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Cullen - NZ Labour Party Regional 3rd Conference

Hon Micahel Cullen - Opening address to the NZ Labour Party Regional 3rd Conference

My fellow delegates.

A spectre is haunting the National Party and its fellow travellers. It is that the Labour-led Government, now in its third term, has weathered a period of some difficulty. And this government is developing, not just an air of solidity, but also one of re-electability.

For our opponents, breathing the air of the divine right to govern, this is the stuff of horror movies. Most in the National Party know they cannot govern on the basis of merit, competence or ideas. And if the natural order of life as they see it has changed then panic is likely to set in.

It is that merit, competence and ideas they most loathe about Labour. The fact is that Helen Clark as Prime Minister has had an extraordinarily consistent approval rating of more than 2 to 1 throughout her time in office. And the fact is that at no time throughout these 61/2 years has she taken being Prime Minister for granted.

She is backed by a wealth of talent such as Steve Maharey, Phil Goff, Annette King, Trevor Mallard and all the rest including our newer ministers.

Where, for example, is National's equivalent of Lianne Dalziel in terms of understanding the Commerce portfolio and articulating the needs of small business? Does anyone in National understand health or education?

What we have also demonstrated is an ability to work with others of differing views, the essence of MMP. Jim Anderton remains a tower of strength. But we have productive relationships with New Zealand First, the Greens and United Future. We even work with the Maori Party - or at least those of them who do not view us as Lady Macbeth viewed King Malcolm.

We have thus delivered stability and good government. Not one or the other but both. And that has enabled us to take the country through droughts, floods, major international crises, threatened epidemics and many other challenges. We have delivered real growth, improved living standards, a serious reduction in poverty, the lowest unemployment rate in the developed world, significant environmental progress, an acceleration of Treaty settlements, the preservation of our foreign policy independence, the securing of the future of New Zealand Superannuation and so much more.

Our programme is now organised around three themes; economic transformation, families young and old, and national identity. They are not dreams or ideological "visions" about some end point, some future paradise that we will all be forced to enter through some eye of the needle, which perversely only the rich find it easy to go through while everyone else finds it either painful or impossible. They are ongoing unfolding processes of change and improvement to build better lives for all our people, not just a few.

Economic transformation is very much a process of change and improvement. One of the dangers in New Zealand is that for 20 years we tended to talk as though we reformed the economy, however brutally, and then we sat back and enjoyed the fruits of that reform. And, of course, if one identifies economic change with flogging off state assets, deregulating everything in sight, demolishing the welfare state and all the other things that Don Brash really believes in, then, after a while, there is nothing left to do.

But if by economic transformation we mean addressing all the issues that will allow us to have sustainable economic development and growth equal to or better than that of other developed countries, then almost by definition that is an ongoing process whose various components will change over time.

One thing is clear. As a small, geographically isolated developed nation that is not part of any larger grouping we will succeed to the extend that we are capable of being dynamic, adaptive and responsive to the changing demands of foreign markets and the changing challenges of foreign competitors.

The two key areas where we must do better are productivity and exports. Recent data suggests our productivity growth has been better than previously thought. But it is still not high enough to allow us to see real income growth which is significantly faster than comparable countries.

As for exports it is time to be blunt. We have scarcely moved our exports as a percentage of GDP for the last generation. We are significantly better than Australia, particularly in the extent to which our exports are based upon added value. But they are much bigger and resource richer so they are a poor yardstick.

It is equally clear that simply repeating bumper sticker slogans about the virtues of the market will not lift our performance. Nor will beggaring the work force in pursuit of lower costs - that always was a blind alley off the side of the road to prosperity. Nor will selling off our state assets: it would be hard to argue that many of the past examples have been outstanding contributors to moving up the OECD rankings.

There are no cheap and easy solutions. The blind pursuit of the free market was always an intellectually lazy approach.

The key areas that we need to work on over the next five years are not hard to find. The first of these is infrastructure.

Roading is a major part of that. We have to introduce greater certainty into the road construction programme while continuing to boost the use of public transport, at least in the major cities. But infrastructure is also about telecommunications. Great TV commercials cannot hide an inadequate contribution to making us what we need to be: one of the top half dozen countries in terms of access, speed, price and quality. And infrastructure also includes some very difficult long terms issues such as water allocation and energy supply and pricing.

The second element of economic transformation is skills and human capital. Here we have done and are doing a great deal. Massive growth in industry training, modern apprenticeships and now building a reform of the funding system to underpin quality and relevance contrasts with the crabbed, negative adolescent whingeing of Bill English and National.

The third element I wish to touch on briefly is support for business, especially support to invest in research and development, new equipment, skills and exports. We have already done much - changed the tax treatment of R and D, increased depreciation rates for shorter lived assets, lifted the tax allowance for expensing lower cost assets, set up New Zealand Trade and Enterprise and so on.

The business tax review will be important to further progress. So too is the work Trevor is doing on the Year of Exports for next year. But make no mistake about the size of the challenges we face.

The final element I will touch on today is the need to lift our rate of savings and improve the state of the capital markets. Our chronic current account deficit is testament to our low savings rate.

And let us not pretend it is because we cannot afford to. We save less now than we did forty years ago when our incomes were significantly lower. And we save less than very many poorer countries do.

We have begun. The New Zealand Super Fund means that the Government is saving- despite the best efforts of the Opposition. We have removed the over taxation of the employer contributions for people earning under $38,000 a year. We have introduced a new state sector contributory scheme which has been more successful than even we anticipated.

Now we have two key changes in train. One is KiwiSaver. From 1 April next year we intend to have in place a new work based superannuation scheme which workers will have to opt out of rather than into. As this will apply at change of employment the scheme will effectively be phased in over time. KiwiSaver is the first broadbased attempt since the Rowling Labour Government to increase significantly savings by ordinary New Zealanders. And, as before, it comes from a Labour Government.

The second new initiative is more contentious. This is the reform of the overseas investment tax regime. As I suspected, certain vested interests are doing their best to divert attention from a number of its features.

First the new regime will cease the overtaxation on the investment of people earning under $38,000 a year. At present those investments are taxed at 33 percent. This will fall to 19.5 per cent.

Second, collective investment vehicles, such as managed funds, will cease to pay capital gains tax on New Zealand shares, the case at present for individual investors. The same regime will apply to Australian shares.

Third, the artificial distinction between so-called grey list countries such as US and UK and the rest of the world will be abolished. At present, earning in the former countries are not taxed. This is based on the false assumption that they will always pay a fair level of tax in these countries. This is far from true.

In future all countries outside of Australia and New Zealand will be treated on the same basis. Effectively tax will be levied on 85 per cent of the change in the value of the investments with the amount to be taxed limited to no more than five per cent of the total opening value in any one year. This will apply prospectively from 1 April next year. It will not tax past gains.

There is much work to go on with in the parliamentary process and consultation with key stakeholders over the remainder of the year. But we will emerge with a fairer system that encourages worldwide diversification and overall reduces taxation on savings.

The purpose of economic transformation is not the blind pursuit of growth in GDP per capita. It is to build sustainable prosperity and economic development, a fairer society and a New Zealand we can be proud of.

Almost every step of the way, almost everything we have done and are doing, from modern apprenticeships to the Super Fund to KiwiSaver, has been opposed by National.

Despite its gains at the last election, National remains a party bereft of leadership, policies and principles. Of its leadership the best question is who? The usually absent without leave and occasionally present without credibility, Don Brash? Or John Key, the unreformed financial market speculator who has managed to be on both sides of every key issue he's been asked about since the election.

As for its policies the only question to ask is where? There are none. Increasingly the media are beginning to realise there were none at the last election either apart from tax cuts. They have been described as a hip pocket issue. But at best they are like a vibrator in the hip pocket - able to arouse interest but very unlikely to satisfy. That is especially so when the cost is counted in health, education, superannuation, roading and whatever else would get cut.

As for principles, the question for National remains, what? To which National always responds, why? since principles are something they have happily got along without for seventy years.

The fact is National looks less like an alternative government than it did 9 months ago. Labour has the winning team, Labour has the ideas for the future, Labour has the record of achievement. There is so much more to do. Let us get on and do it.

ENDS

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