"BRILLIANT BACK-YARDERS"

HON BILL ENGLISH
TREASURER
ADDRESS TO
NZ NATIONAL PARTY 63RD ANNUAL CONFERENCE
WELLINGTON TOWN HALL

EMBARGOED UNTIL
11.40 AM, SUNDAY 11 JULY 1999

It is National's job to write the next chapter of New Zealand's story.

Mr President, Prime Minister, delegates - it is a pleasure to address you today for the first time as Treasurer in the National Government of my country.

The most important questions for economic policy are the simple questions, your questions,

If our 19-year-old goes to university how long will it take to pay back her student loan?

What's the chance our pay will go up next year to take some of the pressure off?

Will we be able to pay the car registration next week, as well as buy some new clothes?

These are the practical questions. Our economic policy helps New Zealanders achieve personal and family aspirations, and gives them hope for a better future.

Standing as we are at the end of a century, it is a time when we naturally measure our prospects. Through this century successive Governments and generations have risen to the call to take New Zealand forward, through war, recession and economic changes.

Fifteen years ago New Zealand set out on an economic revolution. The nation was carried along by the sense that we were breaking through. But the economic crisis that started that revolution is gone. What was once radical has become business as usual.

That chapter is coming to a close as the century comes to a close.

It is our job, National's job, to write the next chapter of the New Zealand story.

This next chapter is about creating jobs and better incomes from the raw material of ideas. In the 60's and 70's we built dams and sheep numbers, in the 80's and 90's we built markets and good government.

In the next decade we will build the capacity of our people so that we can once again be one of the most impressive small economies in the world.

We've made some solid achievements in the last decade. Lower public debt, good management of the Government's books, lower taxes for working families, savings safe from inflation, and people in the workplace negotiating common-sense conditions with their own employer.

But there are doubts about whether we have achieved enough.

As a recent headline put the question: "Why aren't Kiwis better off?".

We have just had a recession - so there are bound to be some doubts.

But the economy has weathered the last storm well.

We are steadily recovering from last year's recession, a recession which would have knocked us for six if we hadn't become an open, competitive country.

The economy will grow at 3% for the next three years. Six hundred and forty people will find new jobs each week. Low interest rates mean the conditions for buying a house or investing in new technology and plant haven't been better for years. We have earned the right to grow.

But New Zealanders' expectations have risen and I think that's why there is some negativity around. New Zealanders take good economic management for granted and now they are looking for direction in an uncertain future.

Here are some statements that might sound familiar.

We are too small. We are too far away. Too many people are leaving. There are still too many sheep and not enough software writers.

All these statements may be true, but let's lift the fog of negativity.

Our deeply embedded pioneer spirit has always been about the vision that the world can be better, and a bit of unreasonable confidence in our capacity to change it.

I'm happy to take the risk that being positive and ambitious for New Zealand will work better than being negative and cynical. Because that is true to our pioneering spirit.

My confidence in New Zealand doesn't come from economic numbers.

It comes from a sense of what is special about us, our values, our character and our achievements.

We are the nation of the brilliant back-yarder. We like the idea that laid back kiwis can come up with a brilliant idea that beats the world

We seem able to fuse together practical skills with the latest technology. We mix our international experience with a strong local identity. We are creative and understated at the same time.

It is time to scan the wider horizon, to look at what we will build in the next decade on the sound economic foundation we built in this one.

In 10 years we could catch and pass Australia on per capita income. We could have an economy 50% bigger than what we have today. Those are ambitious targets, but let's see how hard we can try.

I want to outline four of the challenges that I see shaping the next 10 years in New Zealand. How we deal with them will be the next chapter of New Zealand's economic story.

The first challenge is to successfully invest in knowledge, the currency of the new economy.

In the next 10 years what's in our head will matter more than what's in our paddocks.

Investment in primary production and housing have underpinned our economy, our values and our wealth. But opportunity and better incomes will lie in better ideas and smarter people. Intangible assets will increasingly replace physical assets as our stock of wealth.

How can the Government contribute?

Many people don't realise it, but the Government is by far the biggest venture capitalist and research funder in this country - we own nine research companies. Along with seven universities, these are our ideas machine.

There are new technologies and new discoveries already existing in these organisations which could transform existing industries and communities, if we can get the ideas to the market.

We can do the incubators, the joint ventures, the partnerships - anything to make this ideas machine feed New Zealand business - providing jobs and investment in new industries and transforming our traditional industries.

Max Bradford has taken our Five Steps Ahead Programme around the country and later this year the Government will announce further policy for the knowledge economy

Our schools are also part of the investment in knowledge. Almost all the current generation of parents have known nothing else but Tomorrow's Schools. Parents have more say and they are more confident about saying it

In the next 10 years, our schools will need to be like the children who learn in them - growing and changing all the time. When we see something that works, let's spread it around. That may need some changes in the rules that hold back successful schools and protect unsuccessful ones.

Our children will be more outward looking than us, and that is our second challenge, to build our confidence as a participant in the global economy.

The world has come to us with foreign investment and good quality cheap imports. If we want to take more of the best of New Zealand to the world, we need a truly global outlook.

We are small and we are a long way away, but technology is changing that. Some global markets are small, and now they are easier to find and easier to reach.

I recently met a taxi driver who collects a certain type of antique American clock. He has discovered an internet auction site and found the market in his clocks. Clocks he's been buying for $300 or $400 and doing up he can now sell to buyers all over the world for thousands. This is not a big market, but it's global, he's found it, and it's on the PC in his kid's bedroom

It is this positive view of the world and what it offers us which will drive our export success in the next 10 years.

Our exporters have done a great job against the odds, but for a small open economy we have a relatively low export ratio. Finland for example has an export ratio of around 40%, that means 40% of their wealth comes from exports. For Ireland it's over 70%. Ours is around 30% and it hasn't increased much in the last decade.

That's why APEC is an important economic event for us. We will be talking to the leaders of the world's two largest economies, USA and Japan, and with the most populated economy, China.. We should welcome these leaders, and show them how keen we are to do business with them.

The third challenge we face is teamwork.

New Zealand needs to develop a strong sense of teamwork or partnership to push this economy ahead. In a good team everyone understands their role and they have a common sense of purpose.

Let me give you an example. We have set out to turn around declining rural incomes. Agriculture is still 40% of our exports. The decline in its economic success has had a social impact on communities all around the country.

So with some controversy the Government has teamed up with industry leaders, particularly dairy and horticulture, to hammer out the changes that will help lift incomes. It's been tough, but exhilarating and everyone involved has taken political and commercial risks. Why? Because we have in common a big ambition to turn things around in rural and provincial New Zealand.

Our ability to work together is of real economic significance- and it works a lot better than endless philosophical debate about who is right .

We can do the same working with business to simplify the tax system.

And in tertiary education. We all want world class excellence and access for more young New Zealanders.

. In each case Government can identify the common purpose, consistent with our economic strategy, and then get to work.

When we can all see the mountain top, it's easier to get out of the swamp

Teams and partnerships are about looking after your own, which brings me to the fourth challenge and that is to continually build a sense of community.

National stands for every New Zealander who wants to get ahead. Economic change can leave people behind - its our job to keep open the doors to economic success. Employment law that favours the young unemployed keeps the door open.

Roger Sowry has abolished the Department of Social Welfare, so that support in to work is replacing dependency. Programmes like Strengthening Families and Family Start are creating real excitement because they make a difference. The concepts behind them will form the basis of our social policy over the next 10 years. And there will be a lot of social policy. We spend about $20,000 each year for each household on health education and welfare.

We can spend you money more effectively if we help those who can help, if we build our services around the community builders.

Looking ahead, the fastest growing parts of our population are older people and young Maori and Polynesians. These groups rely disproportionately on the wider community for income and services. Their future is part of New Zealand's success or failure. We simply can't afford to leave too many people too far behind. We don't have a choice about that. Making it work will require bold thinking about education, welfare and health services.

So those are the four challenges we face as we write the next chapter - investment in knowledge, a global outlook, teamwork, and a sense of community.

New Zealand's economic leadership has often come from Government. Part of the leadership job comes through the sheer size of the Government in the New Zealand economy. We own businesses worth $15 billion. The Government is New Zealand's biggest landlord, its biggest employer. All the things that are changing our community will change the way Government does its business.

We pay for Government activity through taxes. Because tax is one in every three dollars in New Zealand, Government's attitude to tax, and tax policy, helps shape the economy and the type of Government New Zealand has.

The Government has got three choices about how to share the dividends of a growing economy.

We can reduce the amount of money we owe overseas and we have. It's more than halved.

We can spend more on health and education. We have. It's gone up 40 percent in six years.

We can hand back money to New Zealanders through lower taxes and support for families. We have. An average of $2350 per household.

That sort of tax relief means people have better net incomes at the end of the week and more choices. Because Government has been careful with its money, taxpayers get to keep more of theirs. It means they can make choices about their money instead of the Government.

We want to recognise the vast number of middle income New Zealanders who take a chance, work hard and want reward for their effort.

Our plan for taxes is careful and balanced. In 1996 the middle tax rate was 28 cents; right now it is 21 cents. In 1996 the top tax rate kicked in at about $31,000, now its $38,000. The next step for the Government is this. We will set the middle tax rate at 20c to $40,000 - from 1 April next year.

We will also simplify the tax scale so there will be three rates - 15c to $9500, 20c to $40,000 and 33c over $40,000

People on $40,000 are not rich. Half a million New Zealanders earn more than $40,000. A new police constable earns more than $40,000. 27,000 teachers earn more than $40,000.

This commitment will cost around $400 million spread over 2.3 million taxpayers. It will not put a lot of cash in their pockets.

But it's an important commitment because it is about recognising the thousands of New Zealanders who have been working harder and want recognition for their effort. It is also about the sort of Government New Zealand wants to have - National is a Government which is positive about economic success and shares it when we achieve it. Labour proposes a Government that gobbles the benefits of growth for its own pet projects.

New Zealanders are highly mobile. 700,000 of us visited Australia last year and too many stayed to live. I want to maintain our tax advantage over Australia. Tax on good incomes is a tax on talent.

Our next tax priority will be to start lowering the business tax rate and the top personal tax rate. We will aim to lower the rate to 30c. How far and how fast we can go will depend on the economy improving faster than the current forecasts.

In making these commitments, the Government is mindful that New Zealanders have never wanted to see tax reductions if they feel they're at the expense of health and education. So we are making this commitment. Over the next term of Government, for every dollar in tax reductions, we will provide for an extra dollar of expenditure on social services. This is our 'dollar for dollar' commitment.

Our tax policy is one part of an economic strategy for the next 10 years. How we use technology, the skills of our workforce, the dynamism of our education system - these things will also affect our economic success.

There is a political party that has decided to do nothing be nothing say nothing. Their vision for New Zealand fits on a credit card. Its this big. That's Labour.

There is a party proud of New Zealand's achievements, with big ambitions for the future. We have the best team and the best ideas. And the will to win. That's National.

Thank you.

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