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Speech: L Smith - How Best to Help Business

Embargoed Until Delivery

An Address by

Hon Lockwood Smith PhD
Minister for International Trade

How Best to Help Business

Hobson Room
Level 28, ASB Tower

1930 hours
Thursday 5 August 1999

It's becoming almost trite to describe the marine industry as one of New Zealand's greatest export success stories.

It's been said so much, and it's so true, that it's akin to saying the sun came up this morning.

Suffice to say that I'm a great admirer of this extraordinary industry.

You're the classic kiwi case study.

You've already put into practice what all the experts, academics - and politicians - keep urging for New Zealand industry into the 21st Century.

Building strong relationships between industry, academia and the research community, and investing heavily in R&D.

Focussing on the high value end of the market.

Delivering a world class product on time, every time, as efficiently as possible.

Underpinning that has been the economic framework implemented in part by the Lange/Douglas Labour Government and in full by the National-led Government this decade.

And the establishment of MAREX - assisted by Trade New Zealand - has helped encourage information exchange and joint marketing.

As a result of your innovation in that environment, your export receipts have more than doubled in just five short years, increasing from $82 million in 1993/94 to $170 million in the year ended June 1999.


What will surprise some politicians in Wellington is that you've largely done it on your own - except for that small amount of assistance to get MAREX going.

There would be some who would have argued, 15-odd years ago, that what you really needed was a producer board.

It would co-ordinate your export activities so you wouldn't be competing against one another offshore.

You'd also need, of course, a Minister for the Marine Industry to establish policy for your industry, backed up by a powerful bureaucracy.

It would administer import licensing of marine products so you weren't exposed to competition from overseas.

There'd be tariffs of course.

The bureaucracy would also manage negotiations for wage accord between Government, the industry and the Marine Workers' Union.

The Government would probably want to subsidise you too, to help you get on your way - just temporarily of course.

There would have been arguments put forward for minimum prices for boat builders, guaranteed by the state.

If the bank wouldn't lend you money, we'd get middle class families to give you venture capital out of their taxes.

The industry, of course, would also benefit from export guarantees - particularly when starting to export to greenfields markets identified by the bureaucracy as having potential for growth.

The problem is, they'd probably be land-locked.

Imagine where your export receipts would be today had you received all that "help" from Wellington!

It would be unfair for me to suggest that there is any political party - except maybe the Alliance - who would provide "help" to that extent.

But there is increasing debate about how New Zealand should go about significantly lifting our economic performance now that the fundamentals are in place.

And I want to take the opportunity tonight to open this debate up a little - to explore it here, and listen to your views.

There's a spectrum of opinion in Wellington that ranges from pretty close to the extreme example I gave, through to the strictly "cut taxes and nothing else" approach of ACT.

The question to consider is where New Zealand should be positioned on that spectrum of opinion.

The Labour Party's view is that there needs to be a significant injection of taxpayers' funds into industry assistance - around $100 million after the first year.

There would be taxpayers' money for venture capital, development finance, an export guarantee scheme and an export credit financing scheme.

Then there are elements that are less controversial such as attracting more investment to New Zealand and reducing the cost of RMA compliance.

I think we could probably all go along with these latter two less controversial items - they're at least somewhat in line with the Government's intentions outlined in February.

It's the commitment to tax working families to pay for industry assistance that's the main issue.

One of the problems is that $100 million isn't really very much in the context of our export industries, but the extra taxes required are a lot for families on sixty-odd thousand dollars a year.

I think families would feel the pain, but I'm not sure business would ever feel the gain.

But even putting that to one side, I'm far from convinced that it's sensible for the Government to use any taxpayers' money for venture capital or export guarantee schemes or the like.

As a matter of principle, I'm uncomfortable with the notion of asking taxpaying families to support specific business ventures that the commercial sector can't or won't.

Government-run venture capital funds are about asking taxpaying families to support businesses that have insufficient working capital - and have been turned down by banks or other financial institutions for funds.

Government-run export guarantee schemes are about asking taxpaying families to guarantee the export of goods to customers whom the exporter is not confident will pay, on time or at all.

And what you're doing in both cases is taxing the marine industry to support businesses that may well not have the same competitive advantage.

I don't see the sense in that - taking money from you, for a punt on a business that can't get funds from elsewhere.

I'd prefer to see that money re-invested in the marine industry.

There's more potential for export growth that way and, most importantly, there's more potential for new jobs.

It's useful to me politically for these unsound elements to remain in Labour's Industry Policy.

But for the good of the country, we'd have to rely on them breaking those promises should they lead the next Government.

But we can't hold any hopes that they would break their promise to repeal the Employment Contracts Act.

For Labour, it going is a matter of ideology, but it would be a remarkably stupid decision on pragmatic grounds.

I don't expect there are many marine industry employees who fit the union movement's ideal of working nine to five, forty hours a week, for so many weeks of the year.

I suspect you tailor your activity closely to the needs of your customers, and to your project work programme.

It probably means that some weeks your employees work 60 hours a week or more.

Other weeks there will be more time for pursuing personal priorities.

You and your employees need labour market flexibility to allow for that.

It must be maintained.

The other major risk to this industry of a Labour/Alliance Government is spending.

If the Government spends more, it creates inflationary pressure.

Originally, this speech welcomed Labour's commitment to price stability and the independence of the Reserve Bank.

But sadly yesterday, Helen Clark called into question Labour's commitment to price stability, and risks unsettling financial markets as we move toward the election.

As a result, it's likely we'd see much higher interest rates under a Labour/Alliance Government, just as we saw in the mid-1980s.

That could also mean a much higher dollar, just as we saw in 1995/96 when the economy overheated a bit.

It is easy, of course, to critique the opposition.

What's more important is the Government's programme for the next stages of New Zealand's economic development.

On the spectrum of opinion about industry assistance, the Government is not as interventionist as Labour.

But we do recognise that the economic framework we've established in the last 15 years is not necessarily enough.

It's the prerequisite for economic growth, but it's not the whole programme.

For a hundred years or more there's been competition between two competing ideologies, socialism and capitalism.

Socialism is of course dead, but traditional capitalism faces its challenges too.

Old fashioned forms of capital - farmland or factories - have been overtaken in importance by human capital.

Again, the marine industry is perhaps the best example.

And the most important factors of production today - knowledge, creativity, innovation - are so much more mobile than the old.

Your best people work globally.

We need to harness talent in New Zealand - encourage our best to stay here, encourage others to move here.

That's why it is so important to maintain our economic framework - valuable people won't want to live in a high-tax, union-dominated, closed economy.

The Government's Five Steps Ahead programme will build on the economic framework

The five steps are:

· Lifting skills and New Zealand's intellectual knowledge base
· Better focussing the Government's efforts in R&D
· Improving access to risk and investment capital
· Ensuring regulations and laws support, not frustrate, innovation; and
· Promoting success and building a supportive culture for creative and innovative New Zealanders.

We've held 24 forums around the country on those goals and we'll be announcing our full programme in the middle of this month.

We won't be imposing taxes on families to support risky business schemes.

But we will be announcing ways of more closely linking the higher education system and the research community with business.

We'll be announcing ways of attracting investment to New Zealand, and ways of linking people with finance to people with business ideas - hopefully the billionaires you're bringing to New Zealand for the Millennium Cup will be interested.

The Five Steps Ahead programme will consist of other sensible, valuable things the Government can do - without taxing families a whole lot more.

Our programme will be appropriate for Government in the New Millennium.

It won't be Big Government.

It'll be smart government.

The Government also has a crucial role in assisting exporters by getting you the market access you need, and by working to get other governments to drop their subsidy schemes.

That's my job as Trade Minister.

The key issue for you here, I'm advised, is subsidies in Australia.

At both state and federal level there are tax breaks, straight subsidies, research grants and prohibitive customs requirements.

In their last Budget, the Australians announced an extension of their Shipbuilding Production Bounty.

The EU also subsidises its industry.

All these schemes hurt the Australian and EU economies in the long term, but they also hurt you right now.

I know that you're currently gathering information on the schemes to pass to Foreign Affairs so that we can argue more effectively with the Australians.

Trade New Zealand is helping with that work, just as it should.

There is also funding available from Foreign Affairs under the Trade Access Support Programme - to gather further evidence and to design a strategy to address the issue.

That work is essential to strengthen my case when I meet with my Australian counterpart for our annual CER Consultations, which take place in Canberra just next week.

And, at the end of this year, the World Trade Organisation is almost certain to launch a new Round to liberalise global trade.

The Chairman, of course, will be Mike Moore.

That can't hurt our arm, even if Mike has to be impartial so he can't necessarily strengthen it.

I expect to be representing New Zealand at the launch of the new Round.

Alternatively, New Zealand would be represented by whomever in her caucus Helen Clark believes would make a good Trade Minister.

The Round is likely to consider tariffs, non-tariff barriers, subsidies, export credits and other issues to be brought to the table.

This year, I'm investing much of my time urging businesses to think about their priorities for the Round.

There is your issue of other WTO members subsidising their industries.

I need to know your other priorities for improving market access for the marine industry.

Along with any other issues you want to discuss, that's what I want to do right now.

I'm determined to direct my energies this year and beyond to improving the global trading environment for an industry I admire so much, the New Zealand marine industry.

Thanks for your invitation to be here today for your AGM.

I look forward to seeing you again next year.


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