Policy Launch: Labour On The Economy
Labour believes that economic policy should aim to promote sustainable and balanced economic development in order to create full employment, higher real incomes and a more equal distribution of income.
LABOUR’S ECONOMIC RECORD
The economy inherited by the Labour led government was fragile and somewhat unbalanced.
The outlook for the economy now is much healthier. Growth is steady, job numbers are up and the unemployment rate has reached a thirteen year low. Inflation remains under control, and the balance of payments deficit has fallen dramatically. The economy has advanced on a broad front, and all the key indicators have improved. The economic profile is stronger and more balanced than at any time in the last thirty years.
It is particularly pleasing to see the improvement in employment. Over 100,000 new jobs have been created. The bulk of those jobs are full time. The unemployment rate has fallen, and the better prospects for finding jobs have meant that more and more people are looking for them. The participation rate – the proportion of people in the working age population either in or looking for work – is now at its highest level since this survey started. The good news is that it is only this that is stopping the unemployment rate falling even faster.
Despite better protections for workers through increases in the minimum wage and the passage of the Employment Relations Act, wages have not fuelled inflation. Instead, more people working their hours of choice in better-paid jobs have led to an increase in the total value of wages by more than ten percent above the rate of inflation. A lift in the real incomes of working New Zealand families of this order has not been seen in many decades.
The taxes on incomes above $60,000 a year have gone a long way to enabling the government to raise the floor for New Zealand Superannuation, reintroduce income related rents for low income state house tenants and ease the burden of student loans.
This is a very good story: sustainable, balanced economic development, generating jobs and lifting real incomes alongside greater equality in the distribution of the fruits of economic effort.
The economic record is good, but there is still plenty of room for improvement.
Labour’s objective is to get New Zealand back into the top half of the OECD living standards. That will require us to lift the sustainable growth rate of the economy to make sure that New Zealand remains a desirable locality in which to live, raise families, work and do business.
Labour knows that it is both possible and desirable to do that and at the same time protect environmental values and secure an equitable distribution of income and wealth.
- Progress incrementally on a broad front, within a framework of stable prices, sound public finances, even-handed regulation and effective partnerships between stakeholder interests in the private and public sectors.
- Strengthen the economic foundations to ensure that we grow from an established base and avoid another wave of disruptive restructuring.
- Grow through innovation and economic transformation, drawing on our natural aptitudes, attitudes and endowments.
The government has revised the Policy Targets Agreement (PTA) with the Governor of the Reserve Bank, and has reviewed the operations of monetary policy. It is now moving to implement governance changes consistent with increasing the accountability of the Governor while retaining the independence of the monetary authorities.
The appointment of a new Governor means that the Policy Targets Agreement will be renegotiated. Labour’s intention in the present PTA was to enable the Reserve Bank to act flexibly within the full agreed target range for price inflation so as to minimise the effects on the volatility of output measures such as Gross Domestic Product.
Labour believes that such flexibility is essential if the Bank is to be able to judge whether there has been a shift in New Zealand’s sustainable non-inflationary growth rate. Labour also believes that increasing the rate of productivity growth is the best method of improving confidence that the sustainable non-inflationary growth rate has increased.
- Ensure the revised PTA is expressed in a way which makes clear Labour’s intentions with respect to the flexible management of monetary policy, consistent with the maintenance of price stability, so as to be supportive of maximising sustainable economic growth.
- Initiate discussions between business, unions, and relevant government agencies to identify ways to lift the rate of productivity growth and to monitor and measure changes in productivity.
SOUND PUBLIC FINANCES
Improved economic performance was not bought at the cost of weakening the government’s finances. At the time of the 1999 election, the outlook was for a balanced budget in the year to June 2000, alongside a gross debt of 34.1 percent of GDP and net debt of 22.4 percent. In the year to June 2003, the operating surplus is forecast at 1.8 percent of GDP, gross debt is scheduled to fall to 28.3 percent and net debt to 17 percent. The public accounts have been materially improved, and in addition money has been put aside to protect the future of New Zealand Superannuation: by 30 June next year there will be $1,890 million in the New Zealand Superannuation Fund.
Sound economics and prudent finances have marked out this government as a highly successful manager of the economy.
Labour does not believe that tax cuts lead to sustainably higher growth, and the evidence of the 1990s in New Zealand confirms this. The issue Labour will continue to address is what level of tax revenue is necessary to finance an appropriate level of government spending, and what is the fairest and most efficient method of raising that revenue. It is also important to address longer term fiscal pressures by partial pre-funding of New Zealand Superannuation and applying more resources towards rebuilding the capacity of the public sector.
Labour believes that the challenges for fiscal policy are to:
- Finalise the role tax should play in boosting private saving.
- Finalise policy on the taxation of cross border investment and income flows.
- Manage gross debt in the light of the build-up of “deferred maintenance” from the 1990s.
- Run operating surpluses, on average, over the course of the business cycle, sufficient to meet transfers into the superannuation fund and to make a contribution to capital spending programmes sufficient to keep the gross debt track sustainable.
- Respond to pressures for more spending on social assistance, tertiary education and economic transformation.
- Revise the methods used for establishing how much the government spends each year, consistent with meeting broader spending, operating balance and debt goals.
- Continue to develop public-private partnerships for the financing of infrastructure improvements.
- Focus on simplification of the tax system, especially for small business.
- Upgrade the capital budgeting framework.
- Extend the use of longer term funding paths in social policy areas to ensure both more certainty and a better capacity to reconfigure service delivery in more cost-effective ways.
- Revise student support mechanisms (for further details see Labour’s Tertiary Education policy).
- Encourage the development of employment based, but portable retirement savings plans as a cost-effective way of leveraging higher levels of new saving.
- Examine the introduction of a dedicated health tax to replace an equivalent amount of income tax.
- Put more emphasis on extracting value for money from existing spending programmes.
- Complete the process of re-orienting state owned enterprises for long-term public ownership.
GROWTH AND INNOVATION
Labour believes that innovation is the key to improving the long run sustainable growth rate and to reversing the relative decline in New Zealand’s standing in the developed world.
Innovation is a process that starts with a good idea. The idea is refined through good science.
It is incubated in a supportive business environment. Its commercialisation is financed through a combination of venture capital and more conventional equity investment. Its product is sold to best advantage in a more open world market. Labour believes that it is essential to strengthen every link in this innovation chain.
In the past in New Zealand economic development has been spread too thinly and has not been sufficiently connected. The full potential of our economy will only be realised if we build on our sources of national advantage, and deepen the competencies that are associated with them. This means putting extra resource into enhancing capability and connectedness in the areas of biotechnology, information and communications technology and the creative industries. These sectoral competencies will have multi-industry applications and will interact with a strong chain of innovation to lift the economy onto a higher performance plane.
Labour has identified the key barriers to an effective growth and innovation framework as:
- A ‘thinning’ of New Zealand capital markets with a resultant difficulty of attracting new investment.
- Vulnerability to sudden changes in the outflow of workers, particularly among scarce skill sets.
- Problems “connecting” ideas and innovations with structures and processes that will grow them into successful businesses.
- Bottlenecks and delays in obtaining resource consents.
- Disadvantages of scale and distance.
- Limitations on the capacity of the telecommunications network to deliver sufficient coverage and quality of service to enable countrywide take-up of new technology opportunities and e-commerce.
Labour is committed to addressing these weaknesses in the innovation environment.
- Work with the Growth and Innovation Advisory Board to provide ongoing advice on initiatives needed for effective implementation of the growth and innovation framework.
- Support the work of taskforces in the three key strategic sectors: biotechnology, information and communications technology and creative industries.
- Establish an investment promotion agency, Investment New Zealand, as an independent unit reporting to the Board of Industry New Zealand, to attract more productive foreign direct investment.
- Continue to build up the NZ Superannuation Fund, and promote diversification of GSF and NDF, in order to deepen capital markets.
- Back up the new integrated investment agency with more targeted programmes designed to lure inbound greenfields investment, with a focus on the biotechnology, ICT and creative industries areas.
- Provide better resourcing for the Environment Court, and require Industry NZ to develop a capacity for whole of government approaches to overcoming administrative and regulatory hurdles.
- Work with local government to identify infrastructure bottlenecks and options in establishing partnerships for financing infrastructure upgrades.
- Roll out the innovation framework in the core areas of ‘vertical’ (skills, science, finance) and ‘horizontal’ (biotechnology, information and creative technology and creative industries) competencies and capacities.
- Enhance telecommunications coverage and capacity, and support the development of e-commerce and e-government.
- Modernise the regulation of commerce and reduce business compliance costs, especially for small business.
- Ensure that the pro-competitive regulatory framework of network industries and infrastructure is operating effectively.
Labour believes that work is central to our lives. Paid or unpaid, it is the way we meet our needs, create wealth and distribute resources. It helps define who we are. It is at the heart of wealth and well-being.
The Labour led government developed a comprehensive Employment Strategy that, for the first time, provided for a whole of government coordination of, and accountability for, a specific set of goals, activities and results.
Labour believes that employment policy needs to focus on both the demand for labour, and ensuring that workers are in the right place, with the right skills, and the right incentives to take the jobs that are being offered.
- Continue to apply macroeconomic settings that are growth and job friendly by, for example, ensuring that monetary policy is operating in a way that is sensitive to its impacts on output and employment volatility and that fiscal policy allows the automatic stabilisers to work.
- Operate a public sector investment programme that develops and maintains infrastructural capacity consistent with the needs of a modern, sophisticated, growing economy.
- Create job opportunities through the growth and innovation framework.
- Ensure that industry and regional development programmes allow all industries and regions to realise their full employment creating potential.
- Work with local government to build on the base created by the agreement reached between the government and the Mayors Taskforce for Jobs.
- Align social security and social assistance programmes that are designed to provide income security and build personal capacity with incentive systems that support the transition to self sufficiency through employment.
- Enhance skills and employability through tertiary education and training reforms and active labour market programmes.
- Continue the regionalisation of employment service delivery with resourcing increasingly directed to front-line service provision.
- Focus on the particular employment needs of long-term job seekers, mature job seekers, youth and migrants.
INDUSTRY, REGIONAL AND ECONOMIC DEVELOPMENT
Labour recognises that, while new investment and innovative ideas will stimulate economic activity, change is at the margin: most people will continue to engage in the industries they are in, in the regions they now live in. Labour believes that there is a role for a smart and active government to protect existing industries, to facilitate their evolution in response to new opportunities and to maximise their potential contribution to exporting, to production, and to employment.
Labour will develop and extend the industry and economic development programmes that have been initiated during this term of office.
- Evaluate Industry NZ’s programmes, and increase funding for the most effective.
- Involve diverse stakeholders in taskforces to identify ways of unleashing the potential of industries that might otherwise have limited development options (extending the model now working on the future for the forest sector).
- Further develop a specific entrepreneurial support strategy, including improved mentoring at firm level, the promotion of enterprise across society and a review of loan and grant policies.
- Advance existing and incipient industry clusters towards global presence and success.
- Improve the international connectedness of talented people in New Zealand through exchanges and missions under the World Class New Zealanders programme.
- Support the town and city centre movement and its promotion of regional economic development
- Celebrate tenacity by creating awards for New Zealanders who, having failed in business, subsequently succeed.
EQUITY AND ENVIRONMENTAL SUSTAINABILITY
Labour believes that for truly sustainable economic growth there needs to be public confidence that the products of growth are fairly distributed.
A number of initiatives have improved fairness in economic life: an improved industrial relations framework (the Employment Relations Act, changes to ACC, an increase in the minimum wage and extension of the adult rate to 18 and 19 year olds, and occupational health and safety legislation), a more progressive tax structure, improved security for those in retirement, a more secure funding path for health, fees stabilisation and an improved student loan scheme, housing reform.
Equally, economic activity cannot be sustainable unless it is within the capacity of the natural environment to support it.
Labour’s environmental policies, and policies for industrial, social and economic equity are detailed elsewhere, and are an integral part of our approach to economic management.
- Continue to develop analysis and measurement that recognises the wider aspects of sustainable development.
COMMERCE, COMMUNICATIONS AND INFORMATION TECHNOLOGY
The Labour led government has introduced a comprehensive programme of reform across the business-related portfolios. These reforms are aimed at creating an environment in which business can prosper and, in doing so, lift New Zealand back into the top half of the OECD.
There has been a focus on improving competition law, tightening securities markets regulation, reducing compliance costs – particularly for small and medium-sized businesses, introducing a telecommunications regulatory regime, engaging in a high-profile campaign to champion the uptake of e-commerce and committing ourselves to a major upgrade of our telecommunications infrastructure to allow the delivery of broadband internet to regional New Zealand.
The Labour led government has:
- Amended the Commerce Act to bring our anti-competitive barrier test in line with Australia’s.
- Introduced a Takeovers Code to ensure that all investors get treated equally during takeovers.
- Introduced a Securities Markets and Institutions Bill, to improve rules for detection, disclosure and enforcement.
- Initiated a fundamental review of insider trading laws.
- Passed the Telecommunications Act, which introduces a new regulatory regime and telecommunications commissioner, to resolve issues such as interconnection and number portability.
- Concluded a successful 3G spectrum auction to allow for the roll-out of high bandwidth mobile networks.
- Introduced the Electronic Transactions Bill to put paper-based and electronic transactions on an equal legal footing.
- Introduced anti-hacking legislation to make computer hacking a crime.
- Held a successful E-commerce Summit and followed this up with the development of an e-commerce strategy and eight regional e-commerce events attended by more than 1,600 people.
- Established an E-Commerce Action Team.
- Established an Information and Communication Technology Taskforce.
- Allocated tens of millions of dollars in Budget 2002 for the roll-out of regional broadband focused on schools and communities.
Priorities for the next term In our next term Labour will closely monitor the measures we put in place in our first term as well as embarking on significant new reforms aimed at creating an environment in which New Zealand business can thrive.
- Monitor the new Commerce Act regime.
- Review the Takeovers Code to see if any changes are required.
- Pass the Securities Markets and Institutions Bill.
- Complete the review of insider trading including definitions and issues of criminality.
- Monitor regulatory issues relating to the insurance and financial advice industries.
- Embark on the post 2005 tariff review.
- Introduce Phase 2 of the Compliance Costs Reduction Programme, including a tax simplification programme.
- Monitor the new telecommunications regime.
- Respond to the local loop unbundling review.
- Oversee the roll-out of broadband to regional schools and communities.
- Continue to promote the E-commerce Strategy and the work of the E-Commerce Action Team.
- Implement, where appropriate, the Information and Communication Technologies Taskforce’s recommendations.
- Ensure that New Zealand keeps abreast of overseas developments in international best practice in accounting.