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Address to NZ Labour Party Fundraising Dinner

This speech will be delivered on Dr Cullen's behalf by Trevor Mallard as Dr Cullen has lost his voice.

Hon Dr Michael Cullen

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

1 August 2005 Speech Notes

Address to NZ Labour Party Fundraising Dinner
Rutherford Hotel, Trafalgar Square, Nelson

All elections are about credibility, trust and values. That is true regardless of what particular issues come to the fore during the campaign.

What that means is that the purpose of a campaign is to allow New Zealand voters to put the alternatives under a cold, hard light so that they can make a reasoned decision as to who should lead the country into the next three years.

That is not to deny the importance of a bit of passion in the process. We should be passionate about what we want to achieve for New Zealand and New Zealanders. And I am looking forward to a passionate argument about the best set of policies to do that.

Since coming to power in 1999, this government has delivered credible economic and fiscal management. We have restored trust in the quality of the public services New Zealanders value, such as health care, education and policing.

And we have put into practice Labour’s traditional values, such as social equity, a secure role for organised labour, and cooperative approaches to meeting the challenge of economic growth.

That has been achieved despite some difficult economic times, including the rise of global terrorism and its chilling effect on confidence, and despite some potentially divisive issues at home, such as the question of the ownership and management of the foreshore and seabed.

In economic terms, the country is much better off. The economy has grown by some 20 per cent since we came to power, putting us back in touch with the OECD pack. That is the result of many factors, including a more diversified economy, a shift away from commodity exports towards higher value added products and services, and healthy inward migration.

Just as important, is that growth has been spread throughout the community through a very strong labour market. Unemployment is at levels we thought we would never see again, and household incomes have risen by around 11 per cent on average.

All of this has been achieved without significant inflation, and without any increase in the size of government relative to the economy. Indeed, we have combined strong growth, low inflation, low taxes, low public debt and more efficient public spending. That is quite an achievement.

Our opponents are left to play around with common misperceptions, as opposed to any real Achilles’ heel.

For example, any opinion survey at any time in past 10 years would probably have found that people think the public service is too large, that it spends too much on consultants, and that taxes are too high. As things stand now, there is simply no truth to this:

- We have reduced central government spending (that is, excluding state-owned enterprises and local government) from 33.3 per cent of GDP in 1999, to 30.1 per cent. That means there has been a three percentage point decline, or a ten per cent fall in the relative size of central government.

- Total spending on consultants across all departments is down from the amount Labour inherited when we took office in 1999. These costs would be likely to rise sharply under a National government as National slashed full time staff numbers in the state sector to pay for tax cuts.

- Our tax burden is lower than Australia and most of the OECD, and certainly the countries ahead of us on the economic rankings. While the recent Australian tax cuts have brought their income tax system more into line with ours, the Australian tax system still has higher marginal rates, at 42 per cent and 47 per cent, to which must be added a Medicare levy of 1.5 per cent, a generalised capital gains tax and significant stamp duties on the purchase of items like houses and cars.

The credibility is all on the side of the Labour-led government. Our opponents are pinning their hopes on an economic strategy founded on spurring investment through a tax cut. What is absolutely clear (and this is attested independently by fairly conservative bodies such as the OECD) is that a large scale fiscal stimulus is the last thing the economy needs when we are short of skilled labour and up against capacity constraints. That is simply a recipe for inflation.

It would lead to a temporary boost for all those retailers who cater for the upper end of the market, followed by a long hangover as the Reserve Bank has to tighten monetary policy, putting upwards pressure on interest rates.

National’s credibility is further undermined by a curious failure of basic arithmetic.

John Key has claimed National’s tax policy will cost about $1 billion “maximum” a year. And yet Don Brash has already announced proposals costing well in excess of that amount. These include administratively complex tax rebates for child care, at $160 million a year, and interest on student loans, at $70 million.

Dr Brash is suddenly coy about what the tax policy includes and when we will see it; although he has confirmed that it includes cutting the corporate rate to 30 cents and abolishing the carbon charge, moves which will cost $615 million and $320 million respectively.

That makes a running tally of $1.165 billion, which already blows out Mr Key’s cost estimate. What is more, we are still waiting for the truly expensive items like raising income tax thresholds and cutting tax scales.

In other words, the credibility gap just gets wider and wider as each day passes.

By contrast we have pursued a highly credible economic and fiscal strategy, and added to that a programme of restoring trust in public services:

- We restored the value of NZ Superannuation after the cuts imposed by National in the late 1990s.

- We refocused the welfare system around helping people reconnect with the labour market through positive measures like child care support and training.

- We have made immense progress with the health system, cutting waiting times for surgery, improving access to major joint replacement, increasing funding to mental health services and investing heavily in primary and preventive health care through PHOs, screening programmes and immunisation.

- We have reinvigorated trades training through the modern apprenticeship programme and industry training.

- We have refocused the tertiary education system around matching skills to the specific needs of the economy, and made study more accessible by changes to the student loans scheme and control of student fees.

- We have seen the crime rate reduce by 12.4 per cent between the calendar years 1999 and 2004, the Police resolution rate rise from 38.9 per cent to 44.6 per cent and the road toll fall to levels not seen since the 1960s.

This is a lot more than just catering to our traditional constituency. The fact is that in the modern global economy, what drives prosperity is productivity, and the major driver of productivity is a skilled workforce. If you haven’t noticed, skilled workers are internationally mobile; so if we want to attract and retain people with skills it matters immensely what quality of life we offer.

That extends to the question of workplace savings. This is a standard part of remuneration packages overseas, but participation rates in New Zealand have fallen steadily over the last couple of decades. The KiwiSaver scheme announced in the budget at last provides ordinary New Zealanders with an easily accessible savings scheme, and provides real, if modest, incentives to join. Those incentives include assistance with buying a first home.

This is all part of creating a society in which more of us have a tangible stake in a growing economy. It is what we used to call ‘the social wage’, and although it is at the heart of successful economic growth strategies worldwide, it is a concept that appears totally foreign to our opponents.

That is why the implicit threat to public services in National’s policies of tax cuts, is also an implicit threat to our long term economic well-being. Tax cuts of the magnitude National is talking about mean cuts to the things that make New Zealand an attractive place for skilled people to live.

Almost 80 per cent of government spending goes on social security (including NZ Superannuation), health, education, and law and order. A tax cut of the dimensions being proposed by National would inevitably mean cuts in these services and benefits.

National’s vision is very much a two-tier one. A utopia in which the wealthy enjoy tax deductible health care premiums and tax deductible private school fees; and a dystopia where the rest of the population put up with whatever public services can be afforded after the tax cuts have had their effect.

Dr Brash claims that without this, talented entrepreneurs will flee the country. What he ignores is that talented people have been driving our economic growth in the last five years and are showing no signs of leaving. And what he forgets is that the particular skills the economy is desperately short of at the moment are those mid-level skills, people for whom access to quality public services is crucial.

The world may look simple from the giddy heights of a merchant bank or the top floor of the Reserve Bank, but the truth is leadership requires a broad set of skills and competencies. Keeping inflation within a tight band is not an easy task, but it is a narrowly circumscribed one.

Over the course of the last five years, the Labour-led government has had to pursue a careful economic and fiscal policy alongside the legitimate demands of New Zealanders to protect and promote their quality of life. We have confronted the legacy of under-investment in infrastructure which meant that our roads, power systems and water supply systems are in urgent need of upgrading. And yet we did it in an environment where participative resource management and environment protection are highly valued.

We have confronted the need to reform our tertiary education system so that it better serves our long term skill needs. And yet we did it while respecting the importance of academic independence.

And we have confronted the questions over the foreshore and seabed, balancing the importance to Maori of their traditional connection to areas of the coast, the desire for all New Zealanders to access coastal areas for recreation, and the growing commercial potential of the foreshore and seabed in areas such as marine farming and aquaculture.

These are issues with no simple answers. Finding a way forward is a matter of leadership and experience.

In the next three years, as our economy goes through a soft patch, the challenges we will face will only become more complicated. What will see us through those challenges are leadership and experience and a steady hand. That is what Labour offers the electorate, and that is the message we need to spread in the lead up to September 17th.

Thank you.


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