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Cullen Address to Gisborne Rotary Club

Michael Cullen Address to Gisborne Rotary Club

Irish Rover, Peel St, Gisborne

Wednesday 31 August 2005 at 7.00am

It is a pleasure to be able to speak to you today. The last five years have been a watershed period for the Gisborne region and for the New Zealand economy at large. After a long period of sluggishness, the economy has grown almost 20 per cent in the last five years, which translates into an increase in average household incomes of around 11 per cent.

That growth is important for the additional prosperity it has brought to many New Zealand businesses and households. But it is also important because it has prompted a mind shift. We are now confident as a nation in our ability to grow, because we have seen how a set of strong economic fundamentals has a compounding effect on our prosperity.

We have put behind us the 1990s, when governments and business lobby groups held to the view that the economy needed to be kick started by dramatic policy changes. We are beginning to play the long game, which focuses on the drivers of productivity, and to play it very well.

One of the pleasing aspects of the growth has been the extent to which it has spread around the regions. Some of the strongest results in recent times have been in places like Gisborne.

In fact the Gisborne region has been a stand-out performer over the last five years, after decades of relative stagnation. While growth in the region has come off its 2002 peak, it remains firmly positive. In the year to March the regional economy grew 3.7 per cent, which was just ahead of the 3.6 per cent increase measured nationally. That has fallen back to 3.2 per cent growth in the year to June, but commercial and residential building permits still recorded double-digit growth, with respective increases of 14 and 12 per cent, and new car registrations increased strongly, rising 11 per cent.

I am particularly proud of what we have been able to achieve in employment. New Zealand now has the lowest rate of unemployment among OECD nations with comparable data. That is a matter of immense pride for us.

In the June quarter figures, seasonally adjusted employment rose by 11,000 to 2,065,000. The unemployment rate fell to 3.7 per cent, and the labour force participation rate rose slightly to 67.7 per cent.

The number of long-term unemployed people (those who have been unemployed for more than six months) fell by around 30 per cent over the course of last year. That is a significant reduction in a group who are at high risk of long-term benefit dependency and the attendant social problems.

Similarly, if we look at Mäori unemployment, the rate has either been falling or stable in all but one quarter since June 1999. That is great news for a community like Gisborne.

The bad news, however, is that, as of last week, Gisborne’s return to prosperity and a better quality of life has become disputed territory in the election campaign. What I mean is that communities like Gisborne will be the first to suffer under National’s package of massive tax cuts and its somewhat secretive programme to pay for it through higher debt and cuts in government services.

National tries to suggest that the cuts will have no impact on the services that New Zealanders value most, such as health and education. The fact is that almost 80 per cent of government spending goes on social security (including NZ Superannuation), health, education, defence and law and order. Core government spending, what one might call spending on the bureaucracy, is only 4.3 per cent of total spending.

It is inevitable that National’s spending cuts will have to attack social services like pensions, health and education. There is no alternative if they are to find the $9 billion they would need.

No-one in our regional communities should be under any illusion as to where those cuts would bite first, since the obvious way to cut public services is to centralise them in larger population centres. That means downsizing or withdrawing them from smaller communities. Similarly, the obvious way to save on infrastructure costs is to restrict funding to the major urban centres and to allow regional infrastructure to slowly slide into disrepair.

So if you are thinking of voting for National one thing I would advise you to do is upgrade your car, because you will be spending a lot of time on the road traveling to Napier or further afield to access services that Labour has restored and strengthened in the Gisborne region. And perhaps you should consider a four-wheel drive, because I can’t imagine route security on the Gisborne-Napier road will be as high a priority as under Labour.

In the 1990s National almost turned smaller centres like Gisborne into wastelands. Regional economies stagnated, roads and other infrastructure fell into disrepair, unemployment rates went through the roof, and social division and crime followed in their wake. That could happen again with a government that has overpromised on tax cuts, sparked inflation and interest rate rises and discovered that the cost of increasing public debt has shot up and even more spending has to be sacrificed.

The scenario is very different under a continuation of a Labour-led government. We have delivered stable growth, and we have taken seriously the challenge of investing in the regions. Gisborne is only one of those regions. We have also seen a turnaround in growth and confidence in places like Taranaki, Northland, and the West Coast of the South Island.

So what are our priorities as we move forward to another term? There are four main ones, all aimed at increasing productivity:

Improving the skills level of our workforce;

Boosting investment;

Creating a world class infrastructure; and

Securing free trade agreements.

In the last five years the government has virtually reinvented industry training and the apprenticeship scheme. We inherited a skills culture that venerated the chiefs but paid little or no attention to the Indians. The truth is the successful economies emphasize both the high level skills that drive technological advancement and the mid level skills that drive productivity.

We have emphasized both as well. Budget 2005 included $300 million over the next four years to develop quality tertiary education, and an additional $45 million to expand Modern Apprenticeships and Industry Training.

Recently the Prime Minister announced another 5,000 Modern Apprenticeships, taking the total number to 14,000 by 2008. This is part of our broader goal to have 250,000 people participating in structured industry training.

More broadly we have turned around a tertiary education sector that had been growing in a largely unfocused way under a market model where institutions were rewarded for enrolments rather than results. We are reorienting the polytechnics to become the engine room of skills development, rather than having to pursue bums on seats through flighty courses of limited value.

And we are ensuring that tertiary providers are much better 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 why we are introducing higher funding rates for technical and scientific subject areas including science, trades, technical subjects, agriculture and horticulture.

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. That effectively encourages individuals to invest more in skills than they would otherwise.

A more skilled workforce needs a higher level of capital investment if it is to meet its full potential. When we came to power, domestic savings and investment was a relatively weak suit, and we have taken measures to improve that.

We have provided direct support to the venture capital market through support for business incubators, Trade NZ’s Escalator programme, and the recently announced $40 million Seed Co-investment Fund (SCIF) targeted at small to medium enterprises.

We have provided indirect support through changes to the taxation of venture capital, the recent changes to R&D depreciation and the remedying of several flaws in our investment taxation regime that encouraged investors to chase tax advantages.

We are also acting to improve New Zealand’s domestic savings rate through the KiwiSaver scheme. This scheme will build a wealth management and share owning culture on top of our existing savings culture which is focused largely on residential property. This is not a compulsory scheme like Australia’s, but it is a definite tilting of the playing field towards participation. New employees will automatically be enrolled in the KiwiSaver scheme and will have to opt out if they do not wish to participate.

The government will support KiwiSavers in three ways:

First, we will meet the costs of the administration through IRD;

Second, a $1,000 upfront contribution will be provided to each new KiwiSaver, including members of an existing registered superannuation scheme that fully converts to a KiwiSaver product;

And third, the government will provide a fee subsidy at a capped level to savers in approved KiwiSaver products. The details of this subsidy will be determined after consultation and negotiation with providers

Our working assumption is that 25 per cent of the eligible workforce will have enrolled in KiwiSaver by 2012. This means that over time we will see an increased pool of savings seeking productive employment within New Zealand.

The third priority is infrastructure. We have reversed the decline in infrastructure spending in the 1990s and are now spending at a rate around 80 per cent higher than our predecessors with the total funds available to the Land Transport Fund over the next 10 years around $22.3 billion. That includes a number of regional packages.

We have consistently increased transport funding in the Tairawhiti region, addressing issues such as the growth in forestry traffic, growth in tourist traffic and route security south to Napier and the port.

We are also investing in the power and water systems that will serve a world class economy, and our telecommunications policy is encouraging investment in broadband technology and increasing competitive pressures so as to lower prices for businesses and ordinary consumers.

Our fourth priority is pursuing freer trade. We have made very significant progress in trade liberalisation, both through our participation in the WTO negotiations process (in which our ministers and officials have played a pivotal role) and through bilateral and trilateral negotiations with key trading partners in Asia and Latin America.

We are absolutely committed to free trade, and also to supporting New Zealand exporters to ready themselves to take advantage of the opportunities as they open up. Throughout the last five years, we have consistently increased the budget of what is now Trade NZ, and given it a clear mandate to innovate in areas such as creating ‘beach-head’ operations in key markets which support a range of New Zealand companies seeking to establish themselves in those markets.

These four strategies – skills, investment, infrastructure and free trade – constitute the long game in terms of increasing productivity. However, I think what we have shown as a government over the past six years is that a sound economic strategy needs to be combined with enlightened social policies and a demonstrated capacity for leadership.

We have faced some challenging issues in the last six years, issues which threatened to tear us apart. The most obvious one was the foreshore and seabed debate. It was, at its heart, a debate over what constitutes the fundamental New Zealand values and quality of life that we want to preserve and strengthen for future generations.

It concerned the innate connection that most New Zealanders feel to the natural environment, and the feeling that this environment belongs to no individual, but is there to be enjoyed and respected in its pristine state. It also concerned a central New Zealand value of respect for the cultural identity and values of Maori as tangata whenua, and a commitment, when cultures collide, to work through the issues carefully and find a common ground that addresses the concerns of all, without giving in to extreme views on either side.

I think in the Foreshore and Seabed legislation we have answered that challenge. We have created a framework in which the customary rights of Maori can be protected alongside the right of the whole community to access the foreshore and seabed. It is a matter of great satisfaction that we have worked through this, and created a solution that the large majority of New Zealanders support as fair and sustainable.

That is the kind of leadership we will continue to offer New Zealanders. A strong economy. Investment in skills and infrastructure. A focus on strengthening savings for ordinary working families. Respect for all cultures.

Gisborne is better off with Labour.

Thank you.

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