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Helen Clark address to Contractors' Fedtn - 4 Aug

2000 web siteThank you for the invitation to address your conference today.
Let me begin by acknowledging the importance of the civil works and general contracting industries in our economy. I understand its annual contribution represents some $3 billion.

The companies represented in this federation in turn represent about 80 per cent of this huge contracting industry.

The industry's contribution to the nation's infrastructure undoubtedly makes it a key part of the country's economic backbone.

Needless to say contracting's fortunes are very much linked to the overall state of the economy.

When the nation is doing well, contracting will do well.

When the nation's growth slows, so does your business.

The key to a successful contracting industry is a sustainably growing economy.

That is something New Zealand hasn't seen in a long time.

This country is locked into a stop-go, boom-bust cycle.

Breaking out of that and achieving sustainable growth is Labour's major preoccupation.

Without that growth, New Zealand cannot have first world infrastructure and services.

Without first world infrastructure and services, our living standards will stay in the doldrums.

In recent weeks there has been considerable discussion in the news media about the state of our economy fifteen years after concerted restructuring of it began.

Few believe New Zealand could have carried on with the Muldoonist model. But most share a sense of disappointment that despite all the change we are not doing better.

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The debate about our future is not a debate about whether to return to the past or not. It is about how best to build prosperity in this nation of talented and innovative people which hasn't yet got its act together.

Some call for finishing off the job begun by Roger Douglas and advanced by Ruth Richardson. Theirs is a path of yet more deregulation, tax cutting, and shrinkage of the state. I detect shades of this in some of the calls from your officers with respect to roading, local government, and privatisation.

We believe the public for the most part has no appetite for that kind of programme.

Rather, the mood is for much less theory and purity in policy-making and for more pragmatism.

Many are aware that the restructuring which has gone on in New Zealand went to greater extremes and at a faster pace than elsewhere in the Western world.

Only in recent years Australia was being pilloried by the advocates of so-called economic reform here for not having gone far and fast enough. Who has the last laugh now? I for one would prefer New Zealand to have rates of growth and living standards akin to Australia's.

Then there is Ireland, which in the last two decades has been through an economic and cultural renaissance by implementing policies which are in many ways the opposite of those trialled in New Zealand. There has to be a message in that.

Labour has taken the message. We are unashamedly for leading New Zealand away from the purity of hands off policies and towards smart and intelligent government action in partnership with business which will give this country a chance to reach its potential.

Our vision for New Zealand is simply stated. The new New Zealand must be:

o a dynamic trading economy
o producing ever more sophisticated goods and services
o creating more wealth, opportunity, and jobs
o lifting living standards across the board
o delivering better public services
o sustaining a qualify of life environmentally & culturally which is unparalleled anywhere else in the world

So where do we begin to build the vision?

The problems to be tackled are relatively obvious, but of course that does not mean that they are easily or quickly addressed.

Our task is to speed up the process of economic transformation from an economy so largely commodity dependent to one increasingly driven by knowledge, skill and technology.

This is a tall order, given the rate of our decline. In my lifetime our living standards have slipped from the third highest in the world to the 25th today. We are in danger of slipping into the next range of nations - like Estonia and Latvia in the sub-OECD grouping which have never reached European living standards.

We've had those living standards, but we're losing them, and we will continue to unless we can keep our talent at home and create the conditions for the rapid growth of new industries and new products. Those industries and products will need to be export and foreign-exchange oriented and competitive. For sustainable economic growth we must produce and export more and aim for higher returns. Our present trade imbalance itself is not sustainable and raises questions about our viability. The June trade figures were the worst in 14 years, as were those for April and May. The current account deficit is now expected to worsen to nearly seven per cent of GDP. This is no economic miracle.

The government's role in driving the change which has to happen now is crucial. Labour is prepared to accept that leadership role. We see the role of government in the economy as being that of a leader, a partner, a facilitator, a broker, and occasionally a funder - working alongside the private sector, local and regional government, and our education and research institutions to improve the nation's prospects.

Our practical programme for change is to be found in our industry development policy, our industry training policy, and in policies for tertiary education and science and research soon to be released.

The industry and business growth programme doubles present government spending from $100 to $200 million per annum. It is a modest beginning. More will be done as resources allow. The policy's key features are:

o A new local economic assistance fund will be available to support the work of districts and regions in developing economic growth strategies and promoting local clusters of industries, and in attracting businesses and investment to their area. More economic dynamism in our regions will create a demand for improved infrastructure.

o There will be strong support for programmes which promote the development of an economy based on advanced technologies. Existing programmes like Technology for Business Growth run by Technology New Zealand will be promoted and expanded so that our companies can become greater earners of wealth for the country and larger employers of skilled labour.

o There will be an accelerated depreciation regime for new capital investment in technology so that firms are encouraged to keep their technology up to date.

o We will allow full expensing in the year of investment for tax purposes of all research and development expenditure.

o We are acknowledging a level of market failure in the provision of enterprise finance for small and medium-sized businesses, and see a role for government where that occurs, preferably in partnership with the private sector.
o We will be aggressively seeking foreign direct investment for greenfields enterprises and industry expansion. New Zealand's need for investment exceeds what is available locally. Under Labour a new foreign investment division in Tradenz will be set up to promote that investment abroad, and identify potential investment opportunities and likely investors for them. Much of Ireland's success stems from attracting investment in new areas of production and service.

There will also be a fresh nationwide business development programme.

Grants will again be available to assist business with costs of investigating a new product, process, or expansion, a new export market, or a significant technology shift.

The delivery of funding for the programme will be contestable. That means Labour will not be seeking to re-establish a network of business development boards.

The Labour Government will drive these policies through an industry development agency with a role analogous to that of Tradenz in trade development. Like Tradenz, Industry New Zealand, as it would be called, would be a crown entity with a private-sector oriented board.

There will be a Minister for Industry to work alongside it.

We also see a need to do more to back exporting.

Right now only about 8,000 of our 190,000 plus businesses are positioned as global traders. We can do better.

But New Zealand is almost alone among western nations in having no state involvement in export guarantee and credit financing schemes.

Unfortunately that means our firms often miss out on contracts and see the work go to companies from nations like Canada where the government does provide a financial underpinning for exporters.

That is why Labour will develop appropriate export guarantee and export credit financing schemes to remedy identified market failure in these areas. We will use partnership models with the insurance and banking industries to the greatest extent possible.

Exporting, and hence the state of our whole economy, is also affected by significant fluctuations in the exchange rate. Labour's aim is to keep the exchange rate competitive. We will be changing the Reserve Bank's policy target agreement so that
the Bank is required to pay appropriate attention to the need to minimise adverse effects on the real economy, such as excessive appreciation of the New Zealand dollar. In recent years, the Bank has often seemed far divorced from these impacts. Through this requirement we expect to see a smaller range of fluctuation in the exchange rate than has been witnessed in the nineties.

We do face a huge challenge in educating and upskilling the workforce which the new economy requires. Steps will be taken to attract more young people into the areas of science, technology, engineering, and trades where we are so short of graduates.

Then, having attracted them, we have to make it worth their while to stay in this country. New Zealand has much to learn from the many other western countries who find ways of supporting science and technology graduates in "incubators" where they can develop their inventions to a product-ready stage. Programmes like these will be pursued by Labour.

At that point, our other policies for investment in new industry sectors can kick in. That is the virtuous cycle we wish to create: more graduates, more research, more inventions, more investment, more high value production and exports, and more wealth generation.

The new economy which must be built will need that first world infrastructure I mentioned earlier to sustain it.

There is a significant and ongoing investment to be made in our land transport infrastructure - both in roading and in public passenger transport.

These investments must be made in the public interest, and they will take priority for Labour over other short-sighted moves like tax cuts.

That investment needs to be made in the context of a nationwide transport strategy for New Zealand.

In government, we will want to work with all the stakeholders to develop that.

The strategy will aim to improve co-operation between central, regional, and local government and to integrate economic, environmental, and social goals.

The current financial year has brought an improvement in funding for roading, which we support. From 1990 until 1996 there was a steady decline in benefit:cost ratio thresholds from 2:1 towards 4.5:1. That meant that any given state highway project had less than half the chance of proceeding in 1996 than it did under Labour's 1990 threshold figure.

An extra injection of funding has slightly improved the ratio to 4:1. In Labour's 1996 policy we aimed to reduce the threshold figure to 3:1 by 2005. Given the significant deterioration in the state's fiscal position since then, that goal in that timeframe is now unrealistic. It remains our desire to move as fast as we can to improve funding for roading because of its significance to the economy.

Much time has been taken in recent years debating different structures for the ownership, management, and funding of roading.

In Labour's view, the primary issue is the totality of the investment in roading. If that issue is not adequately addressed, then the debate about roading will be in essence a debate about how to reorganise the allocation of scarce resources.

For the record, we favour accountability for roading continuing to lie with bodies which themselves are accountable to local communities.

There have been enormous efficiencies in roading achieved by local authorities - as in many other areas of service in the last fifteen years.

Local government, however, has objected strongly to the central government's proposals of the last three years for new funding and structural arrangements for roading.

Those proposals have threatened the maintenance and retention of the existing nationwide roading network and would remove accountability and priority setting for roading away from the elected representatives of communities.

In addition, the application of commercial criteria to roading has particularly adverse implications for rural dwellers.

In government, Labour will be accepting Local Government New Zealand's invitation to work with it to identify and adopt those changes to roading which, if made, would lead to local and national benefits. The present government's proposals will go into abeyance while we work on the real issues.

There is considerable interest in local government circles in regional clustering of their roading responsibilities. If viable plans can be developed, then the devolution of responsibility for the state highway system to the regional clusters, within the parameters of a national strategy, can be contemplated. There would undoubtedly be efficiencies flowing from such integration of the management of the roading network.

From integration other initiatives may flow. One can envisage, for example, a speeding up of investment in alternative routes by allowing them to be built by developers on a build, operate, toll, and transfer basis. Labour is contemplating such arrangements on
the basis that the roads would transfer back to public ownership on a contracted time scale. The condition of the roads at the time of transfer would need to be specified.

Prior to transfer the original or alternative route in public ownership would need to be maintained to a satisfactory standard.

These kinds of arrangements are common in other countries. If they are capable of speeding up the modernisation of our bridge and roading infrastructure, we should consider them.

I have stressed today Labour's view that a dynamic economy must be underpinned by first class infrastructure. That is essential if we are to attract fresh domestic and foreign investment.

As essential is the supply of a highly skilled workforce.

I know that the contracting industry is committed to that. You have worked to merge a number of industry training groups under the single umbrella of the New Zealand Contracting Industry Training Organisation.

We support your initiative. There have been far too many ITOs. In government we will be encouraging amalgamation such as that you have achieved.

Through the ITOs we seek the continual promotion of training to higher levels of skill.

It was estimated in 1992 that 600,000 people in the workforce had either inadequate qualifications or none at all. The situation is little improved. That has to change.

As the Contractor magazine reported last month, substantial subsidies are available to trainees undertaking national qualifications who have entered into training agreements with their employers.

Over time Labour wants to see all employers develop strategies for training.

The aim is to set in place a skills training system which will upskill the existing workforce continuously and meet the needs of industry.

Industry must play a leading role in defining and developing appropriate training.

Flowing from that, the training programme of an employer should be expected to be consistent with the industry's training strategy.

Labour will phase in a requirement for the development of training programmes. It will apply in the first place to companies and government agencies employing more than 200 employees, and be gradually applied to smaller enterprises.

For an industry as committed to training and excellence as yours, we do not expect this requirement to be onerous as so much of the groundwork has been done.

This does lead me though to raise a more general point about the often debated issue of costs on business.

I want to assure you that there are a range of compliance costs on business which should be tackled and which we will tackle.

Parliament's commerce select committee recently conducted an inquiry into compliance costs, and made recommendations on how to reduce them.

Its recommendations include:

o government agencies rationalising information flows so that only one of them seeks information from business, not three or four as at present.

o Statistics New Zealand sampling only the number of businesses necessary to
achieve reliable statistics.

o Inland Revenue streamlining dates and payment forms for small and medium
sized business.

The report also suggested that:

o there be a permanent officials committee to address compliance costs.

o every government department should develop quantifiable targets for
decreasing compliance costs, and report the results.

o compliance cost reduction should be a priority for local government too.

I can assure you that the Labour Government will want to progress these recommendations.

It is obvious, however, that some of the costs business bears are an inevitable part of the cost of remaining a first world nation.

Yes, there are costs to complying with planning law, but the cost of having weak planning law would be unsightly and intrusive development.

Yes, there are costs in providing healthy and safe workplaces, but there are also potentially huge costs to companies and their employees in not doing so.
Yes, there are costs in rebalancing labour law, but there are costs too in a system widely perceived by New Zealanders to be unfair.

My point is that no governments impose any of these costs for the pleasure of doing so, but only because they believe that those costs and others are necessary if we are to retain the semblance of a civilised society.

It is the job of decision makers to balance competing interests, public and private, as best we can.

Labour will endeavour to keep costs low for business wherever we can.

But we also submit that it is good for business to operate in a society where the employees are healthy, secure, well-educated, and skilled, and where we enjoy the other trappings of a first world society.

Our vision is to see our business and our country move up the ladder of achievement.

That means moving away from the low cost, low skill industries, towards the higher waged, higher skilled industries which bring better returns.

The new economy can only be driven by educated, skilled, and healthy people. New Zealand can only undergo substantial economic transformation by investing in its people.

We will all contribute to that investment one way or another through the taxes or levies we pay or the direct costs we bear.

I have been heartened by the establishment of new business organisations promoting social responsibility and sustainable development. Dick Hubbard's leadership in this area is magnificent.

We seek a dialogue with business about these issues and about how to further our common interest in developing this country.

The task before the incoming government is enormous. Yet I have absolute faith that it can be accomplished. Our human potential is great. New Zealanders have the ideas and the entrepreneurial skills.

What has been lacking is an acceptance at governmental level that government must lead and must invest in our future. We can no longer stand back and watch our best and brightest leave and take their ideas and now even their business with them.

That recent TV One Assignment programme on New Zealanders migrating to Australia conveyed the message that the last person leaving New Zealand should turn out the lights!

That means it is time to act. It is time to start transforming New Zealand from the country it has become to the country we know it can be.

I hope we will have your good will as an industry as we embark on that task.

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