Prime Minister Helen Clark Speech: Auckland Chamber of Commerce Post Budget Luncheon
Thank you for the opportunity once again to give this post-Budget address to the Auckland Chamber of Commerce.
The practice for our government has been to deliver well signalled Budgets which avoid surprises. We know that business
values certainty and predictability, and so does the broader community.
We have not seen the annual Budget presentation as the place for announcing significant policy or directional changes.
Rather, we signal those through election manifestos, and follow through with the Speech from the Throne at the opening
of Parliament, the Prime Minister's annual statement to Parliament, and key ministerial speeches.
That's why issues like energy and transport were not dealt with in any detail in yesterday's Budget address. Yet there
is significant change afoot, with a major policy announcement on energy next Tuesday, and with major transport
legislation working its way through Parliament at present.
Today, let me address what is in the Budget, and its context.
The government has set out in these uncertain times internationally to provide fiscal certainty and prudence. It has
been prepared to wait to see if its surpluses are structural rather than cyclical. It wants its Budgets and spending to
be sustainable. It believes that no one would thank it for a reckless approach which returned the spectre of long term
deficits.
Just over two weeks ago in Paris I chaired the annual Ministerial Council Meeting of the OECD in Paris. Ministers from
around the developed world addressed the topics New Zealand set on the agenda: growth, development, and trade. Our
economy is among the best performing in the OECD at present - a far cry from the last time a New Zealand Prime Minister
sat in the chair in 1983. Many OECD nations are wrestling with high unemployment, budget deficits, very slow growth, and
sclerotic economic systems.
Two comments made in that meeting stuck in my mind. The first was that taxes are easy to cut and spending is easy to
increase, but unfortunately the opposite is not true. The second was that the best short term policies are also the best
long term policies. Both observations are relevant to the design of this Budget and to government policy in general.
We are all familiar with the external factors impacting on our ability to grow.
· Since September 11 2001, international security issues have muted global confidence. The attacks in the United
States have been followed by those on Western targets in Bali, Mombassa, and Riyadh. There is no quick end to terrorism
in sight. Our government will keep New Zealand engaged in the international campaign against terrorism because of its
threat to our interests and way of life.
· Even before September 11, the United States economy had slowed, and the Japanese and some major European
economies were sluggish. Those are all major markets for us. In the United States, major corporate governance failures
have also impacted on confidence.
· This year's economic and health surprise has been the appearance of Sudden Acute Respiratory Syndrome (SARS)
which has made people nervous to travel, will impact severely on some Asian economies, and will impact on us.
· At home, our currency, along with Australia's, has repositioned strongly against the US dollar. Obviously the
rate of that appreciation has been a concern to exporters.
· Dairy prices are down from the exceptional levels reached at their peak, although they are still high by the
standards of previous years. The decline will be felt, however, and not only by the dairy farmers. Their export returns
were around twenty three per cent of New Zealand's total export returns last year.
· And then there's the weather, always a factor in a nation with large primary production sectors and an energy
system with currently a high level of dependence on whether or not it rains.
Against all that there are positives in the domestic economy. Net migration has been strong and house prices have been
rising. Both support domestic demand. Business and farm balance sheets overall are believed to be in reasonable shape,
and monetary conditions are expected to continue to ease over the year ahead.
The Budget forecast is for growth at 2.2 per cent for the year to March 2004. While lower than earlier forecasts, that
is around twice the average forecast for the OECD. Growth is then forecast to rebound to 3.2 per cent in the following
March year.
As in the immediate post September 11 downturn, New Zealand is in a much better position than many to work through
adverse international events.
· The government has maintained a strong fiscal stance, preferring to keep its spending sustainable. We are
forecasting continuing surpluses.
· The government's gross debt levels are at the lowest levels since data collection on them began in 1971, at 27.3
per cent of GDP this year and forecast to continue to decline.
So far, so good you might say, but can we do more for growth?
The answer is yes, we can, and we are, consistent with our Growth and Innovation Framework and our broader policy
direction. In that there is much in common with the broader agenda issued by the New Zealand Chamber of Commerce in
February this year in its document, "Achieving Faster Growth for New Zealand".
The Chambers, like the government, are stressing: · Skills, technology, and innovation; · A growth culture; ·
Availability of venture capital; · Productivity; · Improved market access, and · The importance of the growth of
Auckland's economy.
The Chambers also urge the government to keep its spending under control, as we endeavour to do with good results.
I welcome the Chambers' determination to bring what they term "a practical and pragmatic view to political issues" and
to move to develop a practical plan to contribute to growth prospects. We are interested in the Chambers' publications
and policy work programme.
Our Growth and Innovation Framework prioritised education and skills, innovation, external connectedness, and enabling
sectors, all of which the Budget addresses.
Education and Skills
· Spending on education is up $393 million this year. · Over the next year we are funding an extra 774 primary
and secondary full time teacher equivalents. · There is more investment in information and communications technology
in schools. · Funding for literacy is up. · Spending on early childhood education is up eight per cent this year.
· Tertiary funding is up, and more certainty is provided for students and the institutions with the new fee maxima
policy.
Of particular interest to business are the initiatives in the skills area.
· Modern Apprenticeships began in Year 2000 and reached 3,000 by mid last year. They have been funded to double to
6,000 places by December this year and to 7,500 places during 2006. Modern Apprenticeships are aimed at the sixteen to
twenty one year old age group which previously was badly underrepresented in industry training.
· Industry training overall is boosted, with an extra $84 million over four years going to the sector. Our goal is
150,000 trainees in 2005, and from there to work to the ambitious goal of 250,000 in 2007.
· The Budget has a range of useful initiatives aimed at getting school leavers into work or further training. Our
goal is to have all fifteen to nineteen year olds in work or further training by 2007. At any given time, ten to
seventeen per cent of that age group is in neither. That amounts to between 27,000 and 45,000 young people not usefully
engaged. We aim to change that so that more young people can benefit from a growing economy and low unemployment.
Well targeted immigration is essential to satisfying the economy's need for a skilled workforce, and the government
won't be thwarted by the ill-considered populism which rails against it.
The Budget has new funding for actively recruiting skilled migrants and helping those who come to settle. The Auckland
Chamber of Commerce has been working with us in this area with excellent results. The government is shifting immigration
policy away from the passive receipt of immigration applications towards active recruitment of the skills and talent New
Zealand needs.
Research Development and Innovation
One of the long term concerns about the New Zealand economy has been under-investment in research and development.
Now the tide has turned. While we still have some considerable way to go to meet OECD averages, the trends are very
encouraging.
In the past two years, business spending on R & D is up by over thirty per cent, university spending is up sixteen per cent, and government spending is up by fourteen
per cent.
In the 21st century, first world nations will be those capable of generating high levels of innovation. We must be one
of those nations.
Government policy changes and funding are undoubtedly helping to drive this change. A significant amount of the extra
government funding for research has gone to the private sector in grants and through research consortia. The improved
tax treatment of R & D has also been a factor.
This year the government's research, science, and technology spend will increase by six per cent, again with significant
spin offs for the private sector.
Commercialising New Zealand's innovations has been a priority for the government. We have supported the development of
business incubators. There are now fifteen in place, and funding for them increases again in the Budget.
The government's Venture Investment Fund is up and running with private sector partners. While its aim was to provide
early stage capital, and it is, there is still a gap.
That gap is being addressed in a new initiative this year: the Pre-Seed Accelerator Fund with $19 million over four
years. It will invest in those projects in the public sector which fall between grant-funded research and the seed stage
of development, where venture capital and other sources of private sector funding cut in. It is open to the Crown
Research Institutes, tertiary education institutions, and their subsidiaries. The private sector pre-seed gap will
largely be dealt with by extending eligibility for the Technology for Business Growth Scheme.
Initiatives around incubators, and pre-seed, and venture capital are aimed at start up businesses. But small business
needs in general are coming in for a lot of attention this year.
A significant discussion document on tax issues affecting small business will be issued in August. It will contain
proposals to reduce the number of tax payments small businesses make to assist cash management and reduce compliance
costs. It will also propose many other initiatives, including basing provisional tax on a percentage of GST turnover and
simplifying Fringe Benefit Tax calculations.
A small and medium sized business summit will be held next February.
In addition, we are expecting a progress report before the end of next month on the progressive, implementation of the
recommendations of the Ministerial Panel on Business Compliance Costs, and the Department of Labour is developing best
practice employment information for SMEs.
Export and Trade Issues
The Budget has a range of spending initiatives supporting exporters, trade missions, and off-shore export platforms.
The big play in trade, however, is what is happening in the Doha Round. Progress there is far and away our top trade
policy priority. We have allocated more than $14 million to increase our trade negotiating capacity over the next four
years.
The gains to New Zealand from the Uruguay Round are conservatively estimated at more than half a billion dollars a year.
Even greater gains are forecast if the current Doha Development Round succeeds.
So far the Round has missed a lot of deadlines, raising doubts about its prospects of success. The OECD ministerial
meeting which I chaired was seen as a critical meeting on the road to the WTO Cancun ministerial in September.
In the event, the big players at the Paris meeting committed to a high level of ambition for the round. Equally, what
the major developing economies' representatives made clear was that a round which doesn't adequately address agriculture
will fail. The European Union is under considerable pressure to move in this area, and if the European Commission
succeeds with its proposals for reform of the Common Agriculture Policy in the next few weeks, it will be able to move.
The proposed CAP reform is moving in a direction long advocated by New Zealand of decoupling EU subsidies from
production, with the effect of making them less trade distorting.
The Enabling Sectors
The joint public-private sector taskforces set up by government last year to address the ICT, biotechnology, design, and
screen production sectors have all presented substantial reports to government, except for design which is about to.
We will be responding to the reports formally in the coming months. There are many issues to respond to. The Budget sets
aside $110 million over the next four years for that purpose. As has been previously stated, these sectors have not only
considerable growth potential in themselves, but also have growth enabling and multiplying effects across the whole
economy.
Overall the aim of the Budget is to build capacity for sustainable growth and innovation while managing the country's
finances sustainably.
The focus is consistent with where the Chamber of Commerce policy contribution is pointing.
It is to be expected that some will want us to go further and faster, and others will want more social spending than we
can sustain at this time. It is our job to balance the competing priorities.
I came away from the OECD meeting in Paris convinced that our focus on education, training, skilled migration, and
innovation was essential for growth. Innovation, including the use of ICT, has been identified as the main driver of
productivity growth in the US economy, explaining its longer term higher growth levels than Europe's.
I also appreciate that there is a careful balance to be struck in regulatory arrangements. That is being taken into
account in the ongoing review of the Employment Relations Act, compliance costs, and the Resource Management Act, as
well as in Tuesday's energy announcements.
Our goal is to lift New Zealand's ranking back into the top half of the OECD, but, as signalled since the launch of the
Growth and Innovation Framework, that will take time. Half a century's decline is not reversed in a decade.
What we are focused on in this parliamentary term are infastructure constraints. It is not acceptable to have an
unreliable energy supply. Whatever the merits of an energy market, the one we have does not enable us to have standby
generation for use in dry years. The proposals for change we will release on Tuesday address precisely that issue.
In land transport, the legislation before Parliament brings new flexibility in funding infrastructure improvements. We
are studying the submissions to the Bill carefully to see if improvements can be made. Funding for land transport has
increased substantially, and making congestion a key criterion for funding allocation is of great benefit to Auckland.
The traffic problems here are the outcome of long term under-investment in Auckland's infrastructure, and that is going
to change.
There are many aspects of the government's programme and the Budget which I have not addressed today.
Our vision is to see New Zealand as a dynamic, confident, more prosperous 21st century nation which offers fairness,
opportunity, and security to all its people.
That means creating the opportunity for all to work, to be educated, to build their business and/or to contribute their
talents through the social and community sectors.
We have placed a very high priority on the values of participation, tolerance, and inclusion and on maintaining and
improving our unique quality of life.
We look forward to continuing our dialogue with New Zealand's Chambers of Commerce on how to meet these objectives.