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Shipley Speech - Looking Ahead

TO THE CANTERBURY EMPLOYERS CHAMBER OF COMMERCE, CHRISTCHURCH CENTRA HOTEL


Make no mistake, Election '99 is about making the right choice. A choice about leadership, about ideas, about the New Zealand we want to be and about who can deliver.

The choices voters will make will determine what happens through until the end of 2002.

I want to set out for you what you can expect under this Government’s policies over this period.

Specifically I want to talk about what will happen to our standard of living.

On Wednesday the Reserve Bank released its latest forecasts for the economy.

The Bank’s forecasts show real GDP growing at over 3% each year for the next three years. This is better than most of our main trading partners, and the consensus forecasts for world growth.

But how many of us really know what GDP is. If you dig into the Bank’s forecasts you will find a series for real disposable income. That is the amount of money New Zealand households have to spend or save. This is something New Zealanders can relate to.

On the basis of the Bank’s forecasts, by 2002 the average New Zealand household will be over $1200 per year better off, inflation adjusted, in the hand. Simply because of economic growth.

The Bank’s forecasts don’t take account of our recently announced tax cuts. These will add another $300 per household to this figure.

Taking the gains over the three years to 2002, the average household will get nearly $3000 more in the hand, inflation adjusted.

The forecasts also give us a picture of how the labour force will grow. From 1999 to 2002 the number of jobs will increase by 90,000.

This is more than the number of jobs in the entire Otago region.

Because the number of people seeking work will only increase by 70,000, unemployment will drop by 20,000. The unemployment rate by 2002 will be down to 5.8%.

That's comparable to Ireland's rate ? and Ireland is regarded now as an economic miracle.

All economic forecasts are sensitive to the assumptions. It is pretty easy for them to be wrong, as we saw when the drought and the Asian crisis hit.

Between the years ended March 1998 and 1999 we saw growth drop from 3.0% to zero. But because of our sound economic management we are quickly bouncing back.

But the Asian crisis and droughts aren’t the only shocks to look out for. Nor are all the shocks that might occur to our economy likely to be as short-lived as the Asian crisis.

Government policy has to have a significant source of uncertainty. It can be either positive or negative for our economy.

It is surprising how easy it is to take the gloss off 3% growth. If you have a meddlesome Government, households will find the returns from growth disappearing pretty quickly.

By promising to increase taxes and reverse our reductions, Labour has already chopped around $1800 dollars out of the $3000.

The loss of competition in ACC, the return to strikes, increasing debt rather than paying it off and the loss of productivity due to the repeal of the ECA could well add up to over half a percent drop in GDP growth.

When growth declines, Government's tend not to do their share of the belt tightening. Despite widespread criticism from the interest groups I am proud to say my Government did cut expenditure by $750 million to help the country cope with the down turn in 1998. The result was a much easier adjustment to the drought and Asian crisis.

But under a Government less concerned about good economic management, households and businesses would have to carry the full impact. If we see lower economic growth because of poor Government policy, higher taxes and have a Government that can not make the hard decisions, disposable household income will struggle to even keep up with inflation and the increase in the number of households.

New Zealanders households could easily see themselves worse off in 2002 than they are today. All for nothing but narrow left-wing sectional gain.

Unemployment will increase. It is easy to foresee a situation where there could be still as many unemployed in 2002 as there are today.

And increased unemployment means higher government spending, meaning less still in the households of the average New Zealander

I could go on.

But this is negative stuff and it is not where my Government is focussed.

Just as household incomes are particularly sensitive to lower growth, so higher growth can disproportionately flow to households.

The government?s demand for expenditure tends to be reasonably constant regardless of the level of growth. In fact higher growth means fewer unemployed and more money to pay off debt. Social welfare payments and finance charges drop.

The higher the growth - the more money there will be to lift household incomes, and the more we can reduce the level of unemployment.

Putting aside major external shocks outside our control, I believe we should regard $3000 extra per household as a minimum.

We can and must lift our growth rate further. How will we do this?

We need to help people to work smarter.

We need to reduce the level of unproductive activity in our economy.

One obvious example is our transport system. Rough estimates suggest that congestion in Auckland costs at least $100 million a year. With a better approach to roading we should be able to cut that cost. Less time wasted in traffic means more money for New Zealand households.

Roads are also an example of another way we can help New Zealand grow. We have to increase the returns we get on our investments. We have a poor record for getting high returns.

At present the way we decide which roads to build is not forward looking. A move to a forward-looking approach to roading will mean better transport with less investment.

Another major area where there are massive gains to be had is in producer board reform. In the last year or two, the dairy industry, inspired by the Government and its own opportunities, has made a big investment in independent studies of its own potential.

The studies conclude that present annual turnover of $8 billion or so can, by adopting the right strategies, be expanded five-fold to something like $40 billion a year.

That’s a mind-blowing prospect. It will require a lot more investment than anything which could ever be achieved by dairy farmers acting entirely alone.

While it might take a decade or so to achieve this goal the benefit to New Zealand households would be enormous. Even if the dairy industry only lifts its returns 50% over the term of the next Government, this means an extra GDP growth rate of over 1% per annum.

There are a number of other examples where we will be pushing forward to reduce costs and increase the returns to households.

Compliance costs are a waste of energy for someone that wants to get on and create wealth for New Zealand. In our ?Bright Future? package we announced some significant steps forward on getting compliance costs down.

Included are proposals to make it easier for people who do find themselves in difficulty with the tax system. For example, the Government will reduce the incremental penalties for late payment of tax from 2% to 1% a month.

We also plan to extend the law relating to serious hardship, financial difficulty and instalment arrangements to apply to all tax types and those in serious hardship.

People who do enter instalment arrangements to pay their tax will have their rights and obligations clarified, and will be provided with certainty with regard to these arrangements. Furthermore, partial failure to comply with the instalment arrangement will not result in a disproportionate penalty.

The Government is also looking at ways of ensuring that Inland Revenue and taxpayers can enter into instalment arrangements more quickly. It will raise the threshold above which the Minister of Finance is required to approve instalment arrangements or hardship remissions from the current $50,000 to $100,000.

Mention of ?Bright Future? brings me onto another part of our strategy for creating wealth. One of the biggest determinants of economic growth is how productive our people are.

Investing in New Zealanders is a major government responsibility. We take it very seriously. We are committing ourselves to improvements in basic education through to developing world class centres of learning that will support the knowledge-based industries of the future.

We have set ourselves a target to have all 9 year olds able to read, write and do maths by 2005. By the end of the term of the next government we will be well on the way.

We have an IT strategy for schools - our most immediate goal is to get every school on the Internet by the end of this year.

And we are committed to resourcing schools in a way that gives them the ability to respond to local needs, not forced to follow the dictates of Wellington and the unions.

In the ?Bright Future? package we are increasing resources for enterprise studies, and extending the opportunities for top teachers to get out and spend time outside the classroom.

When I look out over the next three years Nick Smith and I want to see schools that are: · delivering well on the basics; · have developed a greater culture of openness and engagement, particularly with local business communities. Both sides to this relationship need to move out of their silos; and · innovating furiously so they are giving the greatest education our money can buy.

I don?t think you?ll hear that kind of talk from Trevor Mallard.

?Bright Future? also has a wide range of initiatives carefully designed to improve our ability to innovate.

The scholarship programme and the enterprise education review will engage industry more actively in education. The post-graduate scholarships and the review of higher learning will focus resources on the creation of more world-class centres of academic excellence.

The New Economy Research Fund will complement these centres of academic excellence with centres of research excellence.

The redirection of CRIs, the incubator programme and the expansion of Technology NZ, coupled with improvements in access to finance, will all help to build high technology clusters of firms feeding off the centres of research excellence.

By the end of the term of the next Government I would hope to see a number of world class academic and research centres emerging. I would expect to see them focussed on technologies critical to our future such as biotechnology.

But I would also like to be sure that the creative arts are not lost sight of.

Partners in these developments would not just be Universities, Polytechs and CRIs, but major companies with a stake in the knowledge involved.

Clustered around these centres I would like to see an increasing number of small high technology start-up companies, feeding on the ideas and people flowing out of the institutions. I would expect to see New Zealand based venture capital companies and incubators helping these companies to get on to their feet.

And I would like to see scientists, researchers and the entrepreneurs getting real financial rewards out of their efforts.

It might not necessarily turn out like this, the details might be different. The key players will need to shape what happens.

But this is the vision that sits behind ‘Bright Future’.

Investment in people takes time to pay off. We might not see any world shattering ideas getting to market in the term of the next Government. But we have begun the journey and that is what is so important.

When you look ahead and think about our standard of living during the term of the next Government, pause for just a second and think about those policies that would disrupt our growth.

Contemplate the political risks to the gains. The opposition to any changes that help consumers.

But then move on to the picture I have painted.

A Government committed to getting real gains into the pockets the average New Zealander.

A Government that has an ongoing programme to reduce costs and increase returns to households.

A Government that is committed to the future of our children and our schools, and

A Government that can see a ‘Bright Future’ and is starting to put it in place.

The choice in three months time is in your hands, I trust you will make the right one.

Thank you

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