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Helen Clark speech to Employers Federation

Thank you for the invitation to address this election year forum.

I have come here today well aware that the Employers' Federation has in many respects nailed its colours to the mast of the policies of the present government. But I also come well aware that Labour's positive programme for industry and business development has been well received by many in the business community.

As you know, Labour is New Zealand's oldest political party. We have formed four governments. Since the first Labour Government was formed in 1935 we have governed for forty per cent of the time. Labour has in government in the past enjoyed good relations with the business community. I trust that will be the case again when the new Labour-led government is formed at the end of this year.

Labour's major preoccupation is how to lead the country out of its stop-go, boom-bust economic cycle, and on to a path of sustainable growth.

Without that growth, New Zealand cannot have first world infrastructure and services.

Without first world infrastructure and services, our living standards will stay in the doldrums.

The business community has a huge role to play, in partnership with the government and with other sectors, in bringing about the economic transformation New Zealand so badly needs.

In recent weeks there has been considerable discussion in the news media about the state of our economy fifteen years after concerted restructuring of it began.

Few believe that New Zealand could have carried on with the Muldoonist model. But most share a sense of disappointment that despite all the change we are not doing better.

The debate about our future is not a debate about whether to return to the past or not. It is about how best to build prosperity in this nation of talented and innovative people which hasn't yet got its act together.

Some call for finishing off the job begun by Roger Douglas and advanced by Ruth Richardson. Theirs was a path of yet more deregulation, tax cutting, and shrinkage of the state. That path has been strongly supported by the Employers' Federation.

I believe that the public for the most part has no appetite for that kind of programme.

Rather, the mood is for much less theory and purity in policy-making and for more pragmatism.

Many are aware that the restructuring which has gone on in New Zealand went to greater extremes and at a faster pace than elsewhere in the Western world.

Only in recent years Australia was being pilloried by the advocates of so-called economic reform here for not having gone far and fast enough. Who has the last laugh now? I for one would prefer New Zealand to have rates of growth and living standards akin to Australia's.

Then there is Ireland, which in the last two decades has been through an economic and cultural renaissance by implementing policies which are in many ways the opposite of those trialled in New Zealand. There has to be a message in that.

Labour has taken the message. We are unashamedly for leading New Zealand away from the purity of hands off policies and towards smart and intelligent government action in partnership with business which will give this country a chance to reach its potential. No business would adhere to a policy model which after years of implementation still leaves it falling behind its competitors.

Our vision for New Zealand is simply stated. The new New Zealand must be:

o a dynamic trading economy

o producing ever more sophisticated goods and services

o creating more wealth, opportunity, and jobs

o lifting living standards across the board

o delivering better public services

o sustaining a qualify of life environmentally and culturally which is unparalleled anywhere else in the world


So where do we begin to build the vision?

The problems to be tackled are relatively obvious, but of course that does not mean that they are easily or quickly addressed.

Our task is to speed up the process of economic transformation from an economy so largely commodity dependent to one increasingly driven by knowledge, skill, and technology.

This is a tall order, given the rate of our decline. In my lifetime our living standards have slipped from the third highest in the world to the 25th today. We are in danger of slipping into the next range of nations - like Estonia and Latvia in the sub-OECD grouping, which have never reached European living standards.

We've had those living standards, but we're losing them, and we will continue to unless we can keep our talent at home and create the conditions for the rapid growth of new industries and new products. Those industries and products will need to be export and foreign-exchange oriented and competitive. For sustainable economic growth we must produce and export more and aim for higher returns. Our present trade imbalance itself is not sustainable and raises questions about our viability. The June trade figures were the worst in fourteen years, as were those for April and May. The current account deficit is now expected to worsen to nearly seven per cent of GDP. This is no economic miracle.

The government's role in driving the change which has to happen now is crucial. Labour is prepared to accept that leadership role. We see the role of government in the economy as being that of a leader, a partner, a facilitator, a broker, and occasionally a funder - working alongside the private sector, local and regional government, and our education and research institutions to improve the nation's prospects.

Our practical programme for change is to be found in our industry development policy, our industry training policy, and in policies for tertiary education and science and research soon to be released.

The industry and business growth programme doubles present government spending from $100 to $200 million per annum. It is a modest beginning. More will be done as resources allow. The policy's key features are:

o A new local economic assistance fund will be available to support the work of districts and regions in developing economic growth strategies and promoting local clusters of industries, and in attracting businesses and investment to their area.

o There will be strong support for programmes which promote the development of an economy based on advanced technologies. Existing programmes like Technology for Business Growth run by Technology New Zealand will be promoted and expanded so that our companies can become greater earners of wealth for the country and larger employers of skilled labour.

o There will be an accelerated depreciation regime for new capital investment in technology so that firms are encouraged to keep their technology up to date.

o We will allow full expensing in the year of investment for tax purposes of all research and development expenditure.

o We are acknowledging a level of market failure in the provision of enterprise finance for small and medium-sized businesses, and see a role for government where that occurs, preferably in partnership with the private sector.

o We will be aggressively seeking foreign direct investment for greenfields enterprises and industry expansion. New Zealand's need for investment exceeds what is available locally. Under Labour a new foreign investment division in Tradenz will be set up to promote that investment abroad, and identify potential investment opportunities and likely investors for them. Much of Ireland's success stems from attracting investment in new areas of production and service.

Under Labour grants will again be available to assist business with costs of investigating a new product, process, or expansion, a new export market, or a significant technology shift.

The delivery of funding for the programme will be contestable. That means Labour will not be seeking to re-establish a network of business development boards.

The Labour Government will drive these policies through an industry development agency with a role analogous to that of Tradenz in trade development. Like Tradenz, Industry New Zealand, as it would be called, would be a crown entity with a private-sector oriented board.

There will be a Minister for Industry to work alongside it.

We also see a need to do more to back exporting.

Right now only about 8,000 of our 190,000 plus businesses are positioned as global traders. We can do better.

But New Zealand is almost alone among western nations in having no state involvement in export guarantee and credit financing schemes.

Unfortunately that means our firms often miss out on contracts and see the work go to companies from nations like Canada where the government does provide a financial underpinning for exporters.

That is why Labour will develop appropriate export guarantee and export credit financing schemes to remedy identified market failure in these areas. We will use partnership models with the insurance and banking industries to the greatest extent possible.

New Zealand does face a huge challenge in educating and upskilling the workforce which the new economy requires. Steps will be taken to attract more young people into the areas of science, technology, engineering, and trades where we are so short of graduates.

Then, having attracted them, we have to make it worth their while to stay in this country. New Zealand has much to learn from the many other western countries who find ways of supporting science and technology graduates in "incubators" where they can develop their inventions to a product-ready stage. Programmes like these will be pursued by Labour.

At that point, our other policies for investment in new industry sectors can kick in. That is the virtuous cycle we wish to create: more graduates, more research, more inventions, more investment, more high value production and exports, and more wealth generation.

I turn now to policies in which the Employment Federation has a particular interest.

Industrial Relations Legislation

It is Labour's intention to replace the Employment Contracts Act with more balanced legislation which brings New Zealand law into line with International Labour Organisation conventions. That does not mean, and I repeat does not mean a return to the pre-1991 industrial law.

Labour's policy preserves the right to freedom of association. That is, it preserves the right to decide whether or not to join a union. That will continue to be the individual's choice.

Where employees do join a union, they will have the right to have that union bargain for them. The union will not have the right to bargain for employees who do not belong to it. We are aware of course that there are companies who prefer to negotiate with the union for all employees, whether union members or not. That is entirely a matter for the parties to determine. It is not a right and will not be a right under the new legislation.

Individual workers will continue to have a right to individual contracts. Nothing in the legislation will prevent a person negotiating individual contracts covering a number of employees if that is the wish of the employees.

There will be procedures available for multi-enterprise bargaining, but a majority of the union members in each enterprise would have to agree to become part of a larger collective for bargaining purposes. After nine years of enterprise-focused bargaining, it seems unlikely that there would be a surge back to broader contracts unless both employer groups and unions considered it desirable.

The new law will provide for good faith bargaining, a concept which is well known in some of the North American jurisdictions. Both parties will be required to bargain in good faith. The requirement will not be one-sided.

Some employers have said to me that they believe their employees are happy with things as they are and do not want change. If that is so, nothing will change for them. The new law will be built on the concept of the freedom to associate and not on a requirement to associate.

Accident Compensation

Labour strongly supports the single public fund accident insurance model. We signalled in June last year that that model would be reinstated under the new government.

In our view the privatisation of workplace cover is another triumph of ideology over evidence. The international evidence strongly suggests that a single public fund model for workers' compensation is the most cost effective.

Clearly there has been a good deal of loss leading by insurers to obtain market share in this new market. The benefits of that did not extend to many smaller businesses who were priced out of private cover.

Were this new system to continue, a roller coaster ride of premium movement can be expected as the underwriting cycle overshoots and undershoots the insurance cycle. This has been happening with dramatic effect in West Australia which is operating a competitive workers' compensation model.

In these circumstances, the government in future would be left looking on as helplessly as the present one has had to following the flawed electricity restructuring which brought prices not down, but up.

The loss leading rates offered by private insurers to gain market share now are not sustainable, nor do they provide a basis for comparison with what ACC rates would be under the single public fund model in future. For example:

o many of the rates now being paid to private insurers are for partial cover and not the full cover traditionally offered by ACC

o the payment by employers for residual claims from the previous regime comes on top of their present levy payments

o rates paid to ACC in the period immediately prior to the change and now to private insurers are based on the schemes being fully funded. Labour's single public fund scheme will be financed on the cheaper pay as you go model.

o Under much more effective management now, ACC's overheads are reducing. I am confident that its costs can be kept down.

Taking all these factors into account, it is little wonder that the insurance industry has refused to enter into any debate about average levy prices under the new system. Indeed a key part of the industry's leaked communications strategy is not to enter into any such debate because they cannot guarantee that over time prices will be lower. We have every reason to believe that they will not be lower over time.

In 1997 a major study was completed by two leading North American scholars on the comparison between the Ontario and British Columbia provincial accident insurance funds and the 45 private insurance underwritten jurisdictions in the United States.

The study showed that the costs for the Ontario state fund were 26 to 43 per cent lower than those for the United States jurisdictions, and for British Columbia they were 47 to 64 per cent lower. The study concluded:

"While it is not a result we expected, it suggests that cost reductions may not occur - indeed costs may increase - by shifting from monopoly provision to a United States style model of private insurance."

Labour's views on accident compensation were dismissed as "crazy ideology" in the latest issue of the Employers' Federation Journal. Yet I put it to you that the "crazy ideology" is to break up a long established scheme which, well managed, has the potential again to be regarded as one of the world's leading schemes. The change has been advanced by those who believe that competition and privatisation are always preferable to the existence of a state monopoly. But in the area of accident compensation, all credible international evidence suggests that the single public fund model will, over time, perform the best and keep costs the lowest. Labour's position is based on a pragmatic assessment of what is best, unlike that of our opponents on this issue which is truly ideologically based.

Taxation

Labour's proposals on tax are very limited. Because we are fiscally responsible and do not believe in running deficits over the economic cycle, we will implement a new tax step of 39 cents in the dollar on individual income earned over $60,000. On $65,000 per annum, that is an increase of $5.77 a week. On an MP's salary of $80,000, it means losing last year's tax cut of $23 a week. Ninety five per cent of taxpayers will be unaffected.

The revenue collected, currently estimated to be in the order of $390 million per annum, will be applied to investments in health, education, economic development, public housing, and superannuation. To that sum can be added the $400 million which our opponents have earmarked for tax cuts.

Fringe benefit tax will be adjusted in line with the 39 cent step, but changes in the way it is calculated will largely offset the cost of that to employers. For example, more than seventy per cent of the fringe benefit tax collected is imposed on cars supplied to employees. Moving to a depreciated value system for calculating that liability would stop the overtaxing which presently occurs.

There will be no rise in company tax rates under Labour.

Many in the taxation "community" believe it is time to have an overall review of the structure of the tax system. We will do that, but we give the absolute undertaking that there will be no significant changes to the structure of the tax system without a mandate from the following general election.

Labour's intentions on tax have been openly, honestly, and publicly stated. What you see is what you get. There is no secret agenda.

Nor do we expect an exodus from New Zealand of those seeking to avoid the extra tax step. Apart from Mexico, no other OECD country has a lower top tax rate than that proposed by Labour.

The truth is that young New Zealanders are fleeing this country now to places where they will pay more tax but will also be able to avoid repayment of their student loans. The student loan system is now a significant driver of the current brain drain from New Zealand.

Compliance Costs
I want to assure you that there are a range of compliance costs on business which should be tackled and which we will tackle.

Parliament's commerce select committee recently conducted an inquiry into compliance costs, and made recommendations on how to reduce them.

Its recommendations include:

o government agencies rationalising information flows so that only one of them seeks information from business, not three or four as at present.

o Statistics New Zealand sampling only the number of businesses necessary to achieve reliable statistics.

o Inland Revenue streamlining dates and payment forms for small and medium sized business.

The report also suggested that:

o there be a permanent officials committee to address compliance costs.

o every government department should develop quantifiable targets for
decreasing compliance costs, and report the results.

o compliance cost reduction should be a priority for local government too.

I can assure you that the Labour Government will want to progress these recommendations.

It is obvious, however, that some of the costs business bears are an inevitable part of the cost of remaining a first world nation.

Yes, there are costs to complying with planning law, but the cost of having weak planning law would be unsightly and intrusive development.

Yes, there are costs in providing healthy and safe workplaces, but there are also potentially huge costs to companies and their employees in not doing so.

Yes, there are costs in rebalancing labour law, but there are costs too in a system widely perceived by New Zealanders to be unfair.

My point is that no governments impose any of these costs for the pleasure of doing so, but only because they believe that those costs and others are necessary if we are to retain the semblance of a civilised society.

It is the job of decision makers to balance competing interests, public and private, as best we can.

Labour will endeavour to keep costs low for business wherever we can.

But we also submit that it is good for business to operate in a society where the employees are healthy, secure, well-educated, and skilled, and where we enjoy the other trappings of a first world society.

Our vision is to see our business and our country move up the ladder of achievement.

That means moving away from the low cost, low skill industries, towards the higher waged, higher skilled industries which bring better returns.

The new economy can only be driven by educated, skilled, and healthy people. New Zealand can only undergo substantial economic transformation by investing in its people.

We will all contribute to that investment one way or another through the taxes or levies we pay or the direct costs we bear.

I have been heartened by the establishment of new business organisations promoting social responsibility and sustainable development. Dick Hubbard's leadership in this area is noteworthy.

Labour does seek a dialogue with business about these issues and about how to further our common interest in developing this country.

The task before the incoming government is enormous. Yet I have absolute faith that it can be accomplished. Our human potential is great. New Zealanders have the ideas and the entrepreneurial skills.

What has been lacking is an acceptance at governmental level that government must lead and must invest in our future. We can no longer stand back and watch our best and brightest leave and take their ideas, and now even their business, with them.

That means it is time to act. It is time to start transforming New Zealand from the country it has become to the country we know it can be.

I hope we will have your good will as employers as we embark on that task.

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