Source: NZ Music Month takes to the streets
Tēna koutou kātoa. Greetings everyone. Thanks for coming.
Thank you Sharesies for making the space available.
You are exactly the sort of business we need more of to create opportunities for the next generation – Sharesies was started by smart people, who identified a gap in the market, harnessed technology and went about changing the way in which many New Zealanders invest.
In just a few years you’ve grown from a tiny operation employing a handful of people to a business worth more than half a billion dollars, employing more than 200 people and expanding its reach to Australia. Hopefully, over time you’ll go further.
That’s a good news story for the people who work here, for the communities your incomes support, for the customers you serve and for our economy as a whole.
Sharesies is also an inspiration to other Kiwi entrepreneurs, including many in New Zealand’s booming Fin-Tech sector, which grew more than 20 per cent in the past year.
I want to see more successes like this in New Zealand. When New Zealand entrepreneurs and startups do well, they create more and better paying jobs, more tax revenue to support government services, and more opportunities for us all.
That mission: driving economic growth and creating the conditions for business success, is at the heart of this year’s Government Budget.
Let me be clear, I don’t want growth just for growth’s sake, it’s much more than numbers on a chart for me. I want growth so that our kids, and future New Zealanders can enjoy the better choices, opportunities and standard of living we all aspire to and that too many Kiwis are missing out on today.
On Thursday next week I’ll set out the full details of our Budget. It will detail the Government’s specific spending and revenue choices, key new infrastructure investments, the path for borrowing and debt and our plans for strengthening the fundamentals of the New Zealand economy. I’m looking forward to delivering it.
In a recent speech I detailed the difficult context in which the Government is delivering this year’s Budget. New Zealand has gone through a tough few years of high inflation, high interest rates and little to no real growth. The Government has been running big deficits and accumulating debt and just as our economic recovery has gotten underway global events have conspired to make things harder.
That’s just reality. We can’t wish it away. Nor should we use it as an excuse to shy away from making choices now that will set New Zealand up better for the longer-term.
Today I want to talk a bit more about that longer-term picture and detail one specific Budget initiative that shows the Government’s commitment to sustained and long-term growth.
Because Budgets shouldn’t just be about the short term – who is getting what. Yes, there are a number of initiatives in the Budget designed to address the immediate issues of the here and now.
I am acutely conscious of the cost of living challenges many Kiwis are facing today and the hard yards so many people have gone through over these past few years. It’s essential that our Budget sustains the government services and supports they rely on, even though money is tighter than ever. Our Budget is built on a series of careful choices to ensure that’s possible, that we provide the funding needed for health, education, other vital public services and essential social supports.
But, as a responsible Government, we also need to be thinking ahead and addressing the structural challenges confronting our country. Our Budget also takes careful steps to do that, and that’s what I want to speak a bit more about today.
There are three key long-term challenges for New Zealand that I spend a lot of time thinking about: They are productivity, social mobility and the ageing of the population.
These are issues we need to be awake to now, lest we make life much harder for the people who follow us.
Let me make a few remarks about each of these challenges.
I’ll start with productivity. Productivity is a key indicator of economic performance.
The most common measure of productivity is labour productivity which measures output per unit of time worked.
In New Zealand labour productivity has averaged just 0.3 per cent a year over the past 10 years. That is low by historic standards and low in comparison with our international peers.
There’s no doubt Kiwis work hard, and in fact we work relatively big hours. Our challenge historically has been that we just don’t generate as much for that effort as those in some other countries.
Our labour productivity levels rank near the bottom of OECD countries, well behind those in Australia, Canada, the United Kingdom and the United States.
This rankles me. Not just because I’m competitive by nature, but because I think New Zealand has so much intrinsically going for it when compared to those countries. New Zealand can and must do better in the productivity race.
Why does low productivity matter? Because productivity determines how competitive our businesses are. The more competitive businesses are, the more people they can hire and the more money they can pay in salaries and wages. That in turn determines how fast our country can grow, and the revenue we have available for investing in the things that matter – like cancer drugs, education programmes, hospitals and Police.
What are the causes of New Zealand’s low productivity rates?
Treasury identifies three key problems.
First is low capital intensity, that is the machinery, tools and technology available per worker. More capital per worker typically means higher productivity and wages. The increase in New Zealand’s capital intensity has slowed over time from 1.9 per cent per year between 1997 and 2008 to 0.7 per cent between 2012 and 2023. Basically, our workers have less access to the machinery, innovation and technology that would allow them to be more productive. Our Budget will take steps to address that.
Second is low rates of foreign direct investment. This restricts the access Kiwi businesses have to the capital they need to grow and the world-leading know-how they need to thrive. It slows uptake of innovation and best practices. Our Budget will take steps to address those issues too.
Third is export intensity. By international standards relatively few New Zealand businesses derive large portions of their income from exports. This reduces the scale of New Zealand businesses, competition and opportunities to learn.
The good news is, despite all the global shenanigans playing out, New Zealand is in the midst of an export-led economy recovery. Dairy farmers, horticulturalists, meat producers, all are doing well. In recent years New Zealand entrepreneurs have broken new ground in fields like space, film and accounting software.
Our Government is ambitious to build on this export success – with a stretch goal of doubling New Zealand’s exports by 2030. Our Budget will take further steps to drive that work forward.
The thing with all these underlying productivity challenges is that there’s no quick fix, or easy road to success. It’s about doing lots of things well, over successive Budgets, keeping our eyes on the big prize while we deal with the here and now.
Budget initiatives in this area won’t make your household budget bigger today, but, over time, they are essential to growing the household budgets we have in future.
The next thing big challenge I want to talk about is social mobility. It’s a very Kiwi concept. The idea that no matter what background you come from, ours should be a country where with hard work and good choices you can have the opportunity to succeed.
That’s why our Government is putting so much emphasis on improving education achievement in our schools. Getting back to the basics of reading, writing and maths. And financial literacy too! Those skills are tickets to the game of life. We owe it to each and every Kiwi kid to make sure they leave school with those critical skills.
A desire to improve social mobility is also why our Government is revitalising the social investment approach developed by my predecessor Bill English.
Successive governments have spent huge sums trying to tackle the entrenched disadvantage that blights lives, pushes up costs for other New Zealanders and fuels criminal offending.
In addition to core social supports, government agencies collectively spend around $7 billion per year buying social services designed to deliver better lives for those with particularly challenging lives.
However, despite the best intentions of all involved, this expenditure cannot be described as a success. There are some fantastic examples of lives being turned around, but the overall picture is grim. Too many Kiwis are trapped in cycles of inter-generational disadvantage. We are spending more on ambulances at the bottom of the cliff than fences at the top.
Data now give us a very good ideal of those at greatest risk. We also know that intervening early increases the prospect of success. There are some incredible community and iwi organisations who know what to do, but too often they’re held back by the frustrations of government bureaucracy and short-termism.
We can do much much better here.
Shifting a young New Zealander off a life of welfare dependency and, potentially criminal offending, greatly reduces future costs for everyone else. But even more importantly it gives that New Zealander a chance to lead a fulfilling, productive life. We want that for all our kids.
Later this week I’ll announce an initiative in this year’s Budget that is designed to do just that.
The third big challenge I think about is demographic change, more specifically the ageing of our population.
Kiwis are living longer – this is something to celebrate, but it also has an economic consequence as we seek to ensure people have the income and financial security they need in retirement.
There’s two things I think about here: one is KiwiSaver and the other is Government Superannuation. Let me make a few comments about each.
I’m delighted to see how many Kiwis are embracing KiwiSaver as a way of saving – for a first home and to supplement their income in retirement.
KiwiSaver membership is high – with more than 3 million members, representing around 96% of the working age population. Fund balances differ but most working Kiwis choose to make regular contributions to their funds, matched by contributions from their employers.
KiwiSaver has become an increasingly important tool for people choosing to buy a first home – with around 42,000 people using their KiwiSaver funds for this purpose in the past year.
It’s also an increasingly important supplement to support people’s incomes in retirement.
The other good news story here is that the Reserve Bank estimates around 40 per cent of all KiwiSaver balances are invested in New Zealand-based financial products and assets.
I want to acknowledge the work Sharesies has done to promote KiwiSaver uptake and your efforts to improve Kiwis understanding of how it can support their financial security.
I share your mission. I want to see KiwiSaver balances continue to grow and our Budget will contain steps to support that mission.
Let me now turn to New Zealand Superannuation.
In 2000, there were about 6.5 people of working age (15 and over) for every superannuitant. Today there are about 4.7 people of working age for every superannuitant. By 2050 there are expected to only be about 3.6 people of working age for every superannuitant.
At the same time, superannuation costs are increasing both in dollar terms and as a proportion of GDP. Gross expenditure on super in 2000 was $5.1 billion or 4.4 per cent of GDP. By 2050 it is expected to be $71.7 billion or 6.5 per cent of GDP.
This leaping cost will play out in this year’s Budget. New Zealand Superannuation costs will rise from $23.2 billion this year to $29.0 billion in 2028/29.
Put this together with the cost of healthcare, which increases every year, and it’s clear we need to be earning more as a country to support this growing cost.
In the coming years, increasing superannuation costs will be partially offset by withdrawals from the Superannuation Fund which was established to help smooth superannuation costs between generations.
We are now approaching the time when the Super Fund is big enough to ensure that withdrawals, rather than contributions, are the normal outcome each year.
This is not a Government decision, it is driven by a formula in the relevant Act.
In something of a milestone event, the first withdrawal is forecast to happen in 2028 – a very modest withdrawal of $32 million.
In the short term there will be some bouncing around between withdrawals and contributions.
But from 2031 onwards, projections show that withdrawals from the Super Fund are expected in every year.
Withdrawals help cover the costs of Superannuation, so taxpayers don’t face the full cost each year.
This does not mean that the Super Fund will get smaller. Far from it. The Fund currently has $80 billion of investments. On reasonable assumptions, Super Fund returns will outstrip withdrawals, and the Fund will continue to get bigger every year.
This brings me to the announcement I want to make today.
As part of its investment activity, the New Zealand Super Fund has invested $300 million in a venture capital fund called Elevate.
The fund was established in 2020 to support high-growth tech-based startups in New Zealand.
The fund was created to fill a funding gap at the so-called Series A/B stage of startup funding – the point at which startups typically need $2–$20 million to scale beyond early seed funding.
The Elevate fund operates as a fund-of-funds. That is, it invests not directly in startups, but in private venture capital funds which must also attract private co-investment.
In doing so, it supports the commercialisation of science and technology and helps export-focused startups to attract global investment. It also helps to attract global investment to New Zealand by showing there is a pipeline of companies reaching the Series C stage.
The short-term goal is to increase startup funding. The long-term goal is to help build a self-sustaining venture capital market in New Zealand in which returns from previous investments fund future investments.
The results from Elevate’s first five years of operation are positive.
It has committed $221 million across nine funds and attracted $536 million of private capital – a ratio of 2.4 dollars of private equity for every $1 committed by the fund.
This has led to $440 million being invested in 123 startups across sectors like software, clean-tech, and med-tech.
There have been some significant successes. I’ll give you a couple of examples.
First, Dawn Aerospace which is developing reusable spaceplanes and non-toxic satellite propulsion systems to make space access more sustainable and affordable.
In 2022, the Elevate fund helped close a $22m funding raise for Dawn with a number of local Venture Capital funds.
This was instrumental in bridging the gap to a larger fundraising round of over $100m.
Since then, Dawn has expanded operations to France in 2023 and established a European facility in the Netherlands, all whilst still being run out of Christchurch.
26 satellites, 122 thrusters and 3 launchers later, Dawn Aerospace is at the cutting edge of its sector with an ever-growing global presence and domestic economic impact.
Second, Halter which has created a smart collar for cows that uses GPS, sound, and vibration to guide livestock, allowing farmers to manage grazing, shifting, and monitoring from a phone.
The collar is transforming day-to-day farm operations.
With the help of Elevate backed funds, Halter raised $32m in a Series B funding round in 2021.
In the time since, Halter has tripled its workforce to meet growing demand in markets including Australia and the United States.
It has since attracted further Series C fundraising and is continuing with its plans to revolutionise farming.
In time, the Elevate fund is expected to become self-sustaining with the returns from previous investments funding future investments.
However, the fund is not yet self-sustaining.
Therefore, I am announcing today that the Government is committing an extra $100 million to the Elevate venture capital fund at Budget 2025.
This will be funded through a combination of the 2025 contribution to the NZ Super Fund of $61 million, topped up with an additional $39 million from the Budget 2025 capital allowance.
This follows the approach taken by the previous government when the Elevate fund was established. The initial government contribution was funded from the Crown’s contribution to the Super Fund.
The Government wants to see more companies like Sharesies capitalise on New Zealand talent and grow from small beginnings to create opportunities for other New Zealanders and contribute to the New Zealand economy.
Let me finish on an optimistic note.
The international order is undergoing profound change. We are seeing a shift from rules to power, from economics to security and from efficiency to resiliency.
None of this is good news for a small, remote nation that relies on trade for prosperity.
But New Zealand is blessed with abundant natural resources, safe, secure, borders, strong institutions and decent, smart, resilient people. Our best years are ahead of us.
The job of government is to unlock that potential, for New Zealanders today and for New Zealanders in the years ahead. Next week’s Budget will be the next step in that process.
Thank you for listening.
I understand we have time for a few questions if you have any.
MIL OSI New Zealand News –