Security and Growth: National's Economic Plan
John Key MP
National Party Leader
31 October 2008
Security and Growth: National's Economic Plan
Speech to the Waikato Chamber of Commerce
These are extraordinary times.
The world financial crisis that began on Wall St more than a year ago has rocked the financial framework of the world. Global credit flows have dried up, financial institutions have fallen over, sharemarkets have plunged, and economies have dropped into recession.
Though seemingly far away, there is no doubt that these events have had, and will continue to have, an impact on our country.
Over the next few months we may well see more firms laying off workers and more New Zealanders struggling to make ends meet. Growth will be hard won and it may take us some time to pull through the current recession.
What's more, the Government books are not in great shape. There is very little room for new spending. The next Government will have to work extremely hard to make the most out of every dollar to deliver high-quality public services and to protect the vulnerable from the sharp-edge of recession.
This is not a pretty picture. It's not a picture I take any pleasure in describing.
However, I have absolute confidence that if we come together as New Zealanders and squarely face these challenges then we will emerge all the stronger for it.
Today I am going to lay out the approach a National-led Government will provide in leading New Zealand through these tough times.
Those challenges as I see them are:
* Shoring up the liquidity of our financial system. * Providing some stimulus to a flagging economy. * Remaining fiscally responsible. * Getting the country growing again. * Taking some temporary measures to protect the financial security of Kiwi families in extraordinary economic times.
If New Zealanders vote for National to lead the next Government we will rise to each of these challenges. In doing so, we will be guided by two goals: giving Kiwis financial security and setting the economy on a growth path.
We will provide certainty to get New Zealand families, seniors, and young people through tougher times. And we will tackle the issues that were holding the New Zealand economy back even before this current crisis.
Let me outline the approach National will take.
The liquidity of our financial system
The first challenge is the liquidity of our financial system.
Our economy relies on our banks being able to raise funds overseas. New Zealanders rely on those funds to finance our businesses, our mortgages, and our livelihoods.
As the global financial crisis has worsened we've seen global banks and financial institutions become more and more reluctant to lend cash. This could, if left unchecked, dry up the flow of funds into New Zealand. National is determined to prevent that.
We are committed to taking careful measures to ensure banks in New Zealand can access the funds and credit they need to function. If we are elected to lead the next Government we will remain steadfast in that commitment.
To that end, we have worked closely with the Reserve Bank and the Treasury in the past few weeks as they develop a bank deposit guarantee scheme. We have been briefed by them on the development of a wholesale scheme. We have approached these matters on a bipartisan basis.
We have been happy to work with Labour and also stay in contact with the major banks on this issue. The New Zealand approach to shoring up liquidity in our financial system is appropriate, and very similar to that already taken by other governments around the world.
I want to make one thing very clear, however. Just as the government bank guarantee is designed to protect confidence and stability in the economy I will expect the banks, too, to take similar steps to maintain that confidence and stability.
There is no escaping the fact that a government guarantee has a real and large value to the banking system. My expectation is that in light of this, banks will be very careful about the manner in which they deal with customers who may, as a consequence of the global financial crisis, find it hard to meet their obligations.
I expect the banks to do what they can to show New Zealanders who need it flexibility in the face of tough circumstances in the same way the banks have been extended a helping hand by the New Zealand Government.
Providing some extra stimulus to a flagging economy
The second short-term challenge I see facing New Zealand is the need to keep the economy running.
We have been in recession all this year, and the path out may not be an easy one.
It would not be sensible for the Government to cut the expenditure at this point and make the recession deeper that it would otherwise be. On the contrary, the sensible course is for the Government to, within reason, bolster the flagging economy while not significantly worsening government debt.
National's tax reduction in April next year will be a well-timed boost on top of the significant stimulus provided by the October 1 package. National's April 1 tax plan, together with other measures in our fiscal plan, will provide another dose of stimulus to the economy next year, putting much-needed cash into the hands of New Zealanders worried about their financial prospects.
National will also step up new infrastructure spending. Thanks to careful budgeting, National will next year be able to pump an additional $800 million into new infrastructure projects.
These projects will include things such as road building and school building. They will be multi-year projects, and National has budgeted to fund up to $8.6 billion for these over the next six years. They will create jobs and give our productive sector confidence that the Government is committed to a growth agenda.
Today I am announcing that in order to maximise the value of our infrastructure investment, National will require those businesses who gain major government infrastructure projects to take on and train apprentices.
I'm confident that, unlike Labour and the Greens, National will be able to roll out our building plans quickly because we are committed to passing development-enhancing reforms to the Resource Management Act and because we will introduce priority consenting for projects of national significance.
Growing the economy
The most important challenge facing New Zealand is the need to return to serious productive non-inflationary growth. To do that we must strengthen the fundamentals of our economy.
It's easy to forget that before this crisis hit the New Zealand economy was already struggling. We had some of the highest interest rates in the world, soaring domestic inflation, low productivity growth, and a growing wage gap with Australia.
This meant wages often didn't keep up with the cost of living, the interest on mortgages kept climbing, 80,000 or more Kiwis moved overseas each year, and in many cases it meant you worried about the future you could provide for your children or grandchildren .
It was time to get New Zealand's economic house in order before this financial turbulence hit, and it's essential that we do so now. National has an economic management plan to tackle the issues that were holding the New Zealand economy back even before this current turmoil.
* Reducing personal taxes to encourage people to get ahead under their own steam. * Being disciplined about government spending and reducing red-tape. * Improving productivity especially in frontline public services like our hospitals. * Investing in infrastructure. * Raising education standards, and * Investing 40% of the Super Fund in New Zealand assets.
Our plan is a plan to get our economy growing again. And only a strong economy will guarantee financial security for our families, well-paid jobs for our young people, and bigger superannuation payments for our older people.
The fiscal position
It's also a fiscally responsible plan. It's fully costed and fully funded. National will run lower deficits than Labour and the same debt track. We will be living within our means. We have made the hard choices around KiwiSaver and R & D tax credits, and we have been straight with New Zealanders about them.
Since the opening of the books, Labour has announced at least 30 promises and hoped-for spending promises, with no idea how it's going pay for them. Helen Clark's only message is to tell us all to wait for a mini-Budget after the election, when she will undoubtedly cancel any further tax cuts for hard-working Kiwis. She's playing make-believe.
One week to go in the election campaign and Labour has no fiscal plan.
Well, National has a plan, it's a fully costed plan and it's a plan that will drive growth in the New Zealand economy in the years ahead.
Security in Transition
I am concerned that in the next few months New Zealand will be up against some incredibly challenging global economic conditions.
If we are to emerge from this turmoil stronger than before, then we will need to show a renewed commitment to the everyday Kiwis who will get us through this downturn.
In a time of economic uncertainty I think it's absolutely vital that the Government provide New Zealanders with security about the public services they can expect and the support they are entitled to.
There is absolutely no way I will pull the rug out from under New Zealanders when they most need the Government's help.
I have already made a series of commitments to give New Zealanders confidence about their financial security. They include:
* Minimising the tax burden with further tax reduction on April 1 next year, and again in 2010 and 2011. * Continuing Working for Families at current levels and keeping 20 hours ECE and Paid Parental Leave. * Committing to keeping superannuation at 66% of the average-after-tax wage at 65 years. * Encouraging people to save for their retirement with a more affordable KiwiSaver. * Maintaining and inflation-indexing all benefit payments. * Ensuring government spending is focused on improving frontline services such as health and education.
These measures are very important and I am absolutely committed to them.
Transitional Relief Package
However, some New Zealanders, regardless of their own efforts, and no matter the support they receive from Government, could be hijacked by circumstances beyond their own control as a result of the global downturn.
As the financial crisis blows through our economy many observers are predicting that some businesses may close, earnings may fall, and staff may be let go.
The Reserve Bank and the Treasury are both predicting higher unemployment over the next couple of years.
As I travel around New Zealand I am increasingly meeting people who are worried about their employment situation. They might work for a business that exports to America but is watching sales fall and might not be able to keep paying the wages. Others work in restaurants where the bookings just aren't coming as fast as they used to.
These are hard-working Kiwis I'm talking about, and despite their best efforts, the global economic situation could see some being made redundant from their job.
Redundancy is always hard and I would not wish it upon anyone. But my particular concern lies with those people who may be made redundant and who could very quickly go from earning a good wage to relying solely on the Unemployment Benefit, or the income of a relatively lowly-paid spouse or partner. These people will often have children and have high outgoings.
There is already government assistance available to people who lose their jobs, by way of the Unemployment Benefit, Working for Families, and the Accommodation Supplement. But even with this assistance, these people could suffer a significant drop in income.
Now I know you might be sitting there right now, thinking, no, not me. And you're probably right. The vast majority of Kiwis won't be losing their job, and we will be doing our best to minimise the number who do. But some will.
And that will have flow-on effects for all of us. It will shake the confidence of people thinking about expanding their business or investing in new equipment. It will mean people are less able to use local services, or to hire a plumber to fix up a leak, or to make any of the other small decisions that add up to a strong economy.
Details of the Package
So, for the next two years, while New Zealand navigates its way through this global recession, National will offer extra assistance to Kiwis who are hit hard by redundancy.
I don't agree with Labour that all people who become redundant will need or should get financial support from the state. I don't think, for example, that it's a good idea for the Government to make generous payments to a person who has a partner earning more than $100,000, who has no children, and who is already wealthy compared to most New Zealanders. The package Labour announced yesterday would offer that person an additional $4,000. I don't agree with that, and I think it's unfair.
I think we need to target any additional relief at those who need it most.
So, National's transitional relief package will offer assistance to people who are made redundant and who, as a result, either go on a benefit or have to rely on the income of a relatively low-paid partner or spouse.
This assistance will be available until they get another job and their circumstances improve, or for up to 16 weeks.
This assistance will give New Zealanders some space to sort out their financial affairs and get a new job or adjust their circumstances following a redundancy. It will give them a helping hand in a tough time.
It will also be simple to administer. I don't want to add more bureaucracy to the already complex system of state support. So, National's package builds on entitlements that already exist and for which eligibility rules are already in place.
The package has two parts:
1. A $100 boost to the maximum weekly Accommodation Supplement, to help people pay their rent or mortgage, and 2. A Working for Families top-up equivalent to the in-work tax credit, for those families who were previously receiving it but have become ineligible because of a redundancy.
Both of these extra payments will be available for up to 16 weeks.
The boost to the maximum Accommodation Supplement is important because it's specifically aimed at people who may find it hard to pay their rent or mortgage. It allows for their particular circumstances, including where they live, the size of their rent or mortgage payments, and their family make-up.
The Working for Families top-up is important because it covers the double blow some families may receive when one of them loses their job. At the moment, people who are made redundant lose not only their wages but they may also lose their eligibility for the in-work tax credit.
In tough economic times I think that's a double-whammy many families will struggle to withstand. So, National will ensure that these families continue to receive the equivalent of a Working for Families in-work tax credit, for up to 16 weeks.
Let me give you some examples of how National's transitional relief package would work for some such everyday New Zealanders.
Let's take the hypothetical example of Keith and Emma. They're a young couple living in Wellington with two young children. Keith works full-time as a hotel manager and earns $70,000 a year. Emma cares for their children and is not in paid work. The couple get a little Working for Families each week, meaning that in total they have a disposable income of $1,077. They are paying $500 a week of that in mortgage payments.
Let's say Keith loses his job.
Under the current rules, and under the package Labour announced yesterday, Keith and Emma would get $618 a week in assistance from the government, leaving them only $118 each week after they've paid the mortgage. That money will have to cover the bills, the groceries, the children's nappies, the rates, and anything else that might crop up.
National's transition relief package will give Keith and Emma $160 in additional support to help make ends meet while Keith looks for a new job. That would make a real difference to Keith and Emma and would mean they would have a family income of $778 while Keith looks to get back into the workforce as quickly as possible.
Obviously not everyone's in the same circumstance as Keith and Emma, so let me give you another example of how National's package would work.
Let's take the hypothetical example of Louise. She has a school-aged child and is working for 40 hours a week as a retail assistant in Christchurch. She earns $35,000 a year and gets some Working for Families and Accommodation Supplement assistance. Her disposable income totals $712 a week and she pays rent of $275.
Under the current rules, and under Labour's package, if Louise loses her job she would get $425 a week in assistance from the government, leaving her less than $150 a week to cover all her other expenses.
National's relief package will ensure she receives $116 on top of that, bringing her weekly income to $541, and so easing her transition while she finds another job.
These examples give you a feel for the size of the support National is offering and the kind of people it's targeted at. I could keep listing examples all afternoon.
The important thing to know is that National's transitionary relief package is carefully targeted, it's based on existing entitlements, and it's designed to help Kiwis meet their financial obligations at a tough time in their lives. It will help Kiwis who have worked hard and have big aspirations for the future but who are, through no fault of their own, coping with a big financial blow.
Should I be elected to lead the next Government, I will introduce this relief package as a matter of priority. It will initially be available for two years, at which point we will have a close look at it to determine whether or not it should continue, either in whole or in part.
We estimate this package will cost no more than $42 million a year. Hopefully, there will be as few redundancies as possible over the next two years. If so, the package would cost a lot less.
But let me assure you that National has left head room in our fiscal policy for this plan. We will be able to fund this package to the maximum estimated cost, within the new spending allowance I have announced in our fiscal policy, and therefore without adding to the operating deficit or requiring further borrowing.
And that's the biggest difference with Labour's plan. Theirs is one of their 30 or so spending promises that one week out from an election are still completely unfunded. They have no idea where the money is coming from and they have given no indication which programmes they will cut to pay for it. Labour's package is, in short, a political hoax.
Some people will still say, why should we offer this extra support to people at this time?
I say, because we all have a stake in getting people through a rough patch. This is a country that was built on a sense of fairness and a sense of our obligations to each other.
This is also an economy built on our connections to each other. When your neighbour loses his job, he stops shopping at your store. When a family can't afford the rent, the landlord doesn't get paid. When large numbers of people suffer an unexpected financial shock, our society suffers.
I am simply not prepared to look hard-pressed New Zealanders in the eye and say 'you're on your own in this recession'. I want to stay the course with them during tough times. I want to show them my support so they can continue to plan for their futures.
I think it's the act of a fair and compassionate country to give Kiwis support while they are down.
I have faith that the Kiwis who receive this assistance will do their absolute best to find new work, will make the adjustments they have to, will put their best foot forward and, in almost all cases, will find new employment within a few weeks or months.
Ladies and Gentlemen, as I said at the beginning of my speech, we are living in extraordinary times and our country is facing a range of economic challenges.
You will have all seen the coverage of the events overseas as they have unfolded on our news bulletins each night. No one can say for certain exactly what the impact of these events may be on the New Zealand economy and on everyday New Zealanders. I, like all of you, hope the impacts are minimal.
But should things get tougher then a National Government will be ready to act. We will take the steps needed to give Kiwi workers confidence that if they lose their job, they will not be forgotten.
I know that many New Zealanders have found it hard to get ahead in the past nine years. Thanks to Labour they've been burdened by high taxes and high interest rates, and they've faced soaring electricity bills and higher costs. I know that in the absence of high incomes many have had to rely on debt to tide them over.
Should they be made redundant, I am simply not prepared to leave these people high and dry. That is why National will deliver the temporary relief package I have announced today.
But in the end, I know that the only way to provide New Zealanders with job security and wages that keep up with the cost of living will be to grow our economy.
I came into politics because I believed New Zealand was underperforming economically as a country. I don't think it's good enough that so many New Zealanders feel forced to leave our country each year to seek higher wages in Australia. I don't think it's good enough that our average incomes lag so far behind the rest of the world. And I think it's unforgivable that the Labour Party has done so little to address these fundamental challenges.
I believe that a very big step change is needed in our economic performance to ensure New Zealand can make the most of its considerable potential.
Growing the economy of this country continues to be my driving ambition. I stand before you today ready to deliver on that ambition for New Zealand.
You have my personal commitment that if I am elected Prime Minister in eight days' time I will work tirelessly over the next three years to deliver the stronger economic future our country deserves.