Cullen: Launch of Mood of the Boardroom Survey
Hon Dr Michael Cullen
Deputy Prime Minister, Attorney-General, Minister of Finance, Minister for Tertiary Education, Leader of the House
8 August 2006 Speech Notes
Embargoed until: Tuesday 8 August 2006 at 7.30am
Address to Launch the NZ Herald’s Mood of the Boardroom Survey
Carlton Hotel, Cnr Mayoral Drive and Vincent St, Auckland
Those of you who attended the launch of last year’s NZ Herald Mood of the Boardroom survey will remember it as an opportunity for me to expound on why the glass was half full, while John Key explained why it was half empty.
Two things have happened in the interim. The first is that our opposing visions for the future of the New Zealand economy have been put before the electorate, which has given a renewed mandate to a Labour-led centre-left government.
And the second is that we have made more progress on our agenda of investment in skills and infrastructure and reform of regulatory systems. We have been, in economic policy terms, an activist government. We have a clear strategy to transform this economy and we are delivering.
In land transport we have turned around a moribund record of under-investment and inept management:
- Annual land transport spending increased by 134 percent between 1999 and 2006; and $13.4 billion will be spent on land transport over the next five years. In Auckland alone the increase is about four fold;
- Annual spending on public transport has increased over 700 percent since 1999, from $43 million to an estimated $360 million in the next financial year; and
- Public transport patronage has increased in our three major cities over that period, with a 43 percent increase in passenger boardings in Auckland alone.
- Auckland will also benefit from a $600 million investment in double tracking of rail lines, signalling and platforms that will greatly improve the efficiency of freight and passenger transport.
These are enormous achievements that will yield dividends for all New Zealand businesses, and especially Auckland’s.
We have been similarly active in other key areas of infrastructure. For example, the regulatory regime for electricity that National bequeathed to us has failed to deliver on its promises of competitive prices and sensible investment decisions. When it became clear that no one was acting to ensure sufficient reserve capacity we acted swiftly to remedy that situation.
Further weaknesses have been revealed in recent months, in particular a tendency to focus on cost issues without much reference to the broader economic significance of security of supply. That is why yesterday we changed the brief of the Electricity Commission to make it clear that its decisions should be based on broad economic benefit, and should promote confidence within the business community, rather than merely focusing on the cost side of the equation.
In telecommunications we stated clearly that we wanted a competitively priced, reliable broadband service, and that if it was not forthcoming from the existing regulatory structure we were prepared to change it.
We gave the industry an opportunity to meet the expectations of New Zealand businesses and households, and they failed. Accordingly we have acted to unbundle the local loop, and it is heartening to see in the survey a ringing endorsement of what we have done.
On regulatory issues more broadly, the Minister of Commerce and Small Business is leading a Quality Regulation Taskforce to review all regulations that impact upon business. Despite what is said about the subject, New Zealand has the world’s best regulatory environment, as attested by international studies on the ease of doing business. That does not prevent us from doing even better.
We are not interested in a ‘race to the bottom’. Our aim has always been to identify the important economic, social and environmental goals that warrant regulation, and that should not be traded off simply to improve short term business competitiveness. That just leads to unhelpful swings of the regulatory pendulum.
The government has show a commitment to listening to the concerns of business and acting to create a regulatory system which imposes the least amount of unnecessary cost on the economy, particularly the cumulative costs of regulation on small to medium sized enterprises who feel the weight of multiple compliance requirements.
On the question of tax, the results of this year’s survey are interesting because they reveal as rather shallow many of the attempts by business lobby groups to speak on behalf of New Zealand boardrooms. What I draw from this survey is that New Zealand business people remain pragmatic, focused and, most importantly, committed to realising the long-term potential of what is, in comparative terms, a strong and competitive small economy.
Part of that pragmatism is a recognition that the economy does not benefit from endless cycles of fiscal restraint and loosening driven by ideology on the one hand and public pressure for quality public services on the other. That is why the premise of the Business Tax Review released recently is that we should change those parts of the business tax regime where there is a demonstrable link to increased productivity and economic growth.
We need to get the best bang for our buck in terms of encouraging investment where it is needed most, namely research and development, workplace skills and export market development.
The headline rate is certainly on the agenda; but that is only one aspect of a range of measures that constitute the biggest review of business tax rules in nearly twenty years. All up, the options total nearly two billion dollars a year.
That is why I think it is significant that 85 percent of CEOs supported changes to R&D depreciation as a means of increasing incentives for productivity. Research and development is one activity that the tax system could encourage. So too export development and building workforce skills.
The National Party, having ignored business tax issues at the last election, is now pinning its hopes on deep cuts to the headline rate.
One of the more interesting results of this survey is that around 90 percent of CEOs stated they would respond to a cut in the company tax rate by retaining earnings and reinvesting, but that 65 percent stated that they would increase pay rates and 65 percent stated that they would pay larger dividends. That of course is their prerogative; but it does suggest that a significant portion of the lost revenue from a straight reduction in the company tax rate would flow through to employees and shareholders, rather than going immediately into investments that increase productivity.
For those who argue for deep cuts in the company tax rate as a symbolic gesture, one needs to ask whether more tightly targeted measures would actually represent more productivity bang for the buck.
What we are trying to do is grow the cake. National would rather cut it up and distribute it through multi-billion dollar personal tax cuts. That approach failed when it was tried in the 1990s, and there is no reason to believe it might succeed now.
What we are looking for is an intelligent discussion of the options, and we have signalled that we are willing to make a significant commitment in foregone revenue, so long as the flow-on benefits are actually there.
I think this survey indicates that there is a willingness within the business community to engage pragmatically, rather than ideologically, with the question of business tax, and I take great heart from that.
If the glass was half full last year, it is three quarters full now.