Source: New Zealand Government
Kia ora koutou
Greetings from Wellington. I am sorry I can’t be with you in person today, but I’m delighted that I can talk to you virtually.
I’d like to begin by acknowledging your chair Bill Goodwin and members of your board.
I’d also like to acknowledge the fitness of your conference theme: “Adaptability – highlighting the imperative for both corporate and government investment to be more considered and impactful in light of the financial constraints on governments and the increased costs of capital.”
That’s quite a mouthful. But, as a finance minister who inherited a structural deficit and a challenging set of circumstances, both domestically and internationally, those are themes dear to my heart.
New Zealand, like other countries, has faced significant economic challenges in recent years. Many businesses and households are doing it tough. High inflation has increased household costs and squeezed business margins.
However, the two most recent ANZ Business Outlook surveys and the New Zealand Herald’s Mood of the Board room survey suggest you and your colleagues in the business world are increasingly positive about the outlook for the future.
The green shoots of business confidence are re-emerging.
I share your optimism.
We’ll get the latest update on inflation tomorrow when Stats NZ releases the September quarter inflation data, but all the indications are that inflation is tracking back down to the Reserve Bank’s target range of 1 to 3 per cent.
Certainly, that’s the Reserve Bank’s view. It’s decision last week to drop the Official Cash rate by 50 basis points was a welcome fillip for businesses and households.
It followed the 25-basis point drop in August.
Lower interest rates mean families get to keep more of their money and they increase the opportunities for businesses to invest, innovate and expand.
How people are impacted by interest rate reductions will depend on the terms of their mortgages – whether they are floating or fixed and, if fixed, for what length of time and at what rates.
The good news is that right now roughly half of New Zealand’s mortgage lending is either fixed or floating for a period of six months or fewer.
That means the impact of a lower official cash rate will flow through to households much faster than might typically be the case. And the impact will be significant.
To give one example, a family with a 25-year, $500,000 mortgage could expect to be just over $100 a fortnight better off if its rate dropped from 7 to 6.25 per cent.
Add that to the tax relief that took effect on 31 July and the FamilyBoost childcare payments that many households are now receiving, and we can confidently say that large numbers of families are now significantly better off than they were a year ago.
Budget 2024 was another important step in the right direction. It put the Government’s books on a credible path back to fiscal sustainability.
The Crown accounts are forecast to return to surplus in 2028 and net core Crown debt is forecast to start trending down as a percentage of gross domestic product the same year.
This does not mean that our financial and economic challenges have magically evaporated. It also does not mean that we can pat ourselves on the back and relax the focus that we have re-introduced on fiscal discipline.
Fiscal discipline is not a one-off, one-Budget affair. It is an ongoing state of mind.
It’s not easily achieved, but it is fundamental to our prospects.
There is no time in recorded history in which a country has enjoyed a continuous period of economic prosperity without a stable macroeconomic environment.
What does that mean in practice? It means low inflation, a balance between government expenditure and revenue and a balance between domestic demand and exports.
In other words, governments cannot live beyond their means for sustained periods of time without damaging the future prospects of their citizens.
Our Government doesn’t just think about constraining future government expenditure. We are equally intent on driving more value from the significant investment the Government already makes across the economy.
That means delivering more effective management of the considerable assets we own and making better choices about where and how we use taxpayers’ money.
For me, the ultimate purpose of strengthening the economy and improving the state of the books is not to change the colour of the ink in those books. It is to improve outcomes for people.
As we look ahead, the Government is squarely focused on improving the growth prospects of the New Zealand economy.
Growing our economy faster requires us to improve the attractiveness of New Zealand as a launch place for business and exporting, it means attracting and retaining people who choose this as the country where they want to develop and deploy their talents, to start new businesses, to expand existing ones, to invest and drive innovation.
It’s a competitive world, and so New Zealand needs to constantly improve our proposition to the world.
As we look to the future and consider a globe grappling with challenges to climate, peace and stability, our country’s fundamentals are excellent.
In an unstable, hungry world, we are a peaceful, food-producing country blessed with secure borders, strong institutions, a strong sense of community, well-established trade relationships, a reputation for producing innovative and enterprising people, and abundant natural resources.
Even so, our country has not been making the most of these advantages.
We still have much to do to develop our human capital, to make this a more attractive place to invest, to boost our trade with the world, to encourage innovation and harness new technologies, to ensure we have a foundation of world-class infrastructure, and to reduce the regulatory and bureaucratic static that can hamper the deployment of good ideas.
The Government’s reform agenda is about realising the untapped potential we see in so many dimensions of New Zealand life.
We know that to be successful in driving growth we need you and your colleagues in the business community on board.
The previous government distrusted private capital and discounted the value of private sector innovation.
This Government’s attitude is different.
We recognise that you have a critical role to play in innovating, investing and developing markets. Our role as government is to create the framework that encourages the business sector to invest, innovate, employ and take risks.
Accordingly, our growth agenda focuses on five key areas.
They are not just about the next few years, but about the next few decades.
First, we have to start with our people – human capital.
We as New Zealanders have a deserved reputation for innovating, rolling up our sleeves and getting on with things. And we still score relatively well in international education tests, but not as well as we used to.
That is why Education Minister Erica Stanford is refocusing the education system on the core skills that make the most difference to kids’ prospects – reading, writing and mathematics.
She is doing so not just to improve the economic outlook but because lifting educational achievement is the best thing we can do to address social inequality. Education has the power to transform lives.
Making better use of our human capital also requires us to deliver more effective interventions for those citizens who may be left behind – individuals, families and communities whose lives are disrupted by difficult childhoods, educational under-achievement, unemployment, violence, crime; people whose innate human potential goes unfulfilled.
This is where our work in social investment comes in. Our Government wants to better harness the considerable resources New Zealand already invests in well-intended interventions for New Zealanders in need.
We want to devolve more power to the non-government organisations and iwi who often know better how to deliver for the needs of their community, and who are eager to act on data and evidence about what works for who.
Our social investment agency is now up and running, is developing prototype social investment contracts, designing a social investment fund and working across Government to take a more rigorous approach to the social investments we make.
Second of the themes in our reform agenda is trade and investment.
Congratulations to Trade Minister Todd McClay for last month concluding the negotiations for New Zealand’s fastest-ever free trade agreement with the United Arab Emirates.
The negotiations, which will save New Zealand exporters millions of dollars, took just four months.
There will be more agreements to come.
And we are looking not just at growing our exports, but, equally importantly, at improving capital flows into New Zealand.
The Organisation for Economic Cooperation and Development (the OECD) has identified our foreign investment regime as one of the most restrictive in the developed world.
As a result, our stock of foreign direct investment is equivalent to about 40 per cent of GDP which compares to the OECD average of about 50 per cent.
This low level of investment not only reduces our opportunities to grow, it also slows our access to frontier technologies like artificial intelligence which are changing the way our competitors and trading partners operate.
Foreign direct investment is recognised as a key vector for the transfer of cutting-edge technology.
We’ve taken initial steps to address this imbalance. Earlier this year Associate Finance Minister David Seymour directed the Overseas Investment Office to administer the overseas investment regime in a way that:
- minimised compliance costs;
- imposed a burden no broader than necessary; and
- expedited application processes.
As a result, every consent application received and processed after his directive came into effect on 6 June has been decided in under half of the statutory timeframe.
You can expect to hear more from us on this.
The Government will make a new round of significant reforms to the Overseas Investment Act next year. We want to put out the welcome mat to investors who want to help grow this country.
Third, science and innovation.
New Zealand has a proud history of scientific innovation and putting those innovations to good use.
In the 1880s the foundations of the New Zealand meat and dairy products industries were laid by the entrepreneurs who took advantage of developments in refrigeration technology to successfully ship frozen meat and dairy products to Britain for the first time.
More recently, Sir Peter Jackson, Dame Fran Walsh and Sir Richard Taylor have made Wellington the global centre of film special effects, Sir Peter Beck’s Rocket Lab is leading the world in the development of small, low-cost rockets and the development of a disease resistant strain of golden kiwifruit by scientists at Plant and Food Research has turbo-charged the kiwifruit industry.
I could go on – Ernest Rutherford, the Hamilton jetboat, bungy jumping… you get the picture. We need more of this sort of innovation.
The Government is doing its part.
Judith Collins as Science, Innovation and Technology Minister, has announced the outdated, effective ban on gene technology will be scrapped by the end of next year.
Doing so will enable researchers and companies to further develop and commercialise their innovative products, improve health outcomes and help New Zealand to adapt to climate change. Ending the ban has the potential to deliver massive economic benefits to New Zealand.
Judith is overseeing a shake-up of the state science system to better focus it on our economic needs and commercial opportunities.
And she is championing efforts to increase the uptake of artificial intelligence by New Zealand businesses as well as efforts to make it easier for businesses and people wanting to interact with government agencies to access government information and support by using AI.
Wearing another of his hats, Todd McClay announced earlier this year as agriculture minister that the Government was partnering with the a2 Milk Company, ANZ and ASB to put another $18 million into AgriZero, the joint venture established to boost New Zealand’s efforts to reduce agricultural emissions.
The injection took total funding for AgriZero to $183 million over its first four years, half of which is coming from the Crown. This public-private partnership approach is one we want to build on.
Fourth, regulation and competition.
It sounds dry but removing red tape and making this an easier place in which to get things done really matters, from fixing up the Credit Contracts and Consumer Finance Act (CCCFA), to improving building consent processes to having more pro-competitive prudential regulation.
One of the most significant regulatory reforms our Government is making is removing the burden that the Resource Management Act has imposed on New Zealand.
That law has held back housing development, pushed the dream of home ownership out of reach of many young Kiwis, inhibited development and held back productivity and growth.
We are fixing the Act, and we have started with the fast-track regime announced by Infrastructure Minister Chris Bishop which will speed up consenting for 149 housing, infrastructure, renewable energy, mining, aquaculture, farming, and quarrying projects.
In the process, the new regime will deliver measurable benefits to regional New Zealand and help to stimulate growth nationally.
Fixing the Act does not mean we are throwing away environmental protections. But it does mean we are getting rid of the unnecessary red tape and delays that have held New Zealand back.
Improving New Zealand’s competition settings is equally important. In its most recent survey of the New Zealand economy, the OECD highlighted the importance of this work, given the small size of our population and the tendency for sectors to become dominated by a small clutch of players.
International experience shows that competition is one of the most important drivers of long-term growth and productivity.
You’ll have seen that our Government is taking up the recommendations of the recent Commerce Commission inquiry into banking competition.
We are concerned that the two-tier oligopoly has meant Kiwis are missing out on the competitive pricing and services they deserve from their banks.
I have asked the Treasury to engage with Kiwibank’s parent company on options for raising new capital to enable it to be a more disruptive competitor for the big four banks.
Potential sources of investment include KiwiSaver funds, New Zealand investments funds and everyday New Zealanders. I will take proposals to Cabinet later this year.
We are also alive to challenges in the grocery and electricity sectors.
Finally, infrastructure.
New Zealand has an infrastructure deficit that is holding back productivity and that has been worsened by a poor track record of planning, consenting and delivering major projects.
We’re working to fix that, by implementing tried and true approaches from more successful economies.
We hear what business is saying. You want an enduring framework and an enduring pipeline. So do we, and we are applying lessons learned in Australia to our infrastructure reforms.
One of these is the importance of bipartisanship. Given the long-term nature of investment in infrastructure it is desirable to have as much buy-in as possible from different political parties.
To that end, Infrastructure Minister Chris Bishop has written to the infrastructure spokespeople of each party represented in Parliament inviting them to be briefed by the Infrastructure Commission on the development of a 30-year National Infrastructure Plan.
Chris is also proposing that Parliament hold an annual special debate on the plan. The debate won’t change the content of the plan because it will be developed independently, but the debate will show where parties agree, where we don’t, and where there is room for compromise in the best interests of New Zealanders.
It will come as no surprise to you to hear, that a National-led government sees private capital as key to funding our ambitious work programme and closing New Zealand’s infrastructure gap faster.
We are currently in the process of refreshing the policy frameworks that enable private capital to invest in Crown infrastructure.
This includes the public private partnership (PPP) framework and unsolicited proposals guidance. We look forward to working further with you on the development of the pipeline.
I’ll stop now to leave some time for questions.
You can see from the steps we’ve taken and the priorities I’ve outlined that this is a government that is hungry and ambitious for New Zealand.
We feel your sense of urgency, we value your expertise, connections and energy, and we want you on board as we seek to tap New Zealand’s untapped potential.
You want bold and I want it too.
Together, let’s make this the best country in the world in which to do business and raise our families.