Thank you for the invitation to address your annual general meeting.
I have come today to seek a dialogue with you while knowing that the New Zealand Employers’ Federation and its
affiliates have, in many respects, nailed their colours to the mast of the policies of the present government.
Yet, despite the position adopted by the Federation and its affiliates in this pre-election period, after the election
you will want to talk with us and we will want to talk with you. For that reason it is important that not too many
bridges are burnt in the heat of the election campaign.
As you are well aware, Labour has formed four governments in the past. All those governments have enjoyed relations
based on mutual respect with the business community. It is my strong desire as Prime Minister to see those good
relations continue and I will do my utmost to see that they do.
That does not mean of course that we will always agree. We won’t. But relations based on mutual respect take into
account the hopes and concerns which each partner to the relationship has. We need to understand where you are coming
from and I hope you will equally feel the need to know where we are coming from.
What has concerned me about the pre-election rhetoric from some employer quarters is the implication that Labour has
adopted policy which is damaging to the economy. Nothing could be further from the truth. Our major preoccupation this
election is the economy, and how to transform and strengthen it. Those familiar with our industry and business
development polices know how strongly we feel about that and also the extent to which we have consulted with industry
and exporters to get the policy balance right.
What I urge today is that you look at the totality of Labour policy as many others have done. In so doing you will find
that the policy seeks to promote both opportunity and security: opportunity for individuals and businesses to do well,
and security for those to whom New Zealand has traditionally extended a helping hand: the young and the old, the weak,
the sick, and the poor. Indeed societies are often judged on how they treat exactly those latter groups – and New
Zealand in the nineties is not judged well.
Labour’s vision for New Zealand is simply stated. The new New Zealand must be:
• a dynamic trading economy
• producing ever more sophisticated goods and services
• creating more wealth, opportunity, and jobs
• lifting living standards across the board
• delivering better public services
• sustaining a quality of life environmentally and culturally which is unparalleled
anywhere else in the world
So where do we begin to build the vision?
The problems to be tackled are relatively obvious, but of course that does not mean that they are easily or quickly
Our task is to speed up the process of economic transformation from an economy so largely commodity dependent to one
increasingly driven by knowledge, skill, and technology.
This is a tall order, given the rate of our decline, In my lifetime our living standards have slipped from the third
highest in the world to the 25th today. We are in danger of slipping into the next range of nations – like Estonia and
Latvia in the sub-OECD grouping, which have never reached European living standards.
We’ve had those living standards, but we’re losing them, and we will continue to unless we can keep our talent at home
and create the conditions for the rapid growth of new industries and new products. Those industries and products will
need to be export and foreign-exchange oriented and competitive. For sustainable economic growth we must produce and
export more and aim for higher returns. Our present trade imbalance itself is not sustainable and raises questions about
our viability. The June trade figures were the worst in fourteen years, as were those for April and May. The current
account deficit is expected to worsen to nearly seven per cent of GDP. In the last quarter, the economy shrank. This is
no economic miracle.
The government’s role in driving the change which has to happen now is crucial. Labour is prepared to accept that
leadership role. We see the role of government in the economy as being that of a leader, a partner, a facilitator, a
broker, and occasionally a funder – working alongside the private sector, local and regional government, and our
education and research institutions to improve the nation’s prospects.
Our practical programme for change is to be found in our industry development policy, our industry training policy, and
in policies for tertiary education and science and research soon to be released.
The industry and business growth programme doubles present government spending from $100 to $200 million per annum. It
is a modest beginning. More will be done as resources allow. The policy’s key features are:
• A new local economic assistance fund will be available to support the work of districts and regions in
developing economic growth strategies and promoting local clusters of industries, and in attracting businesses and
investment to their area.
• There will be strong support for programmes which promote the development of an economy based on advanced
technologies. Existing programmes like Technology for Business Growth run by Technology New Zealand will be promoted and
expanded so that our companies can become greater earners of wealth for the country and larger employers of skilled
• There will be an accelerated depreciation regime for new capital investment in technology so that firms are
encouraged to keep their technology up to date.
• We will allow full expensing in the year of investment for tax purposes of all research and development
• We are acknowledging a level of market failure in the provision of enterprise finance for small and medium-sized
businesses, and see a role for government where that occurs, preferably in partnership with the private sector.
• We will be aggressively seeking foreign direct investment for greenfields enterprises and industry expansion.
New Zealand's need for investment exceeds what is available locally. Under Labour a new foreign investment division in
Tradenz will be set up to promote that investment abroad, and identify potential investment opportunities and likely
investors for them. Much of Ireland’s success stems from attracting investment in new areas of production and service.
Under Labour grants will again be available to assist business with costs of investigating a new product, process, or
expansion, a new export market, or a significant technology shift.
The delivery of funding for the programme will be contestable. That means Labour will not be seeking to re-establish a
network of business development boards.
The Labour Government will drive these policies through an industry development agency with a role analogous to that of
Tradenz in trade development. Like Tradenz, Industry New Zealand, as it would be called, would be a crown entity with a
private-sector oriented board.
There will be a Minister for Industry to work alongside it.
We also see a need to do more to back exporting.
Right now only about 8,000 of our 190,000 plus businesses are positioned as global traders. We can do better.
But New Zealand is almost along among western nations in having no state involvement in export guarantee and credit
Unfortunately that means our firms often miss out on contracts and see the work go to companies from nations like Canada
where the government does provide a financial underpinning for exporters.
That is why Labour will develop appropriate export guarantee and export credit financing schemes to remedy identified
market failure in these areas. We will use partnership models with the insurance and banking industries to the greatest
New Zealand does face a huge challenge in educating and upskilling the workforce which the new economy requires. Steps
will be taken to attract more young people into the areas of science, technology, engineering, and trades where we are
so short of graduates.
Then, having attracted them, we have to make it worth their while to stay in this country. New Zealand has much to learn
from the many other western countries who find ways of supporting science and technology graduates in “incubators” where
they can develop their inventions to a product-ready stage. Programmes like these will be pursued by Labour.
At that point, our other policies for investment in new industry sectors can kick in. That is the virtuous cycle we wish
to create: more graduates, more research, more inventions, more investment, more high value production and exports, and
more wealth generation.
I turn now to our policy on industrial law in which this Chamber has a particular interest.
Yes; it is Labour’s intention to replace the Employment Contracts Act with more balanced legislation which brings New
Zealand law into line with International Labour Organisation conventions. That does not mean, and I repeat does not mean
a return to the pre-1991 industrial law.
Labour’s policy preserves the right to freedom of association. That is, it preserves the right to decide whether or not
to join a union. That will continue to be the individual’s choice. The new law will be built on the concept of the
freedom to associate, not on a requirement to associate.
Where employees do join a union, they will have the right to have that union bargain for them. The union will not have
the right to bargain for employees who do not belong to it. We are aware of course that there are companies who prefer
to negotiate with the union for all employees, whether union members or not. That is entirely a matter for the parties
to determine. It is not a right and will not be a right under the new legislation.
Individual workers will continue to have a right to individual contracts. Nothing in the legislation will prevent a
person negotiating individual contracts covering a number of employees if that is the wish of the employees.
There will be procedures available for multi-enterprise bargaining, but a majority of the union members in each
enterprise would have to agree to become part of a larger collective for bargaining purposes. After nine years of
enterprise-focused bargaining, it seems unlikely that there would be a surge back to broader contracts unless both
employer groups and unions considered it desirable.
The new law will provide for good faith bargaining, a concept which is well known in some of the North American
jurisdictions. Both parties will be required to bargain in good faith. The requirement will not be one-sided.
I fully appreciate that most employers want the Employment Contracts Act retained as it is. We do not agree. We believe
that a law which is better balanced than the present Act is better for the economy and the society. We remain open to
dialogue with you about details of the legislation and its implementation. This area of law is complex and will require
careful drafting and a full select committee process before its passage.
Labour strongly supports the single public fund accident insurance model. We signalled in June last year that that model
would be reinstated under the new government.
In our view the privatisation of workplace cover is another triumph of ideology over evidence. The international
evidence strongly suggests that a single public fund model for workers’ compensation is the most cost effective.
Clearly there has been a good deal of loss leading by insurers to obtain market share in this new market. The benefits
of that did not extend to many smaller businesses who were priced out of private cover.
Were this new system to continue, a roller coaster ride of premium movement can be expected as the underwriting cycle
overshoots and undershoots the insurance cycle. This has been happening with dramatic effect in West Australia which is
operating a competitive workers’ compensation model.
In these circumstances, the government in future would be left looking on as helplessly as the present one has had to
following the flawed electricity restructuring which brought prices not down, but up.
The loss leading rates offered by private insurers to gain market share now are not sustainable, nor do they provide a
basis for comparison with what ACC rates would be under the single public fund model in future. For example:
• many of the rates now being paid to private insurers are for partial cover and not the full cover
traditionally offered by ACC
• the payment by employers for residual claims from the previous regime comes on top of their present levy
• rates paid to ACC in the period immediately prior to the change and now to private insurers are based on
the schemes being fully funded. Labour's single public fund scheme will be financed on the cheaper pay as you go
• Under much more effective management now, ACC's overheads are reducing. I am confident that its costs can
be kept down.
Taking all these factors into account, it is little wonder that the insurance industry has refused to enter into any
debate about average levy prices under the new system. Indeed a key part of the industry's leaked communications
strategy is not to enter into any such debate because they cannot guarantee that over time prices will be lower. We have
every reason to believe that they will not be lower over time.
In 1997 a major study was completed by two leading North American scholars on the comparison between the Ontario and
British Columbia provincial accident insurance funds and the 45 private insurance underwritten jurisdictions in the
The study showed that the costs for the Ontario state fund were 26 to 43 per cent lower than those for the United States
jurisdictions, and for British Columbia they were 47 to 64 per cent lower. The study concluded:
"While it is not a result we expected, it suggests that cost reductions may not occur – indeed costs may increase – by
shifting from monopoly provision to a United States style model of private insurance."
Labour's views on accident compensation were dismissed as "crazy ideology" in a recent issue of the Employers'
Federation Journal. Yet I put it to you that the "crazy ideology" is to break up a long established scheme which, well
managed, has the potential again to be regarded as one of the world's leading schemes. The change has been advanced by
those who believe that competition and privatisation are always preferable to the existence of a state monopoly. But in
the area of accident compensation, all credible international evidence suggests that the single public fund model will,
over time, perform the best and keep costs the lowest. Labour's position is based on a pragmatic assessment of what is
best, unlike that of our opponents on this issue which is truly ideologically based.
A brief word on taxation. The only significant tax change in the next three years under Labour will be the small rise we
have signalled in personal income tax on the top five per cent of taxpayers. That rise is modest. It helps fund our
economic growth and social programmes, and it leaves New Zealand with a lower top rate of personal income tax than any
OECD country other than Mexico.
There will be no rise in company taxes under Labour. Indeed on many occasions I have stated publicly that for the future
the only way company tax can go is down. I hasten to say that that is unaffordable at present.
Under Labour there will be an overall and overdue review of the structure of the tax system. No significant changes
arising from that review will be implemented without a mandate from the subsequent general election.
In conclusion, can I say that Labour’s vision is to see our business and our country move up the ladder of achievement.
That means moving away from the lower cost, lower skill industries, towards the higher waged, higher skilled industries
which bring better returns.
The new economy can only be driven by educated, skilled, and healthy people. New Zealand can only undergo substantial
economic transformation by investing in its people.
We will all contribute to that investment one way or another through the taxes or levies we pay or the direct costs we
Labour does seek a continuing dialogue with business about how to further our common interest in developing this
country. Many in business see enormous positives in Labour’s proactive approach to economy and business growth. While
they may still question whether we have got the balance in labour law right, overall they are focusing on a much bigger
picture. I urge you too to look at that bigger picture and to work with us on a constructive relationship. Our door has
never been shut.
The task before the incoming government is enormous. Yet I have absolute faith that it can be accomplished. Our human
potential is great. New Zealanders have the ideas and the entrepreneurial skills.
What has been lacking is an acceptance at governmental level that government must lead and must invest in our future. We
can no longer stand back and watch our best and brightest leave and take their ideas, and now even their businesses,
That means it is time to act. It is time to start transforming New Zealand from the country it has become to the country
we know it can be.
I hope we will have your good will as employers as we embark on that task.