Hon Richard Prebble’s State Of The Nation Address
Hon Richard Prebble’s "State Of The Nation Address”
Tuesday 16th Jan 2001 Richard Prebble Speech -- Governance & Constitution
Welcome to my annual state of the nation address.
A state of the nation speech is a time for a politician to reflect on a year past, the successes, the failures and the shared experiences that bond us together as a nation
It provides an excellent opportunity to reflect on where we are, where we were and where we could be as a nation.
Over time the of accuracy of the predictions in my state of the nation address’ have created an enviable record.
At a time when the Treasury and commentators were saying New Zealand would be unaffected by the Asia down turn, I correctly predicted it would cause a recession.
The following year I was first to correctly predict that the economy would turn up in 1999. And last year I correctly predicted that when the economic statistics were published they would show that the last quarter of 1999 was a period of strong economic recovery, though too late to save National.
To quote from my speech “You have to go back to the Kirk government to find a new government with such favourable indicators.” I predicted that the year 2000 was going to be a very good year for the economy. It was not a good year for the economy, but it should have been. Because every one of my other predictions was right.
I predicted good export prices, a good year for tourism, falling unemployment and the best year for farming in the last 30 years.
No government has been given a better chance than the Labour/Alliance coalition. The new millennium heralded a spirit of optimism and opportunity, and when our sailors won the America’s Cup it seemed the world was our oyster.
Yet by May business confidence had collapsed. New Zealand experienced a quarter of negative growth, new investment into New Zealand was the worst for over a decade, and an unparalleled number of talented New Zealanders left our country, adamant they would not return.
So what went wrong?
We cannot blame external events. Every one of our trading partners grew faster than New Zealand last year.
In my state of the nation address I predicted “a major stock market correction in Wall Street” (and if I’d known the date I would have made a lot of money). While the NASDAQ fell 50 per cent it has so far had little direct effect on this country.
I did say there were risks, and I identified the major risk, and I quote “Michael Cullen needs to switch out of negative Opposition-type thinking. Michael Cullen must start thinking and acting like a Finance Minister.”
That was the spectacular failure of last year. Dr Cullen, Helen Clark and Jim Anderton were on an anti-business crusade. We were treated to speeches where senior ministers said that government had been pro-business for 15 years and it was time for some balance. As if measures that were good for business were in some way bad for the nation or conversely that anti-business measures would in some way benefit our nation’s interests.
Business confidence was shaken by the folly of ACC re-nationalisation. Business confidence was flattened by the extremism of the Employment Relations Act. But what really stalled business was the realisation that their own government regarded business people as a social enemy.
All these measures were more extreme than anything in Labour’s manifesto.
The result for Labour’s own supporters was an average drop in income of one per cent last year, which was something that even I, the government’s biggest critic, did not predict.
When coupled with the decline in household wealth caused by higher interest rates and lower house values, the average Auckland household was $10 a day poorer under a Labour government!
Last year was clearly a triumph of spin over substance for the coalition government.
As I have pointed out, no new government came into office with more genuine public goodwill and support. People wanted them to succeed.
The Government’s greatest success has been the Prime Minister. Helen Clark surprised us all by proving she is a master of spin.
Last year Helen Clark handled resolutely – no, ruthlessly - a number of political scandals.
Scandals are very destabilising for governments, so it is essential to handle them resolutely.
To have two Ministers knowingly declare six months before an election that they were Wellington residents on the electoral roll, and then continue to claim fifteen thousand tax free expenses on the basis they did not live in Wellington, is a real test for the coalition.
New Zealand MPs have a reputation of being scrupulously honest in personal financial matters. This is the first case of an MP rorting expenses that I have ever heard of.
This scandal reflects on every MP.
I lost Wellington Central because Marion Hobbs and Phillida Bunkle campaigned that I was not a real Wellingtonian, unlike them. It now turns out I was the only electorate candidate not claiming the Wellington allowance, so I feel very strongly about this issue.
When Judges falsely claim expenses they are prosecuted. When social welfare beneficiaries falsely claim benefits they can end up in jail.
If both members remain as Ministers in parliament this scandal has the legs to bring the government down.
The scandal has shown how important Helen Clark is to the government. She has been on holiday, which means Jim Anderton was left in charge. Jim’s response has been to one, say it’s over, and two to say the Parliamentary Commission, who paid the money in the first place, will investigate. It is like asking the White House to investigate Monica Lewinsky.
When cabinet meets next week it needs to resolutely handle the Wellington MPs’ accommodation scandal, as Parliament, democracy, and all of New Zealand do not need this scandal dominating the year’s political landscape.
So let me turn to the issues I hope should dominate 2001.
I am very optimistic about the economy.
I predict that the economic statistics will show it was a good retail Christmas. And with the rain again driving us into the shopping malls the Boxing Day and New Year sales were also good.
Export growth is continuing. With the exception of Marlborough, and less rain than they would have liked in Northland, it was a good spring. The January grass growth is incredible. I predict the statistics will show stronger than expected growth in the final quarter.
So the government has got very favourable indicators: a balanced budget, no government overseas debt, a growing economy, a falling external deficit and growing exports.
This is a better scenario than last year, but I believe the Government will again blow it.
The New Zealand economy has repeatedly proven that we are very vulnerable to external shocks.
In my first draft of this address I wrote that I believed the US economy was heading for a hard landing. Alan Greenspan must have picked up the same thought because 12 hours later the Federal Reserve reduced interest rates by half a per cent. The interest rate reduction was too late. I believe the US economy will have two quarters of no growth.
The new President’s republican majority in Congress is too small to prevent grid lock. So I predict that President Bush will not be able to pass significant tax cuts fast enough to prevent a recession.
The slowing down of the US economy will have a knock-on effect into Asia. The Asian economies are still fragile and their recovery has been built on exports to the United States.
Japan’s economy is still handicapped by significant structural problems and now, little effective political leadership.
Australia has not had a good retail Christmas, indicating that their remarkable growth appears to be slowing.
Which leaves the shining star of the world economy; Europe. The introduction of the Euro has stimulated trade and investment within the Euro zone. But Europe is not currently strong enough to succeed the US as the engine room of world economic growth.
So I predict that the year 2001 will be more difficult for exporters.
This year will also be difficult for Reserve Bank Governor Dr Brash.
While falling petrol prices and an appreciating New Zealand dollar are easing inflationary pressure, inflation is predicted to break the three percent target, and reach four per cent.
I believe inflation has been underestimated and will actually reach five per cent. Five per cent inflation will blast the unofficial wage restraint accord between the government and the trade union movement.
The year 2001 will see a rise in trade union wage demands and militancy. The Employment Relations Act gives unions great powers and we will see unions start to use them.
What is the Reserve Bank to do? I note that commentators are revising their predictions of a New Zealand interest rate rise. Banks are already cutting interest rates.
I believe that to maintain a credible inflation target, and the international credibility of our Reserve Bank, the Governor cannot cut interest rates.
I realise this is not a popular view, but business needs to be persuaded to roll back the fuel price increases. If they do not, then the next price increases will be wage led and inflation is therefore embedded.
The credibility of the Reserve Bank is a cornerstone of our economy. If the Bank fails to prevent excessive inflation it will take years to recover the lost economic credibility.
The Kiwi Dollar
But the factor that has had the biggest impact on New Zealand business and households was something that the Reserve Bank and the Government appear powerless to influence. The Kiwi dollar.
The Kiwi is on a roller coaster, with the fluctuations becoming more violent, and the range of movement growing.
When the dollar was first floated in 1985 the Kiwi proved to be very stable. As time has progressed the Kiwi’s movement has become larger and less rational.
In 1996, the Kiwi peaked at 72 cents to the US dollar– a value that made no sense and crippled exporters.
Then in October last year the dollar dropped to US 38 cents, a value that again appears to have no rational basis. A 48 per cent devaluation, the largest in our history. Since October the Kiwi has risen to US 45 cents, a rise of 17 per cent, the fastest appreciation ever.
Most manufacturers work on a margin of less than six per cent. The export sector cannot handle these wild fluctuations. Importers have told me they switched to air freight for Christmas orders to limit the time they were exposed to currency risk.
Some economists are predicting the Kiwi will reach US 50 cents by June. Currency dealers have scoffed. According to their models, the Kiwi has never risen 20 per cent in twelve months. I believe the Kiwi could reach US 50 cents by the end of March.
Our current export-led recovery is built on a low dollar. By June the sector could be in disarray. A Kiwi dollar worth over US 50 cents will devastate rural confidence and the export sector.
Currency fluctuations, currency speculation and the huge destabilising effects of international capital movement are a world wide problem.
Small trading nations in the global economy, like New Zealand, are all being destabilised. The world’s large currencies, the US dollar, the Euro and the Yen are moving in relation to each other in a way that does not reflect real value.
To have no international measure of real value makes international trade a gamble. To the major central banks, currency fluctuations are not seen as a problem. The Euro nations do less than ten per cent of their trade with non-Euro nations. The United States, which is running a trade deficit, has benefited enormously from the rising dollar.
It will take a fall in the US dollar to make the US Federal Reserve, the US Treasury and the World Bank focus on this issue.
We cannot wait.
I have led the call for a debate on the viability of New Zealand having one of the OECD’s smallest currencies.
When I first raised this issue I was subject to strong attacks by all political parties. It is the cost of being first. Yet during last year the Prime Minister suggested an ANZAC dollar. Swapping a small currency for an equally minor currency is no answer.
Ecuador, which along with Zimbabwe was one of only two countries whose currency fell further then New Zealand’s last year, may know the answer.
Ecuador has just adopted the US dollar as its currency. Dollarisation.
It has been far more successful than Ecuador hoped. The country still has structural problems, and being an exporter of oil has helped, but commentators are unanimous: dollarization bought instant stability, lower inflation and lower interest rates.
Similarly, the Euro has brought growth and low interest rates to Ireland, Spain and Italy. Greece has just joined the Euro zone and expects immediate interest rates reductions and an influx of investment. Central European countries are debating whether to simplify their currencies and adopt the Euro. Euroisation.
Research of over 200 countries has shown that currency unions can significantly boost per capita income by tripling trade within the currency area.
It is my view now that even if New Zealand does correctly introduce all the right policies in the foreseeable future, currency fluctuation could still destabilise our export sector.
We need bold decisive leadership on this issue, leadership that will lead us forward, united as a country. We need to examine the long term viability of the Kiwi and the alternatives. I think the evidence points to dollarization as the most viable long-term option.
I predict that our government will do nothing and will watch as the unpredictable, fluctuating Kiwi destroys export confidence.
In 2001 taxation will become an even more high profile issue. The new US president will present his tax plan to the US congress and in doing so will focus investors world wide on the importance of taxation.
It will also put the taxation debate firmly back on New Zealand’s political agenda.
Last year the new higher income tax rate came into effect.
New Zealand is the only country in the whole world to increase income tax in the new millennium. New Zealand also attracted the least investment of any OECD country, had the worst growth rate and had a currency that fell further than any other OECD nation.
The 39 cent tax rate is in effect a tax on investment. It is the investment standing alongside each worker that allows developed countries to have higher productivity than developing nations.
It is the investment gap between New Zealand and the United States, UK and Australia that is opening up a growing gap between New Zealand and the rest of the world.
ACT is alone in pointing out that New Zealand must have a lower tax rate than Australia, the United States, and the United Kingdom if we are to halt the brain drain.
The clear action for the Government to take would be to catch the market by surprise and announce that the top rate of tax is coming down. I predict that will not happen.
I predict the internationally uncompetitive tax rates will continue, so too will the loss of over 200 New Zealanders a day.
So what of the rest of the coalition’s programme?
Labour’s Policy Drought
2001 will expose a curious fact. The coalition does not have a coherent set of polices.
Helen Clark has no vision of where she is leading New Zealand.
The six credit card promises were just slogans that would conveniently fit on a small credit card. They are not the basis of a programme for the Labour/Alliance government.
After just a year in government they have run out of ideas. As a master of spin, Helen Clark disguises this lack of policy by saying the year 2001 will be a year of “consolidation”.
The immediate effect of the government’s inaction has been a rise in its popularity.
As Labour implemented its policies of ACC re-nationalisation, trade union promotion, and tax increases, its popularity fell.
As it appeared to reverse its policies, like the pro-business talkfest, its popularity has risen.
When it announced that it did not intend to introduce any major new policy, Labour’s popularity, which was well below National’s, rose significantly.
A do-nothing Labour government is momentarily popular but it is not a politically sustainable position.
If you want the government to be conservative why not vote National who are the masters?
Closing The Gaps
In the Speech from the Throne, and in the Budget, Labour told us that the gaps between Maori and non-Maori have grown and that the coalition’s cornerstone policy was to close the gaps.
It now turns out that the 1990s were a very good decade for Maori and that all gaps, income, education and employment had closed.
In comparison the year 2000 was a very bad year. All the gaps have widened. Helen Clark, as chair of the Cabinet Closing the Gaps Committee, and having fired the Hon Dover Samuels, is now personally in charge of the closing the gaps policy.
The policy has divided New Zealand and confused the civil service. The Government pledged all year to set benchmarks to measure the policy, yet the latest revised deadline of Christmas has passed with still no benchmarks. At present it is just a policy to spend $243 million to the sole benefit of Maori and Pacific Islanders.
The closing the gaps policy is in disarray.
The Prime Minister has now redefined the policy as redistributive, stating that all income gaps will close.
There is only one way to close all income gaps and that is to make everyone poor.
ACT has taken the coalition directly on over closing the gaps. Taking money from one group of citizens to give to another is not a legitimate role for Government in a free society. The policy is intellectually bankrupt, morally wrong, and is, as presented, racially divisive.
The coalition is dangerously dividing our nation.
Having lifted expectations and told Maori that they are discriminated against and deserve more, the Government is now desperate to disown not only the closing the gaps policy, but even the name.
However, the tragedy is that every one of the measures Labour is taking to close the gaps will only serve to widen them.
Labour’s own Maori caucus will not allow the government to be a closing the nothing government.
In 1996, Helen Clark was the first Labour leader to lose all the Maori seats. I believe 2002 will be the watershed year when Helen Clark becomes the first Labour leader to lose all those seats again.
The facts are that what benefits Maori are policies that benefit all New Zealanders. An economy that is growing. An education system that teaches all children to read English and to be numerate, and a society that rewards hard work, thrift and personal responsibility. That is why more and more Maori leaders now recognise that ACT has the best policies to close the real gaps.
So what of the other parties?
I believe the Alliance, as a party, is terminal. What does the Alliance stand for that the Greens do not advocate more effectively?
And how will the sight of Jim Anderton defending Phillida Bunkle’s three houses, Ministerial apartment and dubious collection of $15,000 tax free dollars inspire confidence in party supporters?
Further to the left the Greens had a good 2000. The Greens position is really a vote against the future. The idea that we can reverse time and go back to living in communes is totally out of tilt with reality.
The irony of their position was highlighted over Christmas when Greens leader Jeannette Fitzsimons got lost in the bush and pulled out her cellphone to ring for help. It seems political convictions can now go on holiday as well.
The Greens enjoyed a high political profile last year because they hold the balance of power. But the paradox is, that to keep this profile they must use that power, yet to use it will destroy them.
New Zealand First
The last party to hold the balance was New Zealand First. Winston Peters in his courtship of the Hon Dover Samuels is showing that he realises that he could again win the Maori seats. A campaign by New Zealand First to win the Maori seats will destabilize Labour.
National did better last year than many commentators gave credit. In every poll at least once last year, National overtook Labour. I believe that ACT played a significant role in National’s recovery.
In politics, like business, sport and life, competition motivates and brings out the best in one.
National was not going to fight ACC re-nationalisation. ACT began a very effective campaign against the ACC bill, so National had to start its campaign.
ACT took a strong uncompromising position against the Employment Relations Bill – ergo, so did National.
Leading National MPs refused to give business an assurance that a National government would repeal the new employment law. ACT said that not only would we repeal the Employment Relations Act, we would also introduce a Freedom to Contract law. Within 48 hours Jenny Shipley said that National would repeal the Employment Relations Act.
ACT’s strong stands have helped National to be more effective.
A few ACT supporters anguished last year that some ACT-led campaigns had the effect of benefiting National.
I believe that all voters who favour free enterprise, the rule of law, sanctity of contract and freedom of individual choice, will have seen that it is ACT who have given National the backbone to perform.
Those same voters will give ACT their list vote to ensure a back-boned and effective centre-right led government in less than two years time.
And what of ACT?
ACT will continue to be the government’s number one critic.
ACT has been the most effective opposition because ACT proposes as well as opposes.
Every single ACT MP has introduced a private members bill, while there are some Ministers who have never even introduced a bill!
ACT continues to be the party of fresh new ideas.
There are now a number of issues that ACT owns.
ACT owns the proposal for a timetable to resolve Treaty claims fairly, fully and finally.
ACT owns the idea of Truth in Sentencing to stop the nonsense of our revolving door prison system. ACT’s proposals on parole would reduce crime and provide a real incentive for criminals to go straight.
ACT owns the idea of a low flat tax to stimulate investment, job creation and reward hard work.
ACT owns the idea that New Zealand needs real welfare reform. One adult in three on welfare is not sustainable. ACT’s Muriel Newman will be launching new policy proposals to reform welfare later this year.
ACT owns the idea of standards in education. Donna Awatere Huata’s life-long campaign to prove that using only the whole language method of teaching reading has been a disaster, is coming to fruition. One of ACT’s unreported initiatives last year was a Parliamentary select committee inquiry into reading. I predict its report will be a damning indictment of a 20-year experiment in reading, the foundation of our children’s education, that has gone horribly wrong.
ACT says the only real sustainable solution to the superannuation crisis, is a scheme that allows New Zealanders to save for their retirement in accounts of their choice, in their name, in the private sector – a scheme very much like the one MPs have for themselves.
It appears that superannuation will be a big issue again in 2001. As a nation we are tired of superannuation debates and being lied to by politicians.
The Cullen scheme is at least doing something, but the Devil is in the detail with superannuation. With Cullen’s scheme, the whole of Hell is in the detail.
Cullen’s fund is run by government – that is, by politicians.
It is not a genuine savings scheme, it only smoothes the cost – first building up a fund and then running it down. A child born in 2001 will pay into the scheme their whole life, yet when they retire and need to access their contribution, the fund will be exhausted. The scheme is not sustainable – at some point taxpayers will revolt.
A fund equal to the total stock market capitalisation gives too much power to the government. Already the Greens are saying that the cost of their support is directives to the fund managers – which will hammer the returns.
We are being sold the scheme dishonestly. It will come out of surpluses says the Finance Minister, as if this was money for nothing. Surpluses are taxes, taxes that come from the hard work of ordinary New Zealanders. The Cullen plan would lock New Zealand into a high tax future.
ACT is a party founded to reform superannuation. We have welcomed the Cullen bill as a chance to have a real debate on super and to reach a consensus.
Dr Cullen has indicated a willingness to accept constructive amendments.
ACT is taking Dr Cullen at his word and will propose amendments designed to make the super scheme fair, to remove the scheme from political control, to make the scheme positive for the economy, and to give New Zealanders the ability to own some of their own country.
Freedom, choice and responsibility are meaningless slogans unless people are able to enjoy that freedom, exercise real choice and take responsibility.
We need a superannuation scheme that gives all New Zealanders the ability to say “I own some of this country, I am a stakeholder, I have capital that is mine, I can be independent in my retirement and I can leave something for my children”.
I believe that just as Maggie Thatcher’s people’s capitalism let millions of English people become first time stakeholders and forever changed their outlook, a well designed super scheme could cause a similar change in our outlook.
Left leaning governments in Germany, Italy and Sweden, have recognised this fact and are now introducing personal superannuation investment accounts to allow all their citizens to become stakeholders in their country.
Too many adult New Zealanders vote for handouts because they do not see themselves as taxpayers or consumers but simply as beneficiaries.
ACT wants every New Zealander to be a stakeholder – so that they care about how the country is performing and will think critically about the promises of politicians.
This year ACT is going to advocate a lower rate of income tax than Australia to stem the brain drain, and a lower company tax rate to make New Zealand more attractive for investment and jobs and to halt the quiet exit of companies to Australia.
But ACT does not advocate lower taxes just for increased productivity and wealth creation. ACT wants a free society that is also a just society.
Labour’s tax regime is both unfair and unjust. Labour’s 18 per cent increase in income tax acts as a penalty on hard work, thrift and middle class entrepreneurship.
Under Labour’s regime if you inherit wealth and invest solely in international passive funds, so that you do nothing for either your country or yourself, you pay no tax.
But if you start your own business, you will immediately discover that Jim Anderton expects to be a partner in your success – sharing none of the risks but nearly half of the profits.
Labour’s income tax regime is a tollgate on the road to the middle class. High income tax is a barrier to social mobility, equal opportunity and to entrepeneurial spirit.
ACT says we need a tax system that encourages and rewards entreprenuership, the only real path taken to close the gaps by an increasing number of Maori, women and young people.
Lower company and individual taxes is the compassionate policy. A rising tide lifts all ships. Low tax rates are a powerful economic tool for all New Zealanders.
The Labour government inherited a surplus. There was no economic need to lift the rate of income tax, as without the increase, the Government was still in surplus.
Dr Cullen insists that ACT's tax cuts are a risky proposition. I believe that not only is it not risky to let taxpayers keep more of their own money, it is the only moral option.
What is risky though, is leaving politicians in charge of a surplus. There is always a strong temptation to spend it. To Labour the temptation is overwhelming, and Dr Cullen has devised a plan to spend around $50 billion on a huge Government investment scheme, a very risky project.
ACT says we have a choice. The surplus can be used for the care and feeding of government or for the creation of jobs, property and wealth for all New Zealanders.
To help our families and communities, we should give them options, not orders. Why is it wrong to trust people with their own money? The Government should help people live their lives, not try to run their lives for them.
On every major issue facing New Zealand, ACT says there is a choice. A ll the other parties want to make that choice for you.
ACT believes New Zealanders should be trusted to invest some of their income tax for retirement, to create a superannuation scheme that promotes thrift and independence. The other parties do not.
ACT believes education is a national priority, but a parental responsibility. ACT wants to give schools the resources and authority to chart their own path to excellence. The other parties think Wellington knows best.
ACT believes that when disadvantaged children are trapped in failing schools, their parents should be trusted to make other choices. Unlike the other parties.
ACT believes all New Zealanders should contribute to their society, and that those in genuine need should receive the level of assistance they deserve. Our social welfare system is in need of real reform and no other party thinks so.
ACT believes society benefits when the punishment for crime is fitting, honest and a real deterrent. The rest of Parliament does not.
ACT believes there is no better way to improve the quality of life for the average man, women and child than a freedom providing tax cut. National, labour, the Alliance, New Zealand First and the Greens do not.
The coalition is determined that working New Zealanders will remain dependant on the state and political handouts.
ACT has accepted the challenge to expose the motivation behind Labour’s income tax hike: the politics of envy. A well designed tax cut can give direction to our economy, promote independence, accountability and opportunity. A tax cut would be the first step in creating a New Zealand that will attract our young people to come home.
But Helen Clark has been clear in her views. She has stated that her government’s tax increases are not designed to provide economic direction, rather to redistribute, a pet project of all social engineers.
ACT’s vision goes in the opposite direction. ACT is the party of the future.
ACT says let’s use the free market to promote the common goals we share as New Zealanders, the value of hard work, of independence, of personal responsibility for those able to contribute and a compassionate hand up for those who can not.
Young people, the “Y” generation, will be voting for the first time in 2002. A generation that has watched less TV than its parents. A generation where over half are regular users of the greatest tool for freedom since the printing press – the internet.
The internet breeds freedom. The knowledge economy depends on personal effort and breeds personal responsibility. Younger New Zealanders do not relate to the New Zealand the coalition is trying to restore, where Government makes decisions for you from the cradle to the grave.
The trade union movement has found it near impossible to recruit those who were not conditioned by compulsory unionism. Less than ten per cent of New Zealand’s under 30s have paid out $300 to join a union.
The other parties are out of touch with the voters who can not remember a time before the 1984 Douglas reforms.
ACT has never lost a poll on the internet. ACT’s website receives more hits than all the other parties combined!
Only ACT relates to the ideals and aspirations of young New Zealanders. ACT’s core values of freedom, choice and personal responsibility are the values of the new knowledge economy.
We live in a country of enormous opportunity, and it’s within our ability to create a nation that is not just the envy of the world, but its inspiration.
ACT knows the future is ours – so I am looking forward with confidence to 2001.