Rt Hon Helen Clark
Prime Minister

Address to
Auckland Chamber of Commerce
Post Budget Luncheon

Sky City
Auckland

1.00 pm

Friday 19 May 2006

Thank you for the invitation once again to give this post-Budget address to the Chamber.

Our government sees this Budget as an investment Budget. It has required rigorous prioritisation. That in turn has been driven by the key three government goals we have established:

- transforming the economy,

- building opportunity and security for our families, and

- building New Zealand’s unique national identity.

These goals, and the top priority policies within them, were set out in my annual Prime Minister’s Statement to Parliament in February.

Our style in government has been to signal well ahead what our priorities and policy directions are, and then to work through them systematically in budgets and in legislation.

That’s why, in general, our Budgets have not contained major surprises, although a surprise on the upside like the scale of our commitment to the land transport programme is always welcome !

This Budget has been prepared at a time when the economy is going through a slower patch in the business cycle.

New Zealand has become accustomed to faster growth, averaging close to four per cent over the past five years, and outstripping both our major trading partners and the OECD average.

Indeed New Zealand has just been through its second longest expansion since the Second World War, creating the highest levels of employment on record.

The last six years have seen 313,000 more people in work, and unemployment cut in half.

This good run, with strong domestic and import demand and a rising currency, created imbalances in the economy, as seen in the high current account deficit. The rebalancing has seen growth slow, with Treasury’s latest forecast being for a bottoming out at one per cent growth in the year to March next. It then expects growth to pick up after that soft landing to average 3.3 per cent in the following three years.

Throughout, the government has maintained a credible fiscal position, achieving a positive net financial asset position for New Zealand, probably for the first time in our country’s history.

This year is expected to be the last for some time in which we will post a cash surplus. On present policy settings we are posting cash deficits totalling around $7.4 billion over the next four years.

As a government we’ve always looked at how we could help build a higher value economy with sustainable growth.

Over the past six years we’ve worked with industry partners to upskill the workforce, boost R & D investment, support growth strategies in sectors and regions, open up opportunity for exporters, and leverage advantage for New Zealand off major events like the America’s Cup and the Lord of the Ring movies. Looking ahead, Rugby World Cup 2011 offers similar opportunities.

Our assessment in this third term has been that we need to move to a new level in our economic transformation agenda, and we’ve embarked on a series of initiatives to do that. Some are reflected in the Budget; others have already been announced, or are works in progress.

These initiatives include:

- The major review of business taxation. Proposals for public consultation will be ready around the middle of the year.

- The major review of regulatory frameworks to identify what may be unnecessarily constraining economic growth and development. Lianne Dalziel, Minister of Commerce and Small Business will be giving a major speech on the review next Monday, and making it clear that she is particularly interested in the views of small and medium sized businesses.

- The major overhaul of telecommunications policy settings aimed at getting faster, cheaper broadband for New Zealanders.

The government’s policy announced two weeks ago is comprehensive and will make a difference. New Zealand has slipped behind many nations on a range of broadband indicators.

This matters because fast, cost effective telecommunications are critical to driving productivity and modernisation throughout the economy and society.

Our geographically isolated Western nation with its widely dispersed population needs good telecommunications more than most.

We are now preparing legislation to implement the new regime, and expect to be able to introduce a bill to Parliament early in the second half of this year.

- Modernising the transport infrastructure. Our government did inherit a huge transport infrastructure deficit, as has been all too apparent to all who live in Auckland – although we are not the only sufferers.

Up to and including last year’s Budget, we virtually doubled the government investment in land transport, and within that, investment in public transport increased fivefold.

But that wasn’t enough.

The forward programmes set out by Land Transport New Zealand in June and Transit in August were well received, but then undercut by new cost and revenue projections in February. Many of those whose region’s projects had made it on to the priority list could see hope fading again.

The government said then that the draft forecast was unacceptable, and that there needed to be certainty in the forward programme over a credible time horizon.

This year’s Budget injects $1.3 billion more into land transport funding so that the programme of activity for roading and public transport set out by Land Transport New Zealand last June, and Transit in August can proceed. This overcomes the $862 million shortfall in the National Land Transport Programme which was projected in February, and specifically guarantees the state highway programme for the next five years, as well as locking in the revenue earmarked last year for public transport going forward.

Provision for public transport this year stands at $360 million for operational and capital spending – around eight and a half times the $43 million provided in 1999-2000.

The rail network is another area in the past that has suffered from chronic underinvestment. By restructuring responsibilities for Auckland rail, we have sought to accelerate the timeframe for double tracking the Western Line, now due to be completed by 2009. We have offered to assist Auckland’s transition into this new arrangement by refunding the approximately $26 million it had already spent on ‘below track’ upgrades.

As well, within the new Budget funding, there is $425 million over the next five years to bring forward other key roading projects, which will, for example, allow the Manukau Harbour Crossing to be advanced to 2011.

This afternoon another funding announcement on top of the $1.3 billion will be made in the Waikato to tackle its transport needs.

These huge investments in transport overall are good news for Auckland, and will help immensely with the roading and public transport networks.

Central government is also engaging with local and regional government in Auckland on the Auckland Regional Growth Strategy and the Auckland Regional Land Transport Strategy.

The Regional Land Transport Strategy is required to be developed taking into account the level of funding which is expected to be available.

A trend has been developing where the strategy appears to be based on increasing levels of subsidisation from central government. Overall the Crown is being looked to for an increasing proportion of the funding, yet has had little or no say in the development of the strategy.

We are working now to see whether a better alignment between central and local government on the long term transport vision for Auckland can be achieved. If so, consideration could be given to reviewing the scale or timeframe ambitions of the Regional Land Transport Strategy, which currently envisages very large public transport investments, including rail, or providing local government with new funding tools to achieve it.

- My February Statement identified the importance for New Zealand of Auckland, our only city of international scale, succeeding.

While we are all only too well aware of the constraints and challenges Auckland faces, we also all appreciate its advantages and potential. After all the Mercer Consulting Quality of Life 2006 Survey rated Auckland fifth out of 215 cities across the world.

The challenge is to realise Auckland’s full potential. It’s good to see local leadership emerging with the Auckland Regional Council, the Committee for Auckland, and Auckland University of Technology forming an alliance around the Metro Project.

Government officials participated in the symposium for the project a couple of weeks ago and are keen to stay involved with it and the Auckland Regional Economic Development Strategy, as we have been in the work under the Sustainable Cities Programme of Action.

World class cities are platforms for growth, especially in advanced business services, and the creative and high technology industries. They are also centres of learning and innovation, and they are key to attracting internationally mobile knowledge workers. As well they must provide a quality of life which can attract and retain the best and brightest. Our environment, our arts and culture, and our recreational opportunities and services have a significant role to play in that.

- Also pressing for Auckland, and identified in my Statement to Parliament in February, are decisions on the supply of power to Auckland.

The Electricity Commission presented its draft report last month for public consultation.

This is a full and proper process which allows the views of all stakeholders to be considered.

It is also a transparent process with a great deal of information in the public arena enabling judgements to be made on where the weight of evidence lies.

It isn’t possible to state definitively what the Electricity Commission’s decision will be, but it is clear that only one outcome is acceptable – adequate and secure power supply for Auckland. As well the government is looking for energy solutions which draw on renewables as much as possible.

- That is consistent with policy development in another critical area: how to meet the challenges of climate change.

Contingency funding of $100 million has been set aside for climate change policy initiatives in the next financial year. Our policy work programme encompasses ideas for agriculture and forestry, transport and energy, and emissions trading.

Achieving greater environmental sustainability and giving substance to our clean and green image will be critical to New Zealand’s economic future. We have the opportunity to be at the forefront of environmental technologies, and to benefit from the productivity and efficiency gains and new business opportunities they open up. That is why we have positioned climate change policy within our economic transformation agenda.

- Science and research have a high priority in our agenda and that is reflected in the Budget. The government’s investment in this area is up 65 per cent since 1999, and that does not include specific large investments in research excellence in the tertiary sector.

It is innovation across our industries which will lift and sustain our living standards. This applies to the primary sectors and manufacturing as much as it applies to the new technology sectors.

Two specific funding boosts in this year’s Budget are aimed at speeding up commercialisation of our innovations from our researchers; one through $13 million more going into the Pre-Seed Accelerator Fund, and another through an extra $60 million into the Venture Investment Fund which relies for its success on collaboration with the private sector.

- As I indicated in February, the government’s investments in the economic development area are being refocused on innovation and export potential, leading up to Export Year 2007.

This has led to reallocating $64 million of existing funds into market development assistance.

Eligibility for this programme has been widened, so that companies with an annual turnover of up to $50 million are eligible. Grants can be made for up to fifty per cent of a market development project, up to a maximum of half a million dollars over a number of years.

It is critical for New Zealand that we develop more companies of scale, exporting high value goods and services to the world – and programmes like these aim to support that.

- All our Budgets have prioritised skills training, and this year’s is no exception. In our tight labour market, skills are at a premium, and we have constantly set new targets for industry training.

An extra $58 million over four years will go into apprenticeships and other forms of industry training, including the very successful Gateway programme which gives high school students work placements. That programme is rolling out to all secondary schools.

All these programmes rely on the willingness of industry and individual employers to participate. Strong partnerships have developed with government, meaning that together we are building a more highly skilled and productive workforce.

My speech today has focused heavily on the government’s economic agenda and top priority policies, and on Budget initiatives consistent with them.

As well the Budget funds important initiatives in our other two priority areas: opportunity and security for families and building national identity.

Let me mention just two major areas of investment:

- The roll out of Working for Families tax relief to three quarters of all families with dependent children. All up that package is worth $6.1 billion over the next four years – or $88.00 on average a week across the 350,000 eligible families. It is already making a big difference to family budgets.

- Health is a hungry area of the Budget, and as a former Minister of Health I know government can never do enough.

Having said that, we are doing a lot. Our investments in health are up 77 per cent since 1999. They’ve gone into:

- new hospital infrastructure,

- more operations and treatments,

- more affordable primary healthcare,

- improved mental health services,

- coping with the health and care needs of older New Zealanders,

- improving salaries to retain staff in an internationally tight labour market for health professionals, and

- focusing on children’s health.

This year, new funding is being allocated to the fight against obesity.

Our country, like many Western countries, faces the very real prospect of today’s generation of children being the first to die at a younger age than their parents’ generation because of obesity.

The problem is not confined to children; more than half New Zealand’s adult population is estimated to be overweight or obese.

This leads to health problems, many serious, and it is an issue for employers in terms of days off work and lower productivity.

Effective action will need to be built around partnerships, encompassing the health and education sectors; social agencies and communities; sport and recreation groups, and the food industry. It will be a challenge, but we are determined to take it on.

As I said at the outset, the government sees this year’s Budget as an investment Budget, investing for the long term.

Our vision and goals for the future were set out in the Growth and Innovation Framework four years ago, and we have taken a series of steps to that end in consecutive Budgets.

This year’s and this term’s policy programme to support economic transformation and modernisation is a big one, as are our goals in family and social policy and building national identity.

The Budget is an important step in advancing these programmes.

ENDS

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