Speech to Massey University and Auckland Chamber of Commerce
Hon Steven Joyce
Minister of Finance
16 February 2017 Speech
Speech to Massey University and Auckland Chamber of Commerce – NZ Economy
Thank you Michael and the Auckland Chamber of Commerce, and new Vice Chancellor Jan Thomas and Massey University for hosting this event.
Special guests, Ladies and Gentlemen. It’s a pleasure to be here.
Today I’m going to offer some views on the current state of the New Zealand economy and our infrastructure.
At a time when many parts of the world face significant political and economic risks, the outlook for New Zealand is positive. Businesses are investing, job growth is solid and wages are rising faster than inflation.
Treasury is forecasting 3.5 per cent growth for each of the next two years – averaging 3 per cent over the total five years.
We are in the unfamiliar position of being one of the fastest growing countries in the developed world. New Zealand currently has the fourth fastest growth rate in the OECD.
This growth is driven mainly by the opportunities provided by our export markets, our global competitiveness, our high skills levels, our confidence to invest, and the resourcefulness and adaptability of Kiwi businesses.
This hasn’t happened by accident. It’s the result of hard work by households and businesses, backed by the Government’s clear plan for our country’s future.
But growth is not an end in itself. Growth is about creating job opportunities and higher wages for New Zealanders.
And we’ve seen very strong employment growth over recent years. The economy has seen another 328,000 jobs created since 2008; and Treasury expects a further 150,000 by 2021.
It also expects the average annual wage to reach $66,000 by 2021. It is currently $58,700 and has been growing at twice the rate of inflation.
The most recent Household Labour Force Survey reported that for the first time ever we have 2.5 million people employed in New Zealand.
There were 19,000 extra jobs created in the last quarter; and 137,000 over the last year.
Our employment rate – the proportion of the total population aged 15 years or older in work – is 66.9 per cent. This is the highest rate New Zealand has ever had, and the second highest employment rate in the whole of the OECD.
All of this is possible because over recent years we’ve had sensible economic and fiscal policy from a strong and stable Government that is focussed on encouraging businesses to get out there and invest, grow and employ more people.
Diversification of the New Zealand economy
The story behind the headlines is that New Zealand isn’t just growing – it is steadily diversifying into newer and higher value products and services.
With the strong growth in our region we've never had so many opportunities to sell high quality products and services around the world. This city, for example, is now just one flight away from more than 2.5 billion of the world’s population.
Companies like Vista, Xero, Zespri, Fisher and Paykel Healthcare and Gallagher Group are leading us into sectors spanning ICT, high quality foods and high value manufacturing.
Up and down this country there are hundreds of new tech companies operating in narrow deep niches and competing and winning around the world. I’m privileged to have heard about many of them in my previous roles.
And the Government’s Business Growth Agenda and Innovative New Zealand programmes are nurturing that growth.
The Economy – International Trade
Both the Reserve Bank and Treasury have highlighted that unusually, the current risks to New Zealand’s continued economic expansion are almost exclusively international.
While the IMF has recently upgraded its outlook for world growth, there is also heightened uncertainty.
We’re seeing signs of a move towards old style trade protectionism – particularly from the new US administration.
And there is the added complication of Brexit, as both the EU and the UK come to terms with how they will work together in future. On the plus side, both Brexit players see this as an opportunity to embrace trade with third countries like New Zealand.
It’s important to remind ourselves at times like this as to why trade is important to prosperity.
Trade is doing at a country level what we do at a personal and family level.
At a personal level we don’t make everything we consume ourselves. I don’t make the car I drive, the house I live in, or the food I eat (with the obvious exception of my vegetable garden). I could try, but lots of things wouldn’t get done and my standard of living would drop dramatically.
We specialise in something we’re good at and we sell those skills to buy everything else we need.
That makes us better off. The stuff we buy is cheaper and better than if we make it ourselves – and we work to maximise our incomes from the things we are good at so we can buy that stuff. So we win on both ends of the transaction.
Trade between countries is the same. Both selling exports and buying imports make countries and their people wealthier.
In New Zealand, we have a confident thriving export sector that knows it can compete with the best in the business.
We are great at making food, at making niche hi-tech products, we have a marvellous education system which is the envy of much of the world. We offer amazing tourism experiences all at a price and quality that people love.
We can also buy smart phones, TVs and cars that are getting better and better at a lower price. Trade has made us a wealthy country – rated last year as the most prosperous in the world.
But it’s not just good for New Zealand. The last 16 years has seen over 1 billion people around the world lifted out of extreme poverty – and trade is a major factor in that.
Under this National-led Government, New Zealand will stay at the forefront of advocating for free and fair trade.
That’s why Todd McClay is back on the road talking to the TPP 11 to keep the vision of Asia Pacific free trade alive.
Stronger economic growth is flowing through to the Government's books.
Tax revenue continues to come in ahead of forecast, and for the first six months of 2016/17 the Government’s books showed an OBEGAL surplus of $9 million.
Now a $9 million surplus doesn’t seem like a lot. But it is a significant milestone. This is the first time since 2008 that the Government’s books have been in surplus halfway through the year.
The result is around $700 million ahead of Treasury’s forecast – driven by a higher tax take and lower than expected expenditure.
Now I realise I only took over the portfolio at the start of December, but I don’t know how the previous Finance Minister made it look so hard!
Under Bill’s leadership as Finance Minister we have made a lot of progress – getting on top of the Government deficit which peaked at $18.4 billion following the Canterbury earthquakes and the GFC, and turning it into a $1.8 billion surplus last year.
It is still too early to be sure that a surplus will be achieved in the current financial year, particularly given the costs associated with the Kaikoura earthquakes.
However surpluses are predicted to rise to $5.4 billion by 2018/19 and, provided they come to pass, that provides options for us as a country.
It’s important though, that those options are considered carefully. As Finance Minister, I believe it is very important to focus on achieving value for taxpayers’ money in every investment we make on their behalf.
I have four key areas I am thinking about in preparing for this year’s Budget.
First, delivering better public services for a growing country – providing all New Zealanders with the opportunity to lead successful independent lives.
Second, building the infrastructure we need in growing a modern economy.
Third, we need to keep paying down debt as a percentage of GDP. We’ve set a target of reducing net debt to around 20 per cent of GDP by 2020. That’s to make sure that we can manage any shocks that may come along in the future.
And finally, we remain committed to reducing the tax burden and in particular the impact of marginal tax rates on lower and middle income earners, when we have the room to do so. It is very important to remember that the money the Government spends comes from hard working Kiwi families.
New Zealand’s strong growth means more Kiwis are choosing to work and bring up their families here.
And as our population grows we need to invest in the infrastructure to support that growth and provide capacity to grow further.
Infrastructure is a core part of the Government’s Business Growth Agenda and we have a very strong record in infrastructure investment.
Whether it’s ultrafast broadband, the roading network, the rail network, electricity transmission, or social infrastructure like schools, hospitals and prisons, we are overseeing the biggest infrastructure programme in New Zealand in many decades.
This year alone the Government’s capital spend will be around $7 billion, up from $3 or $4 billion a year in recent times.
Infrastructure investment is particularly important here in Auckland – our gateway city to the world.
My theory is that Auckland is used to growing at the rate of an Adelaide or a Perth, and suddenly it is growing like South-East Queensland.
That’s good – it’s a sign of success – people want to live and work in this city instead of another part of the world, but this requires better and more responsive planning for growth.
We have some very big projects underway.
Take education for example. We are currently investing more than $330 million in 17 Auckland schools like Western Springs College, Takapuna Grammar and Freemans Bay School, and we allocated another $150 million for more schools and classrooms in Budget 2016.
In Broadband, last month the Prime Minister and Simon Bridges announced that the UFB programme is being extended to 13 more towns in the Auckland region including Helensville/Parakai, Waimauku, Snells Beach, Warkworth and Matakana.
Once the full UFB programme is complete, more than 1.6 million people in the Auckland region will have access to UFB.
And, of course, transport.
The Government is investing billions annually in Auckland transport – catching up on a 30 year infrastructure deficit. This is a major programme of work and significant parts of it are being completed and brought into service this year.
This includes the widening of the southern motorway from Manurewa to Papakura, the $1.4 billion Waterview Connection, the massive widening of the North-Western Motorway, more lanes on the South-Western motorway at Onehunga and Mt Roskill and the extension of the Airport motorway link at Kirkbride Road.
This level of activity is unprecedented – and the disruption caused by all the investment is one of the reasons that commuter travel times are currently longer than in the recent past.
Alongside the motorway work, we are investing in some major local roading projects with Auckland Council, like the recently completed Albany Highway rebuild on the North Shore and the Auckland Manukau Eastern Transport Initiative.
On top of that we are, of course, the Government that electrified the Auckland rail network, funded the purchase of the Auckland’s 100 per cent modern electric train fleet, and is now partnering with Auckland Council to build the City Rail Link.
The City Rail Link is a key part of the pipeline of work into the future and there is plenty more underway.
Yesterday Nick Smith announced the two boards of inquiry for consenting the East-West Link Motorway between Onehunga and the Southern Motorway; and the Northern Corridor Improvements to extend the North Shore busway and linking the Upper Harbour Motorway with the Northern motorway.
Work will continue on widening the North-Western motorway between Henderson and Hobsonville, and the roads north and south of Auckland are steadily being converted to motorway standard to allow more of New Zealand’s growth to occur in cities like Hamilton, Tauranga, and Whangarei.
However as this work comes to fruition over the next five years, Auckland as a city is going to come up against a hard constraint, and that’s one of geography.
There is no getting away from the fact that central Auckland is built on a narrow isthmus which makes it hard to get around – and the available land transport corridors are rapidly being used.
So beyond the current building programme we are going to have to look at demand management to reduce the reliance on the road corridors, in favour of better use of buses, trains and ferries.
That was one of the conclusions of the joint Government/Auckland Council ATAP process last year.
The Government is developing a work programme to look at demand management tools including electronic road tolling in the medium to long term.
But to be clear, we see this as a way to make the roading system work better – and not as a revenue raising exercise.
And today, I can confirm the Government’s position is:
First, we would expect that any road pricing initiative on existing motorways and highways would be as a replacement for petrol taxes and road user charges not in addition to them.
And second, I stress that we are not interested in introducing a regional fuel tax – Simon Bridges and I have reiterated to Auckland Council this morning that we do not see regional fuel taxes as part of the Government’s mix for transport in Auckland because they are administratively difficult, prone to leakage and cost-spreading, and blur the accountabilities between central and local government.
But we are keen to have a more detailed discussion about demand management tools, and explore further options for longer term funding for new infrastructure, including the use of private finance for certain projects, such as Penlink for example.
Infrastructure for More Housing
One of the big requirements of a growing city is more housing, and Auckland has struggled over the last 15 years to release sufficient land to build those houses on.
A key benefit of merging the eight separate previous councils in Auckland is doing away with the deadlock on land supply – which had councils suing each other to a standstill on planning matters and stopping development.
The Government has made a number of changes to speed up medium term housing supply through measures like fast-tracking the Auckland Unitary Plan, which passed another legal milestone this week; the new National Policy Statement on Urban Capacity; and the proposed Urban Development Authorities’ legislation which was released by Nick Smith on Tuesday.
We are now making good progress on housing supply.
In both Auckland and across New Zealand we are in our biggest ever construction boom, and housing growth is a very big part of that story.
The value of building activity is at record highs in both nominal and real terms.
Statistics New Zealand has confirmed that we currently have the biggest construction workforce both in Auckland and across New Zealand since the Household Labour Force Survey began.
One potential bottleneck is funding the network infrastructure needed to release more land for housing in our fast growing cities.
Auckland is a big council – its income each year is nearly $4 billion, and it has grown by half a billion in the last two years.
Each year it adds to its population and its ratepayer base a city the size of Timaru or Whanganui and since amalgamation in 2010, Auckland’s population has grown by a city the size of Hamilton.
This would normally provide the Council with the income and sufficient headroom to provide its share of the infrastructure needed for growth – the water and the transport.
However Auckland and some other Councils are concerned about their potential long-term debt constraints.
The Government has therefore put $1 billion on the table for a Housing Infrastructure Fund to assist councils with funding the infrastructure for new ratepayers without leaning too much on existing ratepayers.
Eligible councils have so far given us indicative proposals for use of the fund amounting to $1.79 billion for infrastructure. Depending on which final proposals are supported, the Fund could potentially support about 50,000 new dwellings.
At this stage however only a small number of the 17 proposals received through the expressions of interest phase would result in projects being advanced earlier than previously planned by the councils.
We want to see more ambitious projects that will have a more positive impact on housing supply over the next five years.
We are also interested in looking at further financing options that bring in private sector capital alongside council and government capital. And we will continue to discuss those matters with our fastest-growing councils.
Ladies and Gentleman, these are busy times. New Zealand is growing at an unusually strong and sustained pace compared with the rest of the developed world.
That growth is bringing more opportunities and higher incomes to Kiwis.
It also brings with it some challenges – both the international ones and the challenges of catering for growth. But we will work together and meet those challenges.
Being in New Zealand right now is hugely preferable to being in Japan, the US, the UK, Italy or France, where the focus is on who gets a share of the shrinking cake.
Here the focus is on growing the cake and using it to provide opportunities for all New Zealanders.
Over the next twenty years we have the opportunity to place ourselves at the centre of a strongly growing Asia-Pacific region, with all the benefits that brings in terms of prosperity for our people.
Already we have hundreds and hundreds of smart Kiwi companies heading out offshore and taking on the rest of the world and winning.
This Bill English-led Government is determined to build on the momentum of the last three years and build a better future for all New Zealanders.