Thanks to the Otago Southland Employers Association and Virginia for hosting me this evening. It is always a pleasure to come back to the city and region that shaped who I am as a person.
I believe that growing up in Dunedin I got to experience New Zealand at its best. I am not saying that everything was perfect. The 1980s were actually tough going for a lot of people in our community. I can still remember the day that the Burnside Freezing Works Abbatoir closed. The next day at school there were kids talking about how their Dad was out of a job and did not know if there was another job around.
But what I did get growing up was to be part of a true community out in South Dunedin. I learned the values of looking after each other, respecting each other and the value of hard work.
People were not rich in income, but there was a real sense of shared experience. It was a great base from which to go into the world, and achieve our dreams.
Now of course much has changed in our world, but some of the elements of that experience remain critical. At the core of that were the homes we grew up in. My family home in St Kilda was up for sale last year, and a number of my old school friends tried to encourage me to buy it back, such were there fond memories of drinking my coffee and emptying our family fridge on a regular basis.
Having a secure, warm, dry home is critical to each and every person achieving their potential. If you are not sure where you are going to be sleeping each night you will not succeed. Employers in Auckland are telling us that they are unable to find staff who can afford to live in the city. We also know that the low quality of our rental stock is making people sick, and spending time out of the workforce.
We have to do better and Labour has a comprehensive plan to both build affordable houses for first home buyers, and also manage the demand by cracking down on tax loopholes and advantages that skew the market towards speculators.
Now you might ask why in a speech about the Budget and the economy I am starting by talking about housing. In part it is because there is a housing crisis in New Zealand - and Labour has an excellent plan to start to address that.
But also because it is important for me as the person who wants to be the next Minister of Finance to be clear about my priorities. I am about more than the numbers that make up the Budget. They are important to me, but not as important as people.
As Finance Minister in the Andrew Little led Labour government I want play my part in seeing New Zealand at its best. Where we put people first, and where we understand that the economy is not an end in itself, but rather a means to giving people lives of dignity, security and hope.
And we have seen around the world what can happen if we don’t do this. That is when people lose hope, feel disconnected from society and become susceptible to peddlers of hate and fear. Democracies rely on people believing they have a fair shot at success.
We are fortunate not to be in that situation in New Zealand, but the warning signs are there. We have 90,000 young people not in employment, training or education. That is a 30% increase in seasonally adjusted terms over the last eight years. It is an enormous loss of potential, and frankly the source of future problems if we do not address them now.
The Government cannot afford to be a by-stander in the economy, hoping for the best. We need to be an active partner alongside you and others who are working to generate jobs and opportunity.
I believe that the challenge in this Budget and indeed for the next Minister of Finance is how to give all New Zealanders a fair go and a share in prosperity. Because we are a relatively wealthy country. We are blessed with wonderful natural resources, talented people, and strong foundations built through the hard work and vision of past generations.
And we do live in a time when the high level indicators in our economy look good. GDP is growing, there is lots of activity in tourism and construction. Some people are doing very well indeed.
However below those high level indicators, under the bonnet of the economy, there are issues that paint a different picture.
The New Zealand economy today is a little bit like the first car I ever purchased. My flatmate’s father was a used car salesman. And did he have a deal for me. A beautiful shiny station wagon. Boy did it look good on the outside- all buffed up. Once around the block and everything felt fine. But then driving it home there were a few rattles, and then some thumping noises. A look under the bonnet revealed all was not well, and some things were not there at all.
As is the case for our economy today. GDP per person, described once by Bill English as being what matters most for higher living standards, has not got above 1% in the last few years, and actually went backwards in the last quarter. 45% of New Zealanders did not get a pay rise last year and 67% got less than inflation – meaning their wages did not catch-up with the cost of living. The number of people unemployed for more than six months has trebled.
The real truth is that our economy is being propped up by population growth and housing speculation. The National government has created a massive infrastructure deficit by its failure to invest in the housing and the transport links that have been needed.
And then there are the social deficits that have been created under National. You all know the list. We are about to face another winter with forty thousand New Zealanders homeless - living in cars or garages or overcrowded houses.
The Budget this week needs to address these significant deficits and give the security and opportunity for all our people to thrive.
There are a series of tests that the government needs to meet to show this Budget is doing that:
- Have they got a comprehensive plan to start to fix the Housing crisis, by addressing both supply and demand issues?
- Will they begin to re-build the health system by restoring some of the $1.7 billion cut from health, including taking mental health seriously?
- Will they provide the support and make the changes to ensure our education and training systems are preparing New Zealanders for the changing future of work?
- Is there support to give regions the boost to grow decent jobs and opportunities?
Today I want to lay out the framework that Labour has developed to build our economy and society, and some of the fresh approach to meeting these tests that would be in a Budget I would deliver as the Labour Finance Minister.
The first core element of our framework are our Budget Responsibility Rules that we announced in March along with the Greens. We know that businesses and the wider community need certainty and confidence as to how an alternative government will manage the country’s finances.
Labour has done this before of course. Under Helen Clark’s and Michael Cullen's leadership we were able to have net debt close to zero, sustainable budget surpluses- and major programmes like Kiwisaver, 20 hours free early childhood education and more. We have done it before and we will do it again.
The rules show that we will be responsible and prudent, while at the same time creating the environment for the investments that are critical to our future.
Under the rules we will
- Deliver sustainable operating surplus across the economic cycle
- Reduce net core crown debt to 20% of GDP within five years
- Prioritise investments to address the long term financial and sustainability challenges facing New Zealand
- Maintain expenditure to within the recent range of spending to GDP ratios, through phased and targeted spending
- Ensure a progressive taxation system that is fair, balanced and promotes the long term sustainability and productivity of the economy.
To achieve the final point we will establish a tax working group to bring experts together with the mandate to achieve a system where tax is fair, simple and collected. Specifically that group will focus on ensuring that assets, wealth, income and consumption are taxed fairly.
The other part of the framework I have announced is the need to review and change the Reserve Bank Act.
While our Reserve Bank has by and large served us well in terms of its goal of achieving price stability, it is time after twenty-eight years to look again at what we want to achieve through monetary policy.
Specifically, the next Labour government will expand the objective of the Bank to also include maximising employment. We believe that all aspects of our economic apparatus should be working towards the goal of full employment and monetary policy has a role to play here. Just as in the USA, Australia and other jurisdictions it is important for the Reserve Bank to have objectives about the health of the wider economy.
Today I want to talk about a couple of specific areas where we can take a fresh approach to achieving a fairer share of prosperity. The first of these is to ensure that no matter what region of New Zealand you live in a decent life is possible.
This is important not just for the people of regions like Otago. It is also essential for the overall health of the New Zealand economy, and to take the pressure of Auckland.
The foundation of this is decent work opportunities. There is some great things happening in regions like Otago and Southland. What is needed is a government that is prepared to be an active partner in building on the strengths of the regions and sustaining them into the future.
We are putting our money where our mouth is in that regard. We will establish a $200 million regional development fund to support job generating initiatives. The first announcement about this fund was made here in Dunedin to establish a Centre of Digital Excellence. The Centre will build on success in gaming and digital businesses through a new Chair of Computer Gaming at the University of Otago, more support for incubator space that includes a motion capture studio and scholarships for young people to enter the industry.
We believe this kind of approach, in different industries around New Zealand is essential for supporting the regions. We have already announced support for a wood processing centre in Gisborne, and we will look to similar scale projects around the country.
Labour is also committed to ensuring that businesses in our regions gain more benefit from the tens of billions of dollars spent by the government on purchasing goods and services. Government procurement as it is known totalled $40 billion last year. At the moment all the incentives are on government agencies to pick the least cost bid, no matter what it means for jobs in New Zealand. I don’t really need to tell you in Dunedin what happens under these rules. We do not want to see the situation at Hillside repeated again and again.
We will change the criteria for government procurement to ensure that the creation of jobs in New Zealand is a significant factor, along of course with other factors such as cost effectiveness. We want New Zealand firms to have a fair go when it comes to these contracts.
Alongside this practical support, I want to talk today about our plan to lift New Zealand’s productivity. To me it is in this area that the Budget should be prioritising, because it is vital to our future economic success.
New Zealand has the fourth lowest labour productivity in the developed world. What that means is that we are working harder than ever, putting in more hours at work, but we are not getting better outcomes from that.
This is never better exemplified than in the difference between Australia and New Zealand. While the Australia economy has slowed down somewhat and fewer Kiwis are going to live there, the wage gap between our two countries is continuing to grow. Between September 2008 and December 2016 the gap grew by $62.64 per week.
In productivity terms it is the same story. Since 2008, Australia’s real GDP per hour worked has grown at nearly three times the rate of New Zealand’s.
What these numbers mean is that Kiwis are working harder and harder and not seeing the benefit. It is time to get smarter to see the benefits of our hard work.
This is not a new challenge, but it is one I am determined the next Labour government will address. To me there are three areas where we have to focus to get this right.
- Getting support and investment to the businesses who are ready to grow.
- Lifting the skills level of our workforce and
- Investing in the research and science that will give us the edge.
We covered all of these issues in our Future of Work Commission report. We spent two years listening to and talking with New Zealanders about the rapidly changing world of work and the impact of technological change that is faster and greater than ever seen before.
There are huge challenges, but massive opportunities also. At the moment while there is significant capital available for growth of larger businesses, the same cannot be said for small and medium enterprises. This is particularly acute in the technology sector. We want to see the incentives for investment in the productive economy improve and we will have some announcements to make about that in the near future.
In terms of skills, the core lesson of the Future of Work Commission was the importance of life-long learning, training and education to ensure our workforce is adaptable and flexible. All the evidence suggests that the best indicator of a country’s economic success is its investment in education.
A major focus for Labour is to ensure that every young person earning or learning.
- It’s why we have committed to three years free post-secondary school training and education.
- It’s why have our Ready to Work programme to get long term young unemployed Kiwi’s work ready.
- It’s why we will support more apprenticeships and give funding to young entrepreneurs.
- It’s why we have committed to a radical overhaul of careers guidance
- And it’s why we are going to give teachers the chance to focus on what they do best- teaching, not the overbearing bureaucratic nonsense of national standards and meaningless government targets.
In terms of research and development we need to up our game significantly. As a country we still spend less than half the OECD average on research and development. Private sector spending has picked up a little in the last few years, but the government has slipped backwards.
We will have a research and development tax credit that will give business some certainty to plan and invest in innovation. We are also committed to much stronger partnerships between universities, crown research institutes and the private sector. This was my job before coming into politics - trying to build better connections. It soon became clear to me that each of the players was talking past one another. We have some superb innovators in our tertiary institutions and I want that to be harnessed far better.
The Budget this week will be an election year effort. There will be lots of money thrown about. Much of it will be returning resources that have previously been cut. That will be welcomed by people who get the benefit from it.
But the real test I believe it must meet is whether it will address the long term challenges facing New Zealand, and give us the opportunity to generate sustainable wealth creation across New Zealand.
Labour has the plan to do that. We will be relentless in getting the basics right in education, housing and health. And we will build a strong economy, with disciplined and focused spending that will give every New Zealander a fair share in prosperity. That would be New Zealand at its best.