Hon John Key
Prime Minister

21 October 2009 Speech
Speech to the CTU Biennial Conference
Mercure Hotel, Wellington

Thank you for the invitation to address your Biennial Conference. It’s good to be here.

I last addressed the CTU at your Productivity Conference in March. I enjoyed that opportunity and I was pleased to get a good hearing, so when Helen Kelly and Peter Conway asked me to address this conference I was keen to accept.

After all, despite our different perspectives, your union and our Government share many of the same hopes and concerns.

We’re both relieved to be seeing the back of the recession.

We’re both concerned to see as many Kiwis in work as possible.

We’re both worried about the gap between New Zealand and Australian wages.

We both want to see a more productive New Zealand, with a better-skilled, higher-wage economy that produces goods and services valued throughout the world.

These are goals I am keen to work with you to achieve. The Government values the co-operation we have with the CTU across a range of areas and we want it to continue.

But I’m upfront about the fact that we don’t and won’t see eye to eye on every issue.

I remain optimistic however that the sum of our disagreements is no match for our shared interests. After all, the workers whose interests you seek to represent are the same New Zealanders whose interests my Government seeks to represent.

In my speech today I want to share with you my view of where the New Zealand economy is headed, the challenges and opportunities the Government sees ahead of us, and our take on some of the issues that are of particular concern to you and your members.

The Economic Outlook: Challenges and Opportunities

Like you, I’m very pleased that we have technically moved out of recession and that we are in better shape than many other countries.

But I’m as conscious as you are of the challenges that lie ahead.

The unemployment rate has been growing, although I’m confident it will peak at a lower level than Budget forecasts.

The Government is trying to keep New Zealanders in work by supporting businesses to keep their staff, setting the conditions needed to give them confidence to take on new workers, and supporting individuals to get back into employment.

We are particularly concerned about high rates of youth unemployment.

That’s why in August I announced a $152m Youth Opportunities package that provides nearly 17,000 additional places for young people aged 16-24 to take part in work, education or training. It’s a great package and it’s making a big difference to a lot of young people.

In addition to our concerns about unemployment, the Government is conscious that the hangover from the recession means many families are still finding it hard to keep up with the cost of living.

That’s why we’re focused on unleashing New Zealand’s growth potential - so that Kiwis can find and keep jobs, workers can get ahead and families can improve their living standards.

We can see that growth potential in individual New Zealanders, and we can see it in the country as a whole - whether it’s our agriculture industry, our tourism sector or our innovative businesses.

The Government’s economic vision is about unleashing this potential. It’s about backing sectors with growth potential and ensuring government policies maximise New Zealanders’ can-do attitude, their ingenuity and their work ethic.

Our work programme for achieving this revolves around six key economic drivers. They are tax, innovation, education and skills, infrastructure investment, better public services and regulatory reform.

My Ministers are working hard on these drivers, and we’re interested in your ideas in each area. I’m going to speak briefly about each today, as well as addressing some issues of particular concern to the CTU.

1. A world-class tax system

The first driver we’re working on is ensuring New Zealand has a world-class tax system.

We want to make sure our tax system doesn’t hold back people’s potential or dampen their aspirations. That means operating tax policies that don’t get in the way of people working hard, investing and saving, and that support Kiwis in their efforts to get ahead and improve their living standards.

While New Zealand’s current tax system is OK, there’s always room for improvement. So together with Victoria University, we have established a Tax Working Group to consider the medium-term tax policy challenges facing New Zealand. It will report at the end of the year.

I will have more to say about tax after that. You should be assured however that the Government doesn’t propose to make any changes to our tax system unless we can be absolutely satisfied that the benefits outweigh any costs. In making that judgment, we will carefully consider the impacts for everyday New Zealanders and the equity and fairness implications for all.

2. Innovation and business assistance

The second driver we’re working on is innovation and business assistance. This covers government and business investment in research and development, in innovation and in developing new markets and products.

We’re looking at ways we can improve the value of the Government’s investment in these areas so that it maximises our economic opportunities.

It’s about ensuring Kiwi employers and entrepreneurs are encouraged to make the most of smart ideas, both at home and on the world stage.

It’s about ensuring our firms have the R&D edge needed to get good prices for their products, so they can grow, take on new workers and pay them well.

And it’s about ensuring our clever Kiwi companies are able to connect with overseas markets and sell their goods on the world stage.

3. Investment in infrastructure

A third driver is investment in infrastructure.

For too long a lack of infrastructure investment has been holding back the growth potential of New Zealand.

We want New Zealanders to have the reliable public infrastructure they need to do their jobs as well and productively as possible.

The Government has embarked on a $7.5 billion boost in infrastructure investment over the next five years to achieve this. We will be building and upgrading schools, hospitals, and roads, improving the quality of the state housing stock, and investing in ultra-fast broadband.

In February we decided to fast-track almost half a billion dollars worth of this infrastructure investment to support jobs during the recession. That meant the start dates for projects like the Victoria Park motorway project and the Kopu Bridge were brought forward, allowing construction to begin and workers to be hired. So all through the country the impact of the Government’s infrastructure investment is already evident.

4. Education and skills

A fourth key driver we have identified is education and skills.

The Government and the CTU agree that to improve New Zealanders’ wages and living standards we need to get better at producing the goods and services the world wants, and be paid more for them.

That’s what productivity growth is about. It’s not about making people work harder and harder. New Zealanders are already amongst the hardest workers in the OECD. It’s about helping our people to work smarter.

That’s why education and skills are so important.

I think the New Zealand education system already has a lot going for it, and that we can be proud to boast some of the world’s best teachers, researchers and institutions.

But we all know that we can do better. I am particularly concerned with the long tail of underachievement in our schools, perhaps as big as one in five young people, who are not getting the skills they need to succeed.

That tail represents a huge slice of unrealised economic and social potential.
The Government wants to reduce the number of young people slipping through the educational cracks.

That’s why next year we’re introducing National Standards in literacy and numeracy.

National Standards will give schools and teachers clear expectations of what children should be achieving.

They will ensure parents are well informed about their children’s progress.

And they will clearly identify the kids who are struggling and need extra help.

For those teachers here today let me say that the Government wants National Standards to be an aid to better teaching and learning rather than a cause of resentment in the sector. I am backing my Education Minister 100 per cent on their implementation and I am confident that unions can work constructively with her to make this policy work.

The Government is also focused on expanding the learning options for secondary-age students. Because we all know that some kids are going to be much happier taking apart a car in class than studying Macbeth.

That’s why we’re developing Trades Academies, and looking at ways we can get schools, employers and polytechnics to work together better. It’s also why we’re introducing a Youth Guarantee that in its first phase next year will allow 2000 16 and 17 year olds to undertake fees-free study at tertiary institutions.

We’re also aware of the need to improve the skills of those New Zealanders already in the workplace and the Government is keen to engage the CTU further about the ways we can do this.

The Minister of Labour will be chairing a revitalised Skills Forum to focus on what we can all do in this area. The continued leadership of the NZCTU in this forum, together with other social partners, will be critical to its success.

5. Better public services

The fifth driver in the Government’s sights is delivering better, smarter public services.

The wider public sector makes up around a quarter of economic activity in New Zealand, so what we do here can make a real difference to the overall performance of the economy.

The expectations New Zealanders have of their public services are rightly high. The recession and the corresponding dent in the public finances, means meeting those expectations will be a real challenge over the next few years.

In next year’s Budget we only have $1.1 billion extra to invest across the entire public sector. This compares to an average of $2.8 billion extra a year in Labour’s last five Budgets.

Making those dollars stretch, while also meeting the public’s expectations for frontline services, will require innovation, new thinking and some difficult trade-offs. We will need to do some things differently and we will need to ensure we get maximum value for every dollar.

Some of you might say that the way around this challenge is for the Government to borrow more, and to allow for bigger increases in spending.

The truth is the Government will already be borrowing at an average rate of $250 million every week for the next four years. This means government debt will double by 2014.

Additional borrowing on that scale can’t continue indefinitely. New Zealanders trust the Government to manage the country’s books responsibly, and we are determined to do that. So we simply must get better bang for every taxpayer buck.

It’s my sense that those working in the public sector appreciate these challenges and are prepared to play their part in improving productivity and the delivery of public services. They understand the pressures the Government’s finances are under and the need for very careful spending decisions.

It’s with this in mind that the Government has set out our expectations to Chief Executives about future pay negotiations. We have made it clear that settlements must be fiscally sustainable within baselines, they must be responsible and they must demonstrate value for money.

So in the coming years you can expect all public sector pay demands will be subject to high levels of scrutiny. Chief Executives will have to weigh them up against other demands, and prioritise them accordingly. A climate of restraint will prevail.

So my message on this issue is straightforward. Next year’s public sector pay negotiations will take place in a seriously constrained funding environment. Every dollar spent on wage increases will be a dollar that can’t be spent on pressures elsewhere. And there are very few dollars for elsewhere as it is.

We cannot escape this fact nor wish it away.

6. Regulatory reform

Finally, number six, regulatory reform. I don’t pretend this is the rock-star of public policy, it’s hardly sexy. But I do think it makes a difference.

It’s about ensuring there isn’t red tape getting in the way of good ideas and that laws and regulations make New Zealand a better place to work and live.

It’s in this context that the Government views employment law.

We think employment law should give employers the confidence to create new jobs and take on new employees and it should provide for fair and up-front working relationships.

Of course there is always a balance to be struck between ensuring employers aren’t put-off hiring new staff on the one hand, and promoting workers rights and entitlements on the other hand.

Let me acknowledge today that there are a few areas of employment law where the Government and the CTU disagree about where that balance should be struck.

I’m not going to avoid talking about these areas today just because we disagree. But I do think they should be seen for what they are, a relatively small part of the Government’s overall agenda.

In our first 11 months in office we have progressed two key areas of employment law reform.

The first was the introduction of a 90-day trial period for smaller employers.

I know your unions opposed that law. Well, let me give you my take. I think it’s working. It’s helping to ensure that those on the margins of the workforce, who might otherwise struggle to get a shot at a job, are getting a go.

The Government has also put together a working group to look at how we can make the Holidays Act work better for employers and workers. I’m pleased the CTU is on that working group.

It reports back in December and it’s my hope it will come up with sensible recommendations that will protect workers entitlements while making employers’ obligations clearer.

Beyond these two areas, the National Party’s election policy outlined some other possible areas for employment law reform. I know you are keen to hear how that work is progressing.

Again, let me be upfront. I understand the Minister of Labour has taken a first look at these issues. The Cabinet is yet to consider any recommendations however. The fact that these issues have not been progressed more rapidly reflects where they sit in the Government’s agenda – they’re not a driving priority.

That’s not to say the Government is ruling out any future changes to employment law. We are a solutions-focused government, so if we can see employment law is causing serious problems for people, we will be prepared to look at it.

When I travel around the country people do raise employment law concerns with me from time to time. The most common problems they point to are with the confusing aspects of the Holidays Act, the lack of flexibility in the rest and meal breaks legislation and the potential abuse and costly nature of personal grievance processes.

The Government has responded to the first, we are responding to the second, and I’m flagging today that the Minister of Labour will take a look at personal grievance processes as well.

ACC

Before I leave today, and in the spirit of the upfront discussion I want to have with you, let me take a moment to talk about the ACC issues that the Government is grappling with.

The National-led Government supports a comprehensive, 24/7, no-fault accident insurance scheme, that delivers certainty of coverage for New Zealanders. That is what ACC provides and that is what the Government is determined to maintain.

However, we have been very concerned to learn that the ACC scheme is in financial dire straits. This is not a surprise we welcomed on assuming the Treasury benches.

Some have questioned whether it’s truly the case. If only it weren’t.

The consensus is overwhelming. The ACC Board has confirmed it is the case, their independent actuaries Price Waterhouse Coopers Sydney have confirmed it, the Department of Labour's independent actuaries Finity Consulting have concurred. Even the Audit Office’s independent auditors Ernst Young have verified the figures.

Every single actuary and auditor who has looked at ACC’s books has confirmed they’re in trouble. You would be very hard-pressed to find a qualified auditor who has seen the books who would claim otherwise.

Whether we like it or not, the Government is now faced with the unenviable task of financially rescuing ACC.

So the question for the Government is how we make up the funding shortfall.

The ACC Board has proposed a way forward - 64% hikes on levies for the Earners Account and 44% increases to levies on the Workers Account.

I don’t think levy hikes that big are fair on workers and I worry that imposing those hikes on employers could threaten jobs. But if the Government makes no changes to the law, that’s what will happen.

Some have said that all we need do is extend the period over which the scheme becomes ‘fully-funding’.

In fact we are already proposing to do that. The Bill we are introducing shifts the full-funding date from 2014 to 2019. But even with this change, the scheme still won’t be in the black.

So the Government has proposed further modest changes that strike a balance between levy increases on the one hand and reducing the scope of some unfunded entitlements on the other.

Our Bill means that average levies will rise by a lot less than the ACC Board has been proposing. It’s not a piece of legislation we’re pleased to have to introduce. But the alternative is worse.

Like you, I worry about what huge levy hikes would mean for families and I worry about the impact on jobs if we load those costs onto employers.

In closing, I know the changes to ACC are controversial. I know your organisation has concerns about them. There will be a full Select Committee hearing on these proposals. I encourage you to put forward your views and I assure you that the Government will listen.

But let me be very clear about our motives - the Government is committed to saving the ACC scheme while minimising the cost burden on Kiwi families and that is what our proposed changes are designed to do.

Conclusion

Looking back on the past six months since I last spoke to you, I can point to many areas where our interests have aligned.

In a way, the recession was a real driver for increased co-operation between the government, business and the unions.

The Job Summit was a case in point, where we all came together to devise ways of keeping Kiwis in work during the recession.

The summit inspired some great ideas and many of these came to fruition. The nine-day fortnight, accelerated infrastructure investment, even the national cycleway.

But more important than any one initiative was the clear understanding that we’re all in this together.

I know the CTU and the Government will continue to disagree with each other on some issues.

The reason I am here today however is that I think your members deserve a fair hearing and we deserve a fair hearing in return.

I look forward to continuing our discussions and working with you in the years ahead. Thank you.

ENDS

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