Speech: Key - How to grow the economic cake
John Key MP National Party Deputy Finance Spokesman
09 July 2004 1600 Embargo - Check Against Delivery
A speech by National Party Deputy Finance spokesman John Key to the 2004 National Party Annual Conference.
How to grow the economic cake
Ladies & gentlemen, welcome to today's economic forum - How to Grow the Economic Cake.
I am delighted to have John Taylor and Alasdair Thompson here today.
Aucklanders will know John as the former Headmaster of Kings College who, for 15 years, played a tremendous role in shaping the future of many young New Zealanders.
John is now Director of External Relations at Auckland University, but is here today speaking on his own behalf, not for the university. I know you will find John's address most enlightening.
Many of you will also be familiar with Alasdair Thompson, the Chief Executive Officer of the northern region of the Employers & Manufacturers' Association, who plays a critical role as an advocate for business in modern New Zealand.
It's great to have you both here today.
Economic growth lies at the heart of the philosophy that Don Brash and I have adopted for Team Finance. Unlike Labour, we believe New Zealand's long-term prosperity lies in growing the economy - not redistribution with its focus on re-dividing the existing cake.
As anyone who cooks knows, you need a bigger cake to feed a larger crowd, and bigger again if you want to feed them well.
Of course the job isn't easy. After decades of neglect, we face a difficult journey. Especially when you recall that from the mid-70s until the early-90s New Zealand's growth rate was only a quarter of the world's wealthy industrialised nations in the OECD.
So the penalty is hardly surprising; New Zealand slipped from being third richest in the OCED (in the 1950s) to 20th today.
Over the past decade, New Zealand's growth rate has improved slightly. It's now around the OCED average; however, as John Whitehead, Secretary of the Treasury, recently pointed out, if New Zealand's annual per capita growth had been 1 per cent faster since the mid-70s, "we would now be better off than Australia". If we had only performed the same as Australia, the average New Zealand worker would now have another $240 more per week.
So there's no argument - the long-term rewards are significant.
Yet despite all the rhetoric from the Labour Government and its theoretical commitment to see New Zealand back in the top half of the OCED, there are no signs of that happening.
In fact, I would go as far as to say Labour is now ducking this issue. Their target for achieving it has slipped from the firm date of 2011 to the more recent admission by Finance Minister Cullen that it won't "be happening anytime quickly".
The Treasury shares his newly found pessimism, with the most recent Budget showing a decline in the 10-year forecast for New Zealand's growth. It's a challenging problem with no single solution. There's no silver bullet that - in isolation - can solve the growth riddle.
Instead it requires a focused, determined and wide-ranging approach across fiscal, regulatory and cultural dimensions. The type of focus, determination and broad reach that the National team, under the leadership of Don Brash, can deliver.
But let's be under NO illusions.
If New Zealanders want to enjoy increasing levels of healthcare, with access to new and innovative drugs ... If New Zealanders want genuine employment opportunities ... If New Zealanders want to maintain clean air, reliable water and constant electricity ... then we need an economy that can bankroll our expectations.
It's a complex subject, and one that deserves more than the time available today. So I intend to focus on just one aspect of delivering a growth economy -- infrastructure.
It is no coincidence that I have chosen this subject for the Auckland conference. Auckland is fast becoming an infrastructure basket case, as many of you may have noticed on your way here.
For years, Auckland's ever-worsening roading crisis has cost billions of dollars in economic activity. This quiet haemorrhaging has led an alarming number of companies to reject Auckland in favour of Australia - on the basis of roading alone.
Yet Auckland's infrastructure issues are not limited to transport. Water - and storm water - concerns continue to increase at an alarming rate.
Meanwhile, on the energy front, the cancellation of Project Aqua, coupled with the Government's inability to quantify Kyoto's carbon emission charges, indicate Auckland's 1998 electricity blackout may just be the start.
Sadly, it's not just locals who are confronted with these infrastructure issues.
Take the first-time tourist to Auckland who, 10 minutes into his cab ride from the airport, is suddenly whipped off the highway through a maze of back streets to arrive downtown an hour later with a dose of whiplash and a lingering feeling that somehow he's in a Third World country where it's usual for cabbies to rip off tourists.
In fact, the cabbie was behaving with the tourist's best interests at heart, using the back roads in an attempt to avoid Auckland's notorious congestion.
That's hardly the stuff of great international cities. If we are serious about fixing the problem then the time has come for some decision-making and nation-building.
New Zealand needs a Government that is prepared to walk the talk.
Not the current administration which trades good public policy and legislation for the benefit of their coalition agreements - as evidenced by the Land Transport Management Act; legislation that became a victim of politics to the extent that the minister in charge, Paul Swain, canvassed the country, urging people to put in strong submissions against his own Bill.
National won't waste Parliament's time with such nonsense.
We will deliver legislation that will get the job done.
Top of National's list? The Resource Management Act. This legislation is anti-infrastructure, anti-entrepreneurship, anti-growth, anti-progress and, at its heart, anti-Kiwi. It makes 'Alice in Wonderland' read like non-fiction.
I will leave the specifics to our Environment spokesman, Nick Smith, who is speaking on the subject tomorrow, other than to say that if New Zealand has any hope of achieving our growth objectives, we need to unshackle this self-imposed straightjacket and replace it with common sense legislation which contains a bit of give and take, the national interest and a decent dollop of predictability.
Only then will New Zealand have any hope of improving our current ranking for competitive environmental legislation as measured in the World Competitive Yearbook - currently dead last at 60th.
Next we need to deal with funding.
The Labour Government is not only unimaginative, but also downright dumb. Right now New Zealand does not use any private sector capital for the provision of public assets. In fact, we pretty much don't even use our own balance sheet!
We hardly borrow, even for projects identified to have an economic payback well above the borrowing rate. This is despite the explosion of Public Private Partnerships (or PPPs) around the world, and often introduced - dare I say it? - by Labour governments.
In the past five years, Britain, the United States, many countries within Europe and even Australia - our nearest neighbour and largest competitor for skills, talent and capital - have invested tens of billions of dollars in a range of projects from roads and prisons, to schools and hospitals.
Governments worldwide recognise that urgently required critical infrastructure must be built to match an ever-changing environment, and the demands of growing populations.
It is important to note that PPPs are not privatisation by stealth. In many instances the asset is eventually returned to the state. And they're utilised differently for a wide range of projects, so please don't start imagining that PPPs mean toll booths will be built outside prisons and schools!
In the majority of cases the Government continues to pay the costs through shadow payments. International evidence makes it clear that, putting aside the flexibility that PPPs offer governments, the overall building and operating costs, after considering a whole-of-life perspective for the assets, are cheaper. If they weren't, no government would consider them.
A fair question emerges on whether there is an ample supply of such investment capital and where it is likely to come from.
All indications are that there is an ample supply, and domestically the creation of infrastructure bonds would allow Kiwi mums and dads to invest some of their spare cash, perhaps as part of their retirement savings, into such investments.
Combined with this, fund managers, one of whom could clearly be the New Zealand Superfund, are likely to be attracted to this alternative investment opportunity.
When I last floated this idea, Dr Cullen wrongly accused me of proposing political interference in the asset allocation decisions of the fund. That is not what I am suggesting.
It is the guardians' role, and their role alone, to make the investment decisions. That said, it is fair to assume that given the opportunity, and within prudent guidelines of concentration risk, they too could become eager investors in domestic infrastructure projects where onshore returns are similar to those from investments held offshore.
In a sense, the current failure of the New Zealand investment community to invest in infrastructure lies firmly at the feet of Dr Cullen. By failing to promote the development of the PPP market in New Zealand, he has robbed our market of what would otherwise be an alternative investment stream with its welcomed depth and diversity.
One of the significant challenges for addressing infrastructure, whether it involves the national electricity grid or developing water reservoirs for irrigation in the South Island, is coordination - or lack of it - across government departments.
Currently, Cabinet has an infrastructure committee, but it seems to be stuck in gridlock. There is no sign of movement, of action, or of energy. This committee is like the volcanoes around Auckland - dormant. Judging by the lack of energy coming out of the Beehive, you wouldn't know that we had huge infrastructure problems in transport and energy.
If the committee was functioning we would have a solution to the missing $5 billion the Auckland region requires to complete its motorway network, and the Government wouldn't have spent months doing due diligence on the assets of Rail Track ... then be incapable of quantifying the cost of upgrading and maintaining the tracks.
Who is in charge down there? Is anybody responsible for co-ordinating policy in respect of infrastructure, or is the committee an excuse to do nothing?
Or is there just disarray in this area, as in so many others since the Prime Minister and her Government were shown-up by Don Brash earlier this year to be unpopular and incompetent.
There have been so many U-turns coming from the Beehive that nobody seems quite sure in which direction they are supposed to be heading. Most likely they are all heading in different directions - some starting new parties, others thinking of joining them, and many, many others wondering what the job market is going to look like later next year.
While this political farce plays out, infrastructure problems grow. The political disarray means nobody is dealing with the legislative hiccups that infrastructure issues always face, along with the other significant aspects of government policy likely to affect planning, such as immigration and regional development.
Ladies and Gentlemen, it has been clear for some time that this Government has run out of ideas. That may not be such a bad thing, as the ideas it had were never much good anyway.
But as we count down to the next election, the death throes of this Government will not be good for growth.
The last Budget focused on destroying the incentive to work harder, gain skills and seek a better income.
That Budget dragged more middle-income families into the web of welfare.
That Budget showed that Labour has not a clue about the importance of incentives.
That Budget, accompanied by the re-regulation of the labour market and the high-cost planning constraints on business investment, is the sure path to New Zealand incomes falling further behind the rest of the world.
And that in turn is the sure path to more young Kiwis heading overseas to find a job to match their aspirations. And that will mean we will be forced to drag in more migrants from wherever we can find them, in order to stop our population declining.
And that is not the way to build a better future and a more cohesive society.
The next National government will be firmly committed to growth, firmly committed to a better future for New Zealand, firmly committed to creating an economy and society in which our children and grandchildren will choose to live.
It will be a country where jam is something featured at the breakfast table, not littered throughout the traffic reports.