Low Growth Is No Growth - Peters Speech
Rt Hon Winston Peters
Business New Zealand Annual Conference
2.00pm Wednesday 17 July 2002
Low Growth Is No Growth
It is a pleasure to be here today.
When you consider the likely scenarios following election 2002 this is what your choices come down to and it is clear; if you want an insurance policy then you have one choice - New Zealand First.
In choosing between New Zealand First and the Greens it is a choice between international trade and isolation.
It is a choice between progress and retrenchment, or between the rule of law and incitement to clog the courts.
It is a choice between enhancing our relationship with our trading partners or mindlessly estranging them.
You are prudent business people who know about managing risk.
The risk is a Labour government on its own, or one that is pulled to the left by the Greens, or one that can work productively with New Zealand First.
It is a fact that National is irrelevant in this campaign, and therefore by association, so is ACT.
You have nine days to get yourself some insurance.
Let me tell you what you get if you cast your party vote for New Zealand First.
We have campaigned for three things in three years.
It has been a simple message.
And it is a message that deals with the fundamentals of our society: for it is a message about equity, about justice, about security, and about progress.
We acknowledge that there is much to be done for the education, health, and welfare of New Zealanders and that any such plan depends on the soundness of our economy.
That is why we do have an economic plan that aims to rapidly expand export growth.
We have been regularly slipping down the international economic ladder. But far too many commentators and business leaders seem to be unaware of it. The warning bells sounded last year by the eminent economic journal “The Economist”, that New Zealand looks likely to be the first country in 50 years to go from the first world to the third world is a dire prediction which has been alarmingly ignored. For example, this morning on TV a commentator described our economy as “doing well”. Compared to which country? Ireland? Singapore? Taiwan? Scandinavia?
It is doing disastrously and any true patriot or nationalist would understand that.
There are also some alarming things happening within the New Zealand economy. For example, the Government’s decision to get rid of the Privy Council which will affect international investor and business views of New Zealand.
And there is an alarming lack of insight where New Zealand’s business interests are concerned. On 8 July 2002 “Rural News” reported a possible $50-$60m write down of former Kiwi subsidiary Food Solutions, a key player in last year’s “Powdergate”.
Typically there were four different versions of the story given to reporters.
Version 1: In answer to shareholders, two Directors said that “It was under investigation”
Version 2: Fonterra PR woman, Jody Stewart, confirmed that Food Solutions’ value is subject to a write down.
Version 3: Independent Director John Hood, confirmed “An unaccounted write down of $50million”
Version 4: Graeme Hawkins, Fonterra Director, and Audit Committee Chairman, said, “The write down is being investigated, but only as part of the normal process of compiling the company’s financial statements”.
That may be right, but the magnitude of the write down of a subsidiary of New Zealand’s biggest company, immediately after an extensive valuation process to merge Kiwi and Dairy Group, is totally unacceptable. As is the silence on this matter in our media outlets and even within business circles.
Compare that with the publicity that Enron and Worldcorp are getting in the USA.
We can’t be a part of the first world until we have a first world view of what is going wrong.
Another reason for our poor performance is that for too long we in this country have accepted that 2 or 3% growth is OK. Dr. Cullen recently described growth predictions of around 3% as “robust’ and promptly down-sized the prediction.
His election campaign rhetoric has been much more optimistic and he has belatedly acknowledged that the Reserve Bank’s myopic focus on inflation may have had adverse effects on the export sector.
The big question is: why, after two and a half years in the job, has he not moved to rectify these matters?
Business has supported Labour this time round, presumably in the name of stability and in recognition that National is offering nothing new.
But doing that will not get you a catalyst for positive economic change, but further mediocrity.
New Zealand First do not accept that our export per capita figure is adequate at $(US)3,600.
If we compare this with other countries with similar populations our problem is immediately identified.
Ireland exports over $(US)19,000 per person.
Singapore’s per capita exports are almost $(US)35,000 - nearly ten times our effort.
We can argue all day about different societies but we must agree that those countries don’t have greater resources than New Zealand. And in this day and age we cannot blame our geographic isolation for such a difference in performance.
And this sad result comes after huge economic upheaval and years of apparent improvements to our international competitiveness.
Our lack of performance has come about through an emphasis on the interests of the financial sector at the expense of the productive sector and exporting in particular.
It has been exacerbated by long periods with over-valued exchange rates and high interest rates.
The focus on inflation (and on a narrow band of inflation at that) has impeded growth, especially in recent times when much of the inflationary pressure has been brought about by high immigration of people who end up not constructively engaged in our economy.
It is a lie to say that we are importing high skilled and business oriented people.
Our uncontrolled imports of people is seriously affecting our long term export prospects.
Some of you may be obtaining cheaper labour in the short term at the expense of improvements in real productivity.
The Labour coalition government has begun to recognize that their hands-off approach of the past has not been successful but having no real economic strategy or export plan they are paralysed against correcting matters and seem oblivious to the dangers of a lack of a planned population policy.
In noting that gross immigration was 8,300 in excess of the 45,000 target, Infometrics' economist Gareth Kiernan, last month, identified this as a major reason for forcing up prices: '...the influx of migrants is quickly soaking up spare capacity in the economy - housing, schools, health services, roads, etc. As supply of these goods and services comes under pressure, prices will be forced up....'.
All New Zealanders, producers and consumers, should be alarmed by the insidious change that is taking place in our society without any public debate. Clearly the issue is higher exports, for nowhere else in the first world is higher immigration seen as a substitute.
New Zealand First has a plan to treble exports, in real terms, well before 2020.
If we continue to accept growth of 2-3% as being robust then we will continue to fall behind the first world.
We can achieve twice that in the short term, and we desperately need to. Nearly every political argument in this election campaign is testimony to a failing economy.
So how do we do it?
Not by having the government going into the exporting business.
But by having the government go into the export promotion business by providing the conditions under which our innovators can thrive.
Australia’s Government has well over 70 export growth measures in place, and the State governments have their own. What do we do?
We have an Export Credit Guarantee scheme that was imposed, and that patently doesn’t work and an export media unit to tell you how good they are.
So what we have is blatantly very little.
We are advocating a fundamental change but not of the sort brought about by Roger Douglas, Richard Prebble, and Helen Clark and company after our last July election back in 1984.
Neither is it a case of turning the clock back.
From SMPs, to tariffs, to quotas, to price freezes, to mini budgets: we have seen the full range of government intervention and neglect.
But unless we can grow rapidly the size of our economy then we can not rebuild our infrastructure and have the quality education and health systems enjoyed by the first world.
What New Zealand needs is a plan that puts exporters first and a government that will provide the conditions under which exporting entrepreneurs and innovators can flourish.
Responsible business leaders are now recognising that pure market forces have failed to deliver either economic gains or social justice.
The budgets we presented in 1997 and 1998 took major steps towards providing the conditions for economic and social progress.
And the amendment to the Reserve Banks policy targets agreement, which we made, on becoming government in 1996, has contributed greatly to an improved export performance.
But we cannot settle for more of the same.
Already we are seeing disturbing signs that the good times are gone.
Worse, there is an expectation that this is so.
The June survey of the New Zealand Institute of Economic Research shows a slump in business confidence. On top of four hikes in interest rates since 20 March, and coupled with an appreciating dollar the growth forecasts look bleak.
So let’s set ourselves some goals. Let’s have a plan to change things for the better.
Achieving economic growth of 6% by 2006/2007 is a realistic goal but we have to acknowledge that any such improvement is absolutely dependent on export success.
In 2003 New Zealand First will promote a CAMPAIGN FOR EXPORTS.
Our plan is to treble exports, in real terms, well before 2020 and we will set export goals to reach that target.
This, then, is the plan:
The more flexible monetary policy prescription and widening of the inflation band to 0-3% introduced by New Zealand First in 1996 contributed to a substantial lowering of both exchange and interest rates.
- promote a balanced and flexible monetary policy of low exchange and interest rates conducive to real export and employment growth; and,
- amend the Reserve Bank Act and make export, growth, and employment objectives part of the policy targets agreement between the new government and the Governor of the Reserve Bank
We will not accept the continuation of the myopic focus on inflation at the expense of growth, or a Reserve Bank that has misinterpreted the intent of the widening of the band and has often remained within the old 0-2% band - something which it had failed to do on many occasions prior to 1996.
The export focus of New Zealand First’s plans provide the base from which a re-orientation towards high technology and further processing industries will lead the way to an export performance that builds on the best of the present and provides growth for the future.
- The focus on our trading performance will be supported by an expansion of development banking facilities and venture capital opportunities.
- We will consult with exporters to ensure that we have an export credit guarantee scheme that does work, unlike the bureaucratic maze it is now. Every other leading nation has one that works except New Zealand where not one application has got through the system!
- We will ensure that New Zealand’s Trade Development Board maintains and expands our present markets whilst developing emerging markets.
- We will require the promotion of industries where New Zealand has a clear competitive advantage.
- We will ensure innovation through tax incentives for research and development comparative to other first world nations.
- We will make sure that technology transfer occurs within both the public and the private sectors.
- We will increase the international competitiveness of New Zealand business by reducing red tape and compliance costs - we will conduct a full-scale independent inquiry into all Government red tape and compliance costs requiring that they be justified or if not jettisoned. The Committee of Inquiry into compliance costs will be required to report to Government within one year of the next election.
- Our long-term objective is for all New Zealanders to pay less tax.
I am not here today with an election year tax cut. However, New Zealand First does undertake to reduce corporate tax in the short term, but our economic priority in campaigning for exports next year, 2003, is clear and will be given impetus by one further element in our plan:
- The tax rate on new increased export net profit will be reduced to 20%.
If Company A has net income from exporting of $10million this year, and if it achieves $12million next year then the tax on the additional $2 million will be at 20%.
- We will put the machinery and legislation in place to ensure that this system is honest and kept honest. Within five years we plan to put all exports on the same footing (of 20%).
The Fringe Benefit tax regime needs jettisoning and we need tax holidays for businesses investing in new technology.
So, is 6% economic growth possible?
Of course it is and it better be. Some of you are achieving that now. We simply need to lift dramatically the performance of the entire sector.
It is not a case of a government meddling or picking winners.
It is simply what is done in successful overseas economies, providing the right conditions for our entrepreneurs and innovators to do the rest.
And this is not just a message for exporters.
- Buy New Zealand first is another means of improving our balance of payments and of helping New Zealand business. It is an area where a government can provide leadership (by requiring government departments and SOEs to buy New Zealand made) and funding. The decision has to be taken: do we actively pursue a policy of import substitution or do we remain ideologically pure and watch our producers disappear?
We became far too reticent about giving a helping hand as a result of the New Right swing of the economic pendulum.
- Instead of going all out to remove tariffs ahead of the rest of our major trading partners we should emulate them in placing a buy New Zealand priority internally and on our foreign aid. If we are to build industries that are truly internationally competitive then we must be prepared to help them get established.
Why do most of our significant food processors now operate plants in Australia? What requirements and advantages lead to that situation?
New Zealand business must be given the conditions to compete from here.
With more production, more employment, and dramatically more growth taking place onshore then the government will take more tax, pay less benefits, and be able to afford a range of incentives. It’s just common sense really.
The present growth of 2-3% will ensure that we fall further behind other first world countries - for low growth, long term, means no growth.
That is a future New Zealand First refuses to accept and we hope that you do too.