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Speech to NZ Institute of Management - English

Hon Bill English
Treasurer
MP for Clutha-Southland
Speech to NZ Institute of Management,
Christchurch, 12.30pm 13 October 1999
Embargoed until delivery Check against delivery

I believe all New Zealanders want to get ahead.

They want a job, they want to be able to own their own home, they want secure modern health services, they want high standards in education, opportunities for their children, and they want a community with momentum and opportunities widely shared.

To achieve these aspirations we need a growing economy. I want to speak today about how we build that growing economy and where we go from here.

The economy shrinking by 0.3% in the June quarter took everyone by surprise.

But it's not the slippery slope back to recession.

What happened April to June should not cloud our confidence about the future, because the evidence still points strongly towards good economic growth over the next three years.

The contraction in the June quarter was caused largely by climatic factors the lagged impact of the droughts and, perversely, a warm winter. Stock could stay on the farm, electricity use was down, and people didn't need to buy winter clothes.

In spite of the June result, there is no reason to change the view that next year the economy will grow by 3.5% to 4%. That means next year we will grow as fast or faster than Australia, USA, the UK and Canada.

Next week's pre-Election Economic and Fiscal Update (PREFU) is in line with these sorts of figures, although the figure for growth this year will be affected by the weaker than anticipated June out-turn.

It also shows a similar fiscal picture to the Budget forecasts, with the Budget broadly in balance this year, though it is updated to include policy changes such as the planned tax cuts in April next year.

The forecasts are for growth to improve, employment to grow, and the Government's accounts to strengthen.

Why this outlook?

The world economy is strengthening and our export markets are picking up. Our dollar is very competitive against the US and Australian currencies, and interest rates are still historically low. Those factors all provide a real boost to exporters.

Consensus forecasts for our top 10 trading partners have more than doubled since the end of last year to a predicted 3.2% for 1999.

The United States and Australia continue to grow, there is confidence the EU as a whole is recovering and can reach around 3% growth next year, and virtually all the countries most deeply affected by the Asian Crisis have now returned to growth ? that is certainly true of Thailand, Hong Kong, Korea and Malaysia.

The recovery in the Asian economies has meant tourists have returned to boost the growth in numbers from Europe, Australia and the US. Tourist numbers are up 9% on last year and are forecast to increase by 100,000 a year for the next five years.

The return to Asian growth has also seen demand for imports from those countries increase, and improved the prospect for higher commodity prices. That's important. Up to the onset of the Asian Crisis two-thirds of the growth in demand for New Zealand commodities was from that region.

What is most helpful is that the exchange rate has stayed low. The economies of our trading partners have improved and our agricultural industries have dealt with the impacts of two years of drought. Similarly, interest rates have stayed low for the past 18 months.

These are the reasons why, in September, a net 44% of exporters and 54% of manufacturing exporters expected increased sales in the year ahead.

These conditions are almost a complete reversal of what we saw last year ? tourists simply stopped coming from some Asian countries; log markets collapsed; commodity prices fell by almost 40%; and there were continual downward revisions to growth forecasts for the world economy and our export markets.

And on top of that, as this province knows well, we had consecutive droughts to contend with.

Considering all these impacts, New Zealand has done very well to get through the last 24 months as well as we have. It's been hard. The impacts of the Asian Crisis and drought have interrupted the steady gains that were being made. But in the past those sorts of shocks have caused real economic disruption.

To accept that we have done well and will continue to do so requires a slightly longer-term view than our critics want. At this stage in the electoral cycle some people don't want to be positive about New Zealand's past or its future. It's not in their interest.

But four quarters of contraction out of 27 ? and three of those caused by Asia and drought - is hardly proof that our framework is wrong.

The reality is that we are a trading nation. Goods exports account for 23% of New Zealand's GDP compared to 16% in Australia and 8% in the US. Events such as the state of our export markets have a very real impact on our economic performance and prospects. The Asian Crisis was another forceful reminder of this.

These external forces will always buffet us. It's a thing we don't have control over. We have to manage it by diversifying and broadening the make-up of the economy, allowing new businesses and industries to develop, and making the economy as competitive and responsive as possible.

National's approach to economic management has been about providing that flexibility and competitiveness and providing a framework for growth. From there we believe people and their businesses can make the best judgements about the way forward. That's not a job for the bureaucracy.

Government can set the rules, it's people who see the opportunities and get on with the job.

Over this decade businesses have done tremendous work in getting viable, competitive, and on producing goods and services people actually want to buy.

In the Dominion at the weekend there were two vivid examples of the change that's occurring in our economy. On the front page was a story about a $20 million TV series that is going to be made in the capital ? part of the city's $400 million a year film industry.

Then there was a feature on the wine industry in Hawkes Bay, with predictions that $500 million would be invested in the industry in that region over the next five years.

In the 90s, we've adopted a sensible approach of trying to identify what government can do well, and what it can't. We have had a framework of low inflation; flexible labour markets; quality fiscal policy with the Government managing its own books well and repaying debt; an open and competitive economy; and low broad-based tax rates.

And we have shown that we can do a lot better than we did before.

In the last six years, since June 1993, including the Asian Crisis and two years of drought we have seen:

* growth of 21% - an average of over 3% a year
* a return to surplus in 93/94 and continuous surpluses since
* 238,000 more jobs
* cheaper finance - floating mortgage rates were down to 8.7% in 93, and are at 6.5% now
* cheaper cars - new cars are 14.5% cheaper than six years ago
* lower taxes of $96 a week for an average wage family with three kids
* higher pay - average weekly earnings have risen 17% from $584 to $683 in the six years
* consistently low inflation
* net public debt reduced from 43% of GDP in June 93 to 22%
* $1.6b more spent on education, and
* $2.2b more on health

I don't believe New Zealand wants to give those gains away.

That's why the election at the end of next month is so important.

As we look forward there are plenty of reasons to be optimistic about New Zealand's future.

APEC and the events around it have reminded us we do have a place in the bigger world. If we can't feel positive about the role New Zealand is playing now and the opportunities ahead for our country, we never will.

Our challenge is not just do to okay, although 3% growth is better than okay by anyone's standards.

It is to lift our performance further so that the economy grows strongly next year ? and then keeps growing the following year, and the year after that.

The foundation is there to deal with any problems we face, and more importantly, to take the opportunities on offer.

What we need is to build on the policies that got us here: policies that are aimed at getting our country internationally competitive, and allowing business to get on with the job.

Every gain is important. Every time we lift our potential growth rate, even by half a percent, it makes a very real difference to the wealth of our country and the living standards of its people.

For example, Statistics NZ is projecting over the next 10 years our population grows to reach around 4.1million.

With 3% real GDP growth per year, about the level we've lifted our potential growth rate to this decade, real GDP in 2009 would be $119 billion. So, real GDP per capita would rise to $29,500, around $6000 higher than the amount in 1999 and a 25% rise.

With 3.5% growth per year, real GDP in 2009 would be about $126 billion and GDP per capita would rise to $31,000.

But we can't make this progress as a nation if we just sit on our hands and wait for these dividends to flow.

Government, like business, has to constantly strive to improve performance. The National government knows that New Zealand has to continually seek to up its game to get the living standards we all want for the country and our children.

Government activity makes up about 35% of the economy, so it is important that we do what we do well.

Nearly three-quarters of Government spending is on health, education and social welfare. We have to make that spending count - it's got to make a difference.

We want effective social services and have committed to match every dollar of tax cuts with an extra dollar on health, education and welfare.

Education is particularly important because it is the key to the economic mainstream for all New Zealanders. Your children get one chance at an education and we need to make a better job of it.

The system we've got now is not flexible enough and it is failing some of our kids.

A couple of weeks ago, on the 10th anniversary of Tomorrow's Schools, Nick Smith announced that we are reviewing the Education Act. That might sound dull, but it is critical to the performance of our schools and your children's future.

There's a discussion document on this called "Legislation for Learning" which I strongly recommend. We want submissions on it before Christmas. It's aim is to make schools fit your children, not the other way around.

We have a track record of spending more on improved social services, reducing taxes and repaying debt and we will continue on that path.

We will bring income taxes down further. ? and we will lower business taxes. We have to keep our edge over Australia.

We will keep an industrial relations system that allows jobs to be created.

We will keep a lid on government and reduce the costs it imposes. We want less bureaucracy and form filling.

We will keep New Zealand focussed on the opportunities in trading and competing with the world - not shutting it out.

We will push for excellence through every area of education ? we want results for children, not to be hamstrung by what we've done in the past.

And we will continue to deal with the reality that it is successful people and successful businesses who drive the economy and make jobs, not the government, and the not the unions.

These are the things this Government is doing to take New Zealand forward.

The alternative is the policies, and results, of the 1980s. That's no contest. In the 15 years to 1993 growth averaged 1.4% - only 40% as good as we've done since.

All politicians can talk about driving growth and economic performance. But there's a real contradiction, a credibility gap, between talk of growth and policies that will impose higher costs on business and cost jobs.

Raising taxes, reversing the ACC changes, and giving unions more power through changes to the Employment Contracts Act is not going to help one business or create one job.

National's policies are about dealing with the real world and making things work so that every New Zealander has a better chance.

Policies that will provide, over the next three years: 10% economic growth

100,000 new jobs

stable inflation - and low interest rates

lower public debt, and

lower taxes

and a dollar-for-dollar commitment to match tax reductions with social spending increases at a minimum.

That's the benchmark we are setting ourselves, and it's what you can measure our political opponents against.

At any of the seven elections up until 1996, that future would have looked fantastic.

The big issues until the early 90s had been minimal economic growth, relentlessly growing unemployment, perennial Budget deficits, rising public debt, strikes, and rampant inflation with 20% interest rates.

They are still the big issues, but this Government is on the right side of all of them.

Can we get to 4% or even 5% growth?

We can do it if we believe we can.

ends


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