Upton-on-line appeared last night at the Launch of the Waikato Export Institute. On paper it looked like an evening of glad-handing, with the likelihood of export quality wine followed by a pep talk to a sympathetic audience.

On the stage, however, upton-at-the-Quality-Hotel faced a crowd of over a hundred tetchy exporters. Well, he couldn't be sure if all of them were tetchy, but certainly the three who repeatedly asked thorny questions fell into that category.

The atmosphere had been charged before the speechifying began by Labour Candidate, Dianne Yates, who scurried about the hall laying incendiary pamphlets on each seat. She got most of the way round and was only stopped when the organisers suggested she might like to pay $10 a seat for the privilege.

Upton-on-line took the opportunity to deliver a bold and frank address on the outlook for the New Zealand economy. We will trespass on the time of readers and reproduce the (relatively short) text in full.

Before we begin, a couple of campaign observations:

Yesterday upton-on-line predicted that if ever Labour lost its nerve and suffered a fit of moderation, the Alliance would be there to keep it staunch. We rest our case with yesterday's row between Jim Anderton and Michael Cullen about just how heroic it is to tax and spend.

Christine Fletcher has finally come out of the closet as a left-winger and is publicly backing Labour's Marian Hobbs in the crucial seat of Wellington Central.

Here is the speech (relatively short is probably latte length, so if you're busy you might want to come back to it later):

You have asked me to talk about the future for exporting - what will make it flourish; what could get in its way.

I'd like to broaden that a little to the outlook for New Zealand's economy and the sort of society we can hope to be part of. An economy that performs well will be good for all sectors, exporters included.

That's not to say there won't be special policy issues that affect exporters more than others. But a dysfunctional economy isn't going to be good for anyone doing business.

With that introduction, you won't be surprised that I haven't come here tonight to reel off a list of special schemes for exporters. Again, that's not because we have some ideological opposition to them. Some of the ideas for government intervention that are floated from time to time have merit - and I'll detail some later.

But the reality is that all the clever schemes in the world cannot compensate for getting the basics right.

The basics are boring to talk about. Never mind that they were all we talked about a few years ago. It's hard to sound visionary talking about low inflation, low interests rates, a competitive dollar and so on. But they're vital.

In the course of this election campaign I've run up against quite a lot of people who have complained about the lack of vision. Press them for what they're after and it all gets a bit vague.

In large part, the criticism seems to be a presentational one. I have to accept the criticism - there's no point in shooting the messenger. But I won't apologise for repeating one or two fundamentals.

No-one in New Zealand is going to get rich if we try to spend money we haven't got and penalise the most productive and creative people in New Zealand. The symptoms of that sort of mismanagement are high inflation, high interest rates, an over-shooting dollar and either high taxes or rising public debt or both.

We've had the lot. There's no law that prevents us messing it all up again. Human nature doesn't change. Bad government can recur. So it has to be repeated again and again: a healthy economy and a healthy export sector are reliant on sane taxing and spending policies by the Government.

Get those wrong and all the special schemes in the world will add up to very little. Get them right and the platform for growth is there. And we have.

Our dollar has dropped from highs of over 70 cents US to around 51 cents today. The Australian cross rates is also much improved for exporters. Inflation is low. Interest rates are lower than anyone can remember. And the growth in our top ten trading partners this year is picked to be 3.4%.

So we have the platform. But there's more to life than boring, prudent macro-economic management. There's also the daily business environment and the costs that governments and lack of competition can so easily impose.

Again, it's hard to make business costs a subject of visionary excitement, but neither can they be ignored.

Without exposing you to a litany can I just remind you of some of the key gains we've achieved as a country.

ACC: Allowing workplace accident cover to be provided by the private sector is delivering a reduction in premiums estimated at around $500 million over two years. That's equivalent to a 2 cent cut in the corporate tax rate. Commonly, businesses have had this cost of business reduced by around one third.

Electricity tariffs: Competitive pricing of electricity is seeing deals that have never before been available to industry. New companies like Empower and Energy Options, entering the wholesale market, have negotiated deals that have passed savings of 5/15% to commercial users.

Lower Taxes: It may surprise you that I should include personal tax relief as a reduced cost of business but is a very important item. All of you have wage bills to meet. As the economy grows and living standards rise, workers not unnaturally want their share of the growth through higher wages. By delivering lower taxes, pressure for wage rises is moderated. In effect, the government is delivering higher incomes without the cost having to be passed on to businesses.

Lowering the middle tax rate from 28 to 21 cents in the dollar was equivalent to a 6% pay rise for someone on $25,000. To this must be added Family Assistance which provides a further $1.1 billion of tax relief to working families. 50,000 such families now pay no net tax as a result. The sums depend on family size but, in the context of wage pressures, they're not trivial. For instance, a family on $35,000 with four children under 13 is $118 per week better off than it was three years ago. Next year's tax cuts, modest though they are, are equivalent to a 2% wage round.

Different businesses are exposed to different pressures. And these measures will have provided more benefit to some than others. I hope that any fair-minded person would add these to the quality of overall economic management in assessing whether the platform for growth is better than it was.

But still, you may ask, where's the vision? I'm a little nervous about promoting visions that other people will pay for. But I do believe that sensible taxpayer interventions and investments can help. The key question should be: have we correctly diagnosed the particular challenges New Zealand faces and provided the right solutions.

In my view, the over-riding issue for all of us - and your success as exporters - is the quality of our skill base and whether we can hang on to it, and grow it. It is a real challenge and not entirely within the control of any of us in a rapidly globalising economy.

We've all grown up believing that if you're a developed, first world economy, you stay that way. Once you've made it, you're entitled to it. The difficulties we've encountered over the last 30 years have led all sorts of commentators to compare us with other small developed economies. If Ireland or Finland or Singapore can do it, why can't we?

There are those who answer this question by saying that it's all just a matter of even lower taxes and even lower costs. In my view, while those would help, they aren't enough. But neither is the answer to slavishly copy the schemes these other countries have deployed.

The fundamental truth about New Zealand is that we're not like any of them. In fact there is no other small, economy in the world in our position trying to maintain first world living standards.

Finland and Ireland are part of the EU - the richest place on the face of the earth, with an internal market of over 300 million people. Singapore, smaller than us - smaller even than Lake Taupo in size - is a city-state amidst a teemingly populous and fast growing region. Getting the policy mix even half right would take you a long way with those opportunities.

We, instead, are at the end of the bus run. 3.8 million of us, two and a half hours from the nearest market and it's only 20 million strong. We have a fantastic country physically, but as commodities get cheaper and cheaper, it's only our human capital that will keep our living standards afloat. Training highly skilled people and persuading them to live and work here is the key challenge. If we do, we'll prosper; if we fail, it's a grim outlook.

That's the analysis that has led us to put most of our eggs in the skills and research basket. I think governments can spend money pretty usefully on research - the more lateral and basic, the better we do it.

What we've not been so good at is getting leverage from that investment (which has, by the way, grown pretty substantially since 1995). Setting our research institutes up as companies was one way we made access more user friendly. The CRIs are not bureaucracies and you don't have to bend the ear of Ministers or the Treasury to work with them.

But they can be expensive. So Technology for Business Growth and Techlink provide, in different ways, money to prime that interface. It's a blatant subsidy for which we don't apologise - it's the price of getting publicly funded knowledge exploited and leveraged.

But even more significant has been the decision to directly fund the transfusion of scientific and technical skills into industry. The Graduates in Industry Fellowships (GRIF) have been around for a while. To them we are adding Enterprise Postgraduate Scholarships which are designed, in partnership with industry, to bring our post-grads much closer to the emerging industries of the future.
That's worth $20 million a year.

Of course, there needs to be a supply of good science graduates. That's where the Top-Achiever Doctoral Scholarships come in. There's $10 million per annum to provide stipends worth $21,000 each to the best scholars. There are also Enterprise Skills and Technology scholarships to help improve the skill base of New Zealand firms. And to make sure science and technology are given star billing in schools, we're significantly expanding the number of science teacher fellowships to energise the teaching workforce.
Add to this a new business incubator programme and a very significant re-tuning of research priorities through the foresight programme and we have the makings of a major, government-led attempt to underwrite the skill base of the economy.

The quality of each of these schemes will have to be carefully assessed. There's no unique way to do this - and I'm sure some schemes will be more successful than others. Ones that work should be expanded - failures should be left to wither. But we're confident that this is the way to build a new, knowledge-intensive economy.

That, by the way, is not going to be created by destroying the existing base. We are very strong in life sciences. Ours is still a biological economy. We have to apply leading edge science to the huge array of food, textile, environmental, and pharmaceutical opportunities that our biomass-based industries interface with.

No government can say which sectors will grow and which won't. We're not going to pick winners - with all the bureaucracy and, frankly, lobbying that invites. But we're quite clear that picking a greatly increased investment in human capital as the key to the future is a dead cert.

The key for businesses will be their ability to identify opportunities that require technical capability, their ability to attract and retain skilled staff and, of course, their ability to identify and exploit market opportunities. That's where, from the Government's point of view, Trade NZ comes in. Others like Bill Gallagher (a Board member) can talk far more knowledgeably than I can about its approach. I understand Fran Wilde will be addressing the Institute on 1st December and you can debate with her first hand the way we spend our $54 million per year.

But useful as those sorts of interventions are, I firmly believe it will be the investments we make as a nation in our skill base that will be decisive. The Government is significantly lifting its game. The private sector will have to do the same. But at bottom we have to understand that we can no longer rely on natural advantages. We have to create them. And the most flexible and enduring advantage will not be complicated tax regimes or industrial subsidies, but a highly skilled workforce, technically literate management and a very high quality under-pinning research base. Those are the winners I would pick.

Add to that good economic fundamentals and tax rates that don't penalise entrepreneurship and risk taking and you have the makings of a very exciting economy and society for exporters and everyone else.

ENDS

© Scoop Media