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Jenny Shipley Speech to Federated Farmers

Rt Hon Jenny Shipley
Speech to Federated Farmers of New Zealand
56th National Council/Conference
Rotorua
10.30am
17 July 2001

Introduction

There were many times when, as Prime Minister, I had to bite my tongue.

One of the occasions that remains most vivid was the period in 1998 when the economy was suffering under the weight of two consecutive years of drought and the impact of the Asian financial crisis. At that time, the learned debate about the prognosis for the New Zealand economy centred on the relative merits of being either a "new" economy or an "old" economy. Many commentators lamented the fact that our production of low value products and our dependence on the agricultural sector meant we were old-economy and tied to a low-growth path. Well, let me start off this morning by saying thank God for the old economy!

Agriculture Remains the Backbone of the New Zealand Economy

In the last couple of years since the drought and Asia, agriculture has come back with a vengeance and has been punching well above its weight.

Agriculture's contribution to GDP in 2000 was around 17%, and it employed around 11% of New Zealand's total workforce. This understates the importance of the sector, given that it reaches into, and impacts on, every other sector of the New Zealand economy - from manufacturing to retailing.

And of course around 80% of our farming outputs are exported, earning valuable foreign exchange that helps pay for imported goods and services.

In real terms, the domestic economy actually stood still in the year ended March 2001 - the domestic economy has contracted in four of the last five quarters. It was only due to export growth, in which agricultural exports played a large role, that the economy actually grew at all in the last year.

Again in real terms, exports grew by some $2 billion over the year, with dairy and meat products directly accounting for 18% of that export growth. Total primary sector (including forestry) activity accounted for more than 40% of the export growth.

It is therefore somewhat bizarre that as recently as 5 July of this year, Dr Cullen said "The evidence of failure showed in the current account deficit we inherited, our over reliance on commodity production, inadequate skills development and social breakdown."

The reality is that the growth in the economy that Dr Cullen is so ready to take credit for and the improvement in the current account deficit that Dr Cullen is so ready to take credit for are largely due to our reliance on commodity production!!

The Labour Government is Anti-growth

Budget forecasts show the New Zealand economy growing by just 2.6% in the current year; and this at a time when all the conditions are supposedly so right for growth.

Look at the fine print in the Budget and you'll soon discover even the Treasury doesn't think much of the Government's plans to transform the New Zealand economy. Average growth of 2.2% per annum is forecast for the period 2006 to 2011. That won't close any gaps between New Zealand and the rest of the world.

What this tells us is how easy it is to "talk the talk" and the Labour Government certainly talks a lot about economic growth and economic transformation.

But it's impossible for this Government to translate that talk into action. That's because they are, first and foremost, a Government of redistribution, as their policies show. History will ultimately prove them to be anti-growth.

Every policy this Government has put in place has in some way detracted from the ability of the New Zealand economy to grow: the envy tax, re-regulating the labour market, renationalising accident insurance - the list goes on.

This Government has a wish to transform the New Zealand economy back to the top half of the OECD. Only Ms Clark and Dr Cullen could be sufficiently arrogant to assume that they can achieve this with a policy programme that is completely contrary to accepted OECD wisdom and is leading to lower growth.

Most worryingly though - the Government seems to have a very narrow focus on their plan for growth. Savings and Dr Cullen's superfund seem to be the centrepiece of their economic strategy.

National has a number of problems with this. Firstly, a focus on savings is insufficient to transform the economy back to anywhere near the top half of the OECD.

Secondly, the fund requires contributions that average over $2 billion every year for the next 25 years, the bulk of which will be invested offshore. It is by no means clear that this is the best option for growth. Those funds could more usefully be employed in maintaining core Government services, investing in infrastructure or delivering corporate or personal tax cuts.

Treasury was unable to advise what the best option for growth was when asked in Select Committee because the Government hadn't asked them the question!

Also, my colleague Bill English has shown, and Treasury has confirmed, that Dr Cullen intends to borrow to save for a very large fund that actually doesn't deal with the real issue of how NZ can and should cope with an ageing population.

All this for a scheme that subsidises at most 14%, and on average 10%, of the future costs of universal superannuation. Most understand the scheme is partial prefunding. Few understand just how partial 'partial' actually is.

Compliance Costs and the RMA

The Government has also added greatly to compliance costs for small business, of which farms are a large part.

The Business Compliance Panel has in no uncertain terms told the Government that many of its policies are bad for business. The Panel has told the Government that many of its policies have added to the costs of doing business in New Zealand.

It doesn't take a rocket scientist to make the next connection. If policies are adding to the costs of doing business they are detracting from the economy's potential to grow.

In particular, the Panel highlighted compliance problems created by the Resource Management Act.

The RMA is an issue close to farmer's hearts, as we have heard throughout National's Agri-Rural tours. Our proposals to make the RMA more friendly to small businesses were rejected by the Government but now, with business also calling for it, its time the Government put common sense ahead of its political posturing.

Specifically, the Government needs to reconsider our proposals to introduce contestable processing of resource consent applications, the mandatory use of independent commissioners to hear consents, and direct referral of some consent applications to the Environment Court. That, at a minimum, is what is necessary.

My team is currently looking at this issue again as well. A balance between high environmental standards and pace is what is required. We are considering how we can advance these principles in the future.

We also support the Government's decision not to sign the Kyoto Protocol prior to our trading partners doing so. While we must continue to make positive progress on issues associated with climate change, we will not do so at the risk of disadvantaging New Zealand farmers, or the New Zealand economy.

National's Focus on Productivity

The issues mentioned above, a refusal to consider lower tax rates and a predilection towards interventionist and "flavour-of-the month" policies highlight a Government whose policy directions lean against growth in every respect.

The choice for New Zealand is becoming increasingly clear - a Labour Government, reliant on an increasingly influential Green Party, that is anti-agriculture, anti-growth and pro-redistribution, or a National Government committed to productivity, growth and expanding opportunities for all.

Rather than bury our head in the sand, or look for politically-popular, nice sounding buzzwords like knowledge waves and substanceless phrases like economic transformation, our approach is focussed on plain boring old productivity, but with a clear plan to get ahead.

Later this week at our national conference, I'll speak about our vision for New Zealand, the goals we've set to achieve that, our commitment to a clear growth target and a range of policy options we are considering.

But productivity, in the end, makes the difference. Through better infrastructure, a better climate of innovation, a vigorous decentralised education system and a culture that values teamwork, success and entrepreneurialism, we can shift long-run productivity.

This is in contrast to nationalised industries, imposing price controls, higher taxes, government-owned banks and re-regulated labour markets.

We don't see New Zealand's dependence on agriculture as part of our low growth problem. Rather we consider how unique we are - a developed country with a primary production base. This primary production base did not just occur overnight but is rather a reflection of our traditional advantages as a country.

We believe the agriculture sector can make a real contribution to increased growth rates and see it as part of the solution, rather than the problem. In New Zealand, many new knowledge opportunities are likely to be in the life sciences area of which our agri base is a critical part.

Some have questioned National's commitment to the rural sector. The time we are taking and our commitment to listening to you should dispel any negative perception.

I acknowledge that recent times have not been easy for the rural sector - in particular, the cruel quinella of low commodity prices following the Asian crisis and the widespread double-droughts have been harsh.

While much of the recent gains to farmers comes on the back of favourable climate, good international conditions and a weak dollar, measures that we put in place when in Government through the 1990s have also contributed.

In particular, I would like to highlight the flexible labour laws that saw processing charges drop dramatically, deregulation of coastal shipping that has led to a major reduction in transport costs, removal of tariffs that has dropped the prices of farm inputs, and lower taxes that have enabled more money to be reinvested into the farms.

There are virtues in diversifying the economic base so that we are not too exposed to adverse developments in individual sectors. Lower taxes and an economic and regulatory environment that is favourable towards creating a risk-taking culture would help - none of which the current Government is delivering and all of which the next National Government will revisit.

Agriculture's Future

Agriculture's future, and indeed New Zealand's future, will to a large extent depend on knowledge and how we use that knowledge. Knowledge is not something to shy away from or be afraid of. Knowledge is power.

Knowledge has always been, and will remain, a key input to primary production in which we are an acknowledged world leader.

As your own organisation has pointed out, agricultural productivity post-1986 (and post-subsidy removal) has improved by an annual average of 5.9% in contrast to pre-subsidy removal annual growth rate of 1%. In addition, total factor productivity in the agricultural sector has also grown at 3.9%, far in excess of the 1.1% for the whole economy.

Increased knowledge has played a key role in better farm management practices that have seen New Zealand gain environmental benefits as well. Water quality has improved, marginal or infertile land farming has declined, and that land allowed to revert back to native bush.

We believe the knowledge captured in biotechnology will play an increasing role in assisting agriculture's productivity and scope over the next decade.

This calls for more investment in research and development. In this respect, the Government's decision to raid the Crown Research Institutes (AgResearch and HortResearch) balance sheets of $100 million to put into risky "new economy" venture funds is a real kick in the guts for the rural sector.

Here, as in many areas, we in National will allow ourselves to be guided by science, by reasoned-through scientific ethics, not by the pseudo-philosophical critique or the unfounded emotions of latter-day Luddites.

Food safety will increasingly play an important role in the future, as recent experience has shown. We have led public pressure that finally saw a welcomed but belated response from the Government for tough policies (for example, instant fines), first proposed by National, on bio-security

As ill-informed opposition to free trade rises, more non-tariff barriers will materialise. In particular, we need to ensure we retain integrity in our agricultural production system.

Free trade is vitally important for agriculture's future. The big gains we are making now are in part due to the benefits of earlier trade access concessions gained in the last GATT round and through the World Trade Organisation. Be wary of the current Government's determination to include labour, environmental and treaty issues in such agreements. They may well become the non-tariff barriers of the future.

Helen Clark's ideologically-driven retreat into pacifism has made us increasingly irrelevant to Australia and the United States and is bound to have serious ramifications for our trading relationships.

You should push the Minister, Jim Sutton, on the extent of his and his Government's commitment to the vision my government had with our P5 vision, of linking together a free trade zone that would include New Zealand, Australia, Chile, the United States and Singapore. The Government may be interested in exploring a CEP with the United States, but the Chilean and Mercosur leg is too important to neglect, especially as the Bush administration is interested in promoting a Free Trade zone for the Americas.

You should also ask the Minister if we will be able to rely on Australia to negotiate on New Zealand's behalf when Australia and the US enter into trade negotiations.

Our ability to punch above our weight in securing favourable trade access is due to our proud past record of contributing our fair share to the international community and our key trading partners. National remains determined to re-establish those relationships that are breaking down under this Government.

Conclusion

New Zealand is at a cross-roads. The next election will be about confirming a low path for growth and declining living standards, or electing a team that can really make a difference and close the gap between New Zealand's economic performance and to that of the rest of the world.

Agriculture can, and will, play a vital part in that programme. Driving growth is all about taking maximum advantage of what you excel at. And that is exactly what the next National Government will be enabling and expecting agriculture to do.

ENDS


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