Phil Goff
Leader of the Labour Party

12 May 2010 Speech

Higher Incomes. Better Jobs

EMBARGOED UNTIL 1.00PM

Thank you for joining me here.

The Labour caucus has enjoyed being in the sunshine capital and meeting a lot of people here.

If I could stay longer, I would want to spend some time enjoying the National Parks, the conservation areas and the creative industries that make this region such a tourism drawcard.

You have to wonder about the cabinet ministers who have flown over here, looked at the crisp water, the beautiful mountains and the stunning land and said, “there’s just one thing those National Parks need to complete them … an open cast mine.”

Next week, the Government will present its mid-term budget.

And the question that will be asked is what difference will it make for working families?

What will be there to increase their wages? What will it do for a family trying to pay off a house? What will it do to create jobs?

Today I am not releasing Labour’s policies. That will come closer to the elections. But I am indicating broad directions.

Labour’s vision is about putting more money in the pockets of people, and creating jobs and the future New Zealand needs.

I am going to tell you about how we could make fairer changes than National will make in the budget.

Labour has fresh ideas for creating jobs and lifting incomes by boosting exports, boosting savings and promoting a smart economy.

Labour would do things differently not only in making the tax system deliver more for people, but in the way we grow the economy.

The budget is being delivered at a time when the global economy is expected to grow by 3.9 per cent this year.

The threat of the global financial crisis is largely behind us.

New Zealand should come out of the recession faster than most.

We’re not like Greece, where the government went heavily into debt.
The last Labour Government prudently used surpluses to reduce government debt dramatically, rather than spend them as John Key and Bill English proposed.

Our growth rates exceeded those in the US, UK, Europe and Japan, and were on a par with Australia’s.

Our unemployment was the lowest in the world.

We have also been fortunate that Australia and China have remained strong economically and sustained their demand for our goods and services.

The prices we get for our commodities reached record levels in April.

This is feeding into business confidence and should help to boost government revenue and employment.

So this budget is a real opportunity for New Zealand.

It’s an opportunity to put in place long-term plans to give New Zealand a great future.

It’s also an opportunity to do something for hard working Kiwis whose wage increases last year were the lowest in a decade, and for families who are finding it tough to pay the bills at the end of the week.

The government needs to do more than simply sit on the sidelines and wait for international economic recovery to do its job for it.

John Key promised an economy that would catch up with Australia’s.

But we’re yet to see the substance of any plan to deliver on that rhetoric.

To the contrary, wages have risen faster in Australia over the last year.

Our unemployment is higher than Australia’s by a significant margin for the first time in a decade.

In the last couple of weeks we have seen the Australian Government’s initiative to increase employer contributions to superannuation from nine to twelve per cent.

This will not only boost Australian workers’ wage packages by three percent. It will also boost savings that Australians can draw on for investment in growth.

And it will ensure Australia maintains ownership of its own economy.

By contrast here National cut the KiwiSaver employer contribution from four per cent to two per cent.

And it stopped contributing to the Superannuation Fund.

In last year’s Budget Bill English asked why we would continue to invest in the Superannuation Fund.

The Super Fund has in fact returned strong growth.

Since last year’s Budget it has added $3.5 billion in value.

The Key Government’s failure to continue to invest in it has cost the government a million dollars a week in lost interest alone.

In the wake of the Australian tax inquiry one thing the Australian government specifically promised it would not do was increase GST.

John Key made the same explicit promise before the last election. And when he made that promise he spoke to those who feel the bite of recession the hardest.

But he has now indicated he will break that promise.

A rise in GST to fifteen per cent - fifty per cent higher than Australia’s rate - will be in New Zealand’s budget.

This twenty per cent rise in the rate of GST will hit small businesses with small margins on their goods and services - small businesses, who are hurting now.

It’s hard to see how higher prices will contribute to a New Zealand growth strategy.

Bank economists warn inflation here could rise by four to five per cent by the end of the year.

For hardworking New Zealanders and Kiwi families, it’s a bad time to be pushing up the cost of living by increasing GST.

Many retailers are indicating that the rise will be well over 2.5 per cent. They will use this as an opportunity to restore margins.

On top of the price increases, there are the increased costs of Government charges, like ACC.

Petrol and power prices are set to rise still further.

Power companies admit that power will continue to rise at a much higher rate than overall inflation, and the Government continues to use power companies as a source of revenue.

Mortgage interest rates will rise repeatedly over the next year as the Reserve Bank puts up the official cash rate.

The government has promised compensation for increased GST through tax cuts, but it seems these will be at two levels.

For most of the population this will be what John Key terms a ‘tax switch’. That will be what the words suggest - paying more tax with one hand through GST; and getting some back in return on the other.

The only real winners will be top income earners whose tax rates will come down from 38 cents in the dollar to 33 cents.

The highest income earners already got the lion’s share from the last round of tax cuts.

A lot of successful and clever people earn big salaries. Working hard and doing well is a good thing.

But what you have to weigh up is whether the person who got a thousand dollar a week pay rise, as a number of CEOs did last year, is the highest priority for a seven hundred dollar a week tax cut this year.

Labour will address the unfairness National is creating.

We have some options, and we will choose the most effective way to help middle and low income families.

The increase in GST will raise around two billion dollars.

There are fairer ways than National’s to transfer that back to the taxpayer.

Instead of using the extra revenue from increasing GST to cut the top tax rate, we could give bigger tax cuts to middle and low income earners. That’s what I am committed to do.

The larger the tax cut National gives to the top, the smaller the amount left over for people on the average wage.

Keeping the top tax rate at 38 cents doesn’t mean more tax - it means most people can pay less tax.

We can make the top tax rate cut in at a much higher income than the $70,000 rate where it applies today.

Labour hasn’t yet ruled out reversing the GST increase.

What I can guarantee is Labour’s package will be fairer than National’s.

For example, cutting the government’s subsidy for polluters will free up some of the two billion dollars a year that subsidy costs.

A comprehensive, low rate GST is an efficient tax.

I have always supported a low rate GST without exemptions.

With the proposed increase in GST, however, New Zealand will have one of the highest levels of consumption taxes as a proportion of GDP in the world.

That undermines the justification for not having exemptions because low and middle income families are being hit harder and harder as the rate of GST goes up.

Other countries, like Australia and Britain, exempt basic food products.

New research by the Wellington School of Medicine shows there are large positive effects from reducing the price of healthy food. People switch consumption from poor health products to healthier options.

With growing obesity among children and increasingly serious health problems in New Zealand, we should not ignore such research.

Each year New Zealanders pay GST of about $175-200 million a year on fresh fruit and vegetables.

That’s about the same amount of money as the government is raising from the increase in tobacco tax.

The tobacco tax may be justified on health grounds for discouraging smoking but it should not be simply a revenue raiser.

If that money were transferred to reducing the cost of basic food items such as vegetables and fruit, it would have a double advantage in health terms and meet equity concerns.

But there are real issues with taking GST off fruit and vegetables. We will need to be convinced that taking GST off these items would work by actually making food cheaper and easing the pressure on family budgets.

We would need to be sure it didn’t create more red tape than it is worth.

National got elected by calling for tax cuts we couldn’t afford.

But having called for tax cuts in Opposition, their record in government will tell a different story:

An increase in Goods and Services Tax.

An increase in property tax, feeding into higher rents.

A tax on innovation, through the axing of the R&D tax credit.

They’ve increased ACC tax.

Last week they increased tobacco tax.

Now they’re putting a new tax on student loans.

And Aucklanders are facing higher rates taxes to pay for the Super City.

There has never been an eighteen month period in New Zealand history when a government has imposed so many new taxes on hardworking Kiwi families.

All this to pay for tax cuts at the top.

National says cutting the top tax rate will help to keep people in New Zealand instead of emigrating.

But the reason talented New Zealanders are emigrating to Australia is not tax.

Australia’s top tax rate is 45 cents in the dollar - much higher than New Zealand’s.

They’re going to Australia for the wages.

Australians earn more than New Zealanders.

And National has no plan to increase wages.

Giving tax cuts to top earners is not an economic plan and it’s not a plan to grow wages.

There needs to be a more credible plan for the economy than a cycle lane.

Today I want to spell out Labour’s thinking.

We need a bold new approach to creating jobs and increasing incomes.

I’ve talked about making the tax system fairer - but just as important are our plans to grow the economy.

Labour will take a different approach
to savings,
to exports
to foreign investment,
to monetary policy, and
to support for research and development, and innovation and skills.

We need to boost exports and earn more overseas.

We need to boost savings so we own more of our own future.

We need a smart economy, based on skills and innovation, so that we can earn the income of countries we like to compare ourselves to.

Last night’s Budget in Australia saw a huge increase in promoting job skills.

In New Zealand, 70,000 young people languish without work, and aren’t in education or training.

We need to boost apprenticeships.

When the building industry recovers, for example, we will again face major skills shortages.

We need to boost, rather than cap, skills training in tertiary institutions.

Boosting exports and savings and creating a smart economy, in Labour’s view, are the key to creating jobs and the incomes we aspire to.

Our recovery needs to be export driven, not consumption driven.

The key to boosting exports is a more supportive monetary policy.

The independence of the Reserve Bank is crucial. But New Zealand is unusual internationally in having a single policy goal for the Reserve Bank of price stability.

The Reserve Bank of Australia, in contrast, is also required to support other objectives: a stable currency; full employment; and the economic prosperity and welfare of the people of Australia.

Labour will require our Reserve Bank here to pursue broader objectives, while retaining our full commitment to price stability, just as Australia is committed to both price stability and broader objectives.

But this alone is not enough to drive the change we need.

We need more than broader objectives; we also need a broader set of tools.

Recently the Reserve Bank has been making greater use of some of its prudential supervision tools to better support monetary policy.

Until now, the rules around banks’ capital requirements have been only weakly linked to risks around loans, and they’re not linked at all to wider economic risks.

An example of those wider risks are the asset bubbles that helped create the global financial crisis.

Monetary policy needs to play its role in not just maintaining price stability, but also in maintaining overall economic stability when there are other risks.

The Reserve Bank needs wider tools, so that we avoid the situation recently where monetary policy designed to dampen house prices simply forced up interest rates and the exchange rate for exporters.

This is a complicated area and Labour will release further information about what we are proposing later this year.
But I will say the Reserve Bank can be given more powers to promote stability in our economy.

I want to make it clear that while we want to support exporters, we won’t allow inflation to run rampant. We know families are struggling enough with prices outstripping wages.

And Labour will not allow some particular ideas that Treasury has floated in the past: Labour will not put a levy on homeowners who are already battling to pay their mortgage. We won’t give the Governor the power to vary GST.

In addition to reforming monetary policy, we also need to boost savings in New Zealand.

This is important for investment. It’s also important so we can own our own future.

Labour has a good track record of building New Zealand’s savings.

Labour created the Super Fund.

Labour created KiwiSaver.

By creating the right incentives to save the response has been spectacular.

Labour will restore contributions to the Cullen Super Fund.

And we will rebuild KiwiSaver and offer new incentives for people to save for their future.

We haven’t ruled out phasing in a universal KiwiSaver program - but that needs further work and discussion.

More of our own savings will help us own more of the profits from goods and services produced here.

But we can’t do it alone.

Foreign investment will continue to be important and encouraged.

In particular we need to attract good greenfield investment that has a net benefit for New Zealand. It can bring factories, jobs, technology and other gains - that’s good investment.

However our overseas investment legislation should not allow loss of control over strategic assets and areas which are natural monopolies within our country.

We need to ensure we maintain New Zealand control over key export areas.

We should not allow cumulative purchases of farms that would allow control over Fonterra, for example, to slip out of New Zealand.
We need solutions that harness our own capital, our own talents and brains and skills, and invest in them so that we do better at earning our way in the world.

The smart economy is the third area, with boosted savings and exports, that will drive more jobs and higher incomes for New Zealand.

We need to promote innovation, skills and adding value to our exports.

If we want to earn more overseas, we have to keep pushing the value of our exports up the value chain.

We haven’t been doing well enough at that.

It is no coincidence that New Zealand’s rate of private sector investment in research and development is the lowest in the developed world. We invest around one third of the OECD average.

The R&D tax credit Labour introduced would have lifted our R&D expenditure to two thirds of the OECD average.

National cancelled it. That has weakened our export performance and made New Zealand poorer.

Yesterday National announced some new R&D steps, but they lack credibility.

Their measures will see just a third of the R&D investment that would have resulted from Labour’s fifteen per cent R&D tax credit.

The Key government dismantled the $700 million Fast Forward fund, which the private sector had agreed to match, creating a $2 billion investment fund.

That would have produced a step-change in added-value research in the primary sector.

A year and half of energy and momentum has already been wasted, when we needed it most. More will be wasted before the latest scheme is up and ready.

Labour will restore incentives for our most innovative companies to move investment into research and development.

We’re also looking at ways to marry up our need for more innovation with our need to save more.

I will talk more about this later this year.

But there is no doubt that New Zealand has the talent to be a smarter economy.

We are in the top five in the world for the number of published papers per scientist.

But what we are not as good at is commercialising that science into products that create higher value for New Zealand.

We export too many raw logs, and not enough high value products from transforming those logs here in New Zealand.

Biofuel and finished wood products are much better value for New Zealand than the export of raw logs.

We need to back the companies and talents we have here.

Take the skilled workers we have at Dunedin’s Hillside and Petone’s Woburn rail workshops, who are already building high quality railway carriages.

National won’t even let them tender to build new rolling stock for KiwiRail.

This could create up to 1300 jobs, growth in GDP of up to $250 million and up to $80 million of tax revenue.

But National is happy to see the work go offshore without even a fight.

Labour backs Kiwi firms because we believe in them and their skilled workers.

And we believe in the creativity happening in our regions.

Here in Nelson there are some good examples.

The Cawthron Institute, the Wakatu Incorporation and Crop and Food Research are collaborating on aquaculture research right here. Some of our MPs visited this morning.

Growing oysters, mussels and paua sets up this region to provide high quality, high value product to markets around the world.

Nelson is also home to some of the great innovators in clean technology.

People here are developing biofuels from algae, improved solar technology and high spec communications technology.

We can export knowledge in these areas faster than we can export commodities.

That is why I am committed to expanding New Zealand’s investment in clean technology.

New Zealand’s future lies in environmental sustainability and economic development going together.

Ill-conceived proposals to rip up New Zealand’s protected conservation estate, with most of the profits going overseas, damages New Zealand’s brand and cannot be part of New Zealand’s future.
Low carbon technology is an enormous opportunity for New Zealand.

It not only helps to reduce climate change - it can be source of new jobs and business opportunities as well.

In 2008 a UN study estimated 2.3 million people were employed in renewable energy around the world.

By 2030, there will be that many employed in wind energy alone; three times as many in solar energy; and potentially five or six times as many in bio-fuel related industry and agriculture.

These are opportunities that businesses in New Zealand are already working in - and the government needs to get in and work alongside them to ensure we harness our share of the opportunities.

By investing in technology and innovation, and contributing to R&D, along with skills for technology industries, New Zealand can secure our piece of this exciting, job-rich growth.

Today I’ve focused on two related topics.

The need to keep the cost of living affordable when National implements its tax switch; and the urgent need to create jobs and increase incomes for New Zealand.

National needs to do more than focus on tax cuts for the highest earners and a tax switch for the rest.

Labour’s commitment will be more money in the pockets of the many, not the few.

And more than that, we have a long term vision for growing our economy, creating jobs and generating a better future for New Zealand.

We will have a focus on the future.

On earning our way by being smarter, not just cheaper.

We will strengthen the incentives to help people save, and to innovate more.

We will increase skill levels and change the way monetary policy and foreign investment rules work for New Zealand.

Over time, our incomes will rise if we invest in New Zealand.

Our incomes will rise if we invest in people.

Labour wants a government focused on jobs, incomes, the cost of living and making a better future for New Zealand.

Labour wants a budget that invests in the future and positions us for what’s best for New Zealand, instead of focusing on photo opportunities.

And that is what we are committed to fighting for.

ENDS

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