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Key: New Zealand Society of Actuaries

John Key MP
Leader of the National Party

29 November 2006

Speech to
New Zealand Society of Actuaries
Queenstown

When I was asked to speak at this conference some months ago, I accepted in my position as National Party finance spokesman.

Well, I am extremely proud to be in Queenstown today in my new position as National Party leader.

What I want to say to you today is that I am hugely optimistic about New Zealand’s future.

In this country we have always had the people to give us an edge. We’re hard-working, innovative and global in outlook. We have done well in the past and we’ll do better in the future.

Despite living on an island, New Zealanders are not an insular people. We understand what it is to live in a global world. Many of us are migrants, or have parents who were. For decades we’ve gone off on our OE, worked and travelled abroad, and sent money back to relatives in far-off countries.

And when we see a fellow rugby-jersey wearer on the tube in London, we feel a sense of connectedness. Needless to say, we usually voice it, with a hearty “Gidday mate”.

We know that New Zealand is more than the sum of its parts, it’s more than who lives here or what is happening right here, right now within these geographic boundaries.

In the future I hope we tap more into our global connections. The opportunities are there. The forces of geography and technology are positioning New Zealand to excel on the world stage.

The growing economic powerhouses of the world – China and India – are located, if not in our backyard, then in our street. As they grow there will be increasing trade and tourism opportunities for smart New Zealanders to grasp.

They call Australia the lucky country, but we need to be the savvy country.

In addition, the internet is giving our businesses access to an-ever vaster supply of potential customers as billions can reach their shop-front with the click of a mouse.

If you want a picture of what New Zealand can be in relation to the rest of the world you need look no further than here in Queenstown.

Queenstown is populated by Kiwis with a passion for life, an entrepreneurial bent, a strong connection to the outdoors, and a desire to show themselves off to the rest of the world.

Queenstown thrives because it focuses on what’s best about New Zealand, and packages that for the rest of the world. It doesn’t succeed by replicating the tourism experience of Disneyland or Paris, New York or London; it succeeds because it’s uniquely Kiwi. It’s proud of its history and tradition but it’s forward-looking.

Just take the wine-growers from these parts. Tough soils, tough climate, new vines and what is the result? World-class pinot noirs that foot it with the best in the world.

New Zealand businesses are also using the world-class merino wool currently roaming high around the Otago countryside, turning it into top-end products like Icebreaker tops. Icebreaker, and other firms, have mixed together technology, great design, marketing flair and formidable distribution channels and came up with world-beaters. The jerseys may be sewn in China but the ideas and the knowledge content is all Kiwi.

These firms are looking forwards. In contrast, the Labour Government seems to be looking backwards. Their recently launched “Buy New Zealand” campaign would have you believe that the only future for New Zealand rests in manufacturing products in Kiwi factories.

That thinking may have been fine in the Seventies but it’s not always best for New Zealand today. The flares that looked hot when you were in your teens aren’t always the hippest today.

New Zealand’s success will be based on looking out and reaching out, not looking inwards and looking backwards.

I can’t think of a better example of this than the Government’s recently proposed tax subsidies for businesses.

As we have made clear many times, National’s policy on tax has been, and remains, to reduce personal and company taxes across the board. We are committed to lowering the tax burden New Zealanders face.

In contrast, Labour’s preference is to borrow tax ideas from the disco days of the 1970s and early 1980s – tax subsidies which have largely disappeared out of sight.

The goals of these subsidies – a skilled workforce, developing overseas markets, and promoting R&D – are laudable, and National supports them.

But the very real danger of tax subsidies is that they encourage firms to re-categorise existing spending, or to put their energies into areas they can get tax back from, rather than making changes which will promote productivity and growth.

For example, under one of the proposed tax subsidies, firms will have every incentive to formalise all of the existing on-the-job training they do, just so they can get some tax back for it.

This could get quite ludicrous.

For example, rather than Bob showing Mary how the coffee machine works, he could be designated an in-house instructor teaching a course on “Preparing and presenting filtered coffee for service”. His employer could then claim tax back against this, even though nothing at all has changed.

And if you think this is a ridiculous example you haven’t seen the courses available under the National Qualifications Framework, and you haven’t seen tax planning in full swing!

There will no doubt be a whole industry set up to take advantage of this tax subsidy, just as there will be a whole industry set up to argue for more of them.

In 1981, in the hey-day of tax subsidies, the New Zealand tax code contained about 90 targeted tax subsidies, and as a consequence the tax system was an unholy mess.

Don’t get me wrong. National supports tax cuts which deliver the right incentives – to work, to study, to save, to invest, and so on. If tax subsidies can deliver appropriate incentives, and are good value for money then that’s fine. History tells us, however, that this is a high hurdle indeed.

What we don’t want is for firms to be looking down at their accounts to see where they can wangle another few dollars out of the government. We need them to look up and see opportunities to expand, to export to grow, and to take on staff.

We need to have 2020 vision, not 1970 vision.

But just as we embrace global opportunities, so too must we embrace our global responsibilities. Amongst these is the responsibility to address the many challenges to our environment.

Like most New Zealanders, I take the risks posed by climate change seriously. The scientific evidence indicates that the world is getting warmer and, if this does not change, the results could be catastrophic – for our society as well as for our environment.

The devastating effect that drought is currently having on Australia, with one struggling farmer committing suicide every four days, is just one example of the human impact created by adverse climactic conditions.

It would be hugely irresponsible for any forward-looking Government to ignore that threat. If human actions are contributing to a warming world we must do what we can to reduce our impact.

But there is a balance to be struck here.

There are some people who advocate ditching all our environmental responsibility in favour of a single-minded devotion to economic growth.

Another minority would say we should do whatever we can for the planet, and to hell with the economy.

Most New Zealanders recognise, and agree, that these objectives, in as much as they compete with each other, need to be carefully weighed against each other. I can assure you that in developing our policies this is something National will have foremost in its mind.

With the technology we have now, it would certainly be possible for New Zealand to achieve carbon neutrality, as Helen Clark stated was her aim. We would just have to shut down all the factories, turn off all the lights and put all our vehicles on the scrapheap.

What is more, these actions would have little global consequence, as New Zealand contributes less than 1% of global greenhouse gas emissions. And many of those factories which were shut down would simply move to other countries, with no net change to the environment.

So, instead of looking back – in this case to the era of the Flintstones – we need to look forward to pragmatic, sensible solutions to what are deeply complex problems.

This will require some imagination in our policies and an acknowledgment that while the responsibility is shared, so are the gains. In particular I remain confident that market-based solutions to some of these problems can be found.

We can only do better than what we have at the moment.

Despite the high-minded goals we committed to at Kyoto, the past few years have seen New Zealand’s greenhouse gas emissions growing faster than the Kyoto ‘no shows’ Australia and the United States; more trees being cut down than planted for the first time in decades; and more electricity generated from coal than ever before.

I noted with interest last month’s announcement by Australian Prime Minister John Howard that he was establishing a working group to investigate an Australian emissions trading system.

New Zealand should look at being part of this process.

National has always favoured an emissions trading system, and in the end it may make sense for this to include Australia.

A trans-Tasman carbon market has some attraction.

It’s possible that by aligning our emissions markets, both Australia and New Zealand’s interests would be served.

Furthermore, this is the kind of initiative we have to encourage to ensure that ‘non-Kyoto’ countries are part of the global emission-reduction effort.

Climate change is a global problem and New Zealand has to drive for solutions that draw-in all countries, not just those that signed Kyoto.

At the very least, being part of a working group would enable us to share information and ideas at a technical level with people who are confronting the same challenges.

I am therefore calling on the New Zealand Government to initiate talks with Australia on this.

I will be visiting Canberra next week and I’ll be putting this issue on the agenda for discussions with senior federal ministers.

ENDS

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