Monday 9 August 2004
Hon Michael Cullen: Speech to Rotary Club of Wellington
Terrace Room, Level 5, Copthorne Hotel, Plimmer Steps, Wellington
We are fortunate that the forces that are driving the New Zealand economy seem to be paying little or no attention to
economic forecasters. Indeed, the National Bank recently announced that the economy must be ‘on steroids’ to maintain
strong growth when all of the normal indicators have been suggesting we should be in the middle of a marked slowdown.
New Zealand’s growth performance continues to outperform the OECD average. Our economy grew at over twice the rate of
the OECD average in the March 2004 quarter. GDP growth for the March quarter was 2.3 percent; the highest result
achieved in 18 quarters. That means that growth for the March year was 3.6 percent.
Moreover, terms of trade improvements mean that, on a per capita basis, real gross national disposable income growth was
4 percent.
These results also mean that in the five years from the March quarter 1999 to this year New Zealand has achieved growth
totalling 21.7 percent. If we consider that population growth over the same period was 5.6 percent, what these figures
show is that living standards for New Zealanders have increased over that period by around 15 percent in per capita
terms.
So with the economy performing above par, it is no surprise to find that business confidence has bounced back from its
lows earlier in the year. The latest National Bank Business Outlook shows a net 13 percent of respondents expect general
business conditions to deteriorate over the coming year. This is a big improvement from the 42 percent anticipating a
decline in March.
The improving outlook spans all sectors of the economy, but is particularly marked in agriculture, where a net 61
percent expecting general conditions to get worse has been decreased to a net 16 percent. This is in line with an
improvement in the currency and continuing good news on world commodity prices.
The Business Outlook also shows an increase in the important own activity indicator to net 30 per cent positive, while
investment and employment intentions also remain robust.
These results significantly exceed market expectations and point to continuing strong momentum in the economy.
The outlook for the Wellington economy is also positive, although it is not among the standout performers. The region
posted a small gain in economic activity in the first three months of 2004. However, the level of consumer confidence
measured was the second highest across the country. There was a significant rise in commercial motor vehicle
registrations, offset by falls in retail trade and both residential and commercial building permits. Employment and job
ads also slipped slightly.
So some forecasters are starting to revise their estimates of GDP growth for the year. Few of them anticipated 2.3
percent growth in the first quarter alone, and so even if the slowdown does arrive, growth of around 4 percent does not
seem out of the question.
Despite this it would be wise to leave the champagne in the fridge a little while longer. It is important to remember
that, although headline confidence has risen sharply over recent months, it is still in negative territory.
We are seeing rising oil prices, and unemployment is still at 16-year lows with businesses expecting the labour market
to remain tight. This is placing upwards pressure on firms' costs, and it is no surprise that the National Bank survey
also showed that pricing intentions have risen to a net 30 percent, and that the Reserve Bank has been gradually
increasing the Official Cash Rate over the course of the year.
Nevertheless, the results of this survey reinforce what has been a steady stream of good economic data and augur well
for the economy’s ability to weather any volatility ahead.
They remind us – if we needed any reminding – of the importance of a sound set of medium to long-term strategies to
support growth in the economy.
Maintaining a medium to long-term focus is not easy. Issues that are perceived as urgent tend to get in the way of
issues that are important.
The recent successes in the Doha Round of the WTO are a good case in point. It has taken enormous resources of patience
and persistence, especially after the seeming abject failure of last year’s Cancún Ministerial Conference. However, we
now have an agreement from the EU and the US to eliminate all agricultural export subsidies.
That is a great outcome for New Zealand, and for the developing world, including many of our Pacific and Asian
neighbours. No more will rich countries dump their surpluses onto global markets and collapse prices for the rest of the
world’s farmers.
Even so, it will be some years – and a great deal of ongoing effort – before we can start to bank the gains for our
agricultural producers.
We are also making steady progress in education, and in resolving our problems with major infrastructures. We set
ourselves ambitious goals in industry training and in the Modern Apprenticeships programme, and we are on track to meet
those goals. That may not solve the immediate shortages of labour, in areas such as construction and manufacturing; but
it will have an increasing cumulative impact over the next few years.
So too our reform of the tertiary education sector, which is addressing the need to bring tertiary providers closer to
the needs and priorities of the economy. We are already seeing progress in expanded research collaboration, and the
reforms will also encourage tertiary provision which produces graduates with skills and competencies more closely
matched to those that employers need, so that there will be a shorter transition to full productivity for those
graduates.
On the major infrastructure issues we face, we have addressed the problem of short-term threats to electricity supply
through our actions on reserve generation. And we are advancing on several fronts on the issues of securing baseload
supply over the long term. I expect to see announcements in the near future.
You will be aware that we recently announced a package of taxation changes relating to oil and gas exploration. These
should make it attractive for the exploration companies to invest in testing the significant number of promising
geological formations around our coast.
On roading we have managed to sever the Gordian Knot of Auckland transport with a combination of new funding and a new
governance structure for that region’s transport investment strategy. I am well aware – as I am often told as a travel
round the country – that the perception is that Auckland soaks up the lion’s share of transport funding, leaving only
the scraps for other cities and regions. The sentiment is understandable; however, if we look at the issue in terms of
relative population the balance of expenditure is not out of proportion.
Wellington’s transport needs are firmly on our agenda. The Minister of Transport and I, along with Wellington MPs, are
working with the region’s local authorities to enhance Wellington’s transport infrastructure. The objective is not to
engineer a major shift in modes of transport (as is the case with our strategy for the Auckland rail system); but it is
to build the capacity of the Wellington transport infrastructure to meet existing and forecast demand.
One positive offshoot for Wellington will be the redevelopment of the Wellington Railway Station. As you know, the
government recently purchased the station in order to facilitate its development as part of Victoria University’s
downtown campus. The plans will reinvigorate that part of the city, with room for greater retail and commercial tenants.
Perhaps the most important medium term issue we are addressing at the moment is the review of the Resource Management
Act. Despite what its critics may say, the RMA is a very sound basis for resource planning. Relative to the comparable
law in other OECD countries it is low cost and easy to negotiate.
The law has served us well, especially when we consider how central its processes are to decisions that underpin our
economy and our quality of life. While it is true that we are moving towards a ‘knowledge economy’, that does not imply
an abandonment of our natural resources as an economic base. Much of our competitive advantage lies in our land-based
industries and in our ability to use the latest technology to increase the value and the range of products that the land
and the sea yields. Witness, for example, the growth in volume and sophistication of our horticulture, viticulture,
forestry and aquaculture industries.
Added to that, one of our fastest growing export industries is tourism, which has interests in resource management both
in terms of the development of quality tourism infrastructure and in terms of the protection of the natural environment
that is a key part of the unique visitor experience on offer.
Finally, our infrastructures have a significant impact on natural resources, and we need to address carefully the
quality of life issues on both sides of the equation: on the one hand, ensuring quality services such as power,
transport and water supply, and on the other, ensuring that New Zealand remains a pleasant and safe place to live.
So we are committed to improving the RMA, although we have to accept that there are challenges inherent in resolving
disputes amongst competing interests in resource use. The Act has been used as a scapegoat, taking the blame for the
failure of consent applications which would have been marginal under any system that weighed the various interests
fairly and respected natural justice.
The ideas and principles that underpin the RMA are not in question. Rather, our aim is to get greater certainty and
efficiency in the way the RMA operates, and to make it better able to address larger resource issues that are of
national, or at least trans-regional, importance.
One example is the need to achieve the right balance of national and local interests. This is particularly important for
transport and energy infrastructure where local authorities are increasingly being asked to consider projects that raise
issues of national significance using an Act that provides little or no guidance on how competing national benefits and
local costs should be weighed.
At present, the Act provides a ‘call-in’ process, whereby applications that are too large and too complex to be
addressed by local authorities are managed centrally. The problem is that this provision is too blunt an instrument, and
does not necessarily lead to a significantly streamlined process. What we need is a larger menu of options so that we
can to some extent customise a resource consent process that fits the particular characteristics of a major project.
Local Government New Zealand has recently produced a report with some recommendations in this regard which are a useful
contribution to the debate. Among other measures, they have suggested using National Policy Statements to guide
reconciliation of competing priorities, so that local authorities are not in the position of having to adjudicate on
complex theoretical questions under the scrutiny of interested parties and their legal counsel. (Such National Policy
Statements would need to be clearly distinguished from National Party Policy Statements, which would be unlikely to cast
light on any issues, complex or otherwise.)
Local Government NZ have also suggested that applications where specific national interests are at stake could be dealt
with either by a special committee or board of inquiry, or by an enhanced local process which co-opts additional
expertise and resources.
At a more general level, they have also put forward a range of measures to engineer a shift from the largely adversarial
style of decision-making that has evolved around the RMA to a more inquisitorial style. Allied to this, they are
suggesting an accreditation scheme to enhance the skill levels of elected decision-makers and independent commissioners.
This would sit alongside the measures the government already has in train for building capacity and promoting best
practice among the 86 councils who decide approximately 50,000 resource consents each year.
These are very sound proposals, and I am looking forward to the results of the review which will be reported next month.
I believe we can improve the consent decision-making process, ensure more consistency between councils, reduce delays
and costs, and provide greater clarity and certainty for applicants.
These are important goals, not least because they are an important factor in making New Zealand a better place for
investment, by both domestic and foreign investors.
We need to increase both the overall level of investment, and also the depth of that investment. That means, in terms of
foreign direct investment, a shift in the balance away from the mere acquisition of property or of existing New Zealand
owned businesses, towards greenfields projects whereby investors can bring to bear their access to capital, technology
and global marketing and distribution networks.
Making that shift in emphasis is not a short-term exercise. However, many of the issues the government is focussing on
(frequently in close partnership with the business community) are edging us closer to that goal. A transparent, reliable
framework for resource planning is an important feature. So too is an increase in the prevailing skill level of our
workforce, a research sector that can collaborate on world-class R, and high quality infrastructure.
These are goals we have been working towards for some time, and will in due course achieve.
Thank you.
ENDS