Peters Speech: NZ Manufacturers & Exporters Association
Rt Hon Winston Peters
New Zealand First Leader
15 October 2012
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Speech: NZ Manufacturers & Exporters
Association – Council & CEO Forum
Riccarton Business Centre, Riccarton, Christchurch
Monday 15 October 2012, 5pm
Thank you for the opportunity to speak here today.
Our economy is in serious trouble.
For too long, successive governments have neglected the country’s manufacturing and export base.
That’s why we’ve had a current account deficit for the past 38 years.
It’s why tens of thousands of young Kiwis have left for Australia.
It’s why unemployment is over 200,000 (according to Roy Morgan).
It’s why so many of the country’s assets are being sold overseas.
And we are poorer for it - not just materially, but culturally as well.
The social fabric of the nation has been torn by selfishness and greed.
The traditional Kiwi values of community and social responsibility have become relics of the past.
New Zealand is not the nation some of us remember from our childhood. But with the right leadership, it can be great again.
Over the past few years, your organisation has done a lot of work in challenging the monetarist, neo-liberal orthodoxy that got us into this mess.
For that, we commend you.
New Zealand First has spent the better part of 20 years holding the economic vandals to account.
We identified these problems long before other political parties did; but that’s an aside!
Many political commentators and most economists, as well as those in the business community, have now woken up to the reality.
And the reality is we are letting ideological dogma get in the way of our country being great again.
Someone once said: “the future is not something we enter. The future is something we create”.
This is as true for a nation as it is for a person.
If previous governments had pursued a national economic strategy based on leadership and vision, rather than blind faith in the global free market, New Zealand would still be the envy of the world.
The government’s role in manufacturing our future
The government can and must play a leading role in the development and expansion of New Zealand’s economic base in the 21st century.
This goes well beyond the publication of a few glossy policy documents which contain only platitudes and excuses for why we lag so far behind the rest of the world.
Steven Joyce’s latest attempt at an export strategy shouldn’t be viewed as anything other than a PR exercise intended to pay lip-service to the sector without actually offering any plan of action.
A goal is not a strategy.
Mr Joyce says he wants to increase the ratio of exports to GDP to 40% by the year 2025.
The trouble is the policies needed to do it are anathema to this government.
They go against everything Mr Joyce and his cabinet colleagues believe in.
The precepts of neoliberalism do not allow for the government to have any role in the management of the economy.
And therein lies the problem.
Any policy or action that impinges on their free market ideology is perceived as economic heresy even if it would lead to higher growth and strengthen the competiveness of the New Zealand economy - even if it would create jobs!
In that regard, National’s do-nothing approach isn’t so much a sign of laziness or incompetence; it is endemic of the ideology to which they subscribe.
It’s wilful negligence!
Nowhere is this more obvious than in its handling of the exchange rate crisis.
And it is a crisis; despite what John Key and Bill English say.
Since 2008, a total of forty thousand jobs have been lost in the manufacturing sector alone – all because of a high and volatile New Zealand Dollar.
Each month there are more redundancy announcements, more factory closures, more out-sourcing, and more foreign takeovers.
It’s a never ending cycle.
We’ve just seen, for example, several hundred jobs lost at Tiwai Point, Spring Creek, and Huntly.
And those are only the ones the media report.
I’m sure that many of you in the audience will have your own experiences to draw on – and I don’t need to tell you how grave the situation really is out there.
If only our Prime Minister would take some time out of his busy schedule from wining and dining with the stars in Hollywood, to step out into the real world once in awhile.
Then he might see the urgency of this matter.
Fortunately, New Zealand First is one political party that does.
We’ve got legislation before Parliament this week that would amend the Reserve Bank Act to give the Governor of the Reserve Bank a wider focus.
It would mean the Reserve Bank would have a responsibility to address the overvalued dollar; something that outgoing governor Alan Bollard acknowledged is a serious problem.
Incredibly, the government has said it will vote down the bill at first reading because “it is unnecessary”.
Almost every respected international economist says that the exchange rate is a critical factor influencing economic activity.
It makes no sense for it to be only a secondary consideration.
This is especially true in a small, export-dependent nation such as ours.
All around the world, governments and central banks are intervening.
Japan is doing it, Switzerland is doing it, and so are the UK and the US.
Singapore has been doing it for decades – and they have one of the strongest, most successful economies in the entire world.
As one economist recently put it, New Zealand’s approach to monetary policy is a rarity in the global economy.
The time has come for us to try something new.
Our bill, while not perfect, has at least put the issue on the agenda.
We’re urging all parties to support the bill to select committee. This would allow the public to have a proper say, and give MPs the chance to hear expert testimony on the subject.
This is an opportunity for a serious public policy debate. And it is long overdue.
What else needs to be done?
The exchange rate is certainly the most pressing issue facing the export sector right now.
But it is not the only issue.
New Zealand is ranked among the lowest in the world in terms of research and development.
A recent survey by Grant Thornton International found that New Zealand only spends 1.3 per cent of total GDP on research and development compared with an OECD average of 2.4 per cent and upwards of 5 per cent for some Scandinavian countries!
They stated: “The knock-on effect of New Zealand’s very poor record in R&D is that our growth prospects have suffered.”
We can’t rely on just milk and butter anymore.
In order to grow the productive base of the economy we need to foster our competitive advantage in high value manufacturing – an area with huge growth potential.
And there is an enormous body of local and international research to support this.
For example - work by the late Sir Paul Callaghan shows that a job in manufacturing generates revenue averaging $400,000.
This compares to just $80,000 for a job in tourism.
That is huge.
And it calls into question the government’s priorities.
Does anyone remember John Key’s national cycle way?
Mr Key reckoned it would create 4000 jobs.
In the end it only created 700.
His solution now is to give big tax breaks to his mates in Hollywood to create a few low-paying, temporary jobs in the film industry.
On the other hand, international research shows that for every job created in the manufacturing sector up to five additional jobs are created elsewhere in the economy.
That is huge!
And yet successive governments – both Labour and National – have hollowed out manufacturing in New Zealand.
What the record shows
In 2007, New Zealand First supported the introduction of a 15 per cent R&D tax credit. This tax credit almost immediately led to a noticeable increase in private-sector R&D activities.
It was a great policy that went a long way towards addressing serious structural problems in the economy.
But National, in its infinite wisdom, chose to cancel the programme to pay for personal tax cuts.
Now we’re suffering for it big-time.
Since Mr Key came to power, annual GDP growth has averaged less than a percent.
Meanwhile, dozens of high-tech companies have been sold offshore.
This means more assets and profits leaving the country, which only serves to push us further and further into the red by increasing our net international liabilities.
The current account deficit is expected to balloon to around 7 per cent of GDP in the next three years.
The government must act – and it must act now.
A reintroduction of the 15 per cent tax credit would be a good start.
We also need policies that make it easier for local firms to access capital.
The big four Aussie banks are reluctant to lend to Kiwi manufacturers and exporters because the risk is considered too high.
They prefer to concentrate on residential mortgage lending.
If you’re a small firm in Riccarton with a great idea of technological innovation in a field that no one has heard about, and you go to your local branch of the ANZ for a $50,000 loan - you’re probably going to get turned away.
It’s an example of an area where the free market is failing to recognise true innovation and foster the entrepreneurial spirit.
The government, through the NZ Export Credit Office, already offers a limited capital guarantee scheme for some businesses.
This allows a few firms to access additional working capital when they exceed their lending limits.
But it is not enough.
What would we do?
New Zealand First would look at ways of extending this scheme to make it more comprehensive and accessible.
New Zealand First also supports the introduction of an accelerated depreciation scheme for exporters so that businesses in the sector are able to write off plant and patents a lot faster.
Furthermore, we campaigned at the last election to cut tax on new export income to just 20 per cent.
These are a few examples of practical, long-term solutions that we are proposing.
We may not have all the answers but one thing is certain: National has no answers.
John Key continues to assert that 200 job losses a week in the manufacturing sector is not a crisis.
He continues to assert that there is nothing that can be done about the dollar.
He is content to leave things as they are.
We are not.
New Zealand must regain control of its own destiny as a nation.
We can and must do better.
The future is what we make it.