Wednesday 29 June 2005

Address to Greymouth Rotary/Lions Dinner

Ashley Hotel, 74 Tasman St, Greymouth

The facts of the West Coast’s economic turnaround are impressive and undeniable. The 1990s were difficult years for the Coast. By the end of the decade the West Coast had the dubious honour of having the lowest level of economic growth of all the regions, at 2.4 per cent. By comparison, the annual average growth rate for all of New Zealand in 1999 was 3.7 per cent.

Over the last five years the West Coast has experienced a remarkable turnaround. In the year to December 2004, the year-on-year rate of economic growth in the Coast was 5.3 per cent, which was the second fastest across the regions.

Growth has meant jobs. In December 1999 the unemployment rate for the region which encompasses the West Coast (and includes Nelson and Marlborough) was 6.4 per cent. By December of last year, that rate had fallen to 2.3 per cent, the lowest of all the regions and considerably below the national rate of 3.5 per cent.

In December the Coast also topped the country in terms of the rise in commercial building permits. You ranked first in terms of growth in tractor registrations, with strong rises in other motor vehicle registrations. In addition, house sales lifted sharply, with an 11 per cent rise in the quarter, and the median time to sell a house reduced. What lies behind these figures is a great deal of hard work, by business people, community leaders and government agencies, aimed at reorienting the regional economy towards industries with good long term prospects.

Tourism has been a major focus, both in terms of visitor numbers and the value and sophistication of the tourism experience. According to the Tourism Research Council the number of overseas visitors to the West Coast has grown from around 250,000 in 1997 to 420,000 in the year ended December 2004, an increase of 70.6 per cent.

This growth is expected to continue, bringing opportunities to add more value.

Meanwhile dairying on the West Coast has grown significantly, with the total herd increasing in size by around 75 per cent in the last decade. To accommodate the growth of the dairy industry Westland Milk Products has begun construction of the first stage of a planned $63.5m expansion of its Hokitika dairy factory.

Greymouth itself is benefiting from solid growth in mining, with the port of Greymouth due to ship 320,000 tonnes of coal – the highest tonnage since World War 1 – in the year to June 2005.

Solid Energy’s workforce has more than doubled in four years as coal enjoys renewed demand in New Zealand and overseas.

As is happening throughout the country, some of the shine is coming off this good economic news as the economy heads towards a soft landing. In such times it is important not to panic, and to avoid falling victim to those who promise quick fixes. If there is anything that the West Coast and the country as a whole have learned in the past five years, it is the importance of building strong fundamentals.

Those are not just economic fundamentals; but also the fundamental public services that help hold our communities together and make New Zealand the kind of place that people want to live in.

There are those who say we need to sacrifice public services and sacrifice future financial security in order to give the economy a kick start now. We say we need to maintain public services and continue to work towards financial security. And we say the economy doesn’t need a kick start. What it needs is consistent economic policies and a continuation of the investments we are making in skills and infrastructure.

Businesses are certainly telling us they would like to pay less tax and would like to have lower compliance costs. We have listened to those concerns, and responded in the Budget.

Tax changes include:

The alignment of depreciation rates more closely with the useful life of assets;

Changes to fringe benefit tax that will mean many small to medium enterprises will no longer need to file returns or pay FBT; and

An allowance for payroll agents to manage the payroll for the first five employees of small businesses, which will also mean a reduction in the compliance overhead for many small businesses.

We are also encouraging equity investment in small to medium enterprises by changes to rules governing access to tax deductions for R&D expenditure. These will benefit companies who bring in new equity investors after their initial development stage, and will therefore make investment in growing businesses more attractive to investors.

The problem with the kind of wholesale tax cuts that National are promising is that they cost an enormous amount in terms of lost revenue, and benefit primarily those on higher incomes and big business. The one thing they do not do is prompt additional investment. Meanwhile, once those first in the queue have had their fill, everyone else picks up the crumbs and then gets hit with higher interest rates because the government has been forced to borrow to pay for tax cuts.

By contrast, the tax changes in this year’s budget have been carefully designed to stimulate economic growth, making it easier for businesses to become more productive and efficient.

This also goes for our efforts to reduce compliance costs. Over the course of 2004, the government announced 104 reductions in compliance burdens.

International comparisons generally show that regulation in New Zealand is less burdensome than in the rest of the OECD, and certainly less than in Australia and Europe. Nevertheless, this is no excuse for inefficient government. Our ambition has been to do better.

That is why we have established the new Small Business Advisory group with a mandate to keep compliance issues under review and propose improvements wherever they can be found. This will ensure that government’s concern for this issue never flags.

We are in the process of reforming the Resource Management Act. This is not about altering its intent. We remain committed to a clean and healthy environment, and ensuring communities have say in environmental decision-making.

Indeed, we have already made great strides in streamlining the RMA processes to ensure that investment decisions can proceed in a timely fashion and environmental issues dealt with swiftly and thoroughly.

The latest survey of RMA performance carried out by the Ministry for the Environment showing that 95 per cent of resource consents were processed without being publicly notified and only 1.2 per cent of decisions were appealed to the Environment Court.

According to a 2004 Business New Zealand-KPMG Compliance Costs Survey, average total environment-related compliance costs have decreased 39.2 per cent between 2003 and 2004 (from $12,928 in 2003 to $7,855 in 2004). KPMG attributed the reduced costs to 'improved implementation of the RMA by local authorities and increased resources for the Environment Court since 2001'.

This was an issue we identified as soon as we became the government. The RMA was good law, but depended heavily upon a level of expertise in local authorities that could not be guaranteed. Both central and local government have been working on improving capability in this area, and we are seeing the fruits of those labours.

I am confident that the further changes in the Bill will make a good law better, and that a well resourced and clear set of planning processes will lead to lower costs and speedier decisions.

Our challenge over the next decades is to increase productivity in the economy. That is about increasing capital investment, improving the standard of management, and building a more skilled workforce.

With an extraordinarily strong labour market and a growing domestic economy we have seen fierce competition for skilled workers. Our options will always be limited, especially in the short term. There are things we can do, however, and this government is doing them.

Budget 2005 included $300 million over the next four years to develop quality tertiary education. Our notion of quality is a very pragmatic one: it means a high degree of relevance to the skills needed in the economy. It means producing people who are masters of new technology and not servants of it.

That is why the package includes higher funding rates for technical and scientific subject areas including science, trades, technical subjects, agriculture and horticulture. It is also why we have given an additional $45 million to expand Modern Apprenticeships and Industry Training.

In addition to investing in training, we need to attract skilled workers into our workforce. We have been doing this with the Working for Families package, which extends child care subsidies to give more choice to those on the margins of the workforce, especially women with children.

And we have reoriented our immigration policies towards attracting the skilled people we need and facilitating their settlement here. The West Coast has seen some of the benefit of this with the recruitment of miners from the UK.

What many people forget about when it comes to building a skilled workforce is that workers are attracted to a region not just by career opportunities, but also by the quality of life for them and their families. That includes a clean environment and a healthy lifestyle; but also good quality public services like education and health care.

In this respect, there is a serious threat to the West Coast economy in the form of promises by some opposition parties to make large cuts in government spending.

The facts are that almost 80 per cent of government spending goes on social security (including NZ Superannuation), health, education, defence and law and order. What one might call spending on the bureaucracy is only 4.3 per cent of total spending.

That means there is very little scope to cut government spending without reducing frontline services. Besides, it is frankly absurd to think that we can keep nurses on the wards and police on the beat without having a team of professional administrators providing the essential backup. There would be no frontline staff without others organising their pay and conditions, providing training, purchasing and managing their equipment and so on.

It is inevitable that the spending cuts needed to fund National’s tax cuts and their spending promises in defence and law and order will have to go beyond the core government departments. They would need to attack social services like pensions, health and education. There is no alternative, and no-one in our regional communities should be under illusion as to where those cuts would bite first.

At the best of times, it is difficult to maintain a high quality of services such as hospital care in smaller centres. When the knife is taken to public expenditure, the only response is to centralise services in larger population centres. That means downsizing or withdrawing them from smaller communities such as the West Coast. It means, in effect, treating the West Coast as if it were a suburb of Christchurch.

That would be a backwards step, both in terms of the community and the economy.

We believe there is a way forward that involves sustaining public services, keeping a tight rein on government spending and growing the economy through long term investments. It is that approach that has underpinned the West Coast’s growth in the last five years; and there is no reason why that should not continue.

Thank you.

ENDS

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