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Working For The Real Economy

Working For The Real Economy

Rt Hon Winston Peters

An Address to the Upper Hutt Chamber of Commerce, 7pm Tuesday, 1 June 2004, Telford Room, Trentham Gardens, Wellington Racing Club, Racecourse Road, Trentham, Upper Hutt

New Zealand has always been preoccupied with financial security.

We are an isolated country, with a relatively small but comparably wealthy population when compared to our neighbours in the Pacific North of us.

We have confronted this reality since colonisation.

Being exposed to a global network which is continually in flux, changing rapidly and redefining the boundaries of economic exchange is also not new.

Our ability to adapt to these realities and face the challenges they present is the focus of this address today.

When we talk about the New Zealand economy we are in fact talking about the collective results of several smaller regional and sector economies.

This is significant because New Zealanders often take false comfort from the positive reporting of economic indicators while ignoring realities that these statistics hide.

Let us examine just one example. While the current government has gloated over the past couple of years at growth rates above three percent or higher, what they have failed to explain adequately is the basis of this growth.

It has been based on both positive and negative contributors.

The positive impact of a low dollar from 1998 to 2003 and strong commodity prices for agricultural products is self evident for our export sector and the subsequent flow on effects have without doubt benefited the economy.

However, this has helped hide the dangerous practice this government has engaged in during the past four years of an open door immigration policy aimed at boosting consumption.

This consumption registers favourably on growth figures but its true impact is only now beginning to become evident.

This is illustrated most clearly in the housing sector. High immigration numbers leads to an increased demand for housing.

This increase in demand forces house prices up. These increased prices have an impact on the consumer price index - creating inflationary pressures.

These inflationary pressures have an impact on interest rates, which in turn impact on our exchange rate, forcing it up.

An inflated exchange rate has a direct impact on our export sector.

When the impact of high immigration consumption is multiplied across all areas of consumption – such as food, power, transport costs etc – then it simply compounds this cycle further.

What inevitably occurs is that the long term benefits of a low dollar and good commodity prices becomes offset by the short term benefits of mass immigration over time.

Of course this is before the structural strains of high immigration are added to the overall costs.

Clogged roading systems, overcrowded schools and hospitals, increased demands for power all add to the economic burden of high immigration.

Now the economic impact of high immigration varies considerably between regions.

There is little question that it has been Auckland which has born much of the brunt of the government’s mass immigration policies.

Now don’t get me wrong – we should celebrate our economic successes, but they must be placed in their true context.

A number of you in this audience are going to be concerned about what I am going to say next but there is a dark shadow hanging over New Zealand’s economic future and its name is Don Brash.

His economic philosophy means a return to the narrow neo-liberal policy prescriptions that he advocated as Reserve Bank governor.

These policies were soundly rejected in the late 80s and for most of the 90s.

The remnants of these forces from both Labour and National were for some time corralled into the Act party.

These are the culprits who sold off state assets for next to nothing only to see them ruthlessly exploit New Zealanders - like Telecom, or run into the ground and having to be bailed out by the Government – like Air New Zealand and New Zealand Rail.

This was not efficiency, or even sound business practice, but was rather an unholy alliance between naïve ministers and opportunistic businessmen with no sense of the public good.

This group has a new champion now and he has begun his insidious campaign under the cloak of an attack on race relations – which by the way was based on New Zealand First policies.

The true intentions of National’s new pin up boy have got nothing to do with equal laws and equal opportunity.

They are about Far Right economics and they are littered throughout the many speeches he gave as Governor of the Reserve Bank and even while he was National’s finance spokesperson.

His fixation on discredited policies for economic growth betrays a lack of humanity.

Economic growth must always be viewed as a means to an end – not an end in itself.

Economic models aimed at just achieving growth do not translate well when juxtaposed onto real people, who are forced to make real decisions in a real world with complex options and costs.

The policies of the far Right would work fine if humans were machines that operated in a pre-programmed way.

We are not machines. For every economic decision there are many social and psychological consequences.

For example being unemployed is less about being a statistic in a macro economic model, but more about a state of mind and a social reality.

When Dr Brash tells you that New Zealanders are $200 a week worse off than Australians – he does not tell you that Australia never followed his brand of economic theory and they have grown more than a third larger in real terms than New Zealand since 1984.

His is a code to disguise the contempt he feels for working class New Zealanders in much the same way that his version of ‘equality for all’ is code for his assimilationist views when he attacks Maori.

I disagree with his assessment.

Dr Brash’s argument also falls down when you consider the success of New Zealanders abroad. These are not losers who are leaving our shores and taking up highly paid jobs in Sydney, London and New York.

No – The value of New Zealanders in a real sense is demonstrated by the higher than average salaries they earn wherever they work.

There is another downfall in the Brash solution which should be highlighted.

His policy prescription is aimed at big business, often overseas based corporations and ignores the economic reality in New Zealand.

We are a nation of small and medium sized business people.

Of the nearly 300,000 employers in New Zealand, 99.5 per cent of them employ under 100 people, with the overwhelming majority – over 250,000 employing 5 people or under.

Over 60 per cent of our work force work for employers who employ less than 100 people.

When you consider that a large portion of those who work for larger employers actually work for the government sector, then the folly of the fixation by Brash on the needs of big business becomes clear.

The demands of small and medium sized business are quite different from those of big business. These are engineering workshops; builders; cafe, bar and restaurant owners; hair dressers; farmers and computer businesses.

They are not IBM, McDonalds or the Ford motor company.

These small companies are by nature more intimate with their employees who are often family and friends.

The reality is that for salary and wage earners you are more likely to be employed by a small and medium sized business – so what is good for them is good for you.

What small businesses need is a reduction in compliance costs. This is their single greatest concern and as a party committed to fixing things it will be an area of priority for us when we are part of the next government.

We will also be supporting the simple maxim that ‘a small business which is able to export effectively can become a bigger business’.

We believe that in order to achieve this several policy prescriptions are in order.

We believe that lowering the corporate tax rate over time is desirable – but our aim would be to link this initially to reducing tax on net new export income.

We believe that the framing of the Policy Targets Agreement between the Minister of Finance and Governor of the Reserve Bank must be adjusted through the Reserve Bank Act to include objectives related to keeping New Zealand’s dollar low and a sustainable level of economic growth.

Just as the PTA currently includes bands of movement for the inflation rate, acceptable bands for the dollar and growth rates would be incorporated into interest rate decisions.

This would require lateral thinking by the generally conservative Reserve Bank, but without this focus we remain dangerously exposed to external pressures.

We are supporting the Government’s decision to review the RMA. While we have reservations about some of the government’s intentions – we support the notion of creating a ‘national interest’ category of development, which will not abandon local concerns, but will provide the appropriate perspective for larger projects.

We also want to see a greater focus on the pre-hearing phase of the RMA process, as experience has shown that where applicants have prepared thoroughly, they are able to proceed much quicker through the entire process.

We must ensure that our immigration policy is focused on matching labour market demands for skills with applicants.

The government has made moves in this direction after pressure from New Zealand First, but there is still much more work to be done in this area.

This must be matched by a realistic population policy. While Labour has been guilty of an open door immigration policy, they have resisted the folly of Don Brash to claim that New Zealand must aim for a population of 10 million.

Now with our current birth rates this goal is several centuries away, unless we embark on an unprecedented level of immigration.

We simply cannot cope with this.

We cannot ignore the reality that technology is changing rapidly and to remain economically viable internationally we must continue to embrace and use new technology.

Indeed, it has often been New Zealand’s role to be at the forefront of technological advances in bio-technology and other fields.

This requires an ongoing commitment to up-skilling and training, and the government has a role to play in this.

We must be more cognisant of changing demographics and their impact on business.

It is a fact that the Maori and Pacific Island populations are growing at a far faster rate than the European population.

They are younger as a proportion of the population and by midway through the 21st Century they will account for nearly 50 per cent of the total population.

We must therefore be concerned about how well they perform at school

Instead of scorning them, we should be encouraging Maori and Pacific peoples to achieve higher education.

Our future hope for small business depends on the success of all races in the education system. We can’t pretend otherwise.

One last area must be addressed – savings and retirement income.

We are unfortunately no more a nation of good savers. We have become big spenders - the hedonistic consumer driven undertones of the social and economic experiment of the late 80s and early 90s has unfortunately taken root among our younger generations.

Probity and thrift are no longer inherent values. Rather than saving for something of value, we now buy it and pay it off.

There are great dangers in this thinking – and New Zealand must be careful that we don’t reach the tipping point where we can’t pay back what we owe.

New Zealand First believes in a carrot and stick approach. There must be incentives to save. These must be sufficient to ensure that a culture of saving is restored.

We must also place limits on the credit available to those susceptible to the pitfalls of debt.

Part of building the culture of saving must be a reconsideration of a compulsory superannuation scheme.

The most recent Sovereign Saverpulse Survey showed that almost 80 percent of respondents did not believe the government would provide them with an adequate retirement income. There fears are well founded.

The same survey also found that 71 per cent favoured a compulsory saving scheme and 67 per cent would join in an employer-based retirement scheme.

People understand it is a necessary evil. They won’t save for themselves even though they know they should, so if the government forces them to save they begrudgingly accept it. International experience supports this.

This is a serious issue for small business. Indeed recent Treasury papers have belatedly highlighted that capital accumulation is a major factor in productivity.

In conclusion I would issue this warning to the government. It is accepted political wisdom that when the economy is generally strong that the political climate follows suit and favours the incumbent government.

Put simply voters tend to vote with their hip pocket first and other issues second.

What recent polling suggests however, is that a disjuncture between economic success and polling success has occurred – with the current government no longer able to coast on the back of favourable economic conditions or budget handouts.

They have lost a lot of the trust of the electorate.

New Zealanders will face a choice at the next election between social extremism or economic extremism but there is a middle road.

And that is a political party that has consistently preached orthodox economics and social responsibility, that has always argued for one law for all, and that has every prospect of holding the balance of responsibility in 2005.

Either way, I think that you should take out some insurance and vote for us.

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