Cullen: Address to Bell Gully Leaders Series
Tuesday 16 August 2005
Address to Bell Gully “Crunch Time” Leaders Series
Level 22, HP Tower, 171 Featherston St, Wellington
It is a great pleasure for me to participate in this leaders series. I would like to thank Colin James for his introduction. It is quite flattering to be described within the space of a couple of sentences as an ‘anchor’, a ‘lynchpin’ and ‘glue’. A veritable walking marine hardware shop.
I have of course had my hand on the country’s economic tiller for the last six years, and tonight I want to talk about what waters we will be sailing into in the next six years and how a Labour-led government would approach them.
Essentially the highest priority for the next phase of economic development is investment: investment in skills by individuals and government, investment in infrastructure by government and the private sector, and investment in plant and technology across the economy.
Many of you will have read the latest Household Labour Force Survey for the June quarter. We now officially have the tightest labour market in the developed world, finally surpassing the South Koreans. That’s the glowing view some in business might take. From a Labour perspective, we have the lowest unemployment in the developed world, a matter of immense pride for us.
Seasonally adjusted employment rose by 11,000 to 2,065,000. The seasonally adjusted unemployment rate fell to 3.7 per cent. The seasonally adjusted labour force participation rate rose slightly to 67.7 per cent. And seasonally adjusted total actual hours worked rose 2.9 per cent.
What this illustrates is that we are reaching the limit of our ability to grow by expanding the workforce base. We have added on something in the region of 273,000 full time equivalent jobs in the last six years, and we are quite simply running out of people.
That puts the focus back on the issues of workforce skills, the quality of the capital invested in New Zealand businesses and the capacity of our infrastructure. In the next six years we need to make significant progress on each of these fronts, or else risk placing a ceiling on our ability to grow.
Building skills has been a major focus for government investment in the past five years, and more investment is planned. Recently the Prime Minister announced a further 5,000 Modern Apprenticeship places, taking the total number to 14,000 by 2008. This is on top of the budget package $45 million to expand Modern Apprenticeships and Industry Training and meet our objective of having 250,000 people participating in structured industry training.
The budget also included $300 million over the next four years to develop quality tertiary education. That is the next phase in our efforts to turn around a tertiary education sector that had been growing in a largely unfocused way during the 1990s.
Under the market model, institutions were rewarded for enrolments rather than results. As much as we value academic freedom and institutional autonomy, our Crown-owned tertiary providers have a duty to be hooked into the workforce needs of local and regional industry, and design their programmes around what skills are needed in their local economies.
That is also why we are introducing higher funding rates for technical and scientific subject areas including science, trades, technical subjects, agriculture and horticulture. The fact is that a more fertile interchange between business and tertiary education holds great promise in terms of better educational outcomes and cooperative research.
We also announced recently that student loans will be free of interest to students while studying and after graduation, so long as they remain resident in New Zealand. We remain comfortable with the principle that there should be some sharing of the cost of study between the individual and the taxpayer is still a sound one. After all, graduates draw significant benefit from their qualifications; and the community draws significant benefit from having high rates of tertiary education.
It is a question of balance, and what many people have been telling us is that the burden was tipped too far towards imposing costs on individual students and their families, bringing with it the unwelcome effects of large amounts of student debt.
A more skilled workforce needs a higher level of capital investment if it is to meet its full potential. It matters little how smart our people are if they do not have the latest technology and spend good portions of their time stuck in traffic.
There are obvious dangers in governments attempting to prod the private sector into making investments. Where we can make a difference is in ensuring that we have a strong institutional framework for investment and ensuring that the tax system encourages investment where appropriate.
That’s why we have established the Venture Investment Fund or VIF as part of a range of measures to stimulate New Zealand’s somewhat underpowered venture capital market. It is also why I have been working hard with Peter Costello to remove barriers to investment flows between Australia and New Zealand.
Just this week Cabinet has signed off on a regime that would allow issuers to offer securities in both Australia and New Zealand using the same offer documents and offer structure. A mutual recognition regime would reduce the costs of raising capital in both countries, while maintaining investor protection through appropriate disclosure.
This year’s budget also included significant tax changes aimed at encouraging equity investment in small to medium enterprises. Changes to the rules governing access to tax deductions for R&D expenditure will benefit companies who bring in new equity investors after their initial development stage, and will therefore make investment in growing businesses more attractive to investors.
This is part of a package of tax changes aimed at ensuring a more productive use of capital and improving New Zealand's access to worldwide capital, skills and labour. The cost of that package is an estimated $1.86 billion over the forecast period. This will be partially offset by revenue from the new carbon charge of around $720 million over the same period. However, we are talking of a net reduction in revenues of over $1.1 billion from these measures.
This brings me finally to infrastructure. The government has committed itself to an extended programme of investment. For example, in roading the total funds available to the Land Transport Fund over the coming four years will be $8.4 billion. In addition to that, we have earmarked a $500 million windfall tax gain to major roading projects.
This is one part of a programme which has increased our annual spend on physical assets by over 70 per cent compared to the levels that prevailed in the 1990s. There is still a lot a ground to catch up, but there are also very real constraints on how fast we can build infrastructure, given the shortage of labour and need to plan carefully and ensure a fair consenting process.
That, in broad outline, is the course I intend to chart over the next six years. There are risks to be taken into account. Externally there is the risk of further weakness in the global economy, perhaps signalled by the high oil price. Internally, there are risks around managing expenditure pressures in health and education.
These risks make it essential that we maintain a strong fiscal position. We would be foolhardy to think that we will not meet some large waves on the journey. My government is certainly not in the mood to make ourselves vulnerable and take our attention off the goal.