Hon Dr Michael Cullen
Deputy Prime Minister, Attorney-General, Minister of Finance, Minister for Tertiary Education, Leader of the House

21 September 2007
Speech Notes

Sustainable economic transformation

Speech to the Business Council for Sustainable Development Breakfast Briefing, Sky City convention Centre, Auckland. 8.00am, Friday 21 September

Thank you Rob Fenwick for that introduction and for hosting this event, and thank you all for being here today. I would like to acknowledge my colleagues Jim Anderton and David Parker who will take you through some of the detail around the Emissions Trading Scheme following my speech.

The announcements on emissions trading that we have made over the last 24 hours have generated a great deal of interest – that is a good thing. We need public engagement to make this work and we certainly need engagement with the business community to make this a success. The Emissions Trading Scheme is a major step forward in New Zealand’s contribution to the global response to climate change. It will help cement our international reputation as a leader on environmental issues.

But it is important that we do not understate the economic impact that the scheme and more broadly our collective response to climate change will have. The Labour-led government sees New Zealand’s response to climate change and our pursuit of sustainability as central to our work to transform the economy. We are confident that the economic benefits of greater sustainability will be substantial. But we also know, as so many of you in this room know, that following a sustainable path is no longer a choice. It is a necessity.

Over the last few years, many of you have heard quite a lot about the government’s priority of economic transformation. But clearly, the transformation of New Zealand’s economy has been an ongoing process that predates the election of the Fifth Labour Government.

Broadly, we have seen two waves of economic transformation over the last quarter century. The first, beginning in 1984 saw New Zealand move from a protectionist, highly-regulated, and often very rigid economic stance to a much more open one. We removed tariff barriers, embarked on a fundamental reform of the public sector, floated the New Zealand dollar, eliminated high agricultural subsidies, and reformed the tax system. While this period of transformation had many benefits, it was also painful for many New Zealanders and left behind a legacy of poverty and inequality.

This was made all the worse by further reforms in the 1990s, which saw benefit cuts, the mass sell-off of state houses, and cuts to the rate of superannuation. Child poverty rates peaked at 1 in 3 and by 1999 unemployment stood at close to 8 per cent.

Labour entered office determined to begin a new wave of transformation. We wanted to build a stronger, but also a fairer economy. We have invested heavily in public services, family support, and higher superannuation rates in addition to a massive investment in infrastructure. But we have also focused on building a more dynamic and a more knowledge-based economy. We have worked with the business community and unions to revitalise skills training through apprenticeships and industry training, and have invested heavily in reform of tertiary education.

The results speak for themselves: over 350,000 jobs have been created, at 3.6 per cent our unemployment rate is the envy of the developed world, we have seen the longest period of economic expansion in over a generation, regional economies have been revitalised, hundreds of thousands of children have been lifted out of poverty, and we’ve seen early indications that inequalities between ethnic and socio-economic groups are beginning to narrow.

At the start of our third-term, the government set five priorities for the next ten years of economic transformation.

 We want to work with businesses to build globally competitive firms that can succeed on the world stage and generate jobs and growth back home.

 We want to invest in world-class infrastructure and build the transport and telecommunications systems that we need to connect New Zealanders to each other and to the world.

 We want to further boost wages and productivity so that workers can be fairly rewarded for their effort and achieve more from what they put into their work.

 We are committed to making Auckland a world-class and a vibrant economic hub in the Asia-Pacific region

But it is the fifth priority that will give the next wave of economic transformation its common focus.

 We want to build an economy that is truly sustainable, that protects our environment, that locks in New Zealand’s clean and green branding, and improves the quality of life for all our people.

If the first wave of economic transformation applied only a policy test of growth, and if the second wave added a focus on fairness, the next wave of transformation will be about building an economy that is strong, fair, and sustainable. The distinction between economic, social, and environmental sustainability was always a myth, but it is now well and truly shattered.

I believe that pursuing sustainability is an enormous economic opportunity for New Zealand. We have a real chance to be an example to the rest of the world on how to deliver more jobs, higher wages, and higher profits all while protecting the environment.

But while we should focus on the opportunities and the many incentives for adopting a sustainable approach, we should be under no illusions that another option exists. This is not about choice. We have to act.

Over the past few years a consensus has finally developed in the community about the real threat of climate change. It even appears that a consensus that climate change exists has finally developed inside Parliament. Sceptics remain, but they are now part of a very small minority, at least in terms of their public professions.

Internationally, most remaining doubts on the economic necessity of taking action on climate change were squashed by the release of the Stern review in October 2006. It showed that if climate change is left uncontrolled, global GDP could fall by as much as 20 per cent per head. Countries like New Zealand that are so dependent on our primary sector would be particularly vulnerable.

But even if you don’t look at the numbers, the threat of rising sea levels and extreme weather patterns no longer seem as distant as they once did. Climate change is real, it is happening now, and the public expects us to act.

It is true that New Zealand is only a very small contributor to global emissions. But those who are still calling for New Zealand to free ride on the back of the efforts of other nations completely misunderstand the way climate change is influencing purchasing decisions around the world and will increasingly influence the competitiveness of firms.

There is a growing understanding of the challenges posed to our exporters by the food miles debate. While much of the debate is based on flawed logic and neo-protectionism, it must be seen as a warning to all New Zealand businesses. Our long-term economic competitiveness will be increasingly grounded in the success of our clean and green national branding. If we expect people to continually buy our products, if we want a steady increase in the number of foreign tourists who fly to New Zealand, and if we want to be seen as an acceptable place for foreign investment, we cannot allow any questions about our sustainable credentials to linger.

We must pursue sustainability in every way and we must be seen internationally to be pursuing sustainability in every way. That means support for domestic policy like the Emissions Trading Scheme, home insulation programmes, sustainable government procurement, energy efficient building code changes, waste minimisation, public transport investment, renewable energy generation, and energy conservation campaigns.

It also means continuing our international leadership on climate change issues, whether it be the Prime Minister’s role in putting the issue on APEC’s agenda last year or our continuing commitment to the Kyoto protocol.

Again, the threat is real – to our economy, to our environment, and to our way of life.

But we should not become so obsessed with threats that we forget about the opportunities that sustainability provides. And we cannot allow the threat to be seen as so great and so unmanageable that New Zealanders feel there is nothing to be done to combat it. We can take steps now and under this Labour-led government and with the support of businesses and communities we will take them.

Already, New Zealand businesses are proving to be world-leaders in sustainable practice. The Business Council for Sustainable Development deserves a special mention here. Your leadership has accelerated the shift of sound environmental practice from the fringes into the very centre of corporate decision making.

We are no longer short of examples of firms who are seizing the opportunities provided by sustainability. Grove Mill winery’s move to become the world’s first carbon neutral winery is a well-known success story. Its sales in leading UK supermarket chain Sainsburys were reported in May to be up 100 per cent and Grove Mill has now been asked to produce the chain’s house brand, a request made largely as a result of the winery’s carbon neutral certification.

The Bank of New Zealand has announced plans to be carbon neutral by 2010, while Westpac in March launched a Green Home Loans initiative to help homeowners make their houses more energy efficient.

The Tourism industry is making enormous progress. InterCity has joined Landcare’s CarboNZero programme and Air New Zealand is fully involved in the development of the Time Zone One Carbon trading platform concept being advanced by the Stock Exchange.

The government and industry are working together through the Pastoral Greenhouse Gas Research Consortium to find innovative ways for the primary sector to reduce its emissions without reducing its profits.

The list goes on, but the message is clear: New Zealanders and New Zealand businesses are already proving that we can take action to fight climate change and to be more sustainable. And we can turn that action into substantial economic gains.

The Emissions Trading Scheme is one way that the government is demonstrating that we will fulfil our responsibility to reinforce these efforts. Businesses have been clear that they want to do their part to protect the environment, but the market has not yet fully incentivised sustainable practice. As my colleagues will outline shortly, the scheme will give firms access to where in the economy emission reductions can occur most cheaply. And given international linkages, firms will also have access to reduction opportunities offshore, and will face a carbon price broadly equivalent to the world price. It will bring in different sectors at different times, allowing for as much planning and transition as possible. Free allocation of emissions units will cushion the impact on the most exposed segments of the economy.

The scheme will of course change the relative competitiveness of firms, both within the domestic economy and within the global marketplace. It will, in summary, transform New Zealand’s economy into a more sustainable one, and one that will be better prepared to compete in a global economy that increasingly places a premium on sustainable practice.

Before I close and we hear from the Ministers Parker and Anderton and get your feedback, I want to briefly reflect on the position of sustainability and emissions trading within wider policy making. It is nothing new for a politician to talk about the future, but for the Labour-led government, talk about the future goes beyond rhetoric.

We make no apologies for the fact that we are making tough decisions today to deliver the outcomes we need for the future. We are investing heavily in the New Zealand Superannuation Fund to ensure the sustainability of New Zealand Superannuation into the future.

We are investing heavily in KiwiSaver to make sure all families can save for the futures they want and deserve and to ensure business in the future will have a greater pool of capital to draw from.

We are investing heavily in modernising our education system and in reforming the tertiary education sector to deliver the skills our economy will increasingly rely on.

We have invested heavily in primary health care to cut the cost of seeing the doctor by around half in the hope that more New Zealanders will get ahead of their health problems early before they become serious and expensive later in life.

We are applying the sustainability to test to all policy – economic, social, and environmental. We know that New Zealanders want our country to be strong and successful in the future, and we know that empty talk about ambition is an insult to that vision. We must act in a way that shows we are working towards our goals of making New Zealand the world’s first truly sustainable nation, where all families have a real chance at success, and where our businesses can compete with the best in the world.

Thank you for your time and I look forward to your questions following presentations from Ministers Parker and Anderton.

ENDS

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