Key: Setting the course for a return to growth
John Key MP
National Party Leader
21 September 2008
Setting the course for a return to growth
Speech to the
Road Transport Forum Annual Conference
Energy Events Centre, Rotorua
It’s good to be at the Road Transport Forum Annual Conference.
The people in this room understand what makes the New Zealand economy tick. You represent hard-working truck drivers, small and large business owners, and everyday Kiwis from up and down the country.
You provide a vital service that ensures New Zealanders can transport goods from one end of the country to the other. Huge numbers of Kiwis – from farmers, to factory owners, to households – rely on the work you do. So good on you. You play a vital role in helping the economy grow.
You also understand the importance of a Government that understands business and the crucially important role the economy plays for all of us.
You know that when the Government is distracted from providing economic leadership, it’s everyday New Zealanders who end up paying the price. We’ve seen that in the past nine years.
Labour has missed the opportunities presented by a decade of good global economic conditions.
- The gap between after-tax wages here and in Australia has grown from 20% to 38%.
- We’ve slipped down the international rankings for average incomes – from number 20 to number 22 in the OECD.
- Interest rates have soared – to some of the highest levels in the developed world.
The result of this underperformance is that New Zealanders and their families are struggling to keep up with the growing cost of living.
In reality, it’s only a strong economy that can guarantee financial security for families, well-paid jobs in New Zealand for our young people, and bigger superannuation payments for our older people.
We must stop this economic slide. We must ensure New Zealand can deliver on its considerable economic potential. We must deliver increased prosperity and opportunities to New Zealanders.
Today, I’m going to talk about National’s plan for strengthening the New Zealand economy.
I’m also going to talk specifically about the vital role that infrastructure investment, and transport infrastructure in particular, will play in that plan.
The Global Economy
In talking about our plan, I am very conscious of the challenging economic conditions facing the world right now.
These challenges will have serious implications for New Zealand, and we shouldn’t underestimate them. The reality is that the New Zealand economy is currently in recession, and the US economy, in particular, is looking shaky.
This could well have serious effects throughout our economy for some time yet, in terms of:
- The prices our commodities fetch in overseas markets.
- The opportunities our exporters have to grow.
- The ability our businesses have to raise finance.
Bill English, members of our economic team, and I are watching these developments closely.
However, the appropriate response is not for government to give up on setting the conditions for economic growth. On the contrary, the appropriate response is for government to focus squarely on backing the businesses and workers that can get this country moving again.
This is the test against which political parties should be measured at this election. What will the next Government do to make sure workers and businesses face the right economic incentives and conditions needed to keep workers in this country? What will the next Government do to improve the economic fundamentals that have held New Zealand back for the past nine years?
So, this election campaign, every time Labour makes a big spending promise, ask yourself this question: What will this do to strengthen the backbone of our economy?
Because this is not a time for a big-spending Government with a careless attitude towards the public purse. Nor is this a time for a Government with a track-record of economic under-performance. And this is definitely not a time for a Prime Minister who wants to talk about any issue but her Government’s economic management.
New Zealand needs a new, disciplined pair of hands. New Zealand needs leadership that understands what this economy needs to recover. National is ready to provide that leadership.
Our number one policy priority is to strengthen the New Zealand economy. Because I know that only a strong economy will guarantee financial security for families, well-paid jobs in New Zealand for our young people, and larger superannuation payments for our older people.
National has a five-point plan for putting the right incentives back into our economy and building the foundations for growth.
One, we will institute an ongoing programme of personal tax reduction that will encourage hard work and help keep our workforce in New Zealand. This sensible, step-by-step tax programme is, I believe, even more important given the current economic conditions.
Two, we will be disciplined about government spending so that interest rates track down, not up. In hard times like these it’s vital that the Government is as careful with taxpayers’ money as you have to be with your household budget.
Three, we will stop the massive rise in head office bureaucracy that Labour has encouraged, so that resources can be focused on frontline services in our schools and hospitals. And, in cutting the bureaucracy, we will also deal with the regulatory and compliance issues that smother New Zealand businesses.
Four, we will have an unwavering focus on improving education standards. Our economy cannot withstand a situation where almost one in five school leavers doesn’t have the skills and qualifications needed for the modern workforce.
Five, we will invest in the infrastructure this country desperately needs to grow.
Why Infrastructure matters
I want to concentrate on this important point today.
You know how vital good infrastructure is to a well-running economy. It enables the movement of people, goods, energy, ideas, and information around our country and around the world. It supports the quality of life within New Zealand communities. And it connects those communities here and with the rest of the world.
Infrastructure allows us to unleash the skills and talents of our people and our businesses. Fundamentally, it underpins better and stronger growth.
As you know, for the past several years, New Zealand has shown all the symptoms of a severe infrastructure deficit:
Slow internet connections.
Inadequate public transport networks.
Calls to cut back on electricity use.
These individual annoyances have a big-picture effect. They constrain productivity growth, and they put huge pressure on inflation.
In the long-term, that is a recipe for low growth and high interest rates. It’s the recipe New Zealand has been forced to put up with for the past nine years. And the proof is, as they say, in the pudding. We now have:
Almost 5% inflation.
Some of the highest interest rates in the OECD.
Helen Clark likes to point the finger elsewhere when National talks about these things.
That finger should be pointed in the mirror. Because Labour has had nine years to fix these fundamental problems, and they have failed to do so.
One measure of Labour’s role in this economic mess is to look at non-tradable inflation.
Non-tradable inflation measures the inflation caused by domestic pressures – not by world oil prices or world food prices, but inflation caused by what’s going on in New Zealand. Inflation that Labour has given up on controlling.
Non-tradable inflation has been near 4% for the past six years. The Reserve Bank is forecasting it to drop to 3% by 2011.
By then, domestic inflation will have averaged a compound rate of about 3.5% for 10 years. That’s about a 40% increase in the prices of domestic goods and services – an increase in prices, but not in value. It’s a horrible erosion of our competitiveness as a nation.
Much of it is due to Labour’s complacency about New Zealand’s infrastructure deficit. Bottlenecks throughout the economy have put huge pressure on inflation and the ability of businesses to grow productively.
To ensure the economy can grow, New Zealand needs a stronger infrastructure backbone. We need to urgently build better infrastructure to ensure New Zealand can achieve higher levels of non-inflationary economic growth in the years ahead.
Our economy has suffered long enough with inadequate roading networks, unreliable energy supply, creaky broadband services, and flimsy backbone infrastructure.
But better infrastructure does not just happen. It is complex and expensive and it must be planned, designed, constructed, and maintained properly.
That’s why National has a carefully considered plan for achieving a step up in New Zealand’s infrastructure. Labour is utterly opposed to our plan.
National is proud of it and I’m going to run through it with you today.
National’s Infrastructure Plan
First of all, National will appoint a Minister of Infrastructure to reshape, co-ordinate, and then oversee the Government’s infrastructure objectives.
And before you worry about increased bureaucracy, this Minister will have a co-ordinating role working with the other Ministers in infrastructure portfolios. National is very serious about our pledge to cap bureaucrat numbers.
Secondly, we will spell out our investment objectives in a National Infrastructure Plan.
This 20-year plan will be developed in conjunction with local government. It will set a clear direction for vital national infrastructure investment, including top priority projects.
It will be a
plan that takes into account New Zealand’s needs in a
rapidly changing world.
Changes like the growing price of oil and the need for public transport and roading networks that reflect that.
We have already announced one important component of our National Infrastructure Plan. It highlights just how conscious National is of the forces shaping New Zealand’s future.
Our goal is ultra-fast broadband to get the country up to speed.
National will invest up to $1.5 billion in Crown capital in an ultra-fast broadband network connecting 75% of New Zealanders. This fibre-to-the-home network will be open access to allow for competition in telecommunication services.
It will not line the pockets of incumbents seeking windfall gains. It will avoid duplication. It will promote affordable services for consumers. It will see the Government doing all it can to capture and promote the innovation and expertise of the private sector.
This broadband investment will be growth-enhancing, and it will promote productivity and entrepreneurship. Independent experts have estimated that benefit to be worth between $2.7 and $4.4 billion to the economy each year.
Another part of our infrastructure plan will be a National Transport Plan.
This will cover all major modes of transport, including rail, coastal shipping, public transport, walking, and cycling. And, of course, roading.
I make no apologies for the fact that roading will play a significant part in National’s transport plans. Like you, National knows that economic growth and demand for efficient road transport are linked. We also know that when road congestion is reduced, emissions from vehicles fall as well.
So there’s a good environmental rationale for building an efficient roading network. National agrees with the Road Transport Forum on these points.
We also agree that quality roading networks are vital to lifting national productivity, improving efficiency, and generating long-term economic growth.
Around 80% of all freight in New Zealand goes by road. So industry needs good roads to compete here and in the world.
National’s plan will also include a new category of state highway. We will call these Roads of National Significance. These Roads of National Significance will be singled out as essential roads that require priority treatment. They will include, for example, State Highway 1.
Over the next few weeks, in the lead-up to the election, National will detail other critical projects that will form part of our proposed National Infrastructure Plan. And rest assured, that will include significant announcements about some of the specific roading projects we will fund.
National will ensure this funding isn’t tied up in red tape by introducing a new type of Priority Consenting. We know there are some infrastructure projects that are of such importance to the economy that they deserve priority treatment.
Our new Priority Consenting process will streamline consents for major national infrastructure. These will not go through the local council but instead will be called in and determined nationally.
Priority Consenting will still allow for proper environmental assessment and will enable communities to have their say. The law will require a decision on these Priority Consents within nine months.
National will also take steps to ensure further infrastructure investment by the private sector. This will include making changes to the Land Transport Management Act.
We will pass laws to introduce a new range of financing techniques for national infrastructure projects.
Governments raising capital from the private sector and working with the private sector to build and maintain public infrastructure is commonplace throughout the developed world. National will bring New Zealand into line with these international developments.
We know that the Government can and should work with the private sector to enhance the value and management of our public infrastructure investments. So we will introduce infrastructure bonds and make greater use of public-private partnerships (PPP’s).
National will dispense with Labour’s blind ideology which has locked the private sector out of public infrastructure development and operation for so long. We will work with the best talent we can find to build and maintain infrastructure for Kiwis, and get it done quickly and efficiently.
We will do so while ensuring Kiwis do not face any tolls on existing roads. We will do so while ensuring any tolls on new roads are realistic and affordable.
PPP’s won’t be appropriate for all asset classes or in all situations. But by taking part in them, government can learn long-term management techniques to apply to fully publicly funded infrastructure.
Furthermore, we think these new financing and asset management techniques will open up infrastructure to a wide range of financial investors. This will include Kiwi mums and dads through their super funds and KiwiSaver accounts. It will also include Crown financial institutions, such as the NZ Super Fund and ACC, which, at their own discretion, will have the option of investing in quality long-term assets while at the same time investing in our futures.
Step up in investment
The changes I have outlined to you so far are about getting the infrastructure framework right and attracting increased investment and involvement from the private sector.
But there’s no escaping the fact that this step up in infrastructure can only be delivered if the Government also commits to a long-term increase in Crown investment.
National will make that step up in Crown capital investment. We will do so because it is essential to strengthening the foundations of the New Zealand economy.
National is prepared to increase the Crown’s current infrastructure investment by up to an extra $500 million a year above levels projected by Labour. This is in addition to the broadband investment commitments of $1.5 billion over six years that I’ve previously outlined.
This will result in National investing close to $5 billion of additional capital investment over the next six years to fund infrastructure over and above that foreshadowed by Labour.
This means that, at the most, National will be running a gross debt-to-GDP ratio around two percentage points higher than Labour is planning. This will remain a conservative and prudent Crown debt level.
National will make this small increase in overall government debt because we know it will help get New Zealand through this downturn. Because, right now, the problem facing the government is not Crown debt.
In fact, when you look at the Crown’s overall balance sheet, New Zealand isn’t in the red – it’s well in the black. And when you look at the Crown’s gross debt, you find that the New Zealand Government has one of the lowest debt levels in the developed world.
In reality, the place to look for a debt problem is increasingly in the households of everyday New Zealanders.
Many New Zealanders are experiencing record levels of private debt. What’s worrying is that this is combined with little current prospect of the income growth needed to service those debts.
The average household debt-to-income ratio is now much bigger than the Government’s gross debt-to-GDP ratio. So the challenge for the Government isn’t about how to reduce Crown debt. It’s about how to get Kiwi incomes growing strongly again to ensure they aren't suffering from an unmanageable debt burden.
What New Zealanders need from Government right now is the prospect of increased after-tax wages.
The challenge for the next Government, then, is to ensure the economy grows fast enough to make sure Kiwis can get ahead. So the Government can afford to let the belt out a small notch in order to build the stronger foundations for economic growth.
It’s economic growth that will
increase Kiwis’ pre-tax incomes.
It’s economic growth that will allow Kiwis to pay off their debt faster.
It’s economic growth that will allow Kiwis to invest for the future.
So, a National Government won’t obsess about a two percentage point change in the debt-to-GDP ratio.
We will focus our attention on the growth side of the equation. We will invest to create the prosperous economic future New Zealanders deserve. We will do this because we know that the alternative is that everyday New Zealanders will suffer financially, for longer.
In recent weeks, Labour has tried to sow confusion about our plans. They have claimed we will step up borrowing to fund tax cuts. That’s just not true. We will not borrow for tax cuts.
Labour is simply trying to distract New Zealanders from their own failure to take the right policy choices. Ultimately, Labour just isn’t prepared to put a priority on getting the right level of infrastructure investment for our economy. National is.
That’s because we understand that increased infrastructure investment will deliver considerable returns to New Zealanders for generations to come.
That return will come in the form of enhanced services and enhanced capacity for our economy to grow and compete with the rest of the world.
Ladies and gentlemen, National’s infrastructure and transport plans are based on our absolute commitment to do what it takes to get this country moving and growing productively again.
We are not prepared to stand by and watch New Zealand be held back by utterly inadequate transport networks, inadequate telecommunications services, and inadequate electricity supply. It’s time to take the handbrake off. It’s time to turn the growth engine on.
In leaving you today, I’m conscious that I’ve outlined some big challenges facing the New Zealand economy.
Yes, these challenges are considerable. But the answer isn’t to shut up the shop. The answer is not to close our eyes and hope the fundamental problems with our economy will disappear.
New Zealand can’t afford to give up on growing. We must rise to the challenges before us.
Now, more than ever, New Zealand needs the strong economic leadership and economic policy that only a National-led Government can provide.
Remember, if we are to provide for the financial security of our families, our seniors, and our young people, and retain our professional workforce in New Zealand, then we must have a strong economy.
National has a sensible, considered plan for driving New Zealand through this downturn and building the strong and growing economy we need.
Labour has had their chance to provide that leadership and they have failed. They failed in the good times and now they are asking for a second chance in the bad times. New Zealanders can see the fundamental flaw in that logic.
National is ready and eager to make the policy changes needed to get this country moving ahead again with strong non-inflationary, productive growth.
Ladies and gentlemen, National is the party that will do what it takes to unclog New Zealand’s arteries and get our country growing again.
We are serious about these policies, and let me stress that if you’re serious about getting our country moving again, then this election you should be voting for a National-led Government.