Speech: English - Building a competitive economy
Hon Bill English
National Party Deputy Leader and Finance Spokesman
13 August 2011
Building a competitive economy
Speech to the 75th National Party Conference
Embargoed until 10am
It’s a pleasure to address you today as part of the John Key-led National Party team. You have sent to Parliament competent motivated ministers and a disciplined hard-working caucus. It’s a steady stable team making sensible decisions.
And don’t we need that in these uncertain times.
In the past week we've seen the world's largest economy downgraded, turmoil on international markets and social unrest spreading to the UK .
John Key's Government has provided for New Zealand what New Zealand knows it needs - responsible economic management, strong leadership and stable government.
New Zealanders know what needs to change in this economy and they trust John Key to change it.
As we approach this year's election voters face a stark choice.
They can choose a sensible pragmatic National Party which will take New Zealand forward, or the Labour Party who will take us backwards with more spending, more tax and more borrowing. Those policies choked our economy in good times and they are downright dangerous in bad times.
The global outlook
The last few weeks have seen a stream of bad economic news from Europe and the United States .
I say, get used to it – this is how the world will be, on and off, over the next decade. That is because the underlying problems driving this week’s events are getting worse not better.
Most of the developed world has very high levels of government debt. This is a combination of the huge bailouts of the financial sector that occurred in 2008, and governments spending more than they earned, particularly over the last decade.
Lenders are starting to get worried about whether they will get all their money back. They used to regard governments as a no-risk customer, but this week they have been jolted by the first ever credit downgrade for the US .
That puts every country under the microscope. Are their debt levels acceptable? Are there plans to contain debt and get it down? Do the government's policies help or hinder economic growth?
There are only two ways to deal with excessive debt – pay it off or write it off. Neither is happening in these countries. No amount of shuffling the debt around can hide the fact that in the US and Europe, and to a lesser extent in the UK , debt continues to grow.
Because it's government debt, finding solutions to stop the growth of this debt is in the hands of the politicians, and there are no easy political solutions.
It's not easy to cut pensions, benefits and public services, or to lift taxes. It's no wonder the politicians are struggling, and financial markets are losing faith in them.
We had our own milder version of this problem through the 1980s and 1990s and it was a long painful process. In fact it took until 2006 to get net debt back to where it was in 1972 as a proportion of GDP.
New Zealand 's position
So where does New Zealand fit into this sobering picture in 2011?
In terms of the immediate impact, it’s a mixed picture. On the one hand these large economies may grow more slowly than expected and prices for our exports may come down. That isn’t unexpected given export prices are the highest in 50 years.
On the other hand, indebted countries are being sorted into the strong and the weak. The weak are paying higher interest rates on their debt. New Zealand is among the stronger countries that are paying lower interest rates.
So we are well positioned to remain a stable economy with prospects for higher incomes and more jobs.
We have taken a number of measures to make our economy less vulnerable.
We are two years into a large long-term infrastructure investment programme that will help lift efficiency and productivity.
In 2010 we put better incentives into the economy through a tax switch that increased taxes on consumption and property investment and cut tax on income from work, savings, investment and exports.
In 2011 we absorbed the costs of the Christchurch earthquake and still managed to put the Government's books on a track to surplus by 2014/15.
At the same time we've cut red tape, raised education standards and continued to reform the public sector, while improving frontline services.
And we've continued to invest more in science and innovation despite a tight budget.
There are signs the economy has now turned a corner.
It has grown in seven of the last eight quarters and this year it is likely to grow faster than Australia .
Our exporters are generally profitable despite a high exchange rate.
New Zealanders have got the message on debt, which is barely growing.
In 2007 New Zealanders spent $1.11 for early dollar they earned. This year it could be 99 cents for every dollar earned. That would be the first positive household savings rate in 11 years, helped by the lowest interest rates in 45 years.
We have avoided the harsh choices many governments face, because of the 20-year effort through the 1980s and 1990s to reduce government debt and a series of considered decisions by this Government to bring spending under control.
We have avoided the huge costs of banking collapses. Our housing market has drifted down, unemployment peaked at 7 per cent and is dropping, and 43,000 net new jobs were created in the last year.
So we managed to get through the recession in reasonable shape.
Of course we face risks from global events as the economy begins to pick up. But we also face the best opportunities in a generation.
We borrowed too much of our increased wealth in the last 10 years, and in the next 10 years we will have to earn every dollar of it.
So it's good news that the opportunity to earn higher incomes and create more jobs is better than it has been for a long time. We need to take that opportunity.
My predecessor Brian Talboys was the Minister of Trade and Agriculture in the 1960s and 1970s. He spent years travelling to Europe to plead for access for our products to markets that did not want them.
Today's trade ministers will have secured free trade agreements by the end of next year that cover over half the world's population.
In the next decade we will be selling to fast-growing markets who want our products. While the middle class is static or shrinking in our traditional markets, China , India and the rest of the Asia Pacific have a rapidly growing number of affluent consumers.
More countries are joining the China club, and a number of them are markets we haven't properly explored yet, like Indonesia , or Vietnam .
The Food and Agriculture Organisation at the UN has just produced a study showing the world supply of protein is unlikely to expand as fast as demand, and that means stronger prices for New Zealand products.
So our opportunity to grow our incomes by growing our exports is limited only by our ability to organise ourselves to take advantage of it.
So it's time to shift our focus.
The Government's economic plan
Up until now we have focussed on getting through the recession, dealing with the earthquake and natural disasters, while laying the platform for future economic growth.
Now it is time to look ahead. A re-elected National Government will focus on growing New Zealand ’s tradeable sectors and taking more advantage of our connection to the world's fast growing economies, including Australia , so we can lift incomes and create more jobs at home.
We need to build a competitive economy to lift incomes and support success in our export markets.
It's about doing the basics and doing them well.
If we are re-elected National will lock in and extend the policies we initiated in the last three years.
We will build a tax system that allows workers to keep more of their hard-earned income and encourages savings, and channels investment to productive jobs.
We will build an efficient public sector that delivers better services to the public, value to taxpayers and doesn’t crowd out the internationally-competitive parts of the economy.
We will build the infrastructure New Zealand needs, and manage existing infrastructure better to lift productivity and unclog our economic arteries.
We will build on our successful ambitious free-trade agenda to link us into more of the world's fast-growing economies.
We will reorganise government so that New Zealand Inc can support business better to take the opportunities created by our trade agreements.
We will refocus the regulation-making parts of government to help business to be competitive and efficient.
We will insist on standards in our schools to help produce competent citizens and a skilled workforce.
And we will persist with limiting government debt, to keep our interest rates lower for longer and to reduce our reliance on foreign lenders, and to build a buffer against future economic shocks.
The Government has made significant changes in all of these areas since coming into office.
There are three particular areas where we can achieve significant success for New Zealand in another term in office.
Building momentum on savings and investment
It will be particularly important to build on the momentum of more savings, and more productive investment.
Over the last few years, many New Zealanders lost faith in investing their hard-earned savings in the businesses that will grow our economy.
Investors lost $8.5 billion in the finance company melt down – after taking bad advice to invest in unsound businesses.
By the middle of next year, a re-elected National Government will complete the job of re-regulating financial markets from top to bottom, so investors and KiwiSavers know they won't be ripped off.
But New Zealanders also need better opportunities for investment than in shaky finance companies.
So in keeping with our undertakings in the 2008 election, we've said that if re-elected we'll extend the mixed ownership model to four energy SOEs and reduce the Government's stake in Air New Zealand – while retaining majority stakes.
In every case the Government will ensure New Zealanders are at the front of the queue to buy shares.
If we want to rebalance our economy towards savings and exports, we need dynamic investment markets that offer attractive options for savers and enable local businesses to access the capital they need to expand.
Extending the mixed ownership model will provide attractive investment opportunities for Kiwi mums and dads and capital for the Government to reinvest in social infrastructure like schools and hospitals - reducing our borrowing requirements.
That is just one part of the Government's job we can do better.
We will continue to focus on a more efficient public sector and we will get the results you expect for your contribution to the welfare of all New Zealanders.
We can achieve success that’s good for people and good for the economy. For example, in 2008 we took over a dysfunctional and failing ACC. We have turned this performance around and ACC is now proposing cutting levies for households and businesses - keeping half a billion dollars a year in their pockets.
And there is more to come. We've told government chief executives to find $1 billion in savings and we've started looking at which agencies can be merged, or can work more closely together, to reduce costs and improve services.
If we stay on track we can drop ACC levies further, reduce crime rates and prison numbers, lift standards in all schools and give more people better health care – those are results worth fighting an election for.
Finally in a growing economy we will need everyone who can work to be in work. Unemployment among those aged 25 and over is already down to 4.5 per cent, with an ageing population leaving the workforce in increasing numbers.
We've already been busy in the skills area. Youth Guarantee places will rise to 7,500 next year, we have the highest number of core university and polytechnic places ever, we've opened eight trades academies and we are driving better results out of industry training.
We will be working to support as many people as possible into the labour market - skilled migrants, school leavers, and our biggest pool of lost potential, tens of thousands on long term welfare.
The Prime Minister will talk more about those policies tomorrow – better welfare policy is as important for our economy as it is for our community.
In the next few months, in the run-up to the election, we'll release new policies.
They will be policies that press ahead with our well established programme to build faster growth, more jobs and higher incomes.
They will be policies that make our economy and our businesses more competitive.
They will be policies that keep our debt low and support a stable investment environment with relatively low inflation and interest rates.
They will be policies that promote savings and support our exporters to make the most of the opportunities ahead.
And, most of all, they will be policies that give hard-working Kiwis the opportunity to get ahead here in New Zealand .
Authorised by Bill English MP, 15 Main Street , Gore