New Zealand Labour Party

Speech to Nelson Tasman Chamber of Commerce

9 July 2015 

Thank you for the opportunity to be here today, it’s always a pleasure to be in sunny Nelson, more so given the Antarctic conditions currently gripping other parts of New Zealand.  

On my last visit to Nelson I had the pleasure of spending some time with Chris and Andrew Rodley at SNAPIT HD.  I am sure many of you are familiar with their incredible 360 degree camera technology that is being used in everything from traffic management to construction to fisheries.  

 They have also used the technology to create a very cool virtual reality experience.  The version I experienced was an all too real roller coaster that had me grasping for the desk at each twist and turn, quite forgetting I was in an office in Nelson not a theme park on the Gold Coast! 

A combination of virtual reality and a roller coaster is how I think many people are feeling about the New Zealand economy at the moment.  The roller coaster of rising and falling commodity prices, especially in the dairy sector, and the turbulent global events in Europe and in China, has many people concerned at the long term sustainability of our economy.  

The virtual reality comes from politicians and commentators who exude complacency, and who think we can continue to ride the wave of commodity prices, and rely on recovery from natural disasters and a housing bubble to give us long term prosperity. 

As much as I admire what Chris and Andrew have done, I am sure they would agree that when it comes to the economy we cannot live in a virtual reality like that.


It is my firm belief that we should be doing better as a country than we are. We remain a country blessed with wonderful natural resources, and talented and driven people. New Zealand businesses and workers work harder than most equivalents around the world.  The opportunity is there for New Zealand to build an economy, and, in turn a society that offers the quality of life to all its citizens that is the envy of the world.  But it will only happen with a government that is prepared to act, and to think and plan for the long term, not just sit on the sidelines.


What I want to do today is look at the major issues facing the economy and offer Labour’s view on how we move past an economy built on riding commodity waves and housing bubbles, and onto one that generates sustainable wealth and opportunity for all its citizens. 

In assessing where the economy is at, it is important to talk about the global situation New Zealand finds itself in today.  As a small, open, geographically isolated economy we are vulnerable to the shocks of the world around us.  No government can control the events of the outside world.  What a government can do is develop a resilient, sustainable economy that can deal with what the world throws at us.


This, in his enigmatic way, is what Bill English meant when he said New Zealand was in a ‘reasonable position’ to handle the Global Financial Crisis.  With a $50 billion increase in net debt in the last six years, declining exports and unemployment sticking at close to 6% it is legitimate to say we do not have the same level of comfort today as economic conditions deteriorate. 

There is no doubt that the crisis in Greece, and its flow on consequences in Europe are important for New Zealand, and have, for example had a marked impact on the New Zealand dollar in the last couple of weeks.   But there is an even more significant and more pressing situation emerging in China.  The Chinese stock market has plunged  40% since mid June.  China watchers are concerned that a debt fuelled equity market rally in recent months is unravelling.  While the immediate issues may be able to be managed, the vast amount of resources used to do this and the damage to the overall confidence in the economy may be long lasting. 

This matters more than ever to New Zealand as China has become the destination of so many of our exports, and the home of much of our export growth in recent years.  Also any significant slow down in China will have a major impact on our other largest trading partner, Australia.  The flow-on consequences then will be much larger than anything the Greek crisis can throw at us. 

What it all points to is just how vulnerable we are to a significant drop in the price of our largest export (milk powder) and a slow down to our largest market (China).  There is a clear lesson. We must diversify what we sell and who we sell it too. 

Treasury tell us that there will be 3% growth this year.  This is good news compared to countries struggling to find much growth at all, or going backwards.  Yet many New Zealanders are not feeling it.  

When we had growth of three per cent under Labour in 2006 there was a surplus of $7 billion and a jobless rate of just 3.7 per cent.

But this time around when we have 3% growth, the government might sneak a small surplus, the number of unemployed is on the rise again to 146,000 people, and in the last quarter wage growth was a pitiful 0.3 of 1%.  It’s understandable people are asking what's the point of growth if it does not deliver a dividend to our people? 

So how have we reached this point? One of the answers is to look at what is driving that growth.  To begin with we have to take account of migration.  We are experiencing strong flows of people into New Zealand.  This is a mixture of the need for labour to work on the Canterbury re-build, and also the deteriorating economic conditions in Australia.  International student numbers are also back up, particularly from India.  If we take all of that into account, and actually look at growth per capita, it reduces from 3.2% to 1.5%. 

Then we need to look carefully at what is driving the rest of that growth figure.  There is no doubt the Canterbury earthquakes were not only a devastating event for the people of that region, but also a significant shock to the New Zealand economy in 2011 and had a negative impact on the books.  But the reality of 2015 is that the re-build of Canterbury is now propping up the economy.  Economists estimate it to be almost a third of GDP growth. Great while you can get it.  But the Reserve Bank Governor has said that the re-build will peak this year and next year stops being part of the growth story. 

I have no doubt that National wants businesses and exports to grow. But here’s the difference between us and them. I don’t think government can expect businesses to back them up if it doesn’t set a direction for the economy and shows how business can fit in it.

 We have real challenges as a country and an economy, especially through population, size and distance to markets. We all need to pull together and go in the right direction to overcome them. Individual businesses or even large business lobbies can’t set that direction. It’s up to the Government. 

That’s what’s missing. We have growth but it’s mostly in property speculation, not export development. Raw commodities,not new and innovative companies. We can’t expect business to invest in the right areas that generate the right revenue and the right jobs if we aren’t setting the direction. 

I believe that there are four major issues this Government is either unwilling or unable to confront head on. The first two are regional neglect and inequality, which I want to focus on today. The regions of New Zealand are feeling neglected, undervalued and left behind.  And as a country we will not thrive again until we turn that around.  

The third is our overreliance on commodity prices and exporting raw products. The Fonterra milk payout has effectively halved since last year and that’s taking a whopping $7.3 billion out of the economy this year.  And last week ANZ Bank forecast things are not looking much better in the season to come. 

The fourth is the Auckland housing crisis. This is a giant bubble that gives the Reserve Bank Governor financial stability nightmares, keeps first home buyers awake at night thinking they will forever be Generation Renters, and interrupts the sleep of mortgage holders outside Auckland who are paying higher interest rates than they need to. 

As I travel around New Zealand I am seeing and hearing a consistent story. In the Wairarapa this week I was incredibly impressed at the innovation and dedication I saw among small and medium sized businesses.  But I listened to a host of concerns about their struggles to attract and retain skilled staff, lack of infrastructure and training opportunities. 

Let me be clear, the regions of New Zealand are not failing, but they are being failed by the government.

We have come to understand the regional inequality as being about what is happening in regions like Northland, Gisborne or Whanganui, and there is much to be concerned about there.   But the ‘two New Zealand's’ as articulated last year by Moody’s rating agency is now really a tale about the fortunate few and the rest. 

And this is not just about where you live.  We will not thrive as a nation unless we give every citizen the opportunity to succeed.  Andrew Little has clearly stated Labour’s view that we must generate wealth before we can distribute it.  The challenge we must face up to is to ensure that the chance to generate that wealth is available to all. 

Letting geography or accident of birth be the defining characteristics of our citizen’s lives means individuals miss out or are left behind, but also means we as a country are poorer.  The OECD has joined the chorus of those who are acknowledging that a fair go for everyone means a more wealthy society.  They said last year that the increase in income inequality in New Zealand over two decades from the 1980s has reduced our economic growth rate by more than 10%. 

Addressing inequality is fundamental to our future well-being as a society.  As a recent report from an American think tank said, “for democracies to thrive rising prosperity must be within the reach of all citizens."

 The other issue that will not have escaped you is that the growth figures to this year include a record payout to our dairy farmers.  Dairy was leading the pack of a set of commodity prices that have boomed over recent years.  The April ANZ Commodity Index showed prices across a range of commodities had dropped 20% in the last year. 

In dairy the last of the $8.40 farmgate payments have already been made. The payout for the season just concluded is forecast to be $4.40. That represents $7 billion coming out of the New Zealand economy.  That's tough not just for the farmers who have to manage that, it’s also tough for the communities around them.  Our estimate is that for Nelson/Tasman that represents $81 million that will disappear from the regional economy. 

There have been some attempts in recent weeks to suggest that dairy is in fact a small part of our economy.  That is disingenuous.  I think the reaction in terms of overall business confidence in New Zealand indicates the reality.  If $81 million is not flowing into the Nelson/Tasman region that has enormous spillover to other sectors such as services and retail. 

Our over-reliance on dairy (it is one-third of our merchandise exports) and the failure of this government to diversify the economy is now a serious risk to our economic security. 

This was the blunt message that Reserve Bank Governor Graeme Wheeler delivered recently.  He joked that he does not use terms like “rockstar economy”, but his clear statement about the significant risks attached to falling dairy prices and the overheated Auckland housing market are both marks against the government’s economic management. 

I know talk of the Auckland housing crisis can be pretty boring for folk south of the Bombay Hills.  But it matters for all of us for several reasons.  While those of us from further south might wallow in the struggles of the Blues in the Super 15 this year, we do need Auckland to thrive as a city.  It is our only truly internationally competitive city, and attracts a great deal of business activity and income for our country.  

But it is, literally, bursting at the seams.  Auckland Council estimates that there is an historic shortfall of 20,000 houses in Auckland.  They need to build a further 10,000 a year to keep up with demand but in the last year only 7,700 building consents were granted.  In turn average house prices in Auckland have exploded to $840,000, rising by 17% in the last year and more than 60% since 2008.  

This matters to all of us. If the bubble bursts it will cause ripple effects across New Zealand. Domestic demand in the economy is high at the moment, and some of that is built off the apparent wealth of Auckland property owners. Moreover it is no exaggeration to say that you are paying higher interest rates today in Nelson than you should be if it were not for the Auckland housing crisis. The Reserve Bank Governor is now lowering interest rates, which were among the highest in the OECD, but it would have happened much earlier and faster were not for his fear of pouring petrol on the overheated market. 

I also know that the cost of housing in the Nelson region is an impediment to getting the skilled staff that businesses need.   While this region is still above the national average for home ownership, last year there was an 8.5% decline in housing affordability.   

While I am sure it is seen as a welcome development that Nelson is now part of housing accord with the government, we are yet to see just how those accords will deliver in terms of real affordable homes.  Somewhat disappointingly the accord plans for 300 new sections and 720 houses in the next three years, which would actually represent 20 fewer sections and 36 fewer houses consented than in the last three years. 

In any event New Zealand will not get wealthy as a country selling houses to each other or to offshore speculators who are not interested in living in New Zealand but can see a quick buck to be made.  We also will not get wealthy relying on riding the wave of commodity prices to deliver us long term sustainable growth and decent jobs.  And we cannot rely on rebuilding from disaster to prop up our economic future.  We need more than an economy built on milk, houses and disaster.

So, what would a responsible government be doing? I want to highlight four areas. 

We should be seeing the plan to diversify our economy, grow our regions, build affordable housing and invest wisely in our education and training to prepare for the jobs of tomorrow. 

Firstly, the government needs to show more urgency in diversifying the New Zealand economy to ensure we are not so reliant on global commodity prices.  And this is not just about dairying.   Up until last weekend I didn't think that there was anything that could dent my enjoyment of the Hurricanes winning run this year, but as I walk along the concourse to the Stadium in Wellington to my right is pile after pile of raw logs being sent off overseas for someone else to add value to them and sell the products back to us. We urgently need investment in new and added value industries to help grow the decent and high paying jobs of the future. 

We need investment in sectors like ICT, high value manufacturing, wood processing and biomedical science.  We need to look to the sectors that will support high paying jobs and protect and enhance the environment. 

At the same time we must re-double our efforts to support exporters and small businesses who will drive growth in jobs. Exports in the year to May fell by 5%.  Our annual trade deficit is $2.6 billion, the largest since the height of the GFC in 2009. The much vaunted promise by the National government to lift exports to 40% of GDP is now being re-written as they slip backwards below 30%. 

Secondly we need to show a real commitment to invest in our regions.  While Auckland has its place as our largest city, we will not generate the wealth and lifestyle we want for future generations with such a focus on one region.

I believe this requires an active policy of targeted financial investment by central government, support for research and development through tax credits, stronger innovation partnerships, procurement policies that give Kiwi firms a fair go, support for education, especially regional polytechnics and encouragement of positive migration to the regions. 

We need integrated regional development strategies, driven by local knowledge, supported by central government that use infrastructure, education and training resources to build  industry clusters and sustainable jobs on the strategic advantages of each region. 

Nelson is a great region, but imagine what more it could be if a government got alongside this city and this region with those sorts of policies 

-       We could have a thriving engineering cluster spawning companies making the use of those attracted to the city through an aviation maintenance hub at the airport. 

-       There would be new companies in fishing and acquaculture sprouting from the confidence given by a research and development tax credit, and the collaborations with universities and  research institutes, including Cawthron.

-       Imagine Nelson-Marlborough Institute of Technology operating as a Centre of Excellence for viticulture or the maritime industry or horticulture, attracting the best and brightest from around the country and around the world.   

-       And of course we would have the services and infrastructure to back that up - a modern hospital, good schools and decent broadband. Not just going to a region which wins in a competition but here and in other regions because it is the key to our future. 

But it is not actually about what I think is a good idea. Our approach to the regions is not about picking winners from a list of companies we know from the Koru Club - it is about backing the talent and ideas that are in the region.  It’s about forming a partnership with local government, business, and educational providers.  It's about investing wisely - not taking a punt on the whim of a Minister.

The third critical area is to make housing affordable for all New Zealanders.  While the Reserve Bank can try to deal with some of the demand issue, the government cannot outsource housing policy to them.  It is high time for the government to clamp down on foreign speculators and ensure affordable housing is being built.  

Labour’s KiwiBuild policy was our attempt to deal with that issue.  My challenge to the government is that if that is not the right answer, what is yours? Surely it can’t be to sell state houses and tinker about with the RMA?  New Zealanders deserve better than that.  

Finally, our future wealth and well-being will rely on providing the education and training opportunities to prepare for a new economy. This is one of the reasons Labour has established our Future of Work Commission that I am chairing. 

Andrew Little has asked me to lead this group to identify how we will ensure that we take the opportunities of the changing nature and experience of work.   Massive change is ahead. 47% of jobs in the USA have been identified as being at high risk from technological change.  And this is not just robots replacing forklift drivers, it is in the professions like accountancy and law.   We need to ensure our education system is preparing people for the jobs of tomorrow, and to be global citizens. 

In the coming weeks as part of the Future of Work Commission we will be releasing a series of discussion papers on technology, the security of income and work, education and training and economic development and sustainability.   A critical part of all of these is how we prepare ourselves for the jobs of tomorrow- for the jobs that have not been invented yet. 

We need a greater focus on ensuring that young people are receiving quality careers advice and that schools are supported to partner with business and tertiary providers to give them the best guidance on their next steps.  We also need to ensure that there are opportunities for all workers to train and upskill throughout their lives.  We desperately need a strategic approach to education and training to take the opportunities of the new economy. 

I grew up in Dunedin. I didn't feel that my chances in life were any less than someone who was growing up in Auckland.  My vision is for an economy that provides the opportunities I had to all our people, be they in Nelson, Northland or Northcote. 

I know we must be careful and prudent with the country's books (goodness I come from a Scottish Presbyterian background after all) but we must not believe that the economy is the end in itself. 

Our legacy should be an economy that delivers decent work across New Zealand from the scientists in Stoke, to the welder in Waimea. If you work hard and do your fair share there should be great opportunities here in New Zealand. 

Our legacy should be a pay packet that sustains individuals and families. If you do a day’s work, the money you earn should be enough to support your family, and put a bit away for the future.  We have so much going for us in New Zealand, no one should be left behind. 

And fundamentally no matter who you are or where you live our legacy should be an economy that provides hope for a better tomorrow, for you and for your community. 

Thank you.