24 May 2004 Media Statement
Budget 2004

Assistance for textiles industry transformation to high value, high skill export sector

Initiatives to build skills and assist in the transformation of the textile, clothing, footwear and carpet industry, will receive $2.3 million in Budget 2004, Minister for Economic Development Jim Anderton announced today.

"The textiles, clothing, footwear and carpet industry in New Zealand has great potential for growth. There has already been substantial growth in exports in the past decade, but there is much more potential to be realised yet.

"This industry faces unique challenges, including the gradual reduction in tariffs beginning on 1 July 2005 after a six year Labour Progressive tariff freeze. Textiles New Zealand will be supported in their work to transform the industry into a globally competitive, high value production sector," the Progressive Leader said.

"Assistance will also be given to improve the industry's ability to cope with upcoming change and to assist businesses to build up the skills and knowledge necessary to increase their opportunities for sustainable employment and business development," Jim Anderton said.

As part of the four year $500 million Growth and Innovation Budget Package, these initiatives include $2.3 million of funding over three years to help transform the textiles industry into a high value export focussed sector.

"Budget 2004 takes a comprehensive approach to economic development, focussed on strengthening and deepening New Zealand's connections with the world economy. A high skill, high value textiles industry has the potential to be a significant part of such a strategy," Jim Anderton said.

24 May 2004 Media Note
Budget 2004
Textiles industry transformation

Initiative

Funding for the Textiles New Zealand TCFC Industry Transformation Programme, including support for the Tertiary Education Commission to co-ordinate government support for skills and employment aspects.

Portfolio: Economic, Industry & Regional Development

Description

The majority of the $2.3 million proposed funding is to enable Textiles New Zealand, the industry development organisation for the TCFC sector, to implement its proposed programme of activities to foster transformative, high value growth in the TCFC sector and facilitate the transition to a low-tariff environment.

In addition, the Tertiary Education Commission will lead a pro-active circuit-breaker approach that focuses on upskilling to address the risks to employment and growth that the TCFC sector may face as a result of tariff reduction post-2005. The TEC will co-ordinate a whole-of-government engagement with Textiles New Zealand on skills and employment in support of the industry’s strategy. $150,000 has been provided in each of 2004/05 and 2005/06 for this purpose.

Rationale

The government is concerned that positive action be taken to stimulate the TCFC sector to develop and implement strategies to meet the challenges of the changing global marketplace. This government action will empower the TCFC sector to manage the transition to lower tariffs, rather than leaving firms and workers to make (or not make) a successful transition on their own. The TCFC industry will gain ownership over a programme that will transform it into a globally competitive, self-reliant concern.

The TCFC industry is very diverse, including both high-growth companies that have demonstrated the possibility of growth in competitive niches and many other companies that are small, marginally profitable, and poorly equipped to undertake any move into global markets or major reorientation of business strategies. The fragmented nature of the industry makes self-funded industry good activities very difficult to deliver. Government support will enable Textiles NZ to develop as a co-ordinating body and over time demonstrate from its activities sufficient value to participating companies to become self-funding.

In respect of the proposed TEC-led circuit-breaker approach, people and skills are key for the sector to move up the value chain. A focus on up-skilling and information sharing will enable a smoother transition and limit the likelihood of large scale employment losses and the need for government intervention after employment loss.

How does the initiative contribute to GIF objectives?

The proposal is intended to support more rapid growth by a higher number of high-potential firms, and indirectly support growth amongst others in value chains, and through demonstration effects. To the extent that it succeeds in this, beyond what would be expected in the absence of such support, greater growth in the TCFC sector, and economic growth generally, can be expected.

How does the initiative contribute to achieving the Government’s key goals?

This initiative will assist the growth of an ‘inclusive, innovative economy for the benefit of all’ and assist in ‘improving New Zealanders’ skills’. The initiative (and circuit-breaker approach) will do this by working with Textiles New Zealand to improve the sector’s resilience to change, move it up the value chain and towards high end production.

Links to other initiatives/ rest of GIF package

The proposal is distinctive in funding an external industry organisation for industry-good activities. It will, however, draw on NZTE expertise in the design and operation of sector strategies.

The TEC funding specifically aims to facilitate collaborative action by the sector and firms within it and to use existing government programmes in support of its strategy. The Textiles NZ business plan includes strategies for business and R&D development.

In supporting successful transition between jobs from declining to growing parts of the industry, the TEC-led circuit breaker approach supports the goals of the Government’s Employment Strategy, Skills Action Plan and GIF Skills and Talent work programme.

Funding

Funding of $2.0m is proposed for Textiles New Zealand to implement its transformation programme for the TCFC sector. A further $0.3m over two years is allocated for the ‘circuit-breaker’ employment assistance initiative. This is a total package of $2.3m new government funding. It is in addition to the $200,000 already provided to Textiles New Zealand for its start-up costs.

$million (GST inclusive where applicable) 2004/05 2005/06 2006/07 2007/08 Outyears
Operating - new
- redistributed
Capital - new
- redistributed 950

950
400

TOTAL 950 950 400

Questions and Answers

Why is there a role for government in funding TCFC transformation?

Government funding of the TCFC transformation is consistent with the Government’s existing industry development focus that encourages industry to work together to achieve industry goals. In this case, the TCFC sector faces an immediate risk to its growth opportunities, skills retention and sustainable employment prospects due to further tariff reduction.

The government’s funding of Textiles New Zealand is also considered desirable to overcome the problem of industry self-funding in the short to medium term due to the industry’s fragmentation. Over time Textiles New Zealand would need to demonstrate from its activities sufficient value to participating TCFC companies to become self-funding.

Late last year Australia announced TCFC funding of $A747m between 2005 and 2015 to aid its TCFC industry through planned tariff reductions. $NZ2.3m seems very small in comparison - why the difference?

Both countries are reducing higher tariffs and supporting their TCFC sectors in making the transition to a more open environment.

There are some substantial question-marks about the effectiveness of support at the Australian level, including risks of:
- distorting investment decisions away from a commercially-sound basis, both within the TCF sector and between it and others (in the worst case scenario, hindering rather than supporting industry transition);
- funding companies for activities they would do anyway – evidence on the programme to date is not conclusive as to whether it has actually made a difference to investment patterns.

In contrast, the focus of industry-specific support in New Zealand has been on supporting development of growth-orientated strategies within industries, on the basis that can be expected to generate commercially-sound business opportunities, and will succeed if companies are prepared to invest their own money to realise those opportunities.

The Australian package also includes a 10 year A$50m program to assist workers affected by large plant closures. We consider that large scale redundancies are less likely in New Zealand. In Australia tariffs in TCF are being reduced at 1 January 2010 from 17.5 percent to 10 per cent. Because New Zealand’s tariff reduction profile is more gradual we expect employment loss to be more gradual and fragmented. Our discussions with unions and officials and our modelling provide some confirmation of this.

There are some uncertainties about how the package will affect the TCF trade between Australia and New Zealand (both countries are the other’s largest TCF export market), which officials are presently investigating.

ENDS

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