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Michael Cullen Speech to CEO Club Function

Hon Michael Cullen
1 June 2004
Speech Notes

Speech to CEO Club Function

Last week’s budget had something old (the now familiar prudent fiscal strategy), something new (a major spending initiative for low to middle income families, and a package of new spending around growth and innovation), a lot less borrowed (in the form of a reduced debt target and the prospect of government assets exceeding gross debt in the forecast period), and something blue (those towards the right of the political spectrum who had hoped for a tax cut but were sadly disappointed).

Through all the media coverage what I hope will emerge is that this is a budget which builds on the platform of sound fiscal management a mix of active social and economic initiatives. My government is not laissez faire. Although we believe in letting markets do what markets do well, we also believe that governments have a duty to deliver social assistance to strengthen families and to deliver economic assistance to promote the collective interests of New Zealand businesses.

So what have New Zealand businesses gained from the Budget? Outside of the beneficial influence of stable economic and fiscal policies, the major contribution of the budget to business is the expansion of the Growth and Innovation programme through the injection of around $500 million extra over the next four years. This package should be of particular interest to some of the businesses in the Palmerston North region. It is a package aimed at building the specific infrastructure and investment needs of businesses that are based on using the latest technology in leveraging some of the New Zealand’s traditional strengths in agriculture, horticulture, silviculture, and so on.

It is also aimed at businesses that are developing niches in export markets that are not affected by, and perhaps even exploit, our smallness and geographical location. I am talking about some of the high tech manufacturing companies who are taking advantage of their ability to undertake small production runs and to customise products to clients, where overseas competitors are geared towards larger economies of scale.

Let me remind you of the elements of the Growth and Innovation budget package. Essentially our aim was to give a major boost to funding for the kind of science and technology that improves the competitiveness of New Zealand industries. We are also increasing the funding available for research partnerships with industry, to help turn good ideas into innovative new products and services.

First, the government will invest $212 million of new funding in research, science and technology over the next four years. New funding of $54 million in 2004-05 includes a $3.3 million capital injection. The increase brings the total public investment in RS&T for 2004-05 to $621 million, a boost of over 9 per cent.

This means we have increased RS&T funding by $190 million – almost 45 per cent – since we took office in 1999.

Research for Industry funding, which supports strategic research underpinning the development of new products, processes and services, is increasing by $75 million over four years. New funding for this year is $17.3 million, a 9 per cent increase, raising the total to $205 million.

Funding for the Research Consortia programme is being increased by more than $17 million over four years. This programme supports research projects developed by science providers and users working in partnership, with matching investment from the private sector.

The new International Investment Opportunities Fund will be open to researchers who have the opportunity to participate in international research collaborations. It will help New Zealand research organisations compete in the global market for funding for scientific projects and could help overseas researchers to relocate here. The fund will have $3 million available in 2004-2005, increasing to $4 million in 2005-2006 and $5 million from 2006-07 onwards.

More stable long-term funding for Crown Research Institutes comes through an increase in Organisational Capability funding, which will increase by $4 million in 2004-05 to $32 million, and by up to $10 million in reprioritised funding in 2005-06. This will help CRIs maintain strategically important research capabilities, including by the recruitment or retention of top researchers.

The New Economy Research Fund increases by $21 million over four years. The fund supports new areas of research with the potential to create new types of business for New Zealand. Funding will total $70 million for 2004-05.

The Technology for Industry Fellowships programme, which enables students and experienced researchers to complete R&D projects in companies, is expanding with $10 million of new funding over the next four years.

Increased funding of $2 million over four years will strengthen New Zealand’s international science linkages by supplementing funding for science counsellors based in the European Union and United States of America, and establishing a second Julius von Haast Fellowship for research in Germany.

The Budget also contained substantial funding increases for environmental research (an extra $21 million over four years), and health research (up $22 million over four years).

Our research and science funding is closely allied to our tertiary education reforms. During the 1990s, tertiary education policy dropped the ball somewhat, by engaging in a numbers game in which institutions sought primarily to fill lecture halls in courses that had a favourable ratio of tuition subsidy to delivery cost. Hence the oversupply of graduates with basic law and business degrees, and also the worrying statistics starting to emerge on the low rates of completion amongst the cohorts of young people who entered tertiary study in the 1990s. The system was unfocused and had no systematic link to national goals or to any strategy assessment of the skills needs of New Zealand’s industries.

That is what we are working to restore. The budget announced some further moves in that direction:

- A $149 million package to build excellence in the tertiary education sector;

- A $110 million student support package to make study more affordable;

- Another 500 Modern Apprenticeships and expansion of the Gateway programme, both of which are focused on those mid-level skills which, it is easy to forget, are what is necessary to fill those export orders of manufactured goods or value-added agricultural products.

We are also effectively doubling the budget of NZ Trade and Enterprise, building over time, compared to when we took office. This includes initiatives to market specialised business sectors offshore; deepening Investment New Zealand’s offshore representation and funding; increasing the Strategic Investment Fund; and creating a new Market Development Assistance Scheme to help exporters develop markets.

Beyond this package of budget announcements, the government is already doing many things that are good for business.

We are reviewing the Resource Management Act, after talking with business, local government, environmental organisations and the broader community about how the RMA is working. We are not going to revisit the ideas that underpin the RMA, because they are fundamentally sound and any country that aspires to democratic government would end up with something broadly comparable to what we have.

The review will focus on some areas where we believe there is room for improvement. One example is the need to achieve the right balance of national and local interests. This is particularly important for transport and energy infrastructure, which have been weighing on my mind in recent months.

The issue is that local authorities are increasingly being asked to consider projects that raise issues of national significance using an Act that provides little or no guidance on how competing national benefits and local costs should be weighed. There is no need for the Act to be silent on such matters, and I am confident we can find a way of expressing some straightforward principles in this regard.

The review will also look at improving the consent decision making process, to ensure more consistency between councils; reduce delays and costs; provide greater clarity and certainty for applicants; and largely eliminate opportunities for abuse of the process for personal gain, trade competition, or other vexatious reasons.

We will also be considering measures for building capacity and promoting best practice among the 86 councils who decide approximately 50,000 resource consents each year. While local authority practice has steadily improved, the performance of some councils could still be better.

One option would be to amend the Act to create an ombudsman who could examine decisions under the RMA, or some similar options for central government to address inadequate performance by a council.

We will be looking to introduce proposed RMA amendments to the House in September 2004 and those amendments should be passed in this term of Parliament.

Oil and gas exploration is another major focus, and it is crucial that we get this right, in light of the approaching depletion of the Maui gasfield and the importance of gas in sustaining our baseload electricity supply.

Oil and gas exploration has its own unique microeconomy involving immense upfront costs, large scale capital investment and uncertain returns. What this means is that it needs essentially purpose-built regulatory and taxation regimes. We need to make sure we are sending the right signals to attract the kind of middle level players who are likely to be best suited to the task of exploring and tapping our resource.

Work is progressing on this front, and announcements will be made later in the year.

Finally I want to mention is the trans-Tasman relationship. I sincerely hope that we do not get caught up debating the merits of a common currency (that is, inevitably, the Australian dollar) and a common border.

These are easily understood symbols of economic integration, but when you examine them closely, they turn out to offer quite limited benefits at quite considerable cost. If we were to accept the argument that says that smaller nations are better off adopting the currencies of larger ones, we would have to ask ourselves why we would not go the whole hog and adopt the US dollar, the world’s most liquid currency, rather than the relatively miniscule Australian dollar. We would also need to see benefits to compensate for the loss of control over monetary policy.

As for a common border, again this might symbolise closer economic relations but it would require alternative mechanisms for addressing a raft of bio-security and law and order issues. Any economic benefits may end up buried under additional economic costs.

Although it may be less sexy, I believe we need to focus on what is doable. This is essentially the approach Peter Costello and I have sought to develop. We are focusing on a number of key areas:

- We are undertaking work on options for mutual recognition and harmonisation in prudential regulation of our banking systems with a view to enhancing the efficiency and soundness of the banking systems in each country.

- We have established an Advisory Group on Accounting Standards whose task is to propose a single set of accounting standards to operate across the Tasman to streamline business for companies which are doing business on both sides of the Tasman. The ultimate aim is to permit such companies to keep only one set accounts which serve in both jurisdictions.

- We have just released a discussion document on mutual recognition of securities offerings. This proposes a model under which an issuer, having complied with the substantive requirements of one jurisdiction’s fundraising laws, will be able to extend an offer of securities to the other jurisdiction with only minimal further requirements.

- We are also working on coordinating trans-Tasman competition policy. Whether or not this leads ultimately to a single trans-Tasman agency, there are some significant gains to be had in a strong alignment between our legislation and practices.

Our goal is to arrive at the point where a properly constituted New Zealand company can function as a company in Australia as of right, and vice versa.

It is, if you like, a sort of de facto common citizenship for companies, and it is this state of affairs that would underpin a single economic market by co-ordinating business regulations between Australia and New Zealand. It would mean greater opportunities to sell into the larger Australian market and a freer flow of investment within the trans-Tasman economy as compliance costs and other regulatory barriers are reduced.

So to sum up, Budget 2004 is significant for business because it maintains a prudent regime of fiscal policy, signals an ongoing commitment to financial stability, and adds to the existing portfolio of business-related programmes. It is not all things to all people, by any means; and many of the more significant things government is doing are outside the budget process. It is nevertheless an important further step towards where we want to be as a country.

Thank you.

ENDS

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