HON PHIL GOFF
Leader of the Opposition

Growing New Zealand

Federated Farmers speech

10.30AM Thursday, 24 June 2010
Ascot Park Hotel
Invercargill

Thank you for the invitation to join you today.

Anyone who has spent as much time as I have arguing New Zealand’s case for trade access overseas knows how important farming is to our success as a country.

Farming provides the bulk of our earnings.

And I’m under no illusion about the daily challenges of making sure those earnings are high enough to sustain the country’s economy.
It’s not easy when we still face barriers in many markets, and climatic problems such as drought; yet for all the challenges farming has faced over our history, it continues to be the bedrock of our economy.

If I were to use a farming metaphor to describe New Zealand at the moment, I would say we are in what should be a good growing season.

The world economy is recovering from the global financial crisis.

Prices for our commodities are at record levels.

The crucial question for New Zealand is how we can ensure we get the best returns from this recovery.

How can the improving international economic conditions ensure better returns for the productive sector and higher incomes for New Zealand.

Labour’s vision for jobs and incomes relies on a thriving productive economy.

I’m here to challenge the National Government’s way of growing the productive economy.

To achieve our objectives as a country, we need more than a tax switch and a cycle lane.

Whatever you think of the switch between personal tax and GST, it is hard to see how that is going to grow jobs, and grow the wealth of New Zealand.

And the Budget commentary makes clear that it won’t.

Labour’s got a different and better vision: it’s about harnessing our capital, our talents and brains and skills, and investing in them.

Labour believes we need to invest more in the things that drive success in our productive sector.

For a start we need a monetary policy environment that better supports our exporters.

We want to open more opportunities in our global markets.

We want New Zealanders to save more, and to use our own capital to grow more. That has huge advantages for our future compared with remaining dependent on foreign savings, which will see wealth transferred out of this country and the loss of ownership of our assets.

We need to increase our levels of innovation and skills, to grow wages and create more jobs

I want to talk about these things today.

I want to take you back a year ago, when New Zealand faced the global financial crisis.

The world economy was faltering, and markets were weak.

Prices for our export commodities fell.

Thousands of farmers were under real stress. Many were carrying high debt, after converting to dairy, or borrowing against land prices driven higher by cyclical high commodity prices.

As prices dropped, equity dropped. Some experts calculated as many as one in five farmers suffered mortgage stress.

At a time when rural debt totaled $45 billion dollars, interest rates one per cent higher than they might have been removed $450 million from farmers’ bottom lines.

Persistently high interest rates have far too long been imposing significant costs on our economy.

They put our export businesses at a disadvantage against overseas competitors, who borrow more cheaply.

At the same time, foreign investors with access to cheaper capital have a head start over New Zealanders.

Kiwis have to borrow at a higher rate when we bid for a Kiwi business.

What we need is policy that better supports exports, and better supports investment in job-rich production and enterprise.

We are in a new economic environment.

We are more dependent on our exports than ever before.

But our economy is out of balance.

Our dollar has been one of the top dozen most traded in the world.

Our dollar is traded more than the Mexican peso and the Singapore dollar. It’s traded more than the South African rand, more than the Indian rupee. More than the Brazilian real.

These are currencies of economies much larger than ours.

The heavy trade in our currency comes at the price of a highly volatile Kiwi dollar.

And the volatile Kiwi dollar makes the business environment riskier for you and for others involved in export business.

It will take more than a single policy response to fix these problems.

We can take pressure off interest rates by supportive policy at home.

We can invest to grow productivity through better skill and better R&D.

And we need to complement these with a more supportive monetary policy.

Change to our monetary policy will help to rebalance our economy.

Change to make our export sector more competitive relative to other sectors internally.

And change to become more competitive internationally.

Labour will make some changes to the way our monetary policy works in a way that is progressive rather than radical.

We won’t change: the independence of the Reserve Bank. That is necessary, because without it decision-makers lose confidence that policy will be predictable and stable.

The inflation focus of the Reserve Bank is crucial too.

Inflation hurts the tradeable and export sector even more than a high and volatile exchange rate.

It can encourage speculative investment, instead of investment in capital and is devastating for those on fixed.

But we will make other changes.

We will require the Reserve Bank here to pursue broader objectives, while retaining our full commitment to price stability.

New Zealand is unusual internationally in having a single policy goal for the Reserve Bank.

The Reserve Bank of Australia, in contrast, is also required to aim for a stable currency, full employment, and the economic prosperity and welfare of the people of Australia.

I can tell you today I have already had a bill drafted and ready to go to set the same outcomes for our Reserve Bank.

Over the economic cycle that should produce more stable and supportive monetary conditions.

In addition to broader objectives, Labour wants to give the Reserve Bank a broader set of tools.

It needs to be able to reduce inflationary pressures without slamming farmers and other producers by increasing interest rates and driving up the Kiwi dollar.

For example, we are looking at greater use by the Reserve Bank of prudential supervision tools. This means the tools the bank has to regulate banks’ capital adequacy.

In the past, the Reserve Bank has only used this power to weakly control risks to loan books.

It hasn’t regulated banks’ overall lending with respect to wider economic risks.

This will change. The Reserve Bank can better respond to asset bubbles like those that helped create the global financial crisis.

If the Reserve Bank had better powers, it wouldn’t need to crunch farmers and other exporters across New Zealand to restrain house price bubbles in Auckland.

In the new economic environment, we have to do more to make sure we can pay our way in the world.

Every car we buy, every barrel of oil we import, the clothing we wear, the imported food we eat, and consumer durables we use has to be paid for by the goods and services we sell to the world.

A more supportive monetary policy is one step we will take to help exports and bring our current account deficit into balance.

And if we want sustained advantage then we have to invest so that our productivity is higher for the long term.

Two thirds of what we sell is derived from our primary industries.

So for New Zealand to do well, our farming and other primary industries have to do well.

Strong global commodity markets are helping for now.

But we need to lock in a sustained advantage. We can’t just rely on commodity prices staying above their long term average.

We need to keep selling more products that attract a price premium.

We need to develop markets and production methods that increase returns.

That results from more skills.

It results from better capital structures.

And it results from innovation - from investment in science and in research and development.

When the Labour Government left office we had two far-sighted policies in place to help drive innovation:

We introduced research and development tax credits, which created an incentive for businesses to innovate more.

And we put $700 million into the Fast Forward innovation fund.

Then we signed a heads of agreement with organisations like Fonterra, Meat & Wool, Dairy New Zealand and others.

They agreed to match the government investment over approximately five years to ten years.

All of that investment was aimed at achieving a step-change in the success of our exports.

And the first thing the National Government did on getting elected was dump the lot.

Eventually we got a primary partnership that represents a huge cut in funding for science from what was planned.

Eighteen months of momentum and development time was lost while nothing happened.

Those are years we will never get back.

Forty jobs were cut at AgResearch.

AgResearch cut those jobs because it had too much capacity - it employed scientists who could have been doing research funded by the New Zealand Fast Forward Fund.

The government dumped the science funding, and now we’re losing the scientists.

That can’t help innovation and science to lift returns and earnings in our primary sector.

I urge farmers to stump up for research - but I recognise your confidence will be dented when the government has slashed its support for research in your sector.

I recognise it’s harder to go out there alone when the support is being pulled out from under you.

Yet I welcome research and development and innovation that is going on even while the Government cuts its support.

For example, sales on Fonterra’s internet-based trading platform ‘globalDairyTrade’ are now in the billions.

This is a great use of new technology to tap overseas markets.

What I want to see are more examples of the government playing its part in contributing to the growth of our primary industries.

I want to see more commitment to skills and training.

One of the best things the last government did was bring back Modern Apprenticeships.

Not everyone is going to need a university degree.

In agriculture and other land-based primary industry, in particular, increasing use of technology is going to require more skills.

The Government needs to pair the demand for skills with the way we invest in skill development.

Centres of excellence in regions where we are developing better processing capability are one example.

These can help deliver breakthrough research, and equip young people with skills to exploit new technology - providing them with opportunities in their own communities.

What will happen to farming communities if young New Zealanders see better opportunities in Sydney or Brisbane?

What will happen to farming communities if young families don’t perceive opportunities for jobs, and a rewarding lifestyle in rural and provincial New Zealand.

So it was destructive decision the National Government made this year to axe the skills strategy that Labour began.

It would have delivered more opportunities for young New Zealanders, matched better with the needs of local industry.

Along with skills, we will grow the primary sector by opening new markets, and deepening our penetration of them.

The single biggest factor in keeping New Zealand going through the recession last year was the massive expansion of our trade with China following the trade agreement I signed in Beijing in 2008.

That raised our profile in China and is removing tariffs and other barriers to expanding trade.

Our trade has gone up by $2.8 billion.

Our commodities going into China, especially dairy and timber, have boomed.

Meat and wool are becoming more important.

Other products like wine have huge potential.

China’s economy is doubling in size every seven years, with 200 million Chinese achieving middle class living standards and the consumption that goes with it.

Within two years China has leapfrogged Japan and the US to become our second largest trading partner.

But there are dangers of New Zealand becoming too reliant on just a few major products into one market, as we learned at our expense in the early 1970s.

We are not yet at that point, with only ten per cent of our exports going into China.

However we need to continue to strive to open new markets without tariff barriers.

The ASEAN FTA I concluded in 2008 has great potential. Our exports to ASEAN are worth over $4 billion a year.

The Trans-Pacific Partnership, which I began negotiations on in 2008, will also be critical to our future market access.

I believe we will successfully conclude this agreement.

It will remove barriers to the entry of our products into the US, and over time other important markets.

Potentially these could include Korea, Japan, Mexico and Canada as the Trans-Pacific Partnership expands. These are markets which are hard for us to gain entry to by bilateral FTA’s, because of their sensitivity to opening up our agricultural exports.

The dairy lobby in the US will resist the TTP but it will not be allowed to stop the deal or to achieve a carve-out of dairy, because that would not produce the high quality agreement that the US wants in other markets for its products.

The US hosts APEC next year. A successful Trans-Pacific Partnership agreement would be a great deliverable for it and a strong message to other Asia-Pacific countries for 2011.

Prospects for the WTO look much less certain. But we should nonetheless continue to strive for conclusion of the Doha Round, which would greatly benefit us and developing countries.

It is the single most effective way of bringing tariffs down across the board and the only effective way of removing export and other subsidies going into agriculture and fishing.

It helps create a lot more jobs, higher incomes and more successful businesses here in New Zealand.

A recent report showed trade barriers cost the average food grower in New Zealand $25,000 a year in income.

I have been a strong advocate of opening markets for our agricultural sector - and it will continue to be a strong focus for Labour under my leadership.

I have spent a lot of time in world capitals arguing for New Zealand agri-business to be given better access.

Not just to sell - but to invest in other countries’ agri-business too.

We have expertise in the sector, and other countries can benefit from our know-how.

For example, our skills in setting up and operating dairy businesses are transferable, as we have seen in Chile.

And there is every reason why New Zealand and our trading partners can benefit from opening similar opportunities in Mexico, the United States, Korea, China, India and Europe - as well as beyond.

To get into those markets, we have to overcome resistance from market incumbents.

It won’t be easy to do that if our own doors are firmly shut to partnerships within New Zealand that allow overseas businesses to operate here.

Partnerships with overseas investors into New Zealand can help open access to large global distribution networks for our producers.

They can provide factories, jobs and technologies here that we wouldn’t otherwise get our hands on.

But we’ve seen in some recent examples that we need to maintain New Zealand control over key export areas.

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

We should not allow cumulative purchases of farms that would allow control over Fonterra, for example, to slip out of New Zealand.

Overseas investment law as it written in New Zealand today is too loose, and Labour will tighten where necessary.

That will provide the best balance of accessing investment that can benefit us, without losing the fruits of that investment.

The other factor that is crucial to our success in exporting our primary products, is the way we are positioned in the world.

And on this topic I want to briefly turn to emissions pricing.

I know this is a matter of considerable concern to farmers at the moment.

Labour has always been upfront about the need for New Zealand to play its part in addressing what is a real economic and environmental problem by way of an instrument to price greenhouse gas emissions.

Among other things that is vital to protect our reputation and our trading interests.

National's ETS is not the solution.

It provides for unaffordable ongoing subsidies to emitters at a cost, that in large part will be borne by Kiwi families and small businesses.

And it will be ineffective because it takes away both market incentives to reduce emissions and the complementary measures needed to help producers do so.

We will replace National's legislation with measures that will do that, having regard to international developments.

And in the same spirit that we asked Federated Farmers to attend for the first time our Party Conference last year we will be seeking direct input from farmers on this issue of vital interest to you.

Stopping an ETS does not come free.

It comes at an enormous price - to farmers, and to the rest of the economy.

It’s true there are choices - but there are not easy choices.

All choices have costs.

An emissions trading scheme means producers of global warming gases pay.

We cannot effectively respond to climate change without sending clear market signals to those producing carbon or methane that they need to find ways to reduce those emissions.

And we need to put complementary measures in place to help people cut back those emissions.

Of course there has to be a transition period.

But continuing subsidies over a long period simply blunts the market signal.

Kyoto commits New Zealand to pay for emissions. If the polluter doesn’t pay, the burden will fall on the taxpayer.

There is one other alternative - and that would not be to have any climate change response at all.

The effect of walking away from our international responsibilities under the Kyoto Protocol would be to put our international trade at risk.

Your access to European markets would be compromised.

Even if there were no regulatory response, we would face consumer boycotts.

Our branding and reputation would be severely damaged.

Our 100 per cent Pure brand would be derided as blatant hypocrisy.

So there are your choices:
A modern emissions trading scheme that overtime puts the cost of environmental pollution on the industries that produce it; giant taxpayer subsidies for emitters; or huge damage to our international trade.

There is always room for discussion around the way we apply a price to emissions; but there aren’t soft options.

I don’t want to see price rises - but I don’t want to see the cost pushed onto taxpayers either.

The real answer is that putting a price on climate changing emissions is meant to change behaviour.

Just as I believed farmers would adapt to the removal of subsidies in the eighties, I believe today farmers will adapt to a market-based emissions system.

The focus needs to be on what we can do to grow our economy; on how to increase productivity, and on how to sell more to the world.

We will achieve that through more supportive monetary conditions.

We’ll achieve it through better investment in skills and more investment in development that lifts our productivity.

We’ll achieve it by positioning our products favourably in the world as sourced from the cleanest, purest soil and water in the world.

I started out by likening economic conditions today to a good growing season on the farm: the world economy is growing again.

We need to get started in New Zealand on taking advantage of the world conditions.

We need a vision for more, not a plan for cutting up the tax cake differently.

We need to invest in innovation and creativity that expands our range of products in the market, and take to the market more products that sell at top prices.

In Labour’s vision a strong productive sector will be adaptable and competitive in global markets.

It will be built on Kiwi skills and savings.

It will be propelled by a robust system for commercialising science and innovation.

Today I’ve set out Labour’s thinking on the pathway to achieving those results.

And I look forward to working with Federated Farmers on the next steps.

Ends

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