Rt Hon John Key

Prime Minister

14 April 2015

Pre-Budget speech to Business New Zealand function

Te Papa Tongarewa, Wellington

Good afternoon.

It’s great to be with you today. I’d like to thank Business New Zealand for hosting this event.

Like all New Zealanders, we have a shared interest in building a strong economy that provides opportunities for Kiwi families and businesses to get ahead here in their own country.

We don’t always agree on everything – and that’s to be expected.

But I do appreciate Business New Zealand’s pragmatic and positive attitude in engaging on important issues affecting businesses, their staff and their families.

I also want to acknowledge the many Wellington business people here today.

It’s good to see the Wellington economy is in good heart and that the business community here is feeling upbeat.

The latest ANZ Regional Trends Survey shows Wellingtonians are confident. And business optimism in the capital is above the national average.

This is translating into more jobs in and around the city at a time when the region is broadening its economic base away from its longstanding reliance on central government.

Many Wellington companies are competing successfully on national and international stages in sectors as diverse as innovation, technology, tourism, film production and niche manufacturing.

I welcome that. A vibrant Wellington business and economic scene is important for New Zealand.

The Government is backing businesses right around New Zealand by ensuring we have competitive policy settings to encourage investment, new jobs and growth.

That’s why I want to focus on the economy today.

A strong, growing economy is how we create higher-paying jobs.

It means wages can increase faster than inflation so New Zealanders are rewarded for their hard work.

And a strong economy allows us to deliver better public services to those who need and rely on them.

There is more to do, but we’re making good progress.

New Zealand economy performing well

In recent weeks we’ve seen the Kiwi dollar come close to parity with the Australian dollar for the first time in around 40 years.

Until quite recently, this would have been unthinkable.

We’ve also seen net migration between New Zealand and Australia shrink from an annual outflow of 36,700 two years ago to just 2,600 in the 12 months to February.

This is the smallest net loss of people to Australia since March 1992 – a combination of fewer New Zealanders leaving and more returning home.

So why are these things happening?

The short answer is because the New Zealand economy is currently doing well.

Last year, we were among the fastest growing developed economies in the world.

We’re doing well both in absolute terms and also relative to countries we like to compare ourselves with – such as Australia.

And the main reason New Zealand is doing well is the positive attitude of New Zealand households and businesses – backed by the Government’s careful and balanced economic programme.

Faced by some significant challenges over recent years, New Zealanders knew what they had to do and they got on with it.

The Government supported them by setting out a clear and consistent policy programme and sticking to it.

Let me give you some examples of our progress.

When we first came into office in late 2008, New Zealand’s economy had been in recession for nearly a year – well before the global financial crisis.

Government spending had climbed 50 per cent in just five years.

The Treasury told us that if we didn’t change course we faced never-ending deficits and net Government debt would exceed 60 per cent of GDP by the early 2020s.

Some forecasters were talking about our unemployment rate coming close to 10 per cent.

Average floating home mortgage rates were nearly 11 per cent and inflation had been above 5 per cent.

Signs of good progress

Now, let’s turn the clock forward six years.

Our economy grew by 3.5 per cent in calendar 2014 – its best performance since September 2007.

Annual core government spending is just 14 per cent higher now than when we came into office six years ago – including the considerable cost of the Canterbury earthquakes.

And although we’ve been holding the purse strings quite tight, we’ve actually improved public services.

We’re approaching surplus and net core Crown debt will peak at less than 27 per cent of GDP before falling.

That’s less than half the 60 per cent of GDP expected by the early 2020s under the previous Government’s settings.

Another 80,000 jobs were created in the past year and the unemployment rate is 5.7 per cent.

While it’s still higher than we would like, it is below Australia’s 6.3 per cent and it’s forecast to fall below 5 per cent in the next couple of years.

And our labour force participation rate - the proportion of the working age population in work or looking for work - is at a record 69.4 per cent.

This is around five percentage points higher than in Australia and another sign of confidence among New Zealanders.

Average floating mortgage rates are now just over 6.5 per cent.

And average weekly wages rose by 2.5 per cent in the past year, comfortably ahead of inflation of less than 1 per cent.

So our strong, growing economy, backed by the Government’s clear economic plan, is translating into real benefits for New Zealand households and businesses.

Creating a confident, better performing economy

However, a few years of good economic growth are not enough.

I sought election as Prime Minister because I believed we had underperformed as a country for many years.

My view was that if we adopted and maintained a consistent programme of sensible economic reform, New Zealand was capable of being one of the world’s best performing economies again.

What we are seeing now are the first signs of that.

We are seeing that if we back our traditionally strong industries and encourage new ones, we can create a confident country that is much better at meeting the aspirations of New Zealanders.

We can become a country of opportunity that will encourage many more of our young people to bring up their families here instead of in Australia or further afield.

And we can do all of this, despite the twin blows of the global financial crisis and the Canterbury earthquakes.

I say we are just seeing the first signs of progress because a couple of good years are not enough to change our long-term wellbeing.

To really improve future prosperity for our children and grandchildren, we need to continue the reforms that have served us well to date.

We need many more years where we grow faster than other developed countries.

And we need to remain wary of the risks and challenges in an uncertain and changing world.

Whether it’s falling global commodity prices, a still fragile Europe, a weaker economic outlook for countries like Australia and China - there is plenty to keep economists awake at nights.

Now is definitely not the time for New Zealand to rest on its laurels.

Relentless focus on competitiveness

So this Government will remain relentlessly focused on improving the competitiveness of our economy.

We will continue to give businesses a platform to invest, grow and create jobs in the knowledge they will be backed by a clear and consistent government policy programme.

We’ll do that by controlling our spending and taking pressure off interest rates and inflation.

We’ll do that by maintaining competitive tax rates and delivering better results from public services.

And we’ll do that by continuing with our wide-ranging reforms under the Business Growth Agenda.

These reforms are all about providing a platform for growth and addressing the choke points of a growing economy.

They are about investing many billions of dollars in necessary public infrastructure like roads and broadband.

They are about providing better and more certain planning rules.

They are about expanding access for our exporters in overseas markets.

They are about encouraging investment right across New Zealand, improving the skills of our people, and encouraging innovation in our businesses.

If we can get these reforms right, I am confident we can continue to outperform other countries well into the future.

Programme’s next steps in Budget 2015

In just over five weeks, Bill English will deliver his seventh Budget.

I’m sure you’ll agree that Bill and his economic team have done a great job in steering New Zealand out of the domestic recession and the global financial crisis.

At the election last year, we received a strong mandate from voters to make further reforms that deliver better results for all New Zealanders.

We’re particularly focused on breaking the cycle of material hardship among families with children – which I’ve made a government priority for this term.

We are already providing significant support in this area.

In Budget 2014, for example, the Government announced a half a billion dollar support package for families and children.

A number of these and other important policies we promised before the election have been, or will soon be, implemented.

For example, from 1 April paid parental leave increased by two weeks to 16 weeks, and it will rise by another two weeks from 1 April next year.

The parental tax credit for lower-income families rose from $150 a week to $220 a week, and the entitlement increased from eight weeks to 10 weeks.

Also from 1 April, the Government’s new HomeStart scheme took effect, which will help around 90,000 Kiwis into their first home over the next five years.

And average ACC levies paid by employers and self-employed people fell to 90 cents per $100 of liable earnings, down from 95 cents.

From 1 July, children under 13 will have access to free GP visits and free prescriptions.

And the average ACC levy for a private motor vehicle will fall by around $130 a year.

So we are delivering on the commitments we made in the run-up to the last election.

They are possible only by us having a strong, growing economy, supported by responsible and predictable government policy.

As I’ve said, our challenge over the next few years is to ensure the economy continues to outperform, year on year.

Two of the most important ways we can achieve sustainable, long-term growth are through innovation and investing in the education of our young people.

The Budget next month will set out further steps in both of these areas. Today I’m pleased to confirm some of those details.

Investing in business innovation

One of the unsung success stories of the last few years has been the resilience of our exporters in the face of a high Kiwi dollar.

Up and down the country, there are hundreds of magnificent stories of smart Kiwi companies taking on and beating the world’s best.

They are in fields as diverse as ICT, high-tech manufacturing, high quality food and beverages, agri-tech and education technology.

Smart, innovative exporters are the key to a prosperous future for New Zealand.

That’s why we’ve made innovation one of the six focus areas in our Business Growth Agenda and we’re backing that with significant extra government investment.

We’ve boosted science and innovation funding significantly since 2008, despite tight financial times.

Government investment in research and development will total $1.5 billion this year – a 70 per cent increase in eight years.

But the really important challenge we have is to increase private sector investment in research and development, where New Zealand continues to lag behind some of the world’s leading economies.

The Government’s main tool for lifting business research and development investment is Callaghan Innovation, and in particular its R&D grants.

They are provided to New Zealand businesses developing world-leading, high-value products, to help stretch their own R & D expenditure further and faster.

The Government has already committed to investing $566 million over four years in co-funding R&D for companies undertaking research and development in New Zealand.

Budget 2015 will confirm the Government will invest another $80 million over four years in encouraging more private sector R&D.

This funding is equivalent to a 14 per cent increase in Callaghan Innovation’s R&D co-funding budget and will get us closer to our overall target for research and development investment.

It will be allocated to a range of qualifying businesses over the next 12 months on an objective independent basis.

Recent recipients of these grants include Rocket Lab, an Auckland-based aerospace company that has developed technology for building rockets to carry satellites into space.

It employs a growing team of highly skilled rocket scientists.

Rocket Lab’s customers include Lockheed Martin, NASA and the US Airforce – all of which need fast, cost-effective methods of getting their payloads into space.

Another grant recipient is Pultron Composites of Gisborne. Its research and development focus is in resin technology and engineering.

Pultron, which employs around 100 FTEs, manufactures well over 100 specialised components and 80 cent of its production is exported.

Its products are used in a wide range of global applications, including sail battens, fishing rods, ski poles, security fencing and electric fencing systems.

These are precisely the kinds of businesses we want to succeed.

And we need more of them.

They create jobs. They build our exports. And they contribute to achieving that stronger New Zealand economy we all want.

Education – a passport to the future

Education is another important area that will receive extra support in the Budget next month.

I know from my own experience that a good education can make a real difference in helping to realise personal potential.

A good education benefits individuals, their families, their communities and the country.

Hekia Parata describes education as a passport to the future. I agree with her.

In the election campaign, we set out a comprehensive programme to provide modern school learning environments that meet the needs of 21st century students.

We’ve invested significantly connecting schools to ultra-fast broadband.

This means New Zealand teachers and students can access the best online resources from anywhere in the world.

We’re building on this by making sure all schools are connected to the Network for Learning – a dedicated nationwide network providing educational content and resources to schools and students.

The Government is also investing heavily in building new schools and modernising classrooms to meet school roll growth and to provide modern learning environments.

Over the past six years, we’ve invested nearly $400 million to build 24 schools around New Zealand to accommodate rising rolls.

These new schools are in addition to the $1.1 billion the Government will invest over 10 years rebuilding and repairing severely damaged schools in the greater Christchurch area, following the earthquakes.

Budget to invest $244 million in schools

Today I can confirm that the Budget next month will provide another $244 million over the next four years to meet growing school rolls and to improve the quality of learning environments.

Four new state schools will be built and these are:

Rototuna Senior High School in Hamilton.
A primary school in Rolleston, near Christchurch.
Two primary schools in Auckland – one at Kumeu and the other at Scott Point.
We will also invest in three new kura kaupapa Māori schools. They will be in Whakatane, Gisborne and Hastings, recognising demand in these areas.

In all, these seven new schools will provide spaces for nearly 4,000 extra students. We expect the first of them to open in 2017.

As part of our package, we will also expand facilities and classrooms at four existing schools:

Golden Sands School in Papamoa.
Hingaia Peninsula School in Auckland.
Shotover Primary in Queenstown.
and Papamoa College in Papamoa.
In addition, over the next year we will fund an extra 241 classrooms at other schools around New Zealand. Almost half of them will be in Auckland.

This considerable new investment includes the first tranche of the $350 million we promised in the election for new schools and classrooms to meet population growth in and around Auckland.

The money will come from the remaining proceeds of the Government’s share offer programme – channelled through the Future Investment Fund.

This is one part of the next stage of the Government’s significant commitment to provide our young people with the skills we need in a growing, modern economy.

Conclusion

So, just to sum up:

Thanks to the hard work of New Zealanders up and down the country, we’re in a strong position to build on the considerable progress we’ve all made in recent years.

We have a strong and growing economy.

Wages on average are increasing faster than the cost of living.

Businesses are investing in growth and creating tens of thousands of new jobs.

Inflation and interest rates are low.

More New Zealanders are getting off welfare and into work and the crime rate is falling.

And more Kiwis are voting with their feet and either staying home or coming home to secure opportunities for their families.

So we’re in good shape.

But we have to go a long way further to achieve the sort of prosperity that we all want for New Zealand.

The National-led Government has a busy programme ahead.

Providing we stick with that programme, I’m confident we can deliver the opportunities and security New Zealanders and their families deserve.

Thank you.

ends

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