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Speech: Peters - Some Economic Basics We Need to Get Right

Rt Hon Winston Peters
New Zealand First Leader
8 August 2012


Speech: Marlborough Chamber of Commerce
Marlborough Convention Centre, Alfred Street, Blenheim
Wednesday 8 August, 12pm

‘Some Economic Basics We Need to Get Right’

Thank you for the opportunity to address you today. It’s always a little special to be back in Blenheim.

And not just because Marlborough is a premier region for our wine industry. It also enjoys a rather unique climate.

The focus of today’s talk is some economic basics that we need to get right – some belated and yet urgent changes that New Zealand First sees as the way to get New Zealand back on a path that will deliver real growth, jobs and prosperity for all New Zealanders.

To put the New Zealand First approach into context let us look briefly at where we are in the current international outlook.

Not that this outlook is the reason why we must act but rather that it highlights how deleterious our economic policies have been and continue to be.

We have a very open economy - and we are highly dependent on international trade for our standard of living.

So the global economy – and its overall state of health - matters to us.

And right now what we see is not very encouraging.

Here we are - 4 years into the global economic crisis – and the end is not yet in sight.

The anxieties from the unresolved Eurocrisis are stalling the global recovery.

Some major overseas markets appear to be faltering and China’s prodigious growth is slowing.

Internationally, there is a pervasive air of uncertainly

Here in New Zealand the economic indicators are mixed.

For example there was an unexpectedly good growth rate for the first quarter of the year.

But most economic commentators are cautious because the signals are ambiguous.

The sort of words that are being used to describe New Zealand’s economic outlook are “uninspiring” – “lacklustre – “lumpy even grumpy growth”.

In short, no one is popping champagne corks!

And it does seem that, faced with international and domestic uncertainty the Government has decided to add to these anxieties.

The Government has lapsed into a state of resignation.

There is more than a whiff of defeatism in its economic policy.

Because what we are not seeing is a concrete – actionable - plan that would encourage businesses to invest.

The Government is placing great store on the Christchurch rebuild riding to the rescue of the economy like the US cavalry.

That is highly risky because nothing will stall the rebuild more than an air of uncertainty.

Elsewhere National appears to have driven into “an ideas free cul-de-sac”.

As an instance, this year’s Budget was woeful.

Just a bunch of poorly thought out ideas like the inept plan to increase class sizes that fell over the moment any scrutiny was focussed on it.

There was nothing significant in the budget that would boost New Zealand’s economic performance.

And of course within the space of a few weeks, Alan Bollard, Governor of the Reserve Bank torpedoed the centre piece of the Budget out of the water.

As you know, that centre piece was getting the Government’s books into fiscal surplus in 2014/15.
Dr Bollard had the sense to point out that getting back to surplus would take at least 2 years longer than the Budget forecast.

In these economic times credibility is paramount.

So, for Treasury forecasts and fiscal plans to fall over so soon is lamentable.

New Zealand First takes the view that the fact there are many risks and uncertainties is no excuse for the Government’s fatalism and drift.

There is a need for a comprehensive economic policy that will strengthen our economy, seriously increase profits, and create jobs.

International and domestic conditions make it imperative to apply economic policies that serve New Zealand’s interests.

And that is why New Zealand First policies envisage an economic programme that is practical and designed to put us on a path to prosperity.

Much of that economic programme is not new but after decades of slide it is more critical than ever.

Today, let’s focus on just two areas where our policy provides for urgent action.

Exchange Rate Policy

First, our party will tackle New Zealand’s chronically overvalued exchange rate.

Our overvalued exchange rate is crippling our international competitiveness – it is causing serious distortion and damage to our economic prospects, one obvious area being the tourism sector.

Sadly there are many more sectors suffering serious damage.

Just about everyone from the IMF to the Governor of the Reserve Bank acknowledges the problem and concedes we have a seriously overvalued dollar.

As our dollar flits about way above tolerable levels the question is how long are New Zealanders prepared to stand by in a straightjacket of orthodoxy paralysed from doing anything about it.

Surely it is long since time for us to jettison this straightjacket that currently limits the Reserve Bank’s ability to pursue a balanced macro-economic policy in the interests of an export dependent nation.

The New Zealand dollar is now one of the most traded currencies in the world – a fact that does nothing for our exporters on whom our economic and social future critically depends, as it does nothing for Blenheim and Marlborough which by now you will have surely noticed.

We have become a haven for ‘hot money’ chasing higher interest rates.
This is what they call the “carry trade” where speculators shift money around from low yielding currencies and invest in higher yielding currencies.

And none of this ‘hyped, hot money, merry go round’ is in Marlborough’s or New Zealand’s interests.

That is why New Zealand First has already prepared legislation that would give the Reserve Bank the flexibility it needs to promote growth, employment and our export base.

In our view, a flexible economic policy that takes account of the facts on the ground is not a mortal sin as the free market theorists would have it.

It is common sense.

Surely it’s long since time that we abandon this pathetic panacea of orthodoxy and learn some lessons from successful economies.

Successful economies today who not so long ago lagged way behind New Zealand.

As things stand, the real risk we now face is that when the adjustment to the dollar does come it could be sudden and brutal.

A large and sudden devaluation could trigger inflation and a major jump in interest rates and be widely disruptive and damaging to business.

Our proposal to change the Reserve Bank Act would avert such an eventuality and provide support for Exporters and Manufacturing.

Exporters and Manufacturing

The second area we need to cover today is the exporting and manufacturing sector.

New Zealand First’s economic policy gives proper priority to this vital sector.

We are the first to acknowledge the crucial role of our exporters and manufacturers.
Exports have been rising – and that is to be applauded.

But we still face an on-going balance of payments deficit.

That deficit rose from 3.7% of GDP in March 2011 to 4.8% of GDP to the March 2012 year. It is projected to go much higher.

Government debt is skyrocketing, soon beyond $72 billion, and we are still growing the private sector debt as well, both adding to our overall vulnerability.

New Zealand First will encourage innovation and diversification in order to build on our current export capacity.

That means allocating extra resources to support innovation in areas such as research and development and the investigation of potential export markets.

We would provide tax incentives for new market investigation and development by exporters.

Whether it is logs or leather we all know New Zealand has a range of raw materials that offer great scope for value added.

Designing appropriate tax incentives that will support potential new export products makes sense.

In addition, it is imperative that all the relevant government agencies work together to support the export and manufacturing base.

But it needs to be said that we have reservations about the new “Super” Ministry, that combines the Ministry of Economic Development, Labour Department, the Ministry of Science and innovation and the Department of Building and Housing.

This shuffling of departments is the brainchild of the Minister for Everything, Stephen Joyce.

It has all the hallmarks of his decision making – there is no obvious logic to it.

Certainly no evidence, no facts or no cost and benefits have been presented – it’s all just an article of faith.

Governments love this sort of administrative tidying up when they have no real ideas to offer.

This particular merger smacks of re-arranging stamps in a stamp album!

Certainly it creates the illusion of activity but it is unlikely to generate real value.

Again let’s turn to manufacturing.

New Zealand First never bought into the fashionable hype about the “knowledge economy” rendering manufacturing unnecessary in our type of economy.

We say it’s time to stop manufacturing being treated as the Cinderella of the economy and give it the priority it deserves.

Our manufacturing base now only accounts for 13% plus of GDP.

It is no surprise that the countries that have come through the global economic crisis in the best shape are those that have a thriving manufacturing base such as Germany, Sweden and Singapore.

As a small open economy facing fierce competition from many countries our manufacturing base is always under threat.

Those threats are real. Over recent months we saw for example:
• 70 redundancies at Flotech's Manukau plant.
• 85 workers at Norman Ellison Carpets lost their jobs after owner Cavalier announced it was closing its spinning plant in Onehunga.
• 49 redundancies at Summit Wool Spinners, Oamaru.

That is a telling snapshot of declining activity.

So it is important we help the manufacturing sector with R and D support, incentives to develop new markets and sensible state purchasing policy – and of course a realistic exchange rate.

Too much of our manufacturing capacity has already been sacrificed on the altar of so called ‘free trade’.

Some call this offshoring or outsourcing – New Zealand First calls it ‘job theft’.

We say it is time to put the interests of New Zealand companies and their employees first.

Today we’ve talked about just two aspects of our economic programme - changing the Reserve Bank Act and boosting the export and manufacturing sector.

The economic policies we advocate make good sound sense.

The steps we want action on are not extravagant – they are not pie in the sky. They are practical – feasible and affordable and have a number of successful overseas precedents.

In this age of austerity, all economic policies have to be credible. Today we have outlined two of them. There are more but none as critical as these two.

We are not proposing just throwing large amounts of extra spending to improve New Zealand’s economic performance.

Rather on economic policy – in contrast to the Government – we know where we want to go to build a prosperous New Zealand – not an impoverished one.


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