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Cullen: Wellington District Law Society

Hon Dr Michael Cullen

Deputy Prime Minister, Minister of Finance, Minister of Revenue, Attorney General, Leader of the House

19 July 2005 Speech Notes

Many of you will be happy to know that, six months into my tenure as Attorney General, I have yet to encounter any issue in which my lack of a law degree has proven an obstacle or a disadvantage. What is more, my perception is that both the profession and the bench are in very good heart.

That is influenced no doubt by the strong performance of our economy in recent years. At least in respect of commercial law, our challenges are the challenges of growth and expansion, influenced by issues such as trans-Tasman harmonisation, overseas investment, and a high level of merger and acquisition activity as part of a resurgent equity market.

New Zealand has been working its way towards a higher sustainable growth path, one based more on the application of technology in all sectors of the economy and on the leverage of intellectual property. The law has to keep pace with this.

Although in the short term that pace is set to slow as the weakness in the export sector impacts upon the domestic economy, we have, I believe, locked in an expectation of ongoing growth for the foreseeable future, an expectation shared by the business community and by investors, both foreign and domestic.

One factor that we ignore at our peril, however, is the significance of stable fiscal policy in maintaining our economic credibility and our creditworthiness. The truth is, our economy is finely balanced at this point in time, and what is shoring up confidence in it is, in part, the credibility and prudence of this government’s fiscal and economic management.

We have deliberately lowered Crown debt, and are on track to get it below 20 per cent of GDP, as a strategy to lessen our exposure to external shocks.

We have also kept tight reins on government expenditure as a percentage of GDP, and indeed have lowered that percentage over the last five years, while the rest of the OECD has remained static in that regard.

We have maintained price stability and have invested in future stability for the economy by establishing the NZ Superannuation Fund which mitigates perhaps the greatest risk we face in the next half century: the impact of population ageing on government expenditure.

It is possible for a future government to free up some resources in the short term by sacrificing one or more of these props. However, the damage from loose fiscal policy, from tax cuts or expenditure blowouts in a time when the economy is experiencing a severe capacity constraint, would be immediate and, I would argue, difficult to reverse.

The undeniable fact is that, while this year’s Budget showed a healthy surplus for the 2004/05 year, it is, in cash terms, the last surplus for quite some time. We are seeing the tail end of the positive fiscal impacts of five years of strong growth, and we are now heading into a series of modest, but significant, cash deficits.

This government’s fiscal strategy is tailored to that reality. We have announced cuts in tax, primarily a set of targeted changes to the R&D and FBT regimes and the inflation-adjustment of income tax thresholds. These are modest and affordable.

We also continue to invest in restoring our infrastructure after ten years of under investment during the 1990s, and we are providing additional investments in tertiary education and science. Once more, these are modest and affordable.

I have gone on record saying that our major fiscal priority in the next three years will be to address growth in the health and education votes to ensure that these remain affordable and do not put unreasonable strain on our fiscal position, as they are capable of doing.

This is not the context in which large scale tax cuts or large scale spending increases make sense. It is certainly not the context in which we could contemplate both at the same time, as some of our opponents are proposing. Besides that, our tax rates remain low by international standards.

If you consider the nations ahead of us on the OECD per capita income tables, most have personal and company tax rates that are higher than ours, and the richest nations appear to have the highest tax rates. If we compare ourselves to Australia, even after the recent Australian spend-up on tax cuts, the base rates of income tax remain roughly comparable, but of course Australian tax payers also face a 1.5 per cent Medicare levy, hefty rates of stamp duty on major purchases such as houses and cars, and a generalised capital gains tax.

If, as some have suggested, New Zealanders are fleeing as tax exiles to Australia, one can only conclude that those individuals are functionally innumerate, and we are probably better off without them.

The experience of the tax cuts of the mid 1990s was that they were very expensive in fiscal terms, but that the resources released into the community went predominantly into short term consumption, with no appreciable effect on the level of investment in the economy. That was in the context of relatively high unemployment and an economy that could arguably have used a bit of stimulation. Unfortunately it was also in the context of the Asian financial crisis which triggered a recession that the New Zealand government at the time could do little about since it had drained its coffers through the tax cuts.

Today, with the tightest labour market we have had in a generation and severe capacity constraints in many industries, there is even less of argument that tax cuts on a large scale would be good for the economy. The more likely scenario is a brief, and expensive, consumption burn-off which would threaten the Reserve Bank’s inflation target and prompt their early action to increase the Official Cash Rate.

In other words, a brief feel-good factor, but no lasting benefit.

What lies behind the tax cut argument is a basic difference of view as to the health of the economy and what is needed to help it grow. Those who advocate a large scale tax cut generally portray the economy as in need of a kick start or a jolt of caffeine.

My argument is, and always has been, that we have a fundamentally strong economy which needs, not a kick start, but an ongoing programme of investment in what drives sustainable gains in productivity. That means investment in infrastructure and education, in technology uptake, particularly information and communications technology, and in workforce skills.

It also means investment in our legal system and the continuing task of keeping our laws current and relevant. Having been a legislator for many years and Leader of the House for the last five, I am acutely aware of the importance of good law in fostering a strong economy and a health civil society. The law is an instrument, and if we allow it to become a blunt one we all suffer the consequences.

This afternoon I would like to touch upon a number of areas of the law which we have been working to sharpen up in recent years and months.

The first is Trans-Tasman Court Proceedings and Regulatory Enforcement.

In 2003 New Zealand and Australian Prime Ministers agreed that a trans-Tasman officials working group should review trans-Tasman court proceedings and regulatory enforcement. This is one of a number of policy initiatives aimed at building on CER and would underpin the development of a Single Economic Market with Australia.

Within the next few weeks, the Working Group plans to release a discussion paper identifying a number of recurring problems, and potential for enhanced co-operation, regarding:

- Resolving particular problems with enforcing civil court judgments across the Tasman;

- Enforcing non-money judgments (requiring someone to do, or not do, something, eg an injunction) across the Tasman;

- Obtaining interim relief in one country in support of civil court proceedings in the other;

- Enforcing tribunal orders across the Tasman;

- The ‘give way’ (forum non conveniens) rules to be applied when civil court proceedings are taken in both countries on the same dispute;

- Changing the existing trans-Tasman subpoena regime (summons to give evidence) to let lower courts (rather than higher courts) grant leave to serve a trans-Tasman subpoena in lower court proceedings;

- Enforcing civil penalty orders across the Tasman, using the process for enforcing civil judgment debts;

- Enforcing criminal fines for certain regulatory offences committed in one country, in the other country, where there is a mutual interest in doing so, using the process for enforcing civil judgment debts; and

- Extending the existing trans-Tasman subpoena regime to allow subpoenas for criminal proceedings to be served on witnesses in the other country.

A more coherent trans-Tasman framework for legal co-operation in civil proceedings could:

- Help resolve disputes with a trans-Tasman element more efficiently and effectively and at lower cost;

- Help reduce barriers to trade; and

- Improve the integrity and effectiveness of both countries’ regulatory regimes by reducing barriers to cross-border enforcement of civil penalties or certain criminal fines.

Submissions will close on 4 November 2005, and Ministry of Justice officials will be available to give presentations on the proposals. They will also liaise directly with interested organisations such as the New Zealand Law Society.

Another area of ongoing reform is the Resource Management Act. Many of the criticisms levelled against this legislation have been extreme to the point of paranoia. Our purpose in the Resource Management and Electricity Legislation Amendment Bill has been to improve the operation of the RMA focusing on improving the quality of decisions and processes by increasing certainty, reducing costs and delays, and improving processes.

One of the weaknesses of the Act has been the lack of a set of national environmental standards in areas where these would assist decision making. These would be particularly useful in dealing with infrastructure issues where projects may span several TLAs in terms of their impact and their benefits, often with the impact being felt somewhere distant to where the benefit is concentrated.

We are addressing these issues by providing an option to direct additional resources and, within limits, to customise processes to ensure that the interests of the various parties are dealt with fairly and expeditiously. In addition, we are developing national policy statements and national environmental standards to encourage greater certainty in planning processes and less duplication of effort.

Those of you who are involved with resource management law will recognise the value of such policies and standards, but also the need to develop them carefully and with adequate consultation.

The first suite of national environmental standards were introduced in October 2004. Creating a comprehensive set of standards is an important priority over the next few years. The Ministry for the Environment will shortly be seeking submissions on a national environmental standard for human drinking-water sources, and are scoping a standard for contaminated land. Cabinet has also approved the development of a national environmental standards for biosolids, and reference groups are currently scoping the potential to develop national environmental standards for electricity transmission and telecommunications.

These standards will impact upon many of our major industries, both land-based export industries and major infrastructure networks. It is essential that what we develop is the best possible instrument for guiding resource management decisions that will have a major impact upon how our economy grows.

The legal profession has an important opportunity, and, as officers of the court, has a duty to assist in shaping these national policies and standards, and ensuring that our laws are as effective as they can be.

These are of course long term investments in creating good governance. However, the evidence is mounting from around the world that the quality of a nation’s ‘soft’ infrastructure, such as its laws, conventions and civil institutions, is a major factor in attracting investment and fostering stable economic growth.

That is not something that is built overnight. But the danger is that we may be distracted from the important work of creating the platform for long term prosperity if we give credence to those who see the manipulation of short term fiscal settings as the path to growth.

That is not a trap my government is about to fall into, and I am confident that most New Zealanders are of the same view.

Thank you.

ENDS

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