Richard Worth OBE
NZ National Party Candidate for Epsom
Speech to Institute of Directors
20 July 1999
This is not a political speech but the November elections may well be a watershed for New Zealanders.
What if we face tax increases. Six weeks ago the Labour Prime Minister of Britain and Chancellor Gerhard Schröder of
Germany issued a new charter calling for lower taxes to stimulate growth and jobs.
What if the Employment Contracts Act is overturned?
What if the current education strategies both in capital and operational funding are reversed?
What if the worker’s compensation insurance industry is brought to an end without compensation for the participating
underwriters?
These four issues are the pledges of one of the major parties.
So there are issues of consequence for the election.
Here are some propositions which are a background for what I seek to say. The first is the most important:
We need to search for niches in the global market and exploit them. Head to head confrontation where we have no
competitive advantage is pointless.
Opportunity and better incomes will lie in better ideas and smarter people. Intangible assets will increasingly
replace physical assets as our stock of wealth.
We have to remain competitive with Australia. Our 3.8 million people; their 17 million represent a strategic
possibility second to none.
The media in New Zealand are generally negative, cynical and damaging to the national interest. Not so in Australia
where the call of “lucky Australia” is commonplace.
Some years ago I was a keen young sub-lieutenant in the Navy and we would stand watches by day and by night on frigates
in the course of ocean passages in the South Pacific. They were long hours at sea. Our seniors had drummed into us what
are now called “the Collision Regulations” and what used to be called “the Rules of the Road at Sea”. To remember those
rules there were memory aids.
One such aid which related to ships crossing at night as to which ship should give way was:
“If to your starboard red appear
It is your duty to keep clear
To act as judgment says is proper
To port – or starboard – back or stop her.”
In the context of what I seek to say today that memory aid identifies an aspect of the New Zealand ship of state. That
is our ability to change course when conditions of adversity arise. We can be nimble and fleet-footed if we choose to
be. We are the brilliant backyarders.
Much has been written; much has been said about the urgent need to greatly increase business opportunities, economic
activity and company profitability in New Zealand if the serious relative decline of the New Zealand economy is to be
reversed.
Ireland, which also has an agricultural based economy, has achieved spectacular economic growth because of the strong
performance of its export sector. Its GDP has grown at an average annual rate of 8.9% from 1994. The 1999 forecast is
8%.
As in New Zealand, the government decided to dismantle protective barriers and expose Irish industry to world markets.
However, unlike this country, the Irish Government takes a proactive role in establishing new industries. The government
offers two types of incentive to industry:
A corporation tax rate of 10% for all manufacturing companies, financial services in the Dublin International
Financial Services Centre, trading activities in the Shannon Free Zone; and
Capital grants towards the cost of fixed assets, employment grants with agreed amounts for each job created and
training grants towards the cost of training workers.
Ten new companies in Ireland generate $5 billion more export sales than the entire New Zealand economy. The populations
of the two countries are comparable in size.
To bring some balance to the Irish success however one should not overlook the substantial EU subsidy flows. The
corporate tax rate is 32%. The maximum personal tax rate is 46% and there is a capital gains tax of 20%.
So what should New Zealand do? I would like to talk about a concept called “Recreation New Zealand”. But first here are
some numbers:
In the year to June 1998 we earned $3.7 billion in the dairy industry in foreign exchange.
In the same year, our meat industry earned $2.9 billion.
Manufacturers earned $2.3 billion.
In forestry, we earned $2.2 billion.
Last year tourism earned $4.4 billion.
In terms of earning foreign exchange, tourism is more important than any of them.
Imagine if we could double our tourism earnings, we would earn $9 billion a year in foreign exchange. It would mean a
total of approximately 150,000 tourism related jobs. Our total tax take from tourism would go up to $1.6 billion.
Tourism would then be contributing an additional $4.6 billion to our total GDP.
Howard Scott is the creator of this concept called “Recreation New Zealand” and that is the first of the three
strategies.
The concept of “Recreation New Zealand” is premised on fast tracking new industry creation through “seed money” from
central government. It is a quick start plan which could start tomorrow.
Perhaps 150 activities such as the New Zealand world series in horse racing, the New Zealand world series in golf or the
New Zealand world series in tennis would be run each year with a minimum $1m first prize.
These international competitions would be run by the private sector after an open and competitive auction to bid for the
right to the first prize of $1m which would be provided by central government.
The government would effectively be guaranteeing the $1m first prize and subsidising the difference between the auction
bid price and the $1m guarantee. In early years the bid price at auction would most likely be less than the $1m first
prize guaranteed by the government. In later years the bid price may well exceed the government guarantee.
The winning bidder would deposit with the government the cash value of its bid offer in order to be eligible to host and
run the global competition. That money would be held by the government in trust on interest-bearing deposit. The
competition would be run as a profit venture by the winning bidder selling global media rights and so on. Any loss would
be carried by the bid winner.
The competition would not only encourage inward visitor traffic to participate in the competition itself but would also
attract visitors to watch the world class competition take place. And the competition would also be a focus for wider
economic activity such as hotel occupancy, taxis, restaurants and other services. Further, the greater critical mass of
activity would become the seed and focus of new industry activity just as yachting race wins have advanced the New
Zealand boat building industry.
The Recreation New Zealand concept would become the seed activity for continuing “fast track” economic development.
With, say, three events every week of the year the general economic activity in New Zealand in associated industries
would be greatly enhanced and employment opportunities and career development would likewise be strengthened throughout
the economy. The government guarantee of “prize money” would be recovered through a combination of increased GST,
increased company and personal taxation and decreased costs in social welfare support services.
The second issue I would like to talk about is CER and our relationship with Australia. CER came into force on 1 January
1983. It is now a wholly unsatisfactory relationship. Australia sells more to New Zealand than we sell there – the
reverse of the mid 1990s as New Zealand manufacturers move to Australia and New Zealand retailing shifts from local to
Australian produced processed food, clothing and other products.
In the 12 months to 31 December 1998 New Zealand exported $4.7 million of product to Australia and imported $5.1 million
from Australia.
At the Australian Government level there are massive subsidies of exports and the offering of tax breaks and other
incentives for New Zealand based companies to move to Australia. Australian manufacturers get A$1.4 billion annually in
tax breaks and direct government subsidies. Under CER these incentives are illegal.
There are other barriers to trans-Tasman investment. The classic illustration (which has now been resolved) touches
Ponsonby Pies. It is a long story but put simply:
New Zealand pies must contain 70% meat
Australian pies must contain 25% meat.
The Department of Primary Industries and Energy in Australia granted Ponsonby Pies Limited on 5 January 1999 a permit to
import pies into Australia provided they contained less than 5% meat. If the company wanted to put more than 5% meat in
the pie (some Ponsonby Pies contain up to 95% meat) they needed a MAF certificate stating what farm the meat came from,
a veterinary certificate stating the meat was disease free and a MAF inspector at their factory at $100 an hour to watch
the workers making pies.
Meanwhile of course there is a free flow of meat pies from Australia into New Zealand.
What is the New Zealand Government doing about these practices? It is a very good question. My answer is not enough. Not
nearly enough. When Prime Minister Howard came to New Zealand in February this year an inter-government taskforce was
set up. My understanding is that it comprises a representative from the Prime Minister’s Office and an Australian
counterpart. More recently I understand that the Asean New Zealand Business Council tasked Sir Ron Carter on 25 May to
head a group to enquire into CER and report its findings to the New Zealand Government in August.
That is critical and important work for the country.
The answers are surely not difficult.
The Australian Government must honour the CER agreement at the state and federal level. We need a disputes mechanism and
in a case of proven breach an outcome where exemplary damages can be imposed for breaches of the agreement.
Next we must remain tax competitive with Australia and by competitive I mean with a clear edge over Australia. The
Howard Government was proposing to cut company tax rates from 36% to 30% as part of the GST tax reform package. That
plan may have changed with the failure to secure the originally intended breadth of GST.
We need to continue the work which is being done on reduction of compliance costs.
We need research and development funding to be made available to the manufacturing sector. Existing funding could
possibly be diverted from other sectors for that purpose.
A clear regime for tax deductibility of R needs to be developed. A write-off of R expenditure in year 1 of 150% would be appropriate.
The third issue I would like to talk about touches aspects of sustainable prosperity. At the heart of this issue is a
restatement of our national identity.
Most of us have never thought that the natural environment and our culture are the keys to our economic success.
The opportunity for New Zealand exists at the premium end to foreground our products and services against a remarkable
background of the environment, our culture and unique way of life.
There is a dislocation, which prevents this happening. A fundamental gap in wealth creation between business and our
designers, writers and film makers, even our conservationists, historians and most tragically Maori. The very groups of
people capable of romancing the product and regions are not seen as central to the development of our economy.
Global customers are happy to pay a psychic premium for a nationality component of specialness from many countries.
Swiss watches, French cheeses, Italian clothing. There is a seamlessness between business and the creative world in
these countries which makes these premiums possible. We must cure this dislocation between business, culture and the
environment in New Zealand.
The government must refocus at the highest strategic level on protection of our national heritage and identity. It is
the third leg to responsible government alongside economic and social responsibilities.
Building a bold ethos of what New Zealand stands for is critical to our global success.
Although most New Zealanders cannot identify it, all of us want this in their hearts. Tourists want to discover it when
they get here.
Here is a specific and provocative example. It is the so-called greening of the tax base. All taxes distort incentives
and thereby alter patterns of production and consumption. In New Zealand, the bulk of taxes are levied on income and
consumption. Income tax, at the margin, makes work less worthwhile. GST makes consumption more costly. It is a fair
question to ask whether the current mix of taxes on income and consumption generates the best possible incentives. The
case for greening the tax base rests in the proposition that if we have to raise taxes, we should do so in a way that
minimises harmful side effects of economic activity (bads) rather than positive attitudes to work and productivity
(goods).
So we could green the tax base by shifting the emphasis of tax progressively on consumption that has environmentally
harmful side effects commencing with a fiscally neutral, low level carbon charge.
I have spoken about three strategies.
Recreation New Zealand
the disbenefits of CER
sustainable prosperity.