Business Budget Summit address

Michael Cullen Speech at the Business Council for Sustainable Development Business Budget Summit, Town Hall, Wellington

Good morning. I want to start by thanking the Business Council for Sustainable Development for organising this event and by thanking all of you for being here today.

It has been just over a month since I last addressed a Council event. The last occasion was a briefing on the Labour-led government’s Emissions Trading Scheme, the day following its announcement. In the weeks that have followed we have seen some uncomfortable verbal fidgeting from predictable quarters – you have to expect that when you announce change.

We have also seen genuine constructive suggestions from a number of people in the business, forestry, and agricultural sectors that will be helpful as the scheme is implemented. On the whole, a strong consensus has emerged backing the scheme and backing New Zealand’s position as a leader, not a follower – fast or otherwise – in the global fight against climate change.

The members of the Business Council for Sustainable Development – with your members accounting for just over a third of GDP – have played an important role in developing consensus around the need to take action. The contribution your members have made has been and continues to be pragmatic and realistic, appreciating the scale of the problems we are dealing with, not always agreeing with the government, but understanding the need to take action.

It is that spirit of serious-minded and constructive debate I hope we can replicate today. In my comments, I will start by encouraging all of us to challenge some of the assumptions that we bring.

And while we are here to talk mainly about health, skills, and tax, all of which are priorities for Budget 2008, we do need to think about next year’s Budget as a whole. And there is one big assumption about next year’s Budget that I want to challenge from the outset.

For months, we have been hearing public comment about next year’s Budget framed as if economic concerns will be completely thrown out the window just because it will be delivered in an election year. We have seen commentators, some who should know better, happily adopt the opposition’s language around so-called election year lolly scrambles. Overall, there is a growing assumption in many quarters that next year’s Budget will not be focused on the long-term.

All of this is a myth, and all of it needs to be laid to rest.

The Labour-led government governs and budgets for the long term. We will not back away from that stance, especially in an election year. We see our long-term focus as a significant advantage against an opposition who still cannot get on top of policy detail and seem obsessed with shutting down short-term political problems with constant ‘me-too’ announcements.

We have worked hard for eight years to build trust and credibility on our management of the economy and we are not about to surrender that going into an election.

Challenging assumptions and the economic situation

The credibility we have earned over the last eight years has in no small part been built by working constructively with business leaders. Labour entered office with claims that a centre-left administration would be bad for business and the economy. We were determined to challenge that assumption not just with rhetoric, but by achieving results. And I am confident that we have achieved a great deal.

We have seen the longest period of economic growth in more than a generation.

We have achieved sustained world-leading low unemployment levels for several years and more people are in work than ever before.

New Zealand has continued to be ranked near the very top of international surveys on the best places to do business.

We have made the future of retirement savings much more secure with KiwiSaver and the New Zealand Superannuation Fund.

Corporate profits are up and work stoppages are down.

Regional economies that ended the 1990s in decline are now thriving.

More people are in training, more young people are gaining skills through apprenticeships, and more people are building their knowledge base through tertiary education.

In last year’s Budget, the government announced a major business tax package and a number of initiatives to support research and development and to boost exports.

The assumption that Labour could not work with business and could not deliver for business was always a myth.

But it has been businesses themselves who have contributed to busting this myth. For it ever to have been true, one would have to assume that a majority within the business community was opposed to investments in health and education, opposed to policies that reduced social inequalities and created jobs, and opposed to seeing older New Zealanders better supported in retirement.

The truth is that most business people in New Zealand know our economy does better when we are lifting children out of poverty, creating jobs, reducing class sizes, protecting our environment, and making our economy fairer.

For evidence of a wide set of interests in the business community you need to look no further than today’s agenda. For the most part the issues we are discussing today do not fall into the traditional ‘business issues’ basket, but all are issues that business should be concerned about. I do not assume that we will all agree on the ways to address these issues, but I do welcome the involvement of business in influencing debate in these areas.

We need to continue to engage constructively as we have over the last eight years. It is clear that challenges remain.

A world-class, sustainable health system

In health, I want to start by softening the tone just a bit. The question you have asked for today’s session is, “How do we manage the coming health funding crisis?” For starters, right across the board in health we need to avoid talking of crisis, especially when we are trying to manage costs.

While in this context the crisis you refer to reflects genuine concern about the long-term affordability of health services, you will appreciate that it is often talk of crisis in one part of the health sector or another that is one of the drivers of growing demand for health dollars.

The reality is that by international standards, New Zealand gets very good value for money from our health system. To give just one example, the United States spends three times more per capita on health, and yet New Zealanders live longer than Americans.

And we also need to challenge the too-often repeated mantra that the government’s historic investment in New Zealand’s public health system has not achieved results. This is simply untrue.

Yes we have nearly doubled our investment in health. And in doing so we have: cut the cost of seeing the doctor in half and seen more people go to the doctor more often, reduced standard prescription charges from $15 to $3, built new hospitals from Kaitaia to Invercargill, significantly expanded both medical, surgical, and elective services, made pay rates for health professionals more competitive within an international market, boosted doctor training numbers and restarted training of dental therapists, rolled out the largest mass immunisation programme in New Zealand’s history and seen a significant increase in immunisation rates, seen the first signs that inequality in health outcomes across income bands and between ethnic groups are starting to narrow, achieved a dramatic decline in smoking rates and a fall in cardiovascular disease rates.

The list, I assure you, goes on.

We are investing more and we are getting more.

But while our major investment in health was absolutely necessary to repair a system that was failing to deliver quality services in a fair way, it is also true that current growth in health spending cannot be maintained without cuts in other areas or significant increases in tax rates – neither of which are tenable.

Since Labour was elected in 1999, the health budget has increased by 99 per cent. Treasury estimates that continuing on the recent path of annual increases of 8 per cent would lead to public health expenditure increasing from 6 per cent of GDP to around 33 per cent by 2050. This is not sustainable.

It is time to move from a reinvestment stance to a focus on long-term delivery of fair, high-quality health services.

While I will refrain in my opening comments from discussing the specific proposal for health savings accounts, I will put out a few basic points for your consideration.

First, when we talk about controlling health spending, we are not talking about spending cuts. We are, at least under this government, simply talking about better controlling the rate of spending growth and ensuring value for money for what we do spend.

Second, New Zealand is not alone in dealing with rising health costs. All developed countries are spending more on improved technology, on an ageing population, and on attracting and retaining health professionals in a globalised health workforce. And as nations get richer, they are spending a bigger share of their GDP on health care.

Third, any proposals to control the rate of growth must take inequalities very seriously. New Zealanders will never accept a system that sees your long-term health determined by the size of your bank account. Further, they should not accept a health system that tolerates wide inequalities based on income or ethnicity. From a purely fiscal point of view, some of the key drivers in rising health costs are the growing prevalence of chronic diseases, which tend to disproportionately affect lower socio-economic groups. Inequality is not only unfair, it is expensive.

The fourth and final point I would make on health is that the Labour-led government is taking the affordability challenge very seriously. The Minister of Health has managed over the last two years to control growth in health spending to $750 million per annum – a considerable amount, but as you will see in the media every day, not enough to satisfy well-meaning health lobby groups.

We have also announced ten targets for the health system that will see the Ministry of Health and District Health Boards implementing programmes to further reduce smoking rates, improve nutrition, and maintain timely cancer treatments among other things. These will lead to improved health outcomes and should also contribute to a still better return on the government’s investment.

A skilled New Zealand workforce

Turning to the issue of skills, I again do not want to dwell in my comments here on the background paper you will discuss later.

But I do want to make it clear to you that the Labour-led government sees upskilling the New Zealand workforce as a major priority. It is, in my opinion, the next major challenge for business, the government, unions, and educators to tackle.

We have more people in work than ever before, record lows in unemployment, and fewer people on benefits overall. But still, businesses are in need of more skilled workers and New Zealanders will increasingly need more skills to actively participate in an increasingly globalised economy.

You will discuss skills for the economy later today with a focus on migration. There is no doubt that while we are improving our ability to attract skilled migrants, we still have more work to do. I look forward to seeing reports on your discussion.

I want to encourage you, however, to think about skills for the economy more broadly. In the coming months, the government will be releasing a Skills Strategy, developed in partnership with business, workers, and the education and training sectors through the Skills New Zealand Forum.

It will focus on addressing literacy and numeracy issues, both in the adult population and among young people.

It will build on the success we have had working with business and Industry Training Organisations to train thousands of modern apprentices, and in seeing record numbers of New Zealanders in industry training.

It will focus on unifying action on skills right across government.

It will build on the significant momentum gathering behind the government’s tertiary education reforms, placing a strong emphasis on meeting the needs of the economy.

As business leaders, you are right to expect leadership from the government on this issue. But I want to challenge all of you to look at the upcoming skills strategy as an opportunity for business to play its part as well. We have a real opportunity to make progress and position the economy on a much more competitive international footing. We must seize it.

Personal tax: four tests

The final topic I will address is one that you have already heard quite a lot from me on over the past couple of weeks. As you will I hope have heard by now, if you missed hearing it in Budget 2007, personal tax issues will be addressed in Budget 2008.

There has been one big assumption built up around my position on tax cuts. The opposition loves to say that I am somehow ideologically opposed to cutting taxes.

This is despite the fact that the Budget I delivered this year included a substantial business tax package, which was opposed by the National Party.

It is despite the fact that this government has delivered billions of dollars in tax relief through Working for Families, again opposed by the National opposition.

It is despite the fact that we have significantly cut taxes on savings, which the National Party voted against.

It is despite the fact that in total this Labour- led government has reduced taxes in the last 3 Budgets by $2.5 billion as at 1 April 2006, rising to $4 billion a year from 1 April 2008. And at every step of the way we were opposed by an allegedly pro-tax cut opposition.

If anyone is ideologically opposed to reducing taxes, it isn’t the Labour-led government.

But that is just one of the assumptions I want to challenge. The question for discussion today talks about the long-term path to personal tax reform. That is exactly the framing we need for an intelligent discussion.

We will move on personal tax next year, but too often public debate has treated this issue as if it is somehow separate from the rest of the economy, let alone the rest of fiscal policy.

When Labour introduces personal tax cuts, we will do so in line with our ongoing economic and social priorities. This will not be a one-off policy that seeks to end a debate. It will be a genuine and logical extension of the economic course we have charted for the last eight years.

That is the approach that sits behind the four tests I have outlined for considering the shape and scope of personal tax changes:

The Labour-led government will not introduce a tax package that requires borrowing to fund it We will not cut services to deliver tax cuts We will not cut taxes in a way that exacerbates inflationary pressures And finally, we will not cut taxes in a way that leads to greater inequalities in our society

It is that final test that I think poses an interesting question for all of you and that I would certainly appreciate greater public discussion on. How do we take inequality seriously in a debate on tax?

It is not the sort of question that gets posed very often on a topic like tax cuts, but I hope it is the sort of question that a gathering like today’s is capable of addressing.

Thank you for your time and I look forward to your questions.

ENDS

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