Hon. Michael Cullen
12 October 2000
Speech Notes
Embargoed until:12.10 pm Thursday 12 October 2000

Address to Wellington Branch of the American Chamber of Commerce in New Zealand

Export, export, export
Dr Cullen's speech to the American Chamber of Commerce in NZ
Parkroyal Hotel, Crn Grey & Featherston Strs, Wellington

Good afternoon. It is a pleasure to be here with you today.

New Zealand values our relationship with America. We are a trading nation and our trade with the US has grown substantially in the past few years so that it is now our second largest trading market after Australia.

New Zealand's well being depends on our ability to trade with the rest of the world and this Government is offering active encouragement to help new businesses get off the ground and to assist established businesses develop new markets.

Over the years, international investment has contributed significantly to the development of New Zealand's economy. We recognise the need for overseas investment in New Zealand if our economy is to meet its long-term growth targets.

Our country offers investors the opportunity to thrive in an open, attractive business environment. This government particularly wants to encourage long haul, "greenfields" investment that contributes to the social and economic well being of all New Zealanders.

I have recently returned from a two-week sales pitch, talking New Zealand up to Europeans investors.

One of the real benefits of this trip was the opportunity it gave me to see New Zealand through the eyes of the rest of the world.

Through numerous discussions with other Finance Ministers and international investors, I learned that international markets are more relaxed about the direction in which New Zealand is heading than we are sometimes told here.

Policies that attract so much attention and cause so much controversy in New Zealand barely register on the radar screen of international investors and large banks.

I want to talk to you today about the economic outlook for New Zealand. As there is a rebalancing in policy there is a rebalancing in economic activity that will, over time, steer New Zealand towards sustainable growth.

We need to look through to the fundamentals underlying what is happening in the New Zealand economy. I want to emphasise that some correction in the domestic economy was always going to occur, especially in Auckland, and what we are seeing is that correction is being exaggerated by the movement in the dollar.

What we are seeing is a very strong exporting sector and a weak domestic sector which is leading to lower growth this year than was previously forecast, but that is balanced by an expectation that export led growth will lead to stronger growth in the out years.

The Treasury will be updating its forecasts in December. In the meantime, the New Zealand Independent Economic Institute forecast a slightly lower growth rate in the 2001 financial year but higher growth in the out years. Overall the average forecast growth rate is 3 percent – fractionally up on the forecasts in use at Budget time.

The increase in the ANZ job ads series over September indicates that the
slough which afflicted the economy in the June quarter will be short-lived.

The rise in the large Auckland market is particularly encouraging, coming
as it does after eight months of decline.

But the real strength is in provincial and export New Zealand. Job ads show that the recovery is happening now in our regions. In the south of the South Island, very high levels of confidence and activity are occurring and in many other provinces business confidence is steadily improving. A survey predicting that more than 1800 jobs will be created in the next two years, for instance, has buoyed Northland. That has got to be good for us.

Looking forward, the Government remains committed to its prudent fiscal policy, by staying within the three year spending cap we set at the start of our term of office, and focusing on ensuring we get value from the money we spend at the moment.

We are committed to a reorientation of economic activity towards exporting and tourism. This will take some pressure off the weak external accounts the government inherited. The current account deficit is now hovering around 7.2% of GDP. New Zealand has a legacy of over dependence on domestic consumption and housing as the engine of economic growth.
We have set out quite deliberately to shift the emphasis of growth from the consumption of wealth to the production of wealth. We are actively supporting the move to the 'knowledge economy' or 'info-tech' as it is known in the U.S. The health of the export sector is a top priority and we recognise that we need to put in place policies to help lift our national savings rate. In this environment the current account deficit is forecast to fall to below 5 percent of GDP by 2004.
We are encouraging New Zealand industry to become more involved in export activities and we want to attract foreign investment capital and know-how for productive export oriented industries.

Tourism continues to be a major contributor to growth for the New Zealand economy. There were more than 117,000 international visitor arrivals in August, an increase of 13 percent over the same time last year. The additional visitors contributed an estimated extra $38 million to the New Zealand economy and they came from around the globe – every market produced solid growth.

While I was in Germany I took the opportunity to visit Tourism New Zealand staff in Frankfurt to congratulate them on the fantastic work they have been doing to bring Europeans to New Zealand.

During the past year we have benefited from a 15% increase in European tourists to New Zealand. Not only are more Europeans getting the 'clean green' experience but also they are spending more and staying longer.

This is a hands-on administration that wants to engage in constructive debate with business. This month the Government is hosting the first of its economic business forums. Prime Minister Helen Clark has invited key business leaders and talented individuals to a forum with government ministers to identify policy initiatives to improve New Zealand's economic performance.

We recognise the limitations on what governments can achieve on their own. That is why we actively seek partnerships across the economic sectors and society as a whole.

I think the Government has had some difficulty in making our voice heard. Business confidence surveys make headlines no matter what the businesses are actually achieving. So it is very important to keep putting up the facts to both local players and the international investment community. The Government is very moderate in terms of its overall policy positions. We have maintained a strong fiscal stance, a strong monetary stand, and an independent central bank.

BERL economist Ganesh Nana said recently that New Zealand should be looking forward to three or four years of solid export growth but that the doom and gloom being preached by some parts of the community could spell the end of that expectation. Mr Nana wisely acknowledges that public perception plays a major part in driving the economy.

The New Zealand Herald has not only acknowledged the tangible link between public perception and the state of the economy but has also recognised its leadership role as an opinion shaper.

I would like to take this opportunity to go on record with my hearty approbation of the Herald's initiative to promote a national conversation about our economic future and to highlight the people who are using their talents to steer New Zealand toward a more prosperous future.

Perception shapes how we see ourselves in terms of the modern economy. There is a notion percolating out there that somehow New Zealand is more part of the 'old economy' rather than the new 'knowledge based economy'.

We are not alone. Australia suffers from the same misperception, as does, to some extent the European economies.

The irony is, that for New Zealand, this is simply wrong. There is a tremendous amount of innovation out there, a very high level of IT uptake.

New research shows some surprising results to those who, to quote the author, "wail and gnash over New Zealand's alleged failure as a knowledge economy". A study measuring the relative levels of IT penetration and productivity across the Asia Pacific region has New Zealand leading the way for the second year in a row.

The report points out that New Zealand has the infrastructure in place to produce high-value, knowledge-based products and that, as a nation, we manage that infrastructure exceedingly well.

New Zealand also receives a bouquet for being the only country in which the levels of IT penetration in small companies exceed that in large corporates. That highlights the fact that when it comes to generating growth, our small companies are still where the action is.

The $2 billion Southern Cross Cable, which is expected to go live on November 15, links New Zealand, Australia and the United States and will allow for the huge volume of Internet traffic that Australasia is expected to generate.

New Zealand's widespread and enthusiastic adoption of IT has put us way ahead of many other more tentative countries. It has generated a thriving software industry. We spend 7 percent of GDP on IT – among the highest in the world.

And yet, there is a feeling among some that being new economy must mean being Silicon Valley. That is not so. Being part of the new economy simply means that we apply the application of information technology, new ideas, research and development to a broad range of economic activity.

For many New Zealand companies that means that the application of IT will continue to be based upon the continuous improvement and diversification of the primary and manufacturing sectors.

A great example of this is the New Zealand Dairy Group's success in extracting complex lipids from milk fat to use as a key ingredient in baby care formulas and cosmetics.

Supported by Technology New Zealand and Industrial Research, NZ Dairy Group is reaping the benefits of this country's 100 percent pure, GM-free image in multimillion-dollar export earnings.

The government is actively encouraging e-commerce to make our commercial environment modern and relevant. There have been strong moves to encourage young New Zealanders to upgrade their skills. Suspending interest on student loans while students are studying, and moving to establish a Modern Apprenticeship programme are examples. A strategic review of tertiary education is under way.

The government is upgrading its commitment to science, improving the regulatory framework for electricity and telecommunications, increasing the resources for trade promotion and the provision of information to exporters about trade opportunities and exploring options for export credit insurance.

Finally I would like to wrap up today with a comment on the Government's proposed New Zealand Supernannuation Fund. What we are trying to do is to offer an opportunity to introduce stability and security into retirement income. We must put the backbiting and politicking behind us so New Zealanders of all ages have a sense of not only what the government of the day will provide for them, but what they must also provide for themselves.

The objectives behind our pre-funding approach were two-fold: to maintain a universal pension at an adequate rate into the future and to smooth the costs of supporting the baby boomers as they retire.

We are facing a major change in our demographic structure, the social, economic and fiscal consequences of which will dominate the next 50 years.

Doing nothing is not an option.

For too many years the people of New Zealand have been telling politicians to get together to find a solution to the superannuation issue. What we are putting forward is one solution; we are open discussion in the details, but we promise that our legacy to New Zealand is to offer a sustainable answer to the issue of superannuation for this and future governments.

ENDS

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