Improving The Investment Environment
Monday 26 February 2001
Hon Dr Michael Cullen Speech Notes
Speech to the Northcote Electorate Public Meeting Improving the investment environment
Improving the investment environment – address to the Northcote Public Meeting, Glenfield Intermediate School Hall, Chivalry Road, Northcote
Thank you for inviting me to speak with you this evening, it is a pleasure to be here, especially with my colleague, Ann Hartley. As a Minister I now spend a great deal of my time talking with specific interest groups so it is refreshing to attend a straightforward public meeting.
Tonight I want to talk about what is being called the transformation of the economy and, as part of that process, what the government is doing to improve the investment environment.
But before I talk about the government's intentions and the likely shape of events in 2001 and beyond I think it's important to establish first what exactly is in our own control and what is not.
I often hear that business and the financial sector look to government to provide certainty in terms of the business and financial environment. It needs to be very clearly stated that certainty can only be provided in terms of the government's own intentions and actions.
It is beyond the scope of government, or indeed anybody in the modern world, to offer absolute certainty. That is true of even the world's most powerful economy. It is even more true of New Zealand.
We have seen a great deal of volatility is recent times. Not just volatility in terms of subjective measures like business confidence but also in the actual and real environment within which business has to operate.
From the Asian crisis, through the hype of Y2K, to fears over policy changes, to the uncertainty over whether the Japanese economy will ever lift off again to a stronger growth path, to the recent concerns over the nature and extent of the slowdown in the US economy, we are surrounded by uncertainty.
Perhaps the fundamental lesson that many of us have yet to learn is that we have to accept and plan for a significant level of uncertainty, even when things seem most settled.
Let me give you a good example. Only a year ago the emerging consensus was that the US economy had entered a new high phase of productivity and growth. Some were even predicting the end of the highs and lows of the ordinary business cycle as far as the US was concerned. This all looks very silly now as the world rediscovers just how very normal that economy is, with the usual highs and lows.
External factors like these do affect New Zealand. Changes in the world economy obviously have a strong influence on our own economic prospects. Though, having said that, we also need to remind ourselves that we are such a small part of that world economy that very small changes in our world market share can still see us grow strongly even if global growth slows.
Unfortunately, this has not been our experience in the past.
For too long New Zealand has been trying to sustain first world living standards on the back of third world exports. Basic, no-frills commodity exports. Logs. Butter. Meat.
It has taken us too long to move out of this commodity dependence. That is reflected in the fact that for the last forty years we have failed to even keep pace with the rest of the developed world – had we done so we would be a far wealthier country than we are now.
Compared to a handful of similar sized countries, New Zealand's GDP per capita growth rate over the last decade is a mere 1.2 percent. Ireland is managing 6.4 percent, Finland 4 percent and Singapore a massive 7.6 percent.
I have been in Parliament for 19 years and New Zealand's per capita GDP is barely higher now than when it was when I first became a Member of Parliament. Projections now show that countries like Slovenia will have a higher standard of living than we will have in 10 years' time.
What particularly worries me are some of the explanations that successive governments, business groups and commentators have given for our poor performances over the years. To be frank, I find them less than completely convincing.
For how can it be that we have done worse than countries with both lower and higher taxes, more and less rigid labour markets, lower and high social spending as a proportion of GDP, and less and more regulated economies?
Focussing on these issues to the exclusion of all else is rather like the daily media game of describing the changing value of the New Zealand dollar without any reference to what is happening to other currencies such as the Australian dollar and the Euro.
The real explanation about what is going on is thus left out as people try to explain movements in purely New Zealand terms.
In much the same way, the government is convinced that the major challenges that we face as a nation, in terms of improving economic performance, lie in different areas than those which have often dominated public policy in the last decade.
We are realistic. We will not solve all our problems overnight. And we will not solve them by ideological slogans or a bumper-sticker mentality. We will solve them by addressing the fundamental underlying causes of those problems: a low skills base, our low technology base, our low savings and the lack of any clear Government/ business partnership
The government is pursuing an active agenda to address these challenges. That means:
Reducing compliance costs for business
- Providing support for exporters
- Attracting quality investment for growth
- Creating active business development policies
- Promoting our own human capital and
- Lifting our savings performance.
And while we still need to be smarter, we can at least say that the economic transformation is under way. At long last our export base is starting to broaden out. Figures out this month show the export growth of our sophisticated manufactured goods is picking up the pace to add to the export success of the agricultural commodity sector.
Last year manufactured exports, not counting meat or dairy products, pushed past $12 billion in value, up a staggering 29 percent. And even more importantly, $8 billion of these were in what's called the 'elaborately transformed' category -that means value added products and services.
A shift to a knowledge based economy is critical to our success. Last year we launched our E-Commerce Strategy with its vision that "New Zealand will be world class in embracing e-commerce for competitive advantage."
This vision is open and wide. New Zealand business knows that a vision for e-commerce fits into a larger vision for a society that is wired up, innovative and accepts no limits on its potential.
It's about the competitive application of new and constantly changing technologies as well as creating new industries.
In reality the most significant aspect of electronic commerce is its ability to bring together what we have previously seen as the old and new economy. E-commerce is as relevant to farming, tourism and manufacturing as it is to software development and biotechnology.
E-commerce, along with other forms of innovation, has the potential to make all our sectors part of a new and transformed economy.
The Government has an important role in the transformation of our economy and we are committed to playing our part by being a leader in e-government. We are increasingly using new information technologies to:
Provide better government services;
- Allow citizens more convenient access to those services;
- Build better relationships and communication between different government services; and
- Improve the efficiency and effectiveness of government services, including the potential for better value for money.
Our aim is that all government information and services should be available on the Internet and other technologies as they emerge. We already have a number of services up and running, including the Government website, the company registration on-line service, a new website for business immigrants and the end of the general requirement for filing annual tax returns.
There is a radical concept lying deep at the heart of the economic transformation of our economy. Not radical to the rest of the world, but radical to New Zealand. For the first time in over a decade, business and government are actually working together.
And the feedback we are getting from business is getting more and more positive. Long left to the mercies of the global market, kiwi businesses and industries are enthusiastically coming out in support of a partnership approach.
And that makes sense. We understand that the future of our country must lie in the hands of New Zealanders. Yes, we can develop relationships and joint ventures with overseas companies, we can attract international investment and use skills from other countries but only New Zealanders will ever make the New Zealand economy and society their top priority.
The key is partnerships. For many years now, government has been the missing partner in economic development in this country. Industry New Zealand is already establishing a creditable track record in helping local business and overseas investors by co-ordinating access to resources, information and training as well as acting as an advocate for businesses and industries with high growth potential.
Here on the North Shore, a number of local businesses have hooked up with Industry New Zealand to their very real and tangible advantage. The Enterprise Awards Scheme helped one business meet its first ever export order and enabled others to set up intellectual property protection and to investigate new markets.
So far over 100 businesses around the country have received the awards with a total value of over $600,000 to help get their good ideas up and running. These winners include a telescope manufacturer, a swim school franchise, and the development of an international documentary maker and a survival gear manufacturer.
A vital part of our strategy is to lift our investment levels and attract more quality investment into greenfields enterprises. We want to attract new companies to New Zealand, especially where that involves value–added or high level production. Already there has been a shift towards more business-specific investment attraction and this will continue. The recent approval for Nissui's participation in Sealords, for example, was very much influenced by the value adding strategy that Nissui intends to bring to the company.
Unfortunately events like the recent Montana debacle are not helpful in this regard.
We are putting an end to that sort of practice. This Government is putting a takeovers code in place on 1 July that will introduce some much needed discipline into our stockmarket. The new Code will lay out an orderly process for companies to follow when staging a takeover. An independent Takeovers Panel will govern it and it will mean that all shareholders, big and small, are treated equally in a takeover situation.
Just as important as the Takeovers Code in restoring investor confidence is the strengthening of New Zealand's insider trading regime. Last year we released a discussion document that focussed on detection and enforcement and my colleague Paul Swain will shortly be announcing policy decisions to ensure a more robust insider trading system.
We have also launched a concerted attack on business compliance costs. We are taking a two pronged approach with both a general and specific focus. The general focus is reflected in the work of the specially set up panel and, wearing my Minister of Revenue hat, I can also see a special interest in a focus on the taxation side of compliance costs, particularly for small businesses.
Unfortunately other problems we face have no quick fix. We need to improve our skills. Eighty percent of the workforce of the next ten years is already in employment today. We can surely see that life long education and embracing a training culture are essential to our ability to adapt and grow as a nation.
And for our young, people this change in the way we think about skills and education is already underway. We have placed more than 500 young people in Modern Apprenticeships. Here in Auckland, Modern Apprentices are involved in training across a range of industries – hospitality, agriculture, forestry, plastics, engineering, telecommunications, carpentry, wool handling and in the public sector.
But we still face a serious skill shortage right now. The short term answer is to import skills through encouraging migrants. New Zealand's immigration policies and procedures over the past decades have failed to adapt to or to take advantage of the fast changing global labour market with its high premium on skills.
We have stood on the sidelines and looked on as some of our best and most talented people were lured and poached by other nations. We must do the same. While we may not always be able to compete on salary packages, we enjoy a lifestyle that is the envy of the rest of the world. And that is not just what we think – Auckland has just been judged the seventh best city in the world to live in by an international survey looking at quality of life.
To this end we recently announced a huge increase in the target to attract skilled migrants into New Zealand.
The lifestyle that makes us so attractive to the rest of the world incorporates a stable economy and a stable government. The Labour Alliance Coalition has given MMP a new credibility compared to the unholy alliances of the previous government.
This administration is bringing back accountability to government. Keeping our word has been a guiding principle for this Government.
We made some core commitments to New Zealanders based on our word.
Every single promise has been carried out.
We promised to put people before profit in our health systems and to reduce waiting times for treatment and we have.
We promised to make tertiary education more affordable. A fairer loans system and frozen student fees honour that promise.
We promised to restore the value of New Zealand Superannuation and to provide long term funding for the scheme and we did.
Last year I released the government's proposal to save now for superannuation so New Zealanders can still look forward to a universal pension in the future.
We brought back income related rents for state house tenants and by last December 40,000 households were better off.
We have increased funding to fight crime, especially burglary and youth crime.
We promised to create more jobs through better support for exporters and industries and it is happening. Unemployment is lower now than it has been since 1988. And the Ministry of Economic Development is working in partnerships with local governments, business and community groups to breathe new life in our regions.
Finally, I want to mention one of our most under utilised exports. I am talking about New Zealanders living overseas. We need to use these people– our ex-pats – as a resource base for this country. We need to use our own people who are best placed in the world to get us better known, who can provide contacts and connections that will assist our growth.
This is exactly what the Irish have been doing since the 1970s. They used people like media magnate Tony O'Reilly as a network to build Ireland's reputation and economic growth.
They did not do it by deregulating everything in sight and getting the Government out of active involvement with business in terms of industry and business development.
They did not do it by privatising important social structures like education and health or selling off key assets. They did it by active partnerships of growth, high technology, investment and exports.
It is the lesson of every small economy around the world. No small economy has thrived under a hands-off regime. You only have to look at those successful forward economies, whether it is Singapore, Finland or Ireland – to see it is not heavy handed intervention but rather a high level of government involvement and good working partnerships that makes the difference.
And that is the difference this Government will make to the future of New Zealand.