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Cullen Speech To Age Concern Luncheon

Speech To Age Concern Luncheon

Hon Dr Michael Cullen, Minister of Finance

1200 Tuesday 2 April 2002
Otago Senior Citizens Club,
The Octagon, Dunedin

It is my pleasure to be back in Dunedin, and to be here with you today. Generally as Minister of Finance, people expect me to talk about the economy and I’m happy to do that because the government has a good story to tell in terms of our economic and fiscal management, and also because the Otago region is enjoying very positive growth with prospects for this to continue for some time yet.


But I also want to talk about our achievements in social policy, particularly in superannuation, housing and health, all of which are policies that affect the elderly New Zealander, because we have a very strong record in these areas.

Labour went into the last elections with a seven point commitment card. We did this because we were aware that, after years of broken promises, public confidence in the political process was dangerously low. It was important to the health of our democracy that it be restored – and quickly.

The obvious and only way to achieve this was to be a government which limited its promises to what it knew it could achieve, and then delivered on those promises.

I want to run through those promises this afternoon.

First, we promised to create jobs through the promotion of New Zealand industries and through better support for exporters and small business. We set up Industry New Zealand in our first year in government and gave it a budget of almost $332 million over four years. Industry New Zealand assists talented individuals turn a good idea into a good business, and to assist new businesses to become established and established businesses to grow.

But the government’s commitment to economic growth and to the entrepreneurial spirit does not stop with Industry New Zealand. We have introduced a raft of other initiatives to cut business costs, reduce the international barriers to our exports, provide assistance to exporters, and to improve the quality and availability of occupational skills and training.

The goal we have set ourselves is to restore New Zealand’s per capita income to the top half of the OECD league table. The policy framework we have developed to achieve this was outlined by the Prime Minister in her statement to the House and in the Growing an Innovative New Zealand strategy. I will return to this theme later.

Our second promise was in health, where we promised to focus on patients not profit and to cut waiting times for surgery. Health is a huge portfolio and there seems often not to be a direct relationship between the dollars put in and the returns in terms of improved health outcomes.

However, we have been able to make real progress. The figures for the first quarter of this year show that 85 percent of new patients received a specialist assessment within the six month standard the government has set – that’s a 15 percent improvement on last year.

Just before Christmas, we announced a $2.4 billion increase for health spending over the next three years. This is the largest growth package for health in New Zealand history and will give the health boards a firm funding basis on which to plan.

The fourth promise was in education. Because we think education is the most crucial investment we can make in our young people – and increasingly in people in their late 20s and 30s who want to increase their skills – we promised to cut the cost to students of tertiary education, starting with a fairer loans scheme. I am aware that there are still problems in this area but we have had to take a gradual approach. We do not have unlimited funds and there are many calls on the funds we do have.

However, much has been achieved. One of our first moves as a government was to stop charging interest on student loans while students were still studying. And since we took office, we have held the interest rate on loans steady at 7 percent. We have also frozen student fees through the last two academic years. We want to invest in our young people; not saddle them with debts they cannot bear at a time when they are just starting out in life. More particularly, while it is natural for young New Zealanders to want to travel and work overseas for a while, we want them to come back. Loading them up with an average of $15,000 of debt to be repaid on their return is not much of a welcome mat.

We are also engaged on a comprehensive reform of the tertiary sector to reduce wasteful duplication of resources, to improve course quality and to align courses more neatly to the country’s economic requirements.

In the area of housing, we promised to restore income related rents for state housing so that low income tenants paid no more than 25 percent of their income in rent. The market rentals introduced by the previous government were a major source of poverty and misery and of the resurgence in New Zealand of third world diseases associated with overcrowding.

Income related rents were restored in December, 2000. Since then those who work with the most vulnerable New Zealanders have noticed a decline in the numbers needing food parcels.

Our sixth promise was in law and order. We said we would crack down on burglary and youth crime. Youth arrests are up, but that is to be expected when police start taking a tougher line on youth offenders. And I am delighted to report that the number of recorded burglaries has dropped by 272 a week on average [or 19 percent] since the Labour Alliance government took office.

Burglary has been a neglected crime in the policing strategies of the last decades, despite the fact that it leaves its victims feeling violated and fearful. So we are very pleased to have reduced burglaries by one-fifth in a little over two years. That is just a start, of course. We are continuing to work on the other four-fifths.

Our seventh promise was to live within our means, without burdening New Zealanders with excessive taxes. To help pay for our policy commitments, we increased by 6 cents the top tax rate for those on incomes of $60,000 plus a year. But we promised that we would not raise income tax for those earning less than $60,000, and that we would not raise either GST or the company tax rate. We have been true to our word.

So we have kept faith with the electorate on these seven promises. We have done what we said we would do, and much more besides and I think we can be proud of what we have managed to achieve. But the achievements I am proudest of and which have involved me most directly are in the area of superannuation.

We promised to reverse the 1999 cuts to New Zealand super and we have done that. We have restored the floor for the married rate to 65 percent of the average wage. We have also undertaken to deal with another source of anxiety for older New Zealanders by introducing legislation to remove asset testing from long-stay elderly care. We will not however pass the measure into law until our second term as we do not have room to finance it in this year’s budget.

The other promise we made on super was to guarantee superannuation into the future by putting aside contributions now to smooth the costs of an ageing population. The New Zealand Superannuation Act was passed last year and the government has been making payments of $23 million a fortnight into the scheme.

The money is now sitting in a special account in the Debt Management Office of the Treasury until the governance and administrative arrangements for the fund are established.

This will be done by the board of guardians. The Act provides for a board of five to seven members, and gives the board responsibility for setting the investment policies of the fund and for appointing the funds managers.

It requires the board to follow best practice portfolio management, maximise returns without undue risk to the fund as a whole, and avoid prejudice to New Zealand’s reputation as a responsible member of the world community.

One of the criticisms of the Fund is that it presents a very tempting pot of money for politicians of the future to dip into for their plans. So to protect the board – and the fund – from political meddling, the legislation stipulates that the government must make the appointments from a short list prepared by a special nominating committee.

The committee advertised for nominations last year and received over a hundred expressions of interest. It is now sorting through the candidates and hopes to be able to present the list to the government this month.

I would expect to be able to make the appointments before the end of the month, and would hope that the fund was up and operational by around mid year.

The New Zealand Superannuation Fund represents one of the most significant political initiatives in decades. It is often mistakenly presented as a policy of special interest to the currently retired, but the real beneficiaries are not today’s superannuitants but the superannuitants of the future - the people who are in their mid fifties now, and younger.

Although the previous government cut super in the late 1990s in response to the Asian crisis, almost all commentators, including National, accept that it will not come under serious cost pressure until the baby boomers – those born between 1946 and 1965 - begin to retire.

That is why National is prepared to guarantee superannuation at current entitlements to people who are now in or near retirement. They cannot with any degree of good faith or credibility extend the guarantee beyond that because they are not prepared to support the government’s partial prefunding scheme and therefore have no funding mechanism.

However – at least at this stage – they are refusing to state where their cut off point would be and what people would miss out. What will they define as “near” retirement – 55 perhaps, or 50? And remember for the purposes of this discussion that a National government would probably comprise the ACT Party who are on record as supporting a raise in the qualifying age for super from 65 to 68.

Until National is prepared to come clean on this issue, we cannot have a meaningful or honest debate on super in this country.

Now to the economy. As everyone knows, we cannot sustain our superannuation, health and other social programmes unless we work hard to build a strong economy. The good news is that New Zealand is surviving the fallout from the events of September 11 and the global slowdown in surprisingly good heart. Our growth rate is forecast to average 2.9 percent over the next three years, peaking at 3.2 percent in 2004. This compares with an average over the last 15 years of around 2.3 percent.

This resilience reflects good export prices, low interest rates, strong household income growth and – more recently – a turnaround in the immigration figures. We are experiencing a reversal of the brain drain as New Zealanders start returning home and an increase in skilled migration as a consequence of government initiatives including the talent visa.

We are also using campaigns around the Americas Cup and the Lord of the Rings trilogy to promote New Zealand overseas as a sophisticated, technologically advanced and exciting place to live.

Inflation is under control, the current account deficit is coming down, and the fiscal position is healthy. What that means is that the prices of most goods and services are stable, our government is living within its means, and we as a nation are heading in the direction of earning from our exports as much as we pay for imports.

The government inherited a debt that was equal to 36.8 percent of our annual income as a nation. For someone on an income of $20,000 per year, that’s like having a debt of just over $7,000. That is simply too high, so we set about reducing it to a target of 30 percent. So far we have brought it back to 32.2 percent, which is well on the way to the target. This is despite having to increase our borrowings to cover such items as the bailout of Air New Zealand.

But to get back into the top half of the OECD, we are going to have to lift our growth rate above the OECD average and to maintain it at that level over a sustained period. We have not set a deadline to achieve this – not least because there are too many imponderables to make a meaningful assessment. But I believe a sustainable growth rate of 4 percent within five years is a realistic aim.

That means raising our export performance. We have made significant progress in this area. Exports of elaborately transformed manufactures have doubled over the last 10 years and many new and vibrant industries have emerged – biotechnology, electronics, marine engineering, wine, education exports and film. Our dairy industry is an international success story and, with the creation of the mega co-op Fonterra, stands at the doorway of an even brighter future. As some of you will have heard, Fonterra has just completed a major international deal with the giant Nestle Corporation, which will see them working together in large countries such as Mexico and Brazil.

But there is much work still to be done. Fewer than 4 percent of New Zealand firms export and only a small minority of them become genuinely global. Last year, only 151 companies exported more than $25 million, and only 51 exported more than $75 million. And our exports – at 33 percent of GDP – are lower than for many other small economies.

New Zealand faces a number of significant hurdles as an exporter. Firstly and most obviously there are the trade barriers other countries raise against us. Successive New Zealand governments have worked tirelessly to dismantle protectionism. This government has negotiated a Closer Economic Partnership Agreement with Singapore and is pursuing a similar arrangement with Hong Kong. We have also taken trade missions to Chile, Argentina, Brazil and Peru as part of the Prime Minister’s Latin American strategy.

Our greatest problem as a world trader is our small size and our distance from our markets. If I were to draw a circle with a radius of approximately 2000 kilometres around Auckland I would take in one country with 3.8 million people and a lot of seagulls. A similar circle centered on, for example, Helsinki in Finland would capture over 300 million people in 39 countries.

This is not something we can alter. It means our exporters have to be smarter and make sure that our products can command premium prices on the world market. That is the basic thrust of the Innovative New Zealand framework.

Since we took office, we have been embarked on a project to transform the economy in partnership with business, local government and the community at large. New Zealanders are highly creative. In fact the latest Global Entrepreneurship Monitor ranked New Zealand one of the most entrepreneurial countries in the world and the government has already done much to foster this innovative culture.

However, our trouble is not generating new ideas but converting them into commercial successes. New initiatives now being developed to support our entrepreneurs with mentoring programmes, incubators and cluster development, improving our intellectual property protections and encouraging the tertiary institutions to get more serious about commercialising their research.

As you can see, there is still a lot of work to be done to transform our economy into one that will ensure the quality of life that New Zealanders of all ages want for years to come. That’s why later this year we will be seeking another three years in office, so that we can build on what has been achieved.

Once more our approach will be to only promise what we know we can deliver, and by that means to restore the trust of the New Zealand people in their government.

Thank you.


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