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Budget 2004 - PMs Speech - AK Chamber of Commerce

Friday 28 March 2004

Rt Hon Helen Clark Prime Minister

Address to Auckland Chamber of Commerce Post Budget Luncheon

Hyatt Regency Hotel Auckland

Thanks for the invitation once again to address the Chamber so soon after the Budget.

Like many present, I’ve spent some time this morning perusing the post Budget commentaries.

While no government ever expects universal approval for a Budget – the range of political views in the community rules that out – nonetheless I thought that comment on the whole has been measured, and in most cases constructive.

Everyone wants the country to do as well as it can. The debate is over how to achieve that.

There can be little doubt that the New Zealand economy has continued to be one of the best performers in the OECD in terms of growth rates and lowering unemployment.

Yes, growth came off the 4.4 per cent peak reached earlier in 2003, but 3.5 per cent for calendar year 2003 was a very credible result, compared both with other western economies and with earlier predictions, and against the turbulent international conditions in which we operate.

Last year when I addressed this luncheon, I listed a number of external factors impacting on our ability to grow. They included:

the impact of terrorism, the sluggish performance in the US, Japanese, and EU economies, the threat of SARS to tourism, our galloping dollar, lower dairy prices, and, climatic impacts on the primary sectors and electricity supply.

That long and troubling list led Treasury to forecast growth of only 2.2 per cent in the year to March 2004.

However, the economy has been out performing not only Treasury forecasts but also consensus forecasts.

Indeed consensus forecasts have been too pessimistic in four of the past five years.

While results for the March quarter are not yet in, Treasury is now predicting the growth for the March year to be 3.3 per cent.

The April merchandise trade figures suggest that export growth has picked up, particularly in the farm sector, with signs of a pick up in manufacturing too.

Employment growth has continued to be strong. The result is that unemployment figures stand at the fourth lowest in the Western world at 4.3 per cent, and the lowest here in sixteen and a half years.

The government has been very proactive in getting people off unemployment benefit and into work.

In May, five years ago, 144,000 people were on Unemployment Benefit.

May this year, the figure stands at 68,000 – well under half.

This year’s Budget contains real incentives to get people off benefit into work – because, quite simply, they’ll be better off, and they should be.

As a government, our objectives have been to build a stronger economy, make sure the results of that are felt in households across the country, and maintain a strong government fiscal position.

No family, no business, will thank any government for spending unsustainably – and I include in that definition tax cutting unsustainably.

We are careful to spend what we believe is sustainable.

The result is a set of books which most western economies would be proud to have.

Gross sovereign debt as a proportion of GDP has fallen steadily during our time in office.

We inherited a level of 33.7 per cent of GDP.

By June it will be 24.7 per cent.

And it is expected to pass down through 20 per cent by 2015.

Net debt is expected to be 8.7 per cent of GDP by 30 June, and over the forecast period to 2007/08 is expected to drop to zero. The government will then be in the happy position of having its assets equaling its gross debt.

Obviously a focus of the Chamber will be on how the Budget impacts on business.

For a number of reasons, I believe it is positive, while acknowledging that some would prefer it to be positive in other ways.

In the first place, I believe it is positive for business that the government is a competent manager of the country’s finances, and has within the uncertainty of the international environment produced a stable and predictable policy environment here in New Zealand.

Business values certainty and stability, and we place a high value on that too.

Secondly, as I’ve already said, growth and employment levels are very credible by international standards, and there are many positives in that.

Thirdly the government has worked on a range of policy initiatives which directly support business and industry growth – across education and skills, R & D, trade policy and export promotion, investment attraction, and transport, and other infrastructure issues. And we are now turning our attention to the next set of RMA amendments, being worked on for introduction to Parliament later this year.

I also believe there are flow on benefits for business from the Working Families package.

In the first place, it does the domestic economy no harm for low and middle income families with children to have more spending power.

The increases in their income are being phased in, with an eye both to what is affordable and to not putting undue pressure on monetary policy.

In the second place, there’s also a very clear message to New Zealand families – they are better off at work !

This package opens up a real gap between beneficiary and working family incomes, as an incentive for parents to take up work opportunities.

At a 4.3 per cent unemployment level, the labour market is tight – and not just for skilled workers.

The last employer survey I saw suggested that there was a net 27 per cent of employers who had difficulty recruiting unskilled labour too.

That was also the feedback I got from some Auckland factories in recent weeks.

With the extra support for childcare in the Budget, we are aiming directly at increasing the proportion of women who work.

Female participation in our labour market is well below that of top OECD countries.

It’s been estimated that up to a third of the income gap between New Zealand and the OECD average could be closed by raising labour force participation to those Scandinavian levels, and that will largely be about increasing women’s participation.

Scandinavia has got to those high levels with the help of many decades of family friendly policies.

Now we are catching up, with statutory Paid Parental Leave introduced two years ago, and moving by the end of next year to the ILO standard of fourteen weeks paid leave.

The childcare moves in this budget take us further down the track of making it both more possible and more attractive for women to work.

While the Working Families aspect of the Budget has deservedly attracted the most attention and comment, the half billion dollars extra committed to growth and innovation in the economy over the next four years is also significant.

It does boost skills training further, adding another 500 places to the flagship Modern Apprenticeship Programme, which will reach 8000 places by mid-2006, and already has more than 6,500 places filled.

The numbers in industry training overall will be at around 150,000 next year, close to twice what they were when we came into office.

A goal has been set of getting all 15-19 year olds into work, education, or training by 2007, to overcome the stubborn ten to seventeen per cent of that age group which has fallen through the cracks in the past.

Also covered in the growth and innovation budget is a further lift in the government’s R & D spend.

In total, that spend has lifted 45 per cent since we came into office, and a good deal of it is a direct benefit to the private sector.

In this year’s initiatives, for example, is a nine per cent increase in research for industry funding, and also a lift for the oversubscribed fund for research consortia which matches private and public sector funding for joint projects.

New Zealand Trade and Enterprise gets more funding to strengthen its global network.

And there’s a new Market Development Assistance Scheme to help New Zealand companies promoting their goods and services offshore, modelled on a successful Australian scheme.

The Investment New Zealand part of New Zealand Trade and Enterprise gets $26.5 million more over four years to attract high quality foreign investment. We are in competition with around 2,500 investment promotion agencies around the world, all seeking advantage for their sectors and regions. A more effective investment attraction agency has been something the business community has been calling for for a long time.

An area that the Auckland Chamber of Commerce has given the government and the economy invaluable support in is helping place new migrants in employment.

By June the Chamber expects to place its 1000th new migrant into employment.

Thank you, and congratulations on what you have achieved.

The Budget has allocated an extra $62 million over the next four years for migrant settlement initiatives.

It will go to a mix of English language training, career, employment, and other services.

As the labour market has tightened, employers have become very aware of the skills base which has not been fully utilised in the new migrant communities, and it is very pleasing to see so many more moving into mainstream employment.

Support for the government’s trade policy initiatives and offshore representation is also bolstered in the Budget.

On the latter, you may have noted the steps being taken to establish a New Zealand Embassy in Cairo, which will enable us to expand our market and other links in the Middle East and North Africa.

This follows the decision to open an embassy in Poland later this year, to expand our contacts in the new Central European member states in the European Union.

Trade policy is particularly active right now.

The Doha Round has become interesting again with fresh moves from the European Union.

Our work on the Free Trade Agreement with Thailand is progressing well, and the pace on the trilateral agreement with Chile and Singapore has picked up again.

The biggest news though has been China’s agreement to begin negotiation of a Free Trade Agreement with New Zealand - the first time it has agreed to do so with a western economy.

Already China is our fourth largest trading partner, and stands to play an even greater role in our future.

Later today I will be at the signing here in Auckland of the Trade and Economic Co-operation Framework negotiated with China since President Hu’s visit here last October.

The Chinese Minister of Commerce, Bo Xilai is here for the signing.

Also of interest is the decision of ASEAN Leaders to hold a summit in November with the Prime Ministers of New Zealand and Australia.

This is an initiative I have been promoting since last October to mark this thirtieth year of New Zealand becoming an ASEAN Dialogue Partner.

ASEAN in recent years has been stepping up its relationships to its north with the big three of China, Japan, and Korea; and also to its west with India.

It seemed to me to be time to ensure that more notice was taken of ASEAN’s smaller but affluent southern neighbours, and I am pleased that the ASEAN Leaders have responded so positively.

I haven’t dwelt in this speech on transport initiatives, because substantial moves affecting Auckland were announced last December.

A great deal of work was done between central government and Auckland local and regional government last year, to get an agreed funding path to implement the regional land transport priorities, and get improved regional governance over transport.

On top of earlier significant funding increases for Auckland, the government in December committed another $1.6 billion for improving land transport in the region.

The legislation streamlining transport governance here is now making its way through Parliament.

Overall, the government’s land transport spending in Auckland has increased from $234 million in 1998/99 to an estimated $348 million by 2003/04 – even before the substantial new increases had kicked in.

As a result, many substantial Auckland projects have been kick started.

The Chamber will also be aware of the priority being given to bringing new amendments to the RMA to Parliament.

We are looking for more certainty and efficiency in the way the RMA operates, and we are examining the balance of national and local interests in the RMA process.

This is particularly important for transport and energy infrastructure projects, and clearly there are many of those in the pipeline.

We want more consistency between councils; a reduction in delays and costs; greater clarity and certainty for applicants; and to eliminate to the greatest degree possible abuse of the process by vexatious litigants.

In conclusion, let me say that governments present Budgets knowing they can’t please all the people all of the time.

What we aim to do is strike a careful balance, between investing back into growth and back into people, services and infrastructure, and maintaining a credible fiscal position.

Strengthening the New Zealand economy is work in progress, but the results are promising.

A series of evaluations from the OECD, the IMF, and ratings agencies are positive about New Zealand’s policy settings and outlook.

There is always room for improvement, and I believe that governments must commit to continual improvement.

We certainly do.

ENDS

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