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Christchurch Businessmen’s Club: Manufacturing Matters

Rt Hon Winston Peters
New Zealand First Leader

Speech: Christchurch Businessmen’s Club: Manufacturing Matters

The Canterbury Club, Cambridge Terrace, Christchurch
Monday 8 April, 1.15pm

Thank you for the opportunity to speak to you today.

This Christchurch Businessmen’s Club has a long and distinguished history and I appreciate the invitation to be here with you today.

The topic I want to cover is the Manufacturing Sector.

In particular, I want to look at why manufacturing is so important for New Zealand’s future and what New Zealand First sees as the way ahead to build a strong and diverse manufacturing sector.

Internationally, there is very clear evidence that countries that make things are much more resilient than those that put all their eggs in one basket –for example financial services or a small range of commodities.

In New Zealand, manufacturing makes up 13 per cent of GDP. This compares to 7 per cent for the primary sector.

Yet, astonishingly, primary products account for 70 per cent of our exports, while manufactured goods account for only 25 per cent.

Per worker, manufacturing is worth $66,235 to GDP.

By comparison, a job in the primary sector is worth $64,004 to GDP.

A job in tourism is worth just $35,636 to GDP.

This just goes to show that manufacturing is by far and away the best investment for the government.

The returns are huge.

International research shows that for every job created in manufacturing, up to five further jobs are created elsewhere in the economy.

We can’t rely on dairy and meat to carry us through these tough economic times.

Profits are falling in the primary sector, and will continue to fall.

Last year, the Ministry of Primary Industries forecast a 57 per cent decrease in profits for milk solids alone!

And that was before the drought; a drought that is estimated to cost the country up to $2 billion.

Don’t be fooled by talk of getting back into surplus by 2014/15.

This is a distraction. By tweaking two items of announced expenditure alone the surplus can be affected. For example delaying roading expenditure plans and cutting overseas aid by $96 million from that which they announced in the last budget and you artificially change the calculations. So make a budget announcement whilst having no intention of following it through. And there are many examples of this.

The real concern is our net international investment position (i.e. overseas debt) – which, under this government, sits at around $150 billion.

This debt exists because we aren’t earning enough from exports to pay for the goods and services we import.

Foreigners are making more profit out of their investments in New Zealand than we as a nation are making from trade and investments overseas.

That’s why we’ve got an extremely high current account deficit of $10.5 billion or 5% GDP.

That is forecast to grow much higher in the next few years.

And is it any wonder?

Four of our five major banks are Australian-owned.

Between them they make dividends of about between three and four billion a year for their owners in Sydney and Melbourne.

Then you have the primary sector.

Virtually all of our mines and forests are now foreign-owned.

So are many of the country’s farms and dairy processing plants.

These are our major export earners for goodness sake!

And now John Key is lining up scores of foreign investors to buy the power companies!

The list goes on …

The only way we will ever pay our way is by making more and importing less – abandoning the manufacturing sector is economic suicide.

There are many attributes of manufacturing that are of value including that it:
• develops and retains a wide range of skills
• broadens the export base
• supports innovation and technical development
• tends to generate better paying jobs than the service sector

That is why in 2012 the Australian Government appointed a Taskforce on Manufacturing.

That taskforce made a set of wide ranging recommendations for strengthening the Australian manufacturing sector.

In contrast there has been nothing so enlightened in New Zealand.

Here the Government has shown an almost willful disdain for the manufacturing sector.

In the face of multiple pressures on the sector including a chronically over valued dollar and intense international competition the Government has persisted in turning the proverbial blind eye.

New Zealand First is committed to the manufacturing sector and we believe active and supportive policies will work to protect and encourage the sector.

That is why, after the Government’s refusal to hold a select committee inquiry, we joined with Labour, Mana and the Greens in a wide ranging inquiry into the manufacturing sector.

New Zealand First is a party that will work constructively with any political party when it is in the interests of the country as a whole.

We will not pre-empt the findings of that Inquiry – as we expect the final report should be released reasonably soon - around the end of this month.

In our view the Inquiry has been a great success. It has allowed the voice of the manufacturing sector to be heard in an open and frank way.

What is very clear is the depth of concern felt within the sector at where this country is headed in terms of manufacturing.

Simply put the status quo is not an option – because that path it is likely to leave us with a much diminished manufacturing sector.

New Zealand First Policy Initiatives

Let me outline some of the positive steps New Zealand First would take to support the sector:
• Monetary policy reform to address the overvalued New Zealand dollar (Reserve Bank Amendment Act)
• Preference for New Zealand firms in Government procurement
• Improved access to loans for Small to Medium Enterprises through a Capital Guarantee Scheme based on the Australian model
• Accelerated depreciation regime for plants and equipment
• Tax credits for research and development
• Support for value adding to raw materials. For example, lower domestic log price to enable wood processers to manufacture in New Zealand
• Introduce a lower (20 per cent) business tax rate for exporters

Changing the Reserve Bank Act
On the issue of amending the Reserve Bank Act let me reiterate why New Zealand First believes change is urgently needed:

• The problem with the dollar is acute. The high dollar is doing all sorts of short and long term damage - eg recent factory closures such as Summit Wool Spinners in Oamaru.

• Internationally, central banks are changing their rules – either overtly or covertly. The world is in a new economic era and they are responding to that. In contrast, New Zealand is locked into a model that has passed its use by date.

• Our bill is not prescriptive – it gives the Reserve Bank the scope, the flexibility and the freedom to explore new ways of achieving a realistic exchange rate. The current Act inhibits new ideas and new thinking on managing our exchange rate.

• Last year our Bill failed by only one vote – that indicates that a large measure of support already exists in Parliament.

• The Government offers no initiatives on the high dollar – it is in a state of resignation. Our bill is not a panacea but it is purposeful, clear and implementable.

Buy NZ

We are drafting policy that would make it compulsory for government departments, state-owned companies and local councils to give first preference to New Zealand firms over foreign competitors.

The facts speak for themselves:

• Central government alone spends over $30 billion a year on procurement. Too many of these contracts are going offshore.
• A study by BERL in 2010 found that for every $1 million spent locally rather than overseas, 10.4 jobs are created or maintained, $108,457 of tax revenue is generated, and $128,685 savings are made on welfare payments.

Our policy would put a stop to cheap foreign labour undercutting Kiwi workers.

For example, we believe it would have saved KiwiRail’s Hillside workshop.

It would have also stopped the Department of Conservation from axing New Zealand-owned and operated souvenir manufacturer in favour of products sourced from Asia.

Some might call it isolationist.

We call it smart economics.

Most of our major trading partners have government procurement policies which give domestic manufacturers a hand-up.

The United States has the ‘Buy American Act’.

The Gillard government is looking at introducing similar policy in Australia.

There is no reason why we can’t do it here. All we need is the resolve to do it.

We will ensure that procurement policy is a priority for the next government.

It’s time to put New Zealand businesses first.

Access to capital/R & D

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 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.”

The biggest beneficiary of R & D is, of course, the manufacturing sector.

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.

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’d rather lend to property investors instead.

It’s an example of an area where the free market is failing. There is a fundamental mismatch of capital and ideas.

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.

New Zealand First would look at ways of making this scheme more accessible.

New Zealand First also supports the re-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 would like to see a lower corporate tax rate for exporters to better reflect their contribution to the real economy.

Tax the big Aussie bankers more; tax the real wealth-creators less!

These are a few examples of practical, long-term solutions that we bring to the table.

Conclusion

In concluding my remarks today I want to make just three points:

First, we ask you to support New Zealand First’s stand in protecting and promoting the manufacturing sector.

Second, we encourage you to use the influence of this organisation to urge the Government to take action that will support rather than undermine the manufacturing sector.

Third, do your part to support local jobs and industry.

ENDS

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