Cullen Address To Singapore/NZ Business Council
Tower A Ballroom, Shangri-La Hotel, 22 Orange Grove Road, Singapore
A New Era of Partnerships in New Zealand
Kia Ora. Greetings from New Zealand.
It is a great pleasure to be here with you this morning. This is my second visit to Singapore as New Zealand's Finance Minister. Last September I had the honour of speaking with the Singapore/New Zealand Business Council at the start of my journey to co-chair the APEC Finance Minister's meeting in Brunei.
Since then the Closer Economic Partnership Agreement between Singapore and New Zealand was ratified and has been in effect since the start of this year.
Singapore is one of Asia's shining stars. It is already New Zealand's 11th largest trading partner, and our seventh biggest foreign direct investor.
The CEP signals the goodwill and intention of Singapore and New Zealand to work closely together and it will help reduce compliance costs and facilitate services and investment flows.
The CEP is one of a kind. The agreement comprehensively covers investment and goes beyond anything in the World Trade Organisation agreements.
It us up to both sides to get the best out of this agreement. It is up to both sides to make these new provisions work.
We encourage Singapore investors to take advantage of the opportunities presented by the CEP to move into new forms of productive investment in New Zealand. We want to encourage investment that goes beyond the traditional existing areas of hotels and franchises.
In a example of how Singapore investors are taking fresh look at new opportunities in New Zealand, last April a high-powered delegation of venture capital fund managers from Singapore, led by Economic Development Board chairman Teo Ming Kian, visited New Zealand and was reportedly impressed with our technology.
The CEP agreement also sends a very positive signal to our other Asian trading partners about our willingness to engage with them as well as sending a strong message to New Zealand's business community about this Government's commitment to prise open export markets and promote economic growth.
Our goal is to lift New Zealand
back into the top half of the OECD nations.
We are embarking on a long haul programme to reduce our reliance on commodity production, to add more knowledge and innovation to our productive base and to enhance the skills of our people.
My second Budget, which I delivered in May, gave momentum to this programme by boosting funding for venture capital provision, skills training, research, business support programmes and other growth and partnership strategies.
For the economic reforms and the hands off policies of the past decade failed to achieve all they promised.
Tellingly, long-term growth rates are not above where they were ten years ago and the long-term productivity growth rates failed also to rise.
I believe the reforms did not achieve all that their architects promised because, apart from going too far, too fast, they failed to deal with many major underlying structural problems.
Problems that left the skill base of New Zealand up to the luck and wealth of individuals and our national savings so low that we now rely on the thrift of other nations to fund our spending habits.
This Government is determined to use, as wisely as we are able, the lessons of the past to ensure our future success.
The year has been a busy one. The tide of business opinion swelled briefly against the new government six months ago but has now receded as changes that business most feared, proved, in the end, benign.
The changes in industrial relations turned out to be very moderate and we still have a less regulated labour environment than most Australian jurisdictions, and the United Kingdom.
And while we raised the top tax rate for the five per cent of high income New Zealanders, we still have one of the lowest tax rates, including corporate tax, in the developed world.
So, as I assured you last September, and can reiterate today, New Zealand remains a lightly regulated economy by developed world standards.
The fundamental framework for fiscally conservative macro economic management is unchanged:
- The Reserve Bank Act remains
- The Fiscal Responsibility Act remains in place.
- The State Sector Act remains in place.
- The State Owned Enterprises Act remains in place.
But we are not leaving it to legislation already in place to achieve the sort of economic and social well being we desire.
have introduced a raft of policies to help business do
- giving more teeth to the Commerce Commission
- targeting overseas investors and helping local enterprise
- implementing a take-overs code
- increasing access to skilled migrants
- putting in place e-government and e-commerce strategies
- cutting compliance costs for small businesses
Our economy has shrugged off the effects of a global slow down and grew by 2.5 in the 2001 March year, and is forecast to average three percent growth over the three years after that. Most of this was driven by exports, which rose a healthy 6.8 percent over the year.
The recent GDP result was disappointing but also three months out of date. But recent evidence points to an increase of growth in the next two quarters.
The latest mechanise trade figures show exports are booming, consumer and business confidence are both in positive territory and a recent survey by the largest manufacturer's association in the South Island shows average export turnover is up 34 percent on last year.
Strong exports and a boom in tourism have finally put us in the black with New Zealand posting a quarterly current account surplus for the first time in seven years.
Last year when I spoke with you we were grappling with a current account deficit of 7 per cent of GDP. Today it is a much more manageable 4.8 per cent and is set to keep falling steadily with Treasury forecasting a drop to 3.5 per cent of GDP by 2005.
The unemployment rate, which was 6.8 per cent in the quarter before the Government took office, is currently down to 5.4 per cent and is forecast to fall to around 5.0 percent by March 2004.
Overall, the fiscal outlook is strong. Net government debt was 20 per cent of GDP in June 2000. We now expect it to fall to around 18 per cent and to remain stable at that level.
The government is projecting an operating surplus of 1.2 per cent of GDP in the current financial year, rising to 2 percent next year and 2.4 per cent in the year after that.
The Budget also set aside $600 million as the initial contribution to a new Superannuation Fund to partially prepay the rising costs of an ageing population. We will set aside a further $1.2 billion in 2002-03, $1.8 billion in 03-04 and $2.5 billion in 04-05.
I have talked about our competitive exchange and interest rates. While a lot of this is driven by external factors, there are things that the government has done to improve the export environment.
Firstly, when we took office, the government negotiated the Policy Target Agreements with the Reserve Bank. That means that there is a formal requirement on the Bank to be aware of the effects of its operations on the real economy. I am confident now that we are more likely to avoid a repeat of the late 1980s and 1990s when every so often the dollar surged and exporters suffered badly.
The Government's tight fiscal stance allows the Reserve Bank to be more relaxed about monetary conditions, and this has contributed to the maintenance of an interest and exchange rate that favours exporters.
New Zealand's economy depends on exports and foreign investment. With a population of just under 3.8 million, economic self-sufficiency is not one of our options. In order to afford our standard of living and import dependency, we need to perform strongly as an export nation.
The government has been putting more effort and more funding into attracting foreign investment into new greenfields developments – an approach welcomed by the business community.
We have set up a new organisation called Industry New Zealand. Its successes have not simply been about offering direct incentives but rather by cutting through the red tape and acting as a local facilitator for overseas investors.
New Zealand is a small country on the edge of the world. Our biggest problem is the tyranny of distance.
People tend to think of Australia and New Zealand as physically being very close but, in fact, we are further away from Sydney than London is from Moscow.
But our geographic isolation has been drastically reduced with the introduction of technologies such as the Internet and inexpensive telecommunications.
New Zealand companies now have an unprecedented opportunity to compete in the international market on a more level playing field.
And the government is investing alongside private firms to help ensure our success as a nation. This is not about the government picking winners. It's about helping fill the gaps in the transformation of a good idea to a profitable business.
New Zealand has a well-deserved reputation for innovation combined with a can-do attitude.
We have produced some world changing ideas.
This month Virtual Spectator, which won international acclaim for its animated graphics coverage of the America's Cup, hit the big league with an offer to provide live animation for the US golf tour and the British Open.
This is the sort of success story that we need more of.
Unfortunately too many good ideas stall in the progress for lack of venture capital, mentoring or just a hand up when one is needed.
We have committed over $330 million over 4 years, for a more active business development programme, with the focus on export development.
This month our new export credit scheme opened for business.
Again, it is about levelling the playing field for our own exporters. New Zealand now once more offers its own people that basic measure of support available to exporters in nearly every other developed nation.
The Government is also investing $9.5 million over two years in Trade NZ’s e-commerce strategy for exporters to assist their entry into this new delivery channel that is now becoming critical to survival in the global environment.
We are contributing to the education export sector. This is an area that effectively managed and developed could double its annual foreign exchange earnings to over $1 billion over five years.
We are continuing to move to open up access to foreign markets. Along with the CER agreement with Singapore, we are working toward a closer economic partnership with Hong Kong. And we are continuing to look for and encourage wider trading relationships - whether through a broad based World Trade Organisation round or suggestions such a P5 agreement between New Zealand, Australia, the USA, Chile and Singapore.
Over the past decade or so New Zealand's stock market gained something of a Wild West image. We are implementing a range of policies to restore investor confidence in our markets.
The Commerce Act has been strengthened to give the Commerce Commission more teeth and to get a better deal for consumers and small businesses.
We will deal with anti-competitive behaviour by dominant firms in a market.
We are aligning mergers and acquisitions laws with Australian legislation to restrict mergers that have the effect of substantially lessening competition.
The High Court and Commerce Commission will be able to take into account the full range of anti-competitive mergers.
An adequate and effective insider-trading regime is vital to how the rest of the world perceives the New Zealand market.
Since our insider trading laws were introduced in 1988 no one has been found liable for insider trading. This has led to a perception in the market that the current regime is inadequate.
This month the long overdue Takeovers Code came into effect. It lays out an orderly process for companies to follow when staging a takeover.
The Code means that all shareholders, big and small, are treated equally in a take-over situation and there will be an independent Takeovers Panel that will oversee that process.
The new transparent take-overs regime is similar to many other jurisdictions including Australia, the United Kingdom, Hong Kong, Canada, Singapore and the European community - to name but a few.
In closing I would like to remind you that New Zealand is very much open for business.
We are investing in education and training so New Zealanders are equipped to contribute to the knowledge economy.
The Government is working in partnership with business to help business do business better by removing barriers and exploiting opportunities.
The Government is actively seeking quality foreign investment and we will do all we are able to make it easier for investors to develop new greenfields sites and enterprises.
The Government is working to negotiate trade agreements with whatever nations we can – as long as it benefits our people.
The Government is thinking about trade agreements strategically. We've looked at where our trade is and where it is likely to be in the future and much of that is with fellow APEC economies.
We especially look forward to a long and prosperous trading relationship with Singapore.