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Cullen Address to Greymouth Rotary Club

Michael Cullen Address to Greymouth Rotary Club Ashley Hotel, Greymouth

It is fair to say that I have had a bit of a rocky relationship at times with the West Coast in recent years. So much so that I have been advised to steer clear of the Hokitika Wild Foods Festival for a few seasons, despite repeated invitations.

Tonight I want to talk about two issues that are crucial for all New Zealanders: the economy – always dear to my heart – and the ownership of the seabed and foreshore.

The New Zealand economy is in surprisingly good heart, given the state of the global economy. Over the last three years growth in the global economy has faltered, due to a range of economic and political factors. Thankfully, compared to the situation in the first half of 2003 some of these factors have now diminished:

We have seen an easing of geopolitical uncertainty following the end of war in Iraq;

Asia has recovered from SARS which saw a dramatic reduction in tourism, retail and service sector activity (and hopefully the lessons learned in that outbreak will be applied to the current concern over bird flu);

Japan is emerging from its recession, and has posted steady growth in the order of 0.5-1 percent per quarter, with recent, better than expected outturns, lifting growth to above 2 percent for 2003; and

There has been some recent improvement in European leading indicators, although these have yet to feed into growth rates.

However, there are still significant concerns about the US, the world’s largest economy. On the one hand, the US economy achieved significantly stronger growth in the second half of 2003, due to a combination of low interest rates and increased government spending which have supported consumption expenditure. The US corporate sector is starting to pick up on the back of improving profitability which in turn is feeding through into a recovery in business investment.

On the other hand, prospects for sustained growth in the US are hampered the rising current account deficit, the government budget deficit, and a weak, though improving, labour market. None of these augurs well for a speedy recovery in the value of the US dollar, which would be very welcome in this part of the world.

Australia, our largest trading partner, has seen growth slow over the last 18 months with the combined effects of a rising currency, SARS and widespread drought conditions, all of which have hit exporters and the tourism sector hard. Economic growth recovered in the final quarter of last year to reach 3 percent for 2003. This is lower than the previous year but growth is forecast to rise again as the effects of the drought wear off and the global recovery takes hold.

So the tentative expectations are for steadier growth in the global economy in 2004, indeed for growth to be the highest since 2000.

As I mentioned, New Zealand has been bucking the global trend in the last three years:

Our GDP growth rate was 3.9 percent over the year ended September, which was considerably faster than in the United States, the UK, Europe, Japan or Australia.

Steady economic growth has brought jobs. The unemployment rate has fallen from a peak of 7.7 percent in 1998 to 4.6 percent in December 2003, in spite of rapid working-age population growth.

Government debt, at 28 percent of GDP, is the lowest it has been since the mid 1970s.

As could be expected, last month’s National Bank survey shows a slide in general business confidence from net 16 percent negative to net 28 per cent since December, in line with concerns about the exchange rate. However, it also showed that the own activity indicator is still firmly in positive territory and employment and investment intentions are robust, consistent with the economy growing at near full potential.

The survey also showed that anticipated export volumes have remained reasonably upbeat at a net 20 percent, which was the level they fluctuated around for most of last year.

Short-term interest rates are low compared to the historical average, although higher than global rates. The Reserve Bank has not reduced interest rates by as much as central banks in other countries because of the strong domestic demand growth New Zealand has experienced. Most recently, the Reserve Bank actually increased the official short-term interest rate by 25 points, to ensure that the inflation rate remains stable and low over the medium term.

The concern, however, is that our economy is like a twin-engined plane where one engine is revving at full throttle while the other sputters due to excess oxygen in the fuel mix. The situation is not dire; but a better balance needs to be restored soon, or we will face some problems.

The engine at full throttle is the domestic economy, where demand has built up momentum, and is expected to continue growing strongly over the short term. Consumer and business spending, and investment in housing in particular, have grown strongly. Real gross domestic expenditure rose 6 percent over the year ended September, driven by immigration, relatively low interest rates, and rising house prices.

The other engine is the export sector. While export volumes have increased steadily over the last year, and export incomes remain high compared to the historical average, the rising exchange rate and falling international prices for some commodities led to a reduction in nominal export earnings by 6.4 per cent over the year to September.

The New Zealand dollar has rightly come in for a lot of attention. Standing back and seeing the bigger picture, we should note that it underwent a protracted decline between 1997 and 2000, and therefore a significant appreciation against the currencies of our major trading partners was inevitable given the stronger than average performance of our economy. So the trade-weighted exchange rate has appreciated by 15.5 percent since the start of 2003 and is currently around 47 percent higher than its 2000 low. Overall the TWI is currently around 14.8 percent higher than its post-float average.

While much of the attention has focussed on the substantial appreciation of the Kiwi against the US dollar, some 25 percent during 2003, the story is more complicated than that. The New Zealand dollar has actually depreciated against the Australian dollar and appreciated more modestly against currencies such as the British pound and the euro.

Even so, as I have said on several occasions recently, I believe the New Zealand dollar is over-valued given the strength of the New Zealand economy relative to our major trading partners, especially Australia, and given the rising current account deficit.

My major concern is that a continued high dollar may lead to lasting damage to our export sector by discouraging investment in future capacity. We do not want a situation where our ability to take advantage of a global upturn and a lower dollar is impaired.

By mid 2004 the impact of declining export incomes should be felt more widely than just the export sector. Currency hedges will have worn off by then, and exporters are likely to cut back their domestic spending. Also a lower number of immigrants is expected to reduce economic growth.

Even so it is important to note that the growth rate is not expected to slow much. There is no suggestion that the engine will fall off or cease to function; just that it will not run smoothly, and a result we may experience some unpleasant lurches as the plane rights itself.

Growth is forecast to “bottom out” at 2 ½ percent over the next year or so. By 2005/06, it is predicted to return to an average of 3-3½ percent per annum, thanks to a recovering global economy, and some assumed exchange rate depreciation, which will revive export earnings.

Along with the slower rate of GDP growth, the rate of job creation will ease. Nevertheless, employment growth will still be above zero, and the unemployment rate is expected to remain in the 4½ -5 percent range.

What we should see is that our strong “economic fundamentals” and flexible economy allow us to adjust to a changing international environment and fluctuating prices without getting caught in a large economic cycle.

This is the larger context within which the economy of the West Coast fits. The Coast is in fact near the top of the most recent regional economic league tables. It enjoyed 4 percent year-on-year growth in the year to September 2003, along with the rest of the South Island, except for Southland. That’s a full percentage point ahead of the Auckland region’s growth rate for the same period, and bettered only by the Waikato at 4.1 percent growth.

The West Coast had the strongest increase in the number of house sales across the regions, and the largest gain in retail sales, both of which indicate the level of confidence that ordinary people have in the future of the Coast.

Some of that growth and optimism is the result of the West Coast economic package which has now been in operation for two years.

You will recall that $92 million of the $129 million package was paid to the West Coast Development Trust to promote sustainable economic development and employment opportunities in the West Coast Region.

To date the Trust estimates their activities and investments have led to the creation and retention of 185 direct and 475 indirect jobs.

The West Coast is an economy in transition. The goal which is shared by both Coasters themselves and central government is a more diverse economy. Coal, timber, fishing and pastoral farming will still be important; but there will be a stronger emphasis on tourism, and in particular high-end eco-tourism. Getting to the goal will take time. Time to create a better infrastructure, time to undertake sustained promotion of the Coast in niche markets, and time to acquire the skilled workforce needed to service new and expanded industries.

We are confident that the economic package in combination with the robust temperament of Coasters will achieve that transition over time.

I want to say a few words about the foreshore and seabed issue. This is clearly one of the most challenging items on the nation’s agenda. As much as some might wish it, we cannot make it go away. It requires a mature and measured response.

The challenge for the government lies both in the complexity of the issues and relationships involved, and also in the ease with which the debate can be sidetracked by those taking extreme positions on the far right (through exciting irrational fears) and on the far left (through promoting unrealistic expectations).

As the Prime Minister pointed out recently, Dr Brash’s Orewa speech has broken a longstanding consensus around how Maori and non-Maori New Zealanders engage on difficult questions of indigenous rights. This consensus has not been about a standardised view of the issues.

It has been instead a consensus around how that debate is conducted: reasoned, respectful and sensitive to the passions involved and the complexity of the historical and legal issues.

By launching an attack on what he terms preferential treatment for Maori, Dr Brash has inflamed irrational fears. His comments since then have drawn upon anecdote, caricature and stereotype, and have unleashed a wave of hostility and suspicion towards all Maori.

A man as intelligent as Dr Brash surely knew this would be the result. The tragedy is that he has created an environment in which sensible public debate is even less likely.

I think it is important that we remind ourselves at this point of where the seabed and foreshore issue began. The Court of Appeal’s decision last June that the Maori Land Court could hear claims and investigate the ownership of the foreshore and seabed raised some fundamental questions of constitutional, administrative and property law. But we need to be very clear on what it was that the court actually said and what it did not say.

It did not say that Maori owned the foreshore and seabed. That was not even the question before it. The question before it was whether the jurisdiction of the Maori Land Court extended to the foreshore and seabed or whether - in effect - all Maori indigenous rights had been extinguished.

The court found that the Maori Land Court did have the jurisdiction to hear claims but was careful to venture no further. It left open questions as to whether the claimants would succeed in establishing any customary property and stated that the extent of any interest remained “conjectural” but was likely to pertain to “relatively discrete areas.”

The quandary this created for the government is that the Maori Land Court would have had to apply the Te Ture Whenua Maori Act 1993 but this Act was intended to apply to dry land only and is incapable of recognising a property right short of fee simple title.

This is the significance of the legal advice supplied in Professor Paul McHugh’s submission to the Waitangi Tribunal. He attested that the New Zealand courts would most likely be swayed by comparable overseas cases and would find that the common law cannot recognise exclusive ownership of the foreshore and seabed.

But, while Professor McHugh, a world expert in this area, found there could be no exclusive ownership he also stated that he believed there may be very substantial Maori rights over the foreshore and seabed.

These are not Treaty rights. They are rights which derive from the common law; that is, from the mainstream tradition of English jurisprudence. Customary rights are attested to by both New Zealand and overseas courts. Such rights are established by long practice; by a continuous relationship between a community and a specific area of foreshore and seabed. What this means is that a relatively small proportion of the foreshore and seabed is likely to be the subject of customary use. It is certainly not envisaged that on large stretches of the coast long dormant practices might be resuscitated and granted status as customary rights.

Although they do not involve ‘ownership’ as such, customary rights are property rights nevertheless. One can draw analogies with any number of other rights, such as rights of way and similar modifications to titles which place an obligation on the owner of land to make provision for the interests of other parties.

Like any other property right, customary rights, where they are established, should not to be taken without just compensation. And like any other property right, they must be exercised in a context of other, competing, rights belonging to other individuals and to the public. They can be regulated or moderated – to a certain extent – for broader community purposes.

The government’s position on the foreshore and seabed issue recognises that fact; but also the interest that all New Zealanders have in the foreshore and seabed and the need therefore to quickly find a workable solution that is likely to be durable going forward.

That is why leaving the matter to resolve itself gradually through the courts was never a viable option.

It was disappointing to find the Waitangi Tribunal advocating resolution through the courts in their report released last week, and to find them basing their conclusions on dubious on incorrect assumptions. While I want to give careful consideration to a number of the matters raised by the Tribunal, I cannot go along with their rejection of the principle of parliamentary sovereignty.

The Tribunal, in more than one place in the report, seems to assume that a clear statement of statute law - such as vesting of the title to foreshore and seabed in the Crown as is currently the case - can in effect be ignored. If Parliament changes the law, as the government is proposing by removing the capacity of Maori to gain freehold title over the foreshore and seabed, it cannot be accused of somehow breaking the law itself. This is particularly so when what the government is proposing is that the law should be changed to reflect the meaning that Parliament clearly intended it to have in the first place.

The second serious error the Tribunal makes and which determines a great deal of its judgement is that the government's proposal does not include the recognition of customary rights as a form of property rights.

That is simply not so, as I have just explained. The government does recognise customary rights as property rights, and we will make this clear in the introductory policy statement to the legislation.

Much of the logic of the Tribunal’s report simply falls to the ground once that is made clear.

What the Tribunal seems to be recommending is that matters be allowed to take their course through the pursuit of individual cases through the courts, with decisions one way or another, followed by appeals and so forth. This would go on perhaps for many years, to an unknown conclusion.

The Tribunal notes that if these proceedings should continue to the granting of freehold title to what could be substantial areas of foreshore and seabed, then the government could legislate to take that title away, in return for compensation.

I would suggest that that is far more objectionable in terms of interfering with due legal process. What is more, it would create great uncertainty in the meantime, with a serious risk of injunctions to prevent any foreshore and seabed activity occurring.

To allow this to happen would be irresponsible for any government. That is why our decision was to set out a framework to provide a clear and unified system for recognising rights in the foreshore and seabed, and to enshrine that framework in legislation, after seeking submissions from all those affected.

This framework envisages a rigorous process for recognising and protecting customary rights. It proposes that the foreshore and seabed be placed unequivocally in the public domain; but that the Maori Land Court be able to grant ‘customary title’ to Maori as a way of formalising longstanding connection. This title would coexist with public title, with its guarantees of access and transparent regulation. At the same time, a formal process for the recognition and protection of remaining customary rights would be put in place.

It would most definitely not imply ownership in fee simple. Instead it would be one feature of a larger framework for the foreshore and seabed based upon four key principles to be enshrined in the legislation:

Open access to and use of the foreshore and seabed for all New Zealanders;

Regulation of the use of the foreshore and seabed by the Crown on behalf of all future generations of New Zealanders;

Acknowledgement of the customary interests of whanau, hapu and iwi, and the protection of specific rights where these are identified; and

Certainty for those who use and administer the foreshore and seabed.

Clearly no piece of legislation could resolve immediately all the issues with the foreshore and seabed. What it will do, however, is create a fair and reasonable framework for working through individual cases, in the context of a settled concept of public ownership. It will also enable commercial interests (relating to aquaculture, for example) to plan ahead with a large degree of certainty.

It balances the rights we want all New Zealanders to enjoy and finds a secure place for the longstanding customary practices of Maori with respect to the foreshore and seabed. We are confident that it would create a middle ground, an equilibrium where the reasonable expectations of all can be accommodated.

It is ironic that the major opposition parties are attacking the government for leaning too much towards Maori, while some Maori and the Tribunal are saying the exact opposite. Perhaps that might suggest to a fair and independent observer that the government has it about right.

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