Anderton: Supporting economic growth
Tuesday, 19 April 2005
Supporting economic growth: speech to Credit and Finance Institute
Sector development to support economic growth including budget announcement for the music industry
Minister of Economic Development
Supporting economic growth - speech to Credit & Finance Institute
Tuesday, 19 April 2005
Holiday Inn, 356 Oxford Tce, Christchurch
You've asked me to address a hot business topic of my choice.
There is only one hot business topic in New Zealand.
It is the urgent need to improve the performance of the economy, in order to provide more jobs and a better standard of living for New Zealanders.
All the other 'hot business topics' need to be judged against this over-arching priority.
We all have a stake in New Zealand's economic performance.
The credit and finance industries are exposed as much as any sector to the overall performance of business.
These are positive times for New Zealand business.
No one seriously disputes - not even Government's opponents - that New Zealand has enjoyed five years of very strong economic performance.
Our growth has outstripped the average of developed countries.
Our unemployment levels have dropped to the lowest in the developed world and the lowest since we started compiling the Household Labour Force Survey two decades ago.
Incomes are up, profits are up and our business environment is as competitive as anywhere in the world.
Of course the performance of our economy is welcome news for everyone in business.
But I want you note that our economic performance is only at the lower threshold of the level we need to achieve.
Our overall incomes and material standard of living are a long way behind those of other advanced countries.
If we want to offer young New Zealanders a future here - and I do - we need urgent improvement in our national incomes and overall wealth.
We are only going to lift our incomes substantially over the long term by selling far more high value products to the world.
The challenge to New Zealand industry is urgent and clear.
We will get not very far by selling more of the same.
A few years ago an economist published a book about the world's economic growth from 1820 to 1992.
It pointed out that in 1992, the world had no more land, and far fewer natural resources, than it enjoyed in 1820.
Yet the value of everything produced had grown from $695 million in 1820, to $28 trillion in 1992.
Or to put it another way, per capita production grew from $651 a year to $5,145.
The lesson is obvious: It's not the natural resources we have which make us more prosperous and improve our lifestyles.
The crucial difference is made by what we do with the things we have.
New Zealand has a higher dependence on commodities than any other developed countries.
It's the main reason we haven't run a surplus in our accounts with the rest of the world since 1973.
It's not enough just to try to increase our export volumes.
We need to move up the value chain.
Consider the United States exported the same weight of goods in 1900 as in 2000.
But the value increased thousands of times.
We need to sell higher value products that rely on the creativity and talent of New Zealanders.
Innovative products that harness individual creativity demand a premium in world markets.
Of course innovation can be introduced in a variety of ways.
It can be the science that underpins primary production, which is particularly important to the aquaculture industry.
There can be a premium for innovation in marketing the product, in distribution or packaging.
One way or another, innovation drives economic growth.
New Zealand will never sell enough commodities to lift our standard of living compared to other developed countries.
There are four factors that the government is working on as a priority to develop our economy:
We need to lift the level of innovation in New Zealand exporting.
We need to improve out international linkages.
We need to lift the level of skills in our economy.
And we need to work as a matter of priority with those sectors with the potential for rapid growth.
The key to achieving all this is the partnership approach the government has used in working with industries.
In the wood-processing sector, for example, we are beginning to unlock enormous potential from our plantation forests.
By working in partnership, Government and industry determined the top priorities for development.
They included skills and training, roads, trade access, and the development of markets for further processed timber.
We are working to introduce new investment in processing in New Zealand, and connecting processors with global value chains.
Alongside wood-processing, the government is working with ICT, bio-tech and the creative industries - screen production, music, fashion and design.
These sectors have been chosen because they have the highest potential for rapid growth and they help other industries to grow rapidly as well.
The creative industries, for example, are unique: our creative production can only come from New Zealand.
They also help to market New Zealand.
When the rest of the world sees New Zealand on display in films like the Lord of the Rings, or they see our designs on the catwalks of Europe and Asia, it helps to promote all New Zealand exports as creative and exciting.
I can give you an example of how these partnerships work.
Our music industry is one good example.
Think how you would feel if you were in an overseas city and you heard a New Zealand song come on the radio.
Imagine, if you could, seeing young people listening to Golden Horse in Los Angeles, Shihad in London or Crowded House in Paris.
The pride you would feel gives you a feel for the potential power of this industry to change perceptions of New Zealand.
It can produce spin-offs far in excess of its direct economic contribution.
We have a beach-head to build on.
New Zealand's vibrant music industry is attracting more international interest.
Artists across a number of genres are getting overseas media exposure and recording releases in major overseas markets.
Today the industry is worth $146 million dollar industry with growing exports of around $5 million annually. ($600m in Ireland!)
In late 2003 the Government brought together seventeen music industry people to devise a strategic plan.
It asked what barriers we needed to sweep away and made recommendations on what was needed to realise the export potential of the New Zealand music industry.
In July last year they released a report called Creating Heat, which made recommendations about the top priorities for development.
Today I can announce the government is largely supporting almost all the recommendations.
It's making an investment of $1.7 million in this year's budget to support the development of New Zealand's export music industry.
Half a million dollars a year will go to the New Zealand Music Industry Commission.
It will use the money to fund music-specific market development.
This will help both the domestic and international markets to grow.
It's also getting $200,000 to help artists become 'export ready.'
Another million dollars will go to NZ On Air to drive up the quantity of New Zealand music being played both here and overseas.
The music industry is important to New Zealand culturally, but also economically.
This package will help to improve the linkages our industry needs to export more of our music.
It will help lift skills in the industry.
Specific grants will be available of $5000 to $60,000 for up to half the cost of developing networks, scoping markets and using expert services in potential markets.
That should result in more investment in those high-priority sectors.
We can expect to see more New Zealand music in film and on TV.
There are a range of supporting initiatives.
For example, there is increased legal advice to address the demanding legal environment in the sector.
We'll get more statistics in the sector to help identify where policy is working and where it needs to improve.
A screen production music CD will be targeted to an international audience.
There is much more.
These initiatives will return the public's investment many times over, in increased sales, more jobs in the sector, and - importantly, but happily - increased New Zealand cultural output.
This is one example of the partnerships the government is involved in.
It's today's initiative.
There are partnerships underway with a range of regions and industries.
Last week I was in the Waikato, announcing a regional initiative in aerospace.
On Friday I was in Marlborough opening a project to put high-speed Internet into schools and their surrounding communities.
Initiatives are underway in food technology, forestry and wood processing, seafood, engineering, Plastics and Electronics, along with a number of science and industrial research parks.
We're also working with some of the key barriers to growth.
Infrastructure and skills are two of them.
Research and Development is another.
Every week the government is working proactively and in partnership with communities and industry on a broad range of fronts.
We're enjoying considerable success with carefully targeted, proactive programmes.
We have worked to promote innovation and an enterprise culture, deepened our linkages to world markets, ensured regions and strategic industries have a plan to build on the strengths, promoted skills and improved infrastructure.
We also need to move into another area where the government has made considerable progress further up the priority rankings.
We need to send a signal that government supports businesses retaining capital to fund expansion.
The Progressive Party has adopted a policy of supporting a cut in the company tax rate to thirty cents in the dollar.
A lower corporate tax rate encourages businesses to hold more capital for longer, instead of paying out capital as dividends.
Better capital structures will help our businesses to grow, and help to take pressure off interest rates.
Company tax in New Zealand is mainly a withholding tax.
So, if profits are not taxed from companies, they will be taxed in the hands of shareholders - although with a valuable delay.
Lowering the company tax rate is not a silver bullet.
We had a lower company tax rate than Australia for most of the nineties and there weren't Australian companies packing up in droves and coming here.
But it sends a signal that we are interested in taking on Australia and being competitive on the headline rate.
Although it's unlikely that the headline corporate tax rate alone will cause investors to switch to New Zealand, it improves New Zealand's prospects as part of a set of attractive policies.
We can afford to consider ideas like this now.
In the nineties, when the New Zealand economy was locked in a failed economic experiment, the government could not afford to cut the corporate tax rate.
Today, thanks to five years of strong economic growth and prudent fiscal management, the opportunity exists to take this extra step.
Ninety-seven percent of New Zealand businesses employ less than twenty people.
Those small business people work hard.
They get stuck in - and we want to encourage what they do and celebrate those whose success is an inspiration for others.
They create jobs, they earn wealth and they generate new and improved products and services.
We need to celebrate their success.
We celebrate the All Blacks when they win and our Olympic competitors when they bring home gold medals.
Our successful businesspeople have many of the same qualities.
They set goals and persevere when the going gets tough.
They display leadership and they foster team work.
And they always strive for excellence in what they do.
They are people who dare to dream of a great ambition.
So I want to see us foster an enterprise culture.
I want to see us celebrate success.
We need to encourage people to take risks.
We can do that through our attitudes;
- Welcoming people who give things a go.
- Not crushing people who take a risk and fail.
We need business success to create the living standards we aspire to.
I want New Zealanders to have access to world class health and education.
There are no Third World countries with First World health or education systems, or first world environments or infrastructure for that matter.
Having a strong economy doesn't guarantee you world class social services, and it doesn't automatically end poverty.
But it gives you the choice.
We can be confident about the future of New Zealand.
We are standing at the threshold of the future.
It's a tomorrow of immense possibility.
We are immensely talented and creative country.
The government is committed to harnessing our creativity to our entrepreneurial sector.
It is the only way the New Zealand economy will sustainably grow.
I believe I've outlined a comprehensive programme of ideas about how we are doing it and directions we can take in the future.
I look forward to your questions and comments.