PM: Speech - State of the Nation
Rt Hon John Key
26 January 2012 Speech
Speech to Waitakere Business Club
Trusts Stadium, Henderson
Ladies and Gentlemen
Can I start by saying that it’s a tremendous privilege to have won the trust and goodwill of New Zealanders for a second term in Government.
I don’t take that for granted and I never will.
I learned quickly when I came into Parliament that a government has to earn the trust and goodwill of voters again and again, every day.
And that’s what we’ll be doing.
We proved in the past three years that we can deliver strong and stable government in difficult times.
We worked constructively with a number of other parties in Parliament to get things done for the benefit of New Zealand, and we’ll continue to do that.
I don’t know exactly what the next three years will throw up.
The past three years have shown us that adversity gives little warning.
New Zealanders have had to deal with catastrophic events outside anyone’s control; from a global financial crisis to a devastating series of earthquakes in Canterbury.
New Zealand has changed over the past three years and, in fact, the whole world has changed.
The next three years will about rebuilding and strengthening the country.
And compared to a lot of other nations we are in a good position to do that.
Today I want to talk about the Government’s priorities over these next three years – in other words, how we are going to continue with our plan to secure a brighter future for New Zealand.
A brighter future is where New Zealanders from all backgrounds and all walks of life have the opportunity to better themselves and go forward in their lives; where people have the jobs, higher incomes and better living standards they aspire to and deserve; and where as a country we have the resources to provide better frontline services in health and education, stay strong on crime, protect the most vulnerable in society, and look after the environment.
How do we achieve that?
The Government has four priorities this term.
Our first priority is to responsibly manage the Government’s finances. In the world as it is today, the state of the country’s finances is all-important.
Our second priority is to build a more competitive and productive economy. That means an export-focused economy, which is selling more of what the world wants, at a competitive price, and is built on a solid base of innovation.
Our third priority is to deliver better public services to New Zealanders, within the tight budget the Government is operating under.
And our final priority is to rebuild Christchurch, our second-biggest city.
I want to talk some more about these priorities and give you an indication of where the Government is going.
But before I do that I want to talk briefly about the international backdrop.
The global economic outlook has deteriorated since the end of last year, and the European crisis, in particular, is the biggest potential threat to the world economy and therefore to the New Zealand economy.
Leading forecasters like the IMF, World Bank and Consensus Economics are expecting world growth to be weaker over the next couple of years than previously predicted.
For the most part, that is because of the ongoing turmoil in the Euro area.
The most likely outcome is that European countries manage through the crisis with the Euro intact, because it is in their collective interest to do so.
But that is by no means guaranteed.
As recently as yesterday, the IMF warned that if the required actions are not taken, the European crisis could spill over into a global recession.
Even under the more likely scenario, where Europe avoids a full-blown crisis, the Euro countries are expected to go into recession in 2012 and will be in for a protracted period of sluggish growth thereafter.
This poorer growth outlook for Europe has, in turn, contributed to lower growth forecasts for Asia, including China.
Overall, growth in China is expected to remain strong, but an easing in that growth will still have a flow-on effect for Australia, because of a lower demand for minerals.
The outlook in the United States is actually looking better than it did late last year, but growth is still likely to be subdued.
What does that mean for New Zealand?
Weaker global growth, particularly in our key export markets in Asia and Australia, will put downward pressure on the demand for our exports.
That will have a real and noticeable effect on the New Zealand economy, which is expected to grow somewhat slower than was predicted at the end of 2011.
But it won’t knock the New Zealand economy for six and it certainly won’t stop the Government pushing ahead with its priorities.
We are a small economy doing the right things, our banks are in good shape and the Government has managed effectively through the difficulties of the past three years.
The really difficult challenges will start to come if world growth continues to be revised further and further downwards, or if the European crisis triggers a global credit freeze.
Those are not the most likely scenarios for the world economy but they are certainly possible and the Government will continue to monitor global events very carefully.
So given that international
backdrop, I want to talk some more about each of the
• responsibly managing the Government’s finances
• building a more competitive and productive economy
• delivering better public services
• and rebuilding Christchurch.
Our first priority is to responsibly manage the Government’s finances.
As every household and business around the country knows, that involves living within our means – budgeting carefully and deciding which things are priorities and which are not.
The Government is committed to returning to surplus in 2014/15.
Sticking to this commitment is an important part of our plan to limit debt and take pressure off interest rates and the exchange rate
And sticking to this commitment is also important for New Zealand’s credibility with international financial markets. As we have seen overseas, a loss of credibility is very difficult to reverse and can have widespread effects across the whole country.
As you’d expect, the forecast slowdown in world growth makes our surplus target harder to achieve.
But today I can confirm that we are still on track to post a surplus in 2014/15.
The upcoming Budget Policy Statement will show a forecast surplus in the range of $300 to $500 million in that year.
Given the events in Europe, this surplus is understandably smaller than was forecast in the PREFU.
But we still remain on our tight fiscal track.
You’ll see a fuller picture of that in the BPS, which will be released on February 16.
The next update after that will be in the Budget itself.
The Budget will set out the Government’s revenue and spending, and show exactly what we are doing to meet our fiscal targets, get back to surplus and start reducing debt.
If the international outlook worsens between now and the Budget we may have to do more than we are currently anticipating to reach our surplus target, bearing in mind that the target is still three years and many forecast revisions away.
If the absolute worst happened, and there was a major shock to the global economy, the Government would look at whether retaining that surplus target would actually harm the economy by forcing a sharp reduction in demand.
But outside that scenario, we remain firmly committed to our target for surplus in 2014/15.
I want to talk now about our second priority, which is to build a more competitive and productive economy.
The reality, all around the developed world, is that the pre-GFC period of relatively strong growth, fed by a massive increase in borrowing, is unlikely to return in the foreseeable future.
Households and businesses are having to reduce the debt they built up over that time, and they are saving rather than spending.
So anyone who complains that New Zealand isn’t growing at four, or five, or six per cent a year right now is on the wrong planet.
In fact, we are doing better than most developed countries
In both 2012 and 2013, the New Zealand economy is forecast to grow more strongly than the Eurozone, the UK, Japan, the United States and Canada.
So we are in relatively good shape.
However, it is important to understand the Government’s main role.
For the most part, New Zealand’s growth over the next year has already been set in train, and any stabilisation is the job of the Reserve Bank.
The Government’s main role is to keep looking out over the next five years or so and put in place policies that will help the economy become more competitive and productive, through good times and through bad.
Again, the European crisis offers some important lessons.
European countries are in difficulty for two main reasons.
The first is that they have high levels of government debt, and I’ve already talked about the importance of sticking to our tight fiscal track.
And the second reason is that many of the economies in Europe have lost competitiveness.
That doesn’t happen overnight – it happens slowly over a number of years.
Here in New Zealand we have also lost competitiveness over time, particularly as a result of poor policy decisions in the 2000s.
In other words, it has got harder than it would otherwise have been for our exporters to compete in overseas markets. And it has got harder than it would otherwise have been for New Zealand manufacturers to compete with imported goods that are made off shore.
As a result, the industries and sectors that compete internationally actually went into recession in late 2004 and shrank in size by almost 10 per cent in five years.
That decline in competitiveness has started to turn around over the past three years.
A good example of how government policies can help competitiveness is in ACC. As a result of the decisions we made in ACC over the past three years, levies on employers and the self-employed will fall by 22 per cent this year, reducing total costs to business each year by around $250 million.
That’s just one example among many, but there is still much more to be done.
The Government’s view has always been that there is no magic bullet – no one ‘big bang’ reform that would turn the economy on its head.
What is actually required is a series of good policy decisions and reforms over an extended period of time, in 100 different areas, to enhance the competitiveness of New Zealand firms.
And I literally do mean 100.
During the election campaign we released an economic action plan of 120 key things we had done, or were doing, to build a stronger, more competitive economy.
Most of those action points are still ongoing.
So we have a very busy economic reform agenda, following through on things we started last term and on new things we announced during the election.
We’re restructuring IRL to become an advanced technology institute to work alongside the high-tech manufacturing and services sector.
We’re rolling out ultra-fast broadband and the Rural Broadband Initiative, to lift New Zealand’s connectivity.
We’re comprehensively overhauling New Zealand’s securities law, to restore investor confidence in our financial markets.
We’re introducing a six-month time limit for consenting medium-sized projects under the RMA, to reduce costs, uncertainties and delays.
We’re allowing for choice in the ACC Work Account, to help ensure efficiency and keep a lid on costs for levy payers.
We’re encouraging oil and gas exploration with a competitive new system for processing permits.
We’re negotiating free trade agreements with nine countries in the Trans-Pacific Partnership, including the United States, and separately with a number of other countries including India, Russia and Korea.
We’re extending the mixed ownership model to four State-owned energy companies, to make better use of the Government’s balance sheet and to provide new investment opportunities for New Zealand savers.
And we’re investing heavily in roads of national significance and in the rail network, to promote economic growth and productivity.
These are a few of the initiatives in the 120-point plan, which sets out what the Government will be doing over the next three years.
I have tasked Bill English and Steven Joyce – the two most senior economic ministers – with driving this economic action plan.
I have told them I want to see this action plan regularly updated, showing progress on the existing initiatives and adding further initiatives as they are developed.
The first update will be in the middle of this year and will be publicly released.
Our third priority is to deliver better public services for families and businesses, within tight budgets.
Delivering better public services will help improve the lives and wellbeing of New Zealanders.
New Zealanders rightly expect a world-class health service, an education system that delivers for every child, a strong and effective justice system and social services that protect our most vulnerable and provide children from all walks of life with the opportunities they need to succeed.
Again, the Government has a very busy agenda over the next three years.
In education, our focus is squarely on raising achievement, in particular for those groups of students who have historically under-performed.
We’re strengthening performance measurement and accountability in schools, and we’ll be investing $1 billion of the proceeds from mixed ownership in modernising New Zealand schools.
It’s vitally important for New Zealand that students achieve because they are our future workforce.
But it’s also vitally important for the young people themselves, because a good education is the most important investment they can make in their own lives.
Welfare reform is also a very high priority for the Government.
At the moment around one in eight people aged 18 to 64 is on some sort of benefit, and about half of those have spent at least five out of the past 10 years on a benefit.
That is not only a poor position for beneficiaries themselves to be in: it's also not good for their children, for society or for taxpayers.
So we'll be moving quickly this year to get our welfare reform programme underway.
Early in the year the first Bill will be introduced to Parliament to enact the youth reforms I announced last year, targeting young people who are very much at risk of long-term welfare dependency.
That will be closely followed by another Bill in the second half of this year, to bring in the changes we campaigned on at the election.
New benefit categories will be created, and a greater proportion of beneficiaries will be required to make themselves available for work.
At the same time we will do more to help beneficiaries into work through services like childcare, training, workplace support, and access to health and disability support.
We also have a busy agenda in health, where we are working with local primary care networks throughout the country to provide free after-hours GP visits to children under six.
More people will get elective surgery, and we’re reducing waiting times for cancer treatment, first specialist appointments, diagnostic tests, elective surgery, and for people waiting in emergency departments.
In terms of public safety, we will be introducing legislation to strengthen sentencing, parole and bail laws.
We’ll be making it harder for those accused of the most serious offences to get bail and we’re increasing the penalties for child pornography.
These are all examples of individual initiatives we have underway in different areas.
But it has also become increasingly clear to us as a Government that the way public services are organised across the board needs to be addressed.
The state sector as a whole could do much better at delivering value-for-money, and it could do much better at achieving results, particularly in areas that cut across multiple departments, and which have proved difficult to get traction on over many years.
Last year the Government established the Better Public Services Advisory Group, and we have since received its final report, which we are currently considering.
We will release this report in the next month or two, when I give a speech on where the Government intends to go with state sector reform.
As I said, we are still working through the issues, but I have been quite clear with my Ministers that there needs to be significant change in the way the state sector is run.
Greater efficiency across government is an important part of this, but it is by no means the only part.
We are also focused on the quality and responsiveness of services, on strong and effective leadership, and on orienting the state sector around achieving results that really matter to New Zealanders.
Our final priority is to get on with rebuilding Christchurch.
2011 was about dealing with the damage caused by the destructive earthquakes that hit the region.
2012 is about starting to rebuild a vibrant, strong city.
The Government is totally committed to the reconstruction of Canterbury. That’s why we put aside $5.5 billion in last year’s Budget and created a whole new government department to lead the recovery effort.
We are committed to removing the barriers to reconstruction, and I can assure you that we won’t hesitate to use the powers we have to clear blockages in the system.
It’s easy to underestimate the scale of this undertaking.
Rebuilding Christchurch and its surrounding areas is an unprecedented project – without doubt the biggest economic undertaking in New Zealand’s history.
It is also at risk of delays from more seismic activity.
I want to say again to the people of Canterbury that we really do understand the frustration and anxiety you have felt as a result of the ongoing aftershocks, particularly the latest major ones that occurred around Christmas.
We continue to stand with you and I’m determined to see that momentum is maintained.
A National Bank report last year showed that economic activity in Canterbury was growing faster than anywhere else in the country.
The Re:START shopping area in Cashel Mall is up and running, and is drawing people back to the heart of the city.
And we have seen large companies show their faith in the city by announcing new investment in Christchurch.
Nearly 70 per cent of the 1,357 buildings approved for partial or full demolition in greater Christchurch have been demolished.
And early next week, the first suburban demolition by CERA begins in the residential red zone in Bexley.
We have made changes to the Regional Policy Statement for the greater Christchurch area, which The Press has reported could pave the way for more than 45,000 new houses.
The challenge now is for local authorities to use these powers to free up new land.
The residential red zone settlement process is progressing well. There are around 6500 properties in the residential red zone in Canterbury, and around 90 per cent of those homeowners have now returned their consent forms to CERA so they can receive an offer from the Government.
Around 46 per cent have also now formally accepted either of the Government's offers to purchase their property.
The commercial redevelopment of Christchurch is well underway.
And from February, residential housing reconstruction should move up a gear, subject again to seismic activity.
Plans by employers to hire more permanent staff in Canterbury are at an eight-year high.
And as the rebuilding grows the demand for workers and materials in Christchurch will be huge.
The Government’s strong focus will be on removing roadblocks so that demand can be met.
Finally, for Canterbury’s passionate sporting fans – of which there are many – the good news is that big-match rugby returns to Christchurch on March 24 when the Crusaders play the Cheetahs at the new 17,000 seat stadium in Addington.
Can I conclude by saying that 2012 will no doubt be another challenging year.
As a country we’ve had some tough things thrown at us.
But New Zealanders have shown great resilience.
Together we’ve come through a difficult period.
Looking ahead, I am very confident about New Zealand's prospects.
We're actually in good shape to meet the challenges that will continue to come our way.
There are huge opportunities out there for New Zealand.
We are a food-producing country in a world that is demanding more high-quality food.
A growing middle class in China, India and across Asia is tuning in to the goods and services New Zealand can supply.
And we’re a country that offers great opportunities for our young people.
So I’m unashamedly positive for New Zealand. I think we’ve got a great future ahead of us.
But we need to get out and seize that brighter future – it won’t come delivered on a plate.
That is the task my Government has embarked on.