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Labour and Business - Cullen speech

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Business development is a huge topic ranging from the most difficult to understand and influence aspects of social attitudes through to the details of the frequency and timing of GST returns. The difficulty is to know where to begin, Labour finance spokesperson Michael Cullen told a Greenwich Financial Services Client Group in Auckland today.

I want to begin with an assertion which many of you will find, to say the least, challenging. That is that the key issue facing New Zealand and New Zealand business today is not the reduction of costs but the adding of value.

Costs, of course, are important and I want to come back to that. But if, as I suspect you may, you start from the assumption that cutting these is the most important means to expanding businesses then you will end up shadow-boxing with the problems of the past rather than wrestling with the problems of the future.

That is particularly so because it ought to be clear by now that the radical reform agenda followed since 1984 has not cured many of our underlying structural problems.

New Zealand's economy still has very substantial structural problems. If we are looking at building a real knowledge economy they are very significant. They include:

Ø The highest national debt for decades
Ø A large current account driven down by consumption, not investment
Ø Poor export growth, especially over the last five years

Ø Amongst the poorest average per capita growth rates in the developed world
Ø Poor labour productivity growth rates since 1992
Ø Inappropriate skills production
Ø Low savings rates
Ø Continued over-dependence on commodity production
Ø Wild swings in business and consumer confidence reflecting the underlying fragility
and lack of consensus about our future direction.

All this points to a need for a fundamental change in direction. Such a change must be evolutionary, not revolutionary in its nature. It must move forwards, not backwards. And it must not throw out the baby with the bathwater. We have made an irreversible move to an open, competitive economy. There is no future in a retreat to heavy regulation.

But equally it seems to me clear that the radical reform agenda has long passed the point of declining marginal returns. And, in the state sector, organisational restructuring has almost become an end in itself. Some departments never seem to get the gains from one costly round of change before embarking upon another one.

As I have indicated, the fundamental problem with the existing agenda is that it is driven by the belief that costcutting is the main means to future competitiveness. It is inconsistent with the creation of a high skills, high-income society and a knowledge economy. Such a society and economy require a different agenda - one driven by the need to add value.

We have to transform the base of the economy. For years I have been arguing that our only future is as a highly flexible, highly adaptive producer of high value, high quality goods and services. It is, literally, the high road versus the low road we have been following.

For Labour, the road to the knowledge economy is not labelled "To Damascus". We, therefore, have no hesitation in following that road.

Labour will set up a new organisation, Industry New Zealand, to take the lead role in a more strategic, supportive approach to industry development. It will be private sector orientated. Its responsibilities will include a wide range of activities, including business development, enterprise financing, investment, innovation, local economic development, workplace productivity, ecological sustainability, and procurement policy.

Within Industry New Zealand will be an Office of Small Business to take the lead role in supporting the needs of the SME sector.

A more active role in finance provision for small and medium sized enterprises will be taken. We will increase the range of options available to small and medium sized enterprises. This will include support for the more rapid development of a venture capital market and for the development of "Angel Networks".

The Small Business Office will develop a modern business development programme. It will provide affordably priced business audits, technical and management skills training, and grants to investigate new products, markets, and technology uses.

Particular attention will be paid to the development of communications strategies to ensure small business people are aware of the various forms of government assistance available to them.

The Office and Industry New Zealand will promote small business incubators to allow small businesses operating in similar industries or providing complementary products or services to share some of their costs or pool equipment and information.

Labour is concerned that so much foreign investment over recent years has been directed towards buying up existing enterprises and so little to the formation of new ones. We will not solve this problem by trying to choke off foreign investment.

Instead, we will actively seek investment that specifically creates new greenfield enterprises or expands existing enterprises. A special new foreign direct investment division within Trade New Zealand will be tasked with this role. It will identify potential investors and investment opportunities and provide brokerage and consultancy assistance.

We will move urgently to identify firms and industries which experience barriers to investment in innovation and remove those barriers.

We will make funding for the well-proven existing Technology New Zealand programme demand-driven at least for some years.

Labour will provide new forms of assistance for local economic development. One major aspect of that will be partnership funding with local authorities or local enterprise development agencies.

Such funding will be directed towards the research and development of local economic strategies, identifying and developing local economic clusters, promotional activities, and investment attraction.

Labour supports an open, competitive international trading environment. We are not in favour of trying to recreate a fortress economy.

But there is a need for common sense. Accelerated slashing of the remaining areas of tariff protection will have little impact on overall national competitiveness. It also means throwing away what few negotiating cards we have left.

We will also ensure better support for middling sized businesses breaking into the export area. This will include both better resourcing for Trade New Zealand and the development of an export credit guarantee scheme. New Zealand is one of the very few major trading countries without such a scheme.

There will be a changed approach to industrial relations. We are not satisfied with the Employment Contracts Act. On the basis of objective measurement it has failed: failed to lift
productivity, failed to lift skills levels, and failed to produce a vision of common purpose and interest in change, growth, and development.

We do not intend to revert to national award systems or automatic and uncontested coverage of workplaces. We want legislation which promotes the joint interests of workers and employers, not just one side or the other.

Thus, while the framework of our legislation will promote collectivity in the workplace, it will not impose it. Individual employment contracts will be freely allowed and collective coverage will be contestable between unions.

The framework will be designed to be used primarily at the enterprise level. It will allow workers to strike in favour of multi-employer contracts in certain carefully prescribed circumstances. Conversely, employers will be able to nominate one union as the initial bargaining agent in the case of multi-union representation in one enterprise.

The framework will define and mandate good faith bargaining. Much else will remain pretty much the same. We will be able, for the first time in our history, to sign up to the central conventions of the ILO which nearly all other developed countries are signatory to.

We will welcome your input on the legislation as it is framed and to the select committee process. But we will not hesitate to reject in the strongest possible fashion criticism which we believe is not well-founded or motivated by anything more than the genuine pursuit of the best interests of business.

What we propose is nothing more, nor less, than sensible balanced industrial relations law. We hope one result will be sensible balanced case law as a result.

But we also hope for much more. In particular we want to see much greater employee buy in to an agenda of change, innovation, productivity growth, workplace safety, and quality improvement.

Labour sees other issues as being crucial to the future success of New Zealand businesses. The first of these is to strengthen the pro-competitive framework within the private sector. Ten years ago we could make some reasonable claim to be amongst the world leaders in encouraging competition, particularly given the previous highly anti-competitive framework in many sectors.

That can no longer be claimed. There is no need to go back to a heavy regulatory environment to resolve this matter. What we need to do is to go forward to provide for the same as Australia's threshold for anti-competitive behaviour and strengthen the Commerce Commission. At the same time, we clearly need to take firm action on such matters as number portability in telecommunications. Without this we are not going to realise the full gains that are possible for small businesses and households.

Labour is committed to beginning a major programme of appropriate skills development and upgrading. This will include support for a new apprenticeship programme, a rationalisation of industry training programmes, and a much more coherent approach to tertiary education.

The government's abandonment of the tertiary White Paper is to be welcomed. But the timid and often misdirected elements that have replaced it are a poor substitute for a bolder approach. Simply giving more money to a small number of elite students may recognise excellence but will do nothing to rectify the real problems.

They include a lack of any real analysis of what skills we wish to create; a lack of any coherent programme to incentivise the framework so as to produce the right skills; the presence of positive incentives to move overseas; and the lack of any coherent role definition for different types of institutions.

Our tertiary education policy is designed to tackle all of these issues.

The need for fundamental changes in economic direction does not mean changes in all matters. Labour supports a strong fiscal stance and believes that we should be moving back towards strong fiscal surpluses during the next three-year period.

That is why we do not have room for a big spend up. That is also why we will probably have to phase in our superannuation proposals since we do not, as in 1996, face the immediate prospect of substantial fiscal surpluses to capture into the proposed fund.

Labour does have key bottom line commitments. The great bulk of the programme we will announce over the coming months will depend for its timing on the availability of resources. We do not believe in spending money we do not have - that is, after all, where Labour came in in 1984.

But neither do we see scope for ongoing tax cuts, especially for the best off. We do not see the prime purpose of fiscal management as being to cut taxes but to create a stronger economy and a more cohesive society.

Labour supports a rational and sensible approach to tax policy.

That is why we propose to establish an independent review of the tax system. That review will advise on what future tax structures are best suited to sustaining a strong revenue base over the long term while ensuring the burden of tax is distributed fairly according to ability to pay.

Labour will not be legislating for a general capital gains tax, estate duties or any other significant structural changes within the term of the next Parliament. Labour
confirms that there will be an increase in our first budget in the top personal tax rate from 33cents to 39 cents in the dollar on each dollar earned above $60,000 a year.

This is necessary to provide some additional revenue to allow essential social and economic initiatives to be implemented immediately. There will, however, be no other changes to

personal tax rates, GST, or company tax rates. There will need to be a change to FBT to mirror the new top rate. But we want to discuss with you the best way to do that so as to not impose additional costs on business.

The argument, of course, is made that there has to be an identity between the top personal tax rate and the corporate rate.

We are the only developed nation where that is the case - and some are actually moving in the opposite direction. It is not even true in New Zealand for many taxpayers because of the bleed out of targeted mechanisms.

In any case over the long term - by which I mean the next ten to twenty years - we are likely to see downward pressure on company tax rates in order to remain competitive. We cannot simply keep tracking personal tax rates in concert with that over the long term as this year's Budget documents demonstrate.

We will, therefore, be looking at the mechanisms which enable us to separate the two with minimum compliance costs.

In that respect, everyone should by now be clear that there is no direct relationship between the size of government and compliance costs. Sometimes government savings simply shift costs

on to the private sector. You should, therefore, be wary of any in your own ranks who mindlessly and zealously pursue the concept of minimal government. This may end up costing you more.

Labour will take firm action on compliance costs. We propose to work closely with the small and medium sized business sector to identify the full range of compliance costs faced by them and to seek ways of streamlining government's demands. We will take specific action with respect to employment and superannuation. We will also address the compliance costs associated with the Resource Management Act, particularly through fulfilling the state's lead role in producing national policy statements to lead to greater uniformity and certainty in the application of the law. We will also be developing best practice benchmarks, including matters involving multiple consents, and promoting those benchmarks.

New Zealand is not going to improve its economic performance by more hamfisted, incompetently implemented, ideologically driven restructuring. The 1990's are littered with the debris of such efforts from health restructuring to roading reform. Nor can we afford attitudes which are about one sector winning at the expense of another.

What is needed now is an integrated and concerted drive to transform us into a world-leading knowledge economy. To achieve that will require a partnership approach based on the achievement of excellence, dynamic and well focused skills development, the promotion of
technological change, infrastructure development, and support for the leading sectors of the new economy. We look forward to working with you to build more, better, and stronger businesses in New Zealand.

On your growth depends our capacity to deliver our social goals. We seek new partnerships for growth, we trust you will respond.

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