John Key - Hitching our Waka to their Rickshaw
John Key MP National Party Finance Spokesman
29 April 2006
Hitching our Waka to their Rickshaw Speech to National Party Northern Region Conference
Last week I visited Singapore. It’s a country I have a strong emotional attachment to, and one that has long fascinated me. In part, this is because I lived there while working for Merrill Lynch in 1995.
However, my connection is deeper than that. My son Max was born in Singapore and indeed I was born on national Singaporean day, the 9th of August.
Even if I didn’t have such a personal connection with the country I would still admire it.
It is hard to do otherwise. When you stand at the mouth of the Singapore River and look at the towering skyscrapers of the city’s business district, the mass of lights from the ships offshore, and the incredibly efficient transport system passing all around you, it is hard to believe that in 1965 New Zealand gave foreign aid to Singapore in the same way we provide aid today to countries like Niue and Tokelau.
Singapore is now a prosperous, thriving country, and has built up overseas reserves of more than $200 billion.
The Singaporean Ministers and officials I spoke to all were all knowledgeable about New Zealand and said they kept up with what is happening here and frequently compared themselves to us. After all, there are many similarities between New Zealand and Singapore. Being former British colonies, we share a similar heritage. We are both islands with a population of just over four million people – as I might note, is Ireland, another country I admire. Numerous Singaporeans have travelled to New Zealand or lived here for some time. One official I spoke to had been on an IFS exchange to Taupo College in the 1970s and was still able to identify good bathing spots along the Waikato River.
In other respects, though, we are quite different countries. Singapore’s strategic location makes it a pivotal link in the world’s waterways and airways. It has played on this strength to become perhaps the most important hub in Asia. But Singapore has nothing in the way of natural resources.
New Zealand, on the other hand, is in a rather out-of-the-way spot, but we have, amongst other things, a wonderful climate for basing agricultural activities, beautiful scenery to attract tourists and a plentiful supply of seafood.
What, then, have we to learn from Asian countries like Singapore, or indeed from any of the less-developed countries in the world? Why didn’t I visit an established OECD country like Norway, for example, or Austria?
Personally, I believe we do not spend enough time looking at, and comparing ourselves with, countries outside the old, established club of the OECD.
After all, we need to be doing better than the rest of the OECD if we are to climb back up the rankings, and many countries in Asia are dynamic and growing rapidly. In part, this reflects a process of convergence, where less-developed countries adopt technology and practices already used in the West, and can therefore grow extraordinarily quickly. But while that might explain much of the rapid growth in China, it doesn’t in more industrialised Asian countries like Singapore.
I know many countries in Asia have had a rocky time over past few years with the Asian crisis, SARS, and the bursting of the tech bubble, so I asked a couple of officials from the Singapore Treasury what their economy’s most recent growth rate was. For comparison, you have to know that the New Zealand economy shrunk by 0.1 per cent in the last quarter of 2005. Well, in Singapore their economy grew by 3.1 per cent in that same quarter. That’s one quarter’s worth of growth, not one year’s. As far as I can look back in the records, New Zealand has never grown 3 per cent in a quarter.
As a result of this kind of growth, Asian countries like Singapore are rapidly moving up the international country rankings, while we have been slowly moving down over the past few decades. You might be surprised to know that Singapore, Hong Kong and Taiwan are among a handful of non-OECD countries that are now ahead of us on the international rankings of GDP per capita, and there are others catching up fast.
So when we compare ourselves to the rest of the OECD we are not necessarily comparing ourselves to the nimblest or the hungriest or the most determined nations. Nor are we even comparing ourselves to our direct competitors. We might think our tax rates are comparable to countries in Western Europe, for example, but we should also look at tax rates in Taiwan and Singapore and South Korea.
Maybe there are things we can learn from countries like Singapore, without necessarily adopting their whole package of policies. Some would not be suitable, or acceptable, in New Zealand. But in my view there is much to admire. We need to be aware that around the world there are a number of different programmes focused on economic growth, and that it is useful to look at these.
So what is it that I admire about Singapore?
On my visit I met one of the Associate Finance Ministers, who told me that the Singapore Government was committed to – and these are his exact words – “economic transformation”. This sounded eerily familiar to me, as it will to you all, since that’s the term Helen Clark and Michael Cullen use to describe their wide-ranging and dynamic policies such as increasing depreciation rates on typewriters.
But in Singapore, economic transformation means what it says. For example, the 2004 Budget saw a reduction in the company tax rate to 20 percent, with no increase in any other tax rates. Another recent change has been to invest heavily in research and development. To that end, the Government has built a huge biomedical complex the size of a university, called Biopolis, and it is luring the world’s top scientists, research units and bio-tech companies. In addition, the Government has established a programme to send 1,000 of the brightest young Singaporeans overseas for 10 years, at a cost of about $1 million each, to study at Harvard, Princeton, Oxford, and other top universities around the world, and then to come home and be scientists in Singapore. In all, the Government is investing $10 billion in their biomedical programme over a five-year period.
Now, even if you don’t agree with these policies, or you don’t think they would work in New Zealand, you have to admire the boldness of their Government. There are few half-measures in Singapore, and no one rests on their laurels. They constantly re-evaluate as they did after the 1997 Asian debt crisis, or the 2001 “tech wreck”, or the 2003 SARS outbreak.
They don’t just talk, as the Labour Government in New Zealand continually does, of economic transformation – they try to effect it.
They don’t accept, as Michael Cullen does, that a business tax review takes three years to plan, or that if one single dollar of revenue is forgone it automatically needs to be funded with another new tax.
They have deliberately set up their policies to support business, to encourage individual effort, and to spur investment and risk-taking. They embrace success, and at a national level, from the top down, they endorse it.
If Labour was really serious about sending the right signals on investment, risk- taking and individual effort, why did it raise the top personal rate of tax when it didn’t need the revenue? Why is Labour happy to make three out of every four families reliant on the State even though they could have simply cut taxes and achieved the same outcome for many? Why has Labour allowed inflation to push the vast majority of working Kiwis into higher and higher tax brackets, and why is Labour happy to accept that someone earning under the average wage can face a marginal tax rate of around 80 percent?
In Singapore national success is rewarded.
The Singaporean economy is run like a business, even to the extent that they pay bonus dividends, such as a company would to its shareholders in a good year. A strong economy and a bumper tax revenue stream leads to billions being returned via special bonus payments, sometimes as cash, and sometimes into the individual retirement accounts held by every citizen.
In Australia, the model is different but the result is the same - billions returned through tax cuts to all working Australians. It’s called sharing prosperity. David Cameron, the new leader of the UK Conservative Party, agrees.
Yet in New Zealand we are expected to spend the first two-and-a-half years of every Labour term believing a $7 billion surplus isn’t really a surplus, until it gets to election year - in which case money is thrown around like confetti to selected groups that might pony up their vote.
No wonder Helen Clark thinks it’s time for Michael Cullen to toss in the towel. I could have told her that years ago.
Another example of how Singapore is run like a business is their attitude towards investment in infrastructure. In Singapore, just as in the vast bulk of the world, governments employ the full toolbox of policies to fast-track infrastructure development.
In New Zealand we are locked in a time warp with everything from roads, public transport, telecommunications and energy all woefully in neglect. Our Minister of Finance doesn’t want to borrow to pay for any upgrading of our infrastructure, despite the fact that next year New Zealand’s net core Crown debt will go past zero – in other words, we’ll have more financial assets than liabilities.
Michael Cullen hasn’t yet worked out that New Zealand doesn’t have a debt problem, we have a growth problem, and his policies are short sighted and quite bizarre. Using a combination of government debt and the private sector to fill our infrastructure deficit, and promote growth in the future, isn’t irresponsible as Dr Cullen argues, rather it’s irresponsible not too.
The Singaporean Government has also placed significant emphasis on savings. This has led to a deep capital market and a culture of savings. They have, in 30 years, turned a current account deficit similar to the one we have today into a surplus from which significant assets at home and abroad have been funded.
New Zealand’s response to savings seems to be to let someone else do it for us. At a private sector level, we are massively indebted and exposed to the whims of offshore lenders. If these borrowings were pouring into start-up green field business development as they were in Singapore in the 1970s and 80s, then the risks would be warranted, but they are not.
Instead, they fuel a consumption binge that cannot last forever. At some stage Kiwis will awaken to the fact that, on average, they may work for 40 years but they will be retired for more than 20. That’s a long time to spend living off meagre savings or being totally reliant on New Zealand Superannuation.
It is important, I believe, that we examine what can be done to improve the ability of people to save, and to prepare Kiwis for their retirement years. You can expect to hear more from us on this topic over time.
Another thing I admire about Singapore is their relatively recent commitment to drive research and development; nurture young entrepreneurial companies; attract worldwide human and financial capital with science skills and technical training; and recruit, train and retain the best and brightest from their universities. I’ve already given you the example of Biopolis and the 1,000 Singaporean PhDs.
New Zealand needs to think hard about what it could do in this regard. The opportunities are there. I’ll give you one example. Singapore planners are always considering what the next big thing is going to be, and after bio-tech they are looking at growing capability around environmental and water technology, and around digital arts technology. Both could be huge, but both, I would argue, have a more natural home in New Zealand.
In addition, they currently have people working on developing advanced aqua marine technology, while another is considering by-products of milk. All this from a country that doesn’t have any fish farms or fishing capability - and doesn’t own a single dairy cow.
Why then the investment? Simple. They know that if they develop and own the intellectual property then they can license it or sell it, maybe to New Zealand but most probably to China or Latin America. In the future they want to be the brains behind developing good ideas.
In this regard, New Zealand has some natural advantages. Our people are by nature creative and inquisitive. They solve problems in innovative ways. But they can’t do this if the environment they work in is unhelpful and there are too many hurdles in their way. As a country we must have a much greater focus on nurturing and fostering innovation and subsequent enterprise.
Finally, I admire the fact that everyone in Singapore, from the Government to business, to workers, has a global outlook. In no small part, this is because Singapore has been populated by immigrants, and its whole history has been as a major trading port. But even so, it has always had a far more outward-looking and competitive attitude than we do in New Zealand.
Former Prime Minister Lee Kwan Yew once said, “in Singapore we wake each morning and look across the straights to Malaysia and Indonesia, and further afield to China and India, and we know we either compete or we die”.
Singapore is constantly scanning the globe for opportunities and threats to its businesses. It knows, for example, that growing industrialisation in China will threaten their manufacturing industries. The Government is aware that Singapore needs to be developing new industries with a higher knowledge content, and it is helping businesses achieve this.
In New Zealand we need to wake up to the fact that we face competition from an increasing range of rapidly growing countries. We need to feel some of that competitive tension running through our veins.
In New Zealand, though, we currently have a Government that thinks business is somehow immune from whatever tax or regulation they can dream up. They see competition as a domestic issue, that an Auckland firm competes with one down the road in Hamilton or Christchurch, not in Mumbai or Shanghai.
It is easy to see that China and India will become major economic powers in the not-too-distant future. They will be able to produce, at much lower cost, many of the goods we currently produce. We can lament all we like that the playing field isn’t level, that wage rates in China and India are a fraction of ours, that concern for the environment in those countries is limited, and obstacles to growth there are negligible. But – as they used to say when I was at school – that’s our stiff cheese.
Our competition isn’t just restricted to Asia. Consider for a moment Latin America. This vast region happens to be one of the fastest growing competitors we face in the agriculture, aquaculture and forestry sectors.
Last year, for example, Uruguay landed into the United States 200,000 tonnes of beef. Not bad considering they had only a 26,000-tonne quota, and they had to pay a 26 percent tariff for the rest of it. Yet they still landed it cheaper than beef from New Zealand.
Has anyone really sat down and considered the economic implications of spending five years locked in a moratorium on aquaculture? Our mussel farmers have been powerless to build scale or capacity or efficiency, and while that’s been going on our friends in Chile have rapidly been emerging as world-class volume suppliers of competitively priced mussels.
Or in forestry, do any of us consider the impact years of fighting the RMA has had on starting up new sawmills, or power generation plants to fuel them, or roads to cart the cut-down timber to those mills? Can these problems be ignored when competitors like Latin America and Australia have not faced these kinds of serious roadblocks to growth?
The fact that the world is growing so rapidly is undoubtedly a threat to us. But it is also a tremendous opportunity, and one that I am very excited about – if we can get our economy in the right shape. Huge markets will open up for the goods and services that Kiwis produce, particularly in China, whose economy will be vast. This is an economy that is growing at the size of the entire Australian economy - over $500 billion - each and every year. If we can position ourselves right, if we can carve out our niche areas of specialisation, and move rapidly up the value chain, then the prospects for New Zealand are very good.
I’d like to conclude by summing up a few of the key points I’ve talked about this afternoon.
Firstly, we spend a lot of time looking at other OECD countries and seeing what we could learn from them, but I also think we could usefully look at some non-OECD countries, and particularly those fast-growing Asian countries like Singapore. Obviously Singapore is not perfect – no country is – but there are things to admire in the way Singapore has developed in the past and is continuing to grow into the future.
To me, Singapore’s performance over the past 40 years proves that to succeed you need more than good foundations and more than sheer luck. You need vision, and leadership, and determination, all focused on growth-related economic policies. When all of these come together you can, as Singapore has proven, head up the world per capita income tables, not slip slowly down them as New Zealand has.
In New Zealand we need to start thinking and acting with a bit more drive and imagination. We need to show a hunger to improve, we need our government and business to be aspiring together for economic success, and in doing so we need to open our eyes to the huge opportunities that a new China, a new India, a new Asia presents to us. We should be backing our people and our companies to be smarter, cleverer, and motivated – not just to participate, not just to eke out a crust and to make ends meet, but to succeed in the global economy. The opportunities are limitless.
Put simply, if we want to have any chance of hitching our waka to their rickshaw we need to become more nimble, more flexible, more competitive, more focused, more determined. And we need to do it before it’s too late.
I believe we showed at the last election a taste of what a National government is capable of delivering when we proposed the largest and most comprehensive tax plan since the reforms of the 1980s. It was a plan all about putting the right incentives back into our economy; a plan designed to reinforce our core values of rewarding hard work and personal responsibility, and I believe we can and should be very proud of it.
We are a party of big dreams.
We do have a real appreciation of the opportunities that lie before us, and as a government you can rely on us to install not just the right policies but the required urgency.
New Zealand deserves to have a government that champions a culture of aspiration and self belief, where winning doesn’t by definition mean somebody else has lost, and where tomorrow can be better than today. The kind of place that rewards old-fashioned values of hard work and personal responsibility, and where kids from all walks of life can see a pathway to hope and prosperity.
In my opinion, our country deserves nothing less, and a National-led government will deliver nothing less.