voted themselves poor in the past - South America is full of examples. Cullen's glib answers - like joining Australia - are not answers. Just visit Tasmania.
The last two socialist experiments in the OECD have lasted less than two years. President Mitterand's first cabinet when the socialists won power in the 1980s after a long period in opposition was labelled the "cabinet of school teachers." Prime Minister Mauroy nationalised some banks - like Jim Anderton's people's bank - increased public spending, and engaged in regulatory activism. After a brief period of euphoria they were confronted with deficits, job losses, devaluation and flight of capital. By 1983 Mitterand was forced into a dramatic and pragmatic policy reversal.
In Germany the Social Democrats, again after a long period in opposition, were elected just two years ago and "Red" Oskar Lafontaine was made finance Minister. He proposed subsidies to business - a sort of Jim Anderton job's machine - some increases in social security, regulatory activism and some tax increases - all moderate by this Labour government's standards. Within a year business confidence in the world's second largest economy collapsed, investment dried up and Germany was headed for a recession.
Chancellor Schroeder fired Lafontaine, reversed direction and the German economy recovered.
Here in New Zealand such a reversal seems unlikely. 49% of all Labour MPs are former trade union officials, 45% are former teachers. This is a government with no practical business experience. This is a very left-wing government. The good news is that there are just two years to go. This is just a one term government.
However, a victory by a National government will not by itself be enough. This zig-zagging confuses investors. As Wolfgang Kasper puts it, whose examples I've used in this speech - if a country keeps changing the traffic rules from driving on the left to driving on the right and then back again - there are bound to be accidents and the flow of traffic is going to slow.
Sir Robert Muldoon claimed that every generation we elect a Labour government just to prove that socialism doesn't work. The problem with that experience is that National governments then proceed to administer Labour's policies. It took National 40 years to abolish compulsory trade unionism!
The challenge for ACT is to create a mandate for a free society, for a liberal economic system. The real basis of a free society is not the Reserve Bank Act, the Fiscal Responsibility Act and the Employment Contracts Act.
The basis of economic growth and prosperity is to live in a civic society where people interact as equals freely without government direction. One law for all. Where private property rights are respected. Where there is sanctity of contract. Where there is choice and competition.
Where reputation not regulations drives quality, poor operators lose and good operators thrive.
Government's role is to provide the framework, to act as guarantor of security and providers of a legal system to enforce legal rights.
This is a fundamentally different system to the collectivism promoted by Labour and the Alliance.
National has given just lip service to the promotion of a free society and to the advantages of competitive capitalism over collectivist control. The Labour-Alliance-Green government is taking the country down a road of more controls. It's like one of those Russian doll sets - each set of new controls has another new set waiting inside.
Just as the world is becoming more open and dynamic, as citizens are better educated, better informed, have more skills and are more enterprising, the New Zealand government seeks more control. The new Employment Relations Act seeks to control and separate every employer and employee.
The outcome is inevitable. There will be spontaneous opposition to Labour inspectors with more power than the Police, to union officials entering workplaces where they were not invited or wanted, to a Star Chamber Employment Authority attempting to impose state control over family businesses through compliance orders. If it succeeds it will result in a sullen, depressed Soviet type economy. If it fails it will be because of a refusal of New Zealanders to obey laws they regard as anti-democratic and dictatorial.
ACT's task is to lead in showing why Labour's policies are doomed.
Labour is correct in realising that New Zealand's future as a trading nation is in an open global economy. What Labour does not realise is that it follows that we must adopt the policies and attitudes to succeed in this open economy.
Does having a higher tax rate than Australia help attract New Zealanders home? No it does not.
Does having a state monopoly over accident insurance lead to better service and lower prices? No, it leads to waste and red-tape.
Does having pro-trade union employment laws lead to more jobs? Of course not.
Simply reversing current policies - as ACT will do - won't be enough. ACT says we need as a country to promote the virtues of freedom. The advantages of choice. The necessity of personal responsibility.
The irony is that ACT's policies lead to a more compassionate caring society and Labour's to a soulless bureaucracy and waste. I note that Helen Clark protested at the building of a boarding house because it would in her words attract "transients".
It was my 82 year old mother who refused to sign the petition against the plans for a boarding house to provide accommodation for the elderly poor. My mother went to the public library and inspected the plans - something Helen Clark didn’t' do. She visited the site, interviewed the proprietor. My mother wrote a letter of support. As she points out, nearly everyone at some time in their life is transient - even Helen Clark was transient when she was a student.
My mother understands capitalism better than the Prime Minister. It is not in the interests if a boarding house to have rowdy or disruptive boarders. My mother knows this because for 20 years we lived next to a boarding house. You could not pick a quieter neighbour.
The Resource Management controls on the boarding house, including setting out the number of staff, are completely unnecessary. The compliance costs must be enormous. It's an issue that the marketplace would have resolved.
There is a role for government. Governments can help mould a sense of purpose and can perform tasks that only government can carry out.
To illustrate: government should set the goal of resolving Auckland's traffic problems. The economic cost is over a billion dollars a year. Public transport won't by itself solve the problem. Even the most expensive rapid rail system would carry out fewer than 10% of all journeys.
Auckland needs more roads, more precisely, it needs the completion of the motorway system laid out over forty years ago. The Greens do not appear to realise that buses needs roads to run on. We own 90% of the land, Auckland has the funds. Everyone of the needed roads meet Transit's cost-benefit threshold. It is a failure in our planning laws that can stop a road from being built for 20 years.
Only governments can change the law and ACT in government would set the objective of completing the motorways by 2010 and passing the laws to allow this to occur.
ACT says we need to set higher goals for the country. I have been much attracted by a goal e-mailed to me by an ACT member: "10 by 2010"
To set the goal of reducing the real gaps between New Zealand and the rest of the world. To set the goal of being 10th in the world for per capita economic performance by 2010.
Today we are 20th. Australia is 13th. When we take office in 2003 we will have just seven years to overtake Australia. We are so depressed as a nation that such a goal seems to be dreaming.
It is not. It is achievable.
Every policy needed to achieve this goal is known. New Zealand showed in the early 1990's that our economy can grow at 5% a year. 5% growth for seven years would make New Zealand 10th.
There is not a single social issue or indicator - from health to welfare to superannuation - that wouldn't be a great deal improved if New Zealand was 10th instead of 20th.
To achieve that goal we would have to reach out a helping hand to those previous governments have dumped on welfare, so they can return to the workforce. As welfare numbers have gone from 38,000 in 1978 to 380,000 today, there are tens of thousands of beneficiaries who could return to the workforce and contribute if they were given real help.
I did not include superannuitants in that figure, that's a further 300,000. I do believe an active ageing policy would mean that our senior citizens could also play a role in achieving the goal of 10th by 2010. Assuming that everyone who reaches the age of 65 is unable to make an economic contribution is nonsense. As I have already quoted my mother, let me quote the example of my father. At the age of 65 he commenced a nearly 20 year career becoming a actor on stage, television and film.
Prosperity will never come from government programmes. Governments have never created wealth or jobs or prosperity. It comes from the private sector, from individuals exercising their freedom, making choices and taking responsibility for their actions.
Governments do best by providing conditions in which the private sector will thrive. ACT's vision is for New Zealand to be the best governed country in the world. ACT's role is to ensure that this happens. I invite you to join us.