'The Nation'
Steven Joyce
Meets the Press
Hosted by RACHEL SMALLEY

Rachel The government has released the first of six reports that show how it plans to grow the economy. It wants to increase exports from 30 to 40% in the next ten years, and to help it achieve that there will be a new branding strategy. But the brighter future that National promised at the election is beginning to look a little dim with the dollar above 80 cents, commodity prices down 30% and unemployment continuing to rise. So is economic change really possible? The Minister in charge of Economic Development is here to meet the Press. First let's welcome our journalists, Alex Tarrant from interest.co.nz and John Hartevelt, Fairfax Media Political Journalist. Welcome to you both, and the Economic Development Minister, Steven Joyce. Thank you for coming in this morning.

Minister, if I could start with you, this is the government's plan to create jobs, to boost the export market. What's the purpose of this report if you like, because anyone who's had an eye on business in perhaps the last decade, there's nothing really in this report that they don’t already know.

Steven Joyce – Economic Development Minister
Well I think there is some things in the report. I think the state of the play everybody knows, there's no doubt about that, in terms of where we're up to, I think that’s been reasonably well worked over, but in terms of the initiatives the government is taking, some of it is known, some of it is new, and certainly bringing it together in one place is something that business has wanted for some time. So the purpose of these reports, and as you said there's half a dozen of them, is to update business as to where we're at. The range of things we're doing there's about 55 separate initiatives in this particular one, give them the snapshot of the reports and the progress and ask them you know what do they want to see more of, what do they want to see less of, what do they want to change. It's part information and also part an engagement process with the business sector, which is ongoing. I was in New Plymouth yesterday, gave copies of the report to the 20 senior business people I met there. We went through a range of issues, not just in this report, but in areas like innovation, skills, capital markets, and the resources sector.

Alex Tarrant – interest.co.nz
You say this is about listing responses from the export sector as to what they want done by the government, but it just seems a rehash of what's already going. In 2007 Labour released another very glossy export report Platform for the Future, in which they say they talked to 100 exporters.

Steven They only talked to a 100, goodness gracious …?

Alex Well 108 recorded, but they went to exporters, the government obviously talks to exporters all the time. So why the need for this other report when you’ve got this, and you’ve got their responses as well. Why the need for another one?

Steven Well frankly I think your analysis is a little once over lightly and a little superficial, because the reality is that it's a very different report. I think some of the similarities are in the terms of the analysis of the problem, and I think that’s fair enough, and the reality is those guys didn’t actually address the challenge of some of the things that we needed to change, and in fact they never did over nine years in government which is why there's a level of catchup required now. The good news is we are getting export growth. We've had 5½% a year in the last four years, in terms of value of exports. We're getting very good growth in the services sector despite the tourism challenges.

Alex The tradables sector has been in decline

Steven Since 2005.

Alex Yes and it's been even in further decline since you guys got into government as well, while the non-tradable sector, like housing…

Steven You’ve heard of the global financial crisis Alex, did you hear of that, because actually that’s quite an important element to the whole story, as is the Canterbury earthquakes. It's important you factor those in, but there's no doubt about it, it's a challenging goal, which is going to take some time over the next 13 years to get right. And the challenge is actually New Zealand's challenge, it's not necessarily a political challenge. The challenge is what are we prepared to do to take up what is in fact a very big opportunity. The world is a tough place to be in right now. There's no doubt about that, you’ve got the whole issues in Europe, you’ve got America. But we have a very very big opportunity in Asia, which is very exciting for New Zealand. And the question that these reports will help lay out over the next few months, and the business sector is very interested in it as well, actually is New Zealand prepared to take up those opportunities. That means more international investment, frankly that means a change to the Resource Management process. It means a number of things, and we're prepared to tackle those issues in a way frankly the previous government was not prepared to.

John Hartevelt – Fairfax Media Political Journalist
We haven’t seen the evidence yet that the government is prepared to tackle this issue. I mean the point here is, and I think the point is well made, that the issues are well known, the discussion has been had, exporters have told you what they need. So when are you gonna start showing us?

Steven Well I think virtually you are seeing it, so I mean you're being completely unfair in that respect. I was at Motunui yesterday where they’ve just fired up their second methanol train. They will tell you that one of the most important reasons that they’ve done that is because of the environment that they can invest in in this country, and the sort of things they will point to you in terms of that is the government's approach to moderate the ETS, the confidence they feel that the government isn't going to label costs on them that other countries aren’t gonna face. That’s an important contribution to what gives them the confidence to put another couple of hundred million on the table. Talked to Todd yesterday, the Todd Corporation in terms of some of the things that they're doing within the key field. Now that’s a very big investment as well, and again they will tell you that the environment that they operate in is actually one of the best government in terms of developing business in the world right now. Well that’s very important. I mean you can play that down if you like, but actually that’s where the rubber meets the road. Where the rubber meets the road is where somebody has the confidence to invest in a business that will grow exports for New Zealand, and what they're saying to you if you listen, is that that’s what they're doing because this government has given them that confidence.

Rachel Where the rubber meets the road is also with our unemployment situation as well at the moment, 6.8 I think John Key described it as a technical rise, it still equates to around 2000 extra jobless. When is the government going to do anything to address the issue with job matching. At the moment this morning I think on Trade Me, 1360 IT jobs available. Those positions not being filled. We're pumping out media and communication students. Are we training people – clearly we aren’t – to meet the market?

Steven Well we are, but you're right, it's not happening fast enough and actually we need a much greater realisation from Kiwi mums and dads and the young people as they come through that actually media and communications jobs, with the greatest respect to you folk, are not gonna be where it's at over the next 10 or 15 years. Where it's at is gonna be in places like engineering and science and ICT and those sorts of areas. We're doing a lot of work in that respect. We've increased the investment in engineering and science this year, put $42 million into engineering investment. We've put additional money into science investment, and no additional money into media and communications or humanities. So all those things so need to be addressed, but actually governments can't do that on their own. What I can say to people watching the programme is that if you’ve got a young person in your life who's looking at the opportunities over the next 10 or 20 years, then the opportunities are going to be in areas like exports, trade and engineering and construction in Christchurch. And actually we have to reorientate ourselves as a country towards those careers.

Alex It's all fine investing in the university sector. How do you get the students in the secondary school being incentivised to take up those positions, and should the government have a stronger role in doing that?

Steven Well we do a fair bit now. I mean one thing you can't do Alex is somebody who's had teenagers in my life and been one some time ago, is force people to do something that they don’t want to do. You have to provide them with the information .

Alex You can encourage them. What are you doing to encourage them in best way…

Steven I'll go through it for you. We've got a number of things going on. Firstly the Youth Guarantee programme, which is designed to pick up kids that are not actually succeeding. You want a list or you don’t?

Alex Well I want to know how you encourage student into these engineering jobs and IT jobs that there's thousands of vacancies on Trade Me for?

Steven Well you hold and I'll tell you about it. The reality is there's a number of things. Firstly in the Youth Guarantee space is very important. In the vocational pathway – so we've now set up these new vocational pathways that are starting next year in senior secondary school, to get kids into streams such as construction, such as engineering.

Alex In every secondary school?

Steven Well it'll be progressively rolled out over in the secondary schools to bring people through technology pathways as against just the pure academic pathways. So that’s the second thing we're doing. The third thing we're doing – there's currently a review on in the careers programme at the moment, but personally I don’t think it's enough to rely on careers advisors. I've been saying to businesses you need to get into schools and talk about what you need. We've got partnerships going on now between the tertiary sector and the employers in a range of areas. So ICT in Wellington between Weta Digital and Victoria University. At Otago University with the natural history people down there, they’ve done a partnership with the universities, in the Waikato as well.

Alex Are all secondary school students going to be subject to this though, or is it just very targeted schemes that you're looking at rolling out.

Steven They won’t all be subject to it as you say. What we're saying is there's a range of things which are designed to better match people's skills to the demands of the workplace, and we all have a responsibility in that regard. That’s the government and industry in particular, but also parents and the kids, because you know we need to all realise that the world has moved on from the situation as it was in the first decade of the century, where basically you could get you know a piece of paper that says anything and get yourself a job, and now we're in a situation where there's much crunchier skills required, and that takes everybody's involvement. But yet the government's got half a dozen to eight programmes in that respect. The challenge is can we all make that move. And part of the process of these reports is to make sure that we do address those issues with the country, I think successfully this morning.

Rachel If you're going to grow businesses though clearly you need the right people as you’ve just mentioned, but also you're going to need capital. Where's that capital going to come from?

Steven Well the capital basically comes from people who see opportunities to make a profit, I mean fundamentally that’s how it works. It's always been the way when I've been in business is that if people see a way in which they can make a return on investment then they’ll turn up. The challenge for New Zealand there's a couple of areas. First of all we have to be very welcoming of international capital. If we're serious about jobs and growth in this country, and this is the point you were making before, then the only way you can do that sustainably is to grow the amount we trade with the rest of the world. In order to do that and we've talked about the target of getting from 30% to 40% over the next 12 or 13 years – the challenge of that is actually to bring sufficient capital in. And if we say we're only going to restrict ourselves to capital generated within this country, well we're never in a million years going to make it by 2025.

John But we do want to see some capital coming from New Zealand, so we don’t want to ignore that space. What about expanding Kiwi Saver, the way it invests, what about expanding the Super Fund?

Steven Well with the greatest respect, if you're saying that the public sector is a way to increase capital investment, that’s not really gonna do it.

Alex Kiwi Saver's private investment though isn't it?

Steven Yeah, at the margins it'll help a little bit. The real opportunity there is in fact we have a Stock Exchange in this country which performs very poorly relative to its peers. We have a very low percentage of the New Zealand economy listed on the New Zealand Stock Exchange by comparison to all other OECD countries.

John So how do you fix that?

Steven Well one thing you do is the mixed ownership model. You get those companies, one of the unsung benefits of the mixed ownership model is to get some good strong utility companies on to the New Zealand Stock Exchange, to encourage investment in that. We've had some issues with the Stock Exchange, you'd know the finance company issues historically, and the opportunity to rebuild our Stock Exchange on the back of the mixed ownership model companies I think is a very significant one, and then we can also get other companies into the market as well. And we need to do that if we're going to provide a domestic source of capital.

Rachel We touched just before the break on how we can grow capital. Labour has been suggesting for some time that the best way to do that, one of the best ways is Capital Gains Tax.

Steven Sort of ironic isn't it. So you're sort of on the one hand saying you need more capital investment in New Zealand and your way to do is it to tell them that you'll be taxing them more. If ever they try they get the benefit of putting that capital into New Zealand.

Alex It's not capital itself.

Steven No, I'm sorry Alex you're playing with semantics at this point, the reality is, it would be taxing capital. So you're saying to somebody oh you can invest in New Zealand, and we want you to invest in New Zealand more than you have historically, but we want to tax you more for your investment in New Zealand. I mean I'm sorry but that’s not the way to encourage capital growth in this country.

Alex Isn't it more about levelling the playing field so that housing and property…

Steven See they're not proposing to do that. What they're proposing to do is…

John Okay, do a proper Capital Gains Tax then, the Prime Minister likes the idea of a proper Capital Gains Tax if you were to impose it.

Steven We've been down that path in terms of the Savings Working Group. We've addressed it, we've actually dealt with the issues that have been giving people windfall gains from second properties and those sorts of situations by removing the depreciation issues, and by dealing with the taxation issues. That’s actually having a very significant impact, and nobody's right now saying that the investment property business in New Zealand is in a bubble at this point in time. So I would argue that we've addressed it, and the focus now has to be on encouraging capital investment in this country. I'll tell you for free, you don’t encourage capital investment by telling them you're gonna tax them all.

John So you don’t think that there's any issue any longer with over investment in property in this country.

Steven Certainly not at this point no.

John So there's no need to redirect capital away from property?

Steven No, I think the reality is that that has been done at this stage, I mean you always look five years down the line, but the big issue, and if you look around at the moment, is the potential for restriction on the availability of property in Auckland and Christchurch to actually drive up property prices through scarcity. And again you don’t actually hit property investment harder to actually deal with the scarcity issue. You actually have to deal with the issues that are there, which are in terms of availability of land, and that actually is something that really both councils are continuing to address.

Rachel Minister, the elephant in the room perhaps is our currency. Labour, David Parker, they're seeking advice on this. Shouldn’t the government be doing the same.

Steven Well the reason they're seeking advice on it is because there is no answer to that question, in terms of actually dealing with currency fluctuations of the type that we're seeing at the moment in the marketplace.

Alex Well talk to China, talk to Singapore.

Steven Yeah, you might find if you have a look Alex that we're a little smaller than China, and a little smaller than the US in particular, and the challenge for a small country in that situation is what are you actually going to achieve by trying to stand against the actual currency prices that are there right now. And I'm sorry it's a shibboleth and it's actually voodoo economics to suggest that the solution to encouraging export in this country is to artificially, or seek to artificially change, cos there's no guarantee, and in fact every likelihood you wouldn’t succeed, to seek to artificially change the exchange rate. Let's talk about exchange rates for a minute. What are they ultimately? They're a measure of the relative wealth of countries.

Alex And they're being manipulated by foreign central banks, printing money and investing money in New Zealand and Australia. You’ve got the Australian Reserve Bank board member, Warwick McGivern coming out last week and saying well we should be countering this. This guys a conventional economist.

Steven Yeah well the reality of the situation is, the reason why it's not happening is because it's basically taking a massive one way bet against the markets, where you stand on one side and all the markets stand on the other, and we've seen that before. We've seen it with what the UK did way back. We've seen it in other markets as well, and if the markets take a view that’s different to your Reserve Bank and decides to pile up against you, well you're in for a hiding, and it's not an economic policy. It's basically trying to say we're struggling to get competitive rather than keeping working on it rolling our sleeves up and getting competitive. And I would grant you that it's hard for some exporters at the moment, although I would also say…

Rachel Most exporters.

Steven Well no, that’s not actually correct, because there's a lot of exporters are exporting into Australia very successfully. We have a low cross rate with Australia, and I would argue to you that actually the answer has to be to keep working, roll our sleeves up, improve our competitiveness, and frankly Labour's solution as such is voodoo economics. It won’t work and is actually – and Alex you need to stop promoting it because it's truly a waste of time.

John There is an opportunity here isn't there with a new Governor starting in a matter of weeks, and there must be a political consideration as well. I mean exporters are probably more generally part of a National Party constituency. They're screaming that this is the number one issue for export.

Steven Sorry John, most exporters I talk to, not all, there's some that would like to see the – actually well everybody would like to see the exchange rate lower but most exporters I talk to understand that actually that’s one thing you can't control. I was an exporter, chaired an export company for eight years. When I started out in exporting in 2001, or 2002, I can't remember what the US dollar rate was, but it was about 35 or 40 cents, and everybody said if it went to 50 we'd be broke. Well that company today is dealing with the US dollar at 80 something cents, because it has changed the way it does its business. It's innovated, it's got control over some of its intellectual property, it's got some very good arrangements internationally, it trades in different currencies than it did previously. And sadly that is the only long term sustainable opportunity. And one other point on the exchange rate. If you try to intervene to artificially lower the New Zealand exchange rate, firstly you're unlikely to succeed, secondly even if you were by some miracle to succeed and make a bit enough difference, which I highly doubt, then all you'd be doing would be lowering our exchange rate relative to Australia still further, and creating another problem which is more New Zealanders moving to Australia because it'd be higher income.

Alex Should the Americans not be doing it then?

Steven The Americans are in a very different situation to us, and I'd rather have our set of problems right now than the American set of problem.

Rachel Okay, I want to talk to you Minister about the socalled New Zealand story, it used to be 100% Pure New Zealand, that’s still aligned with tourism. Is the reality that that brand has become something of an embarrassment or an impediment to this country?

Steven No, it's just that we need a broader story for other parts of our export industry.

Rachel A more accurate story perhaps?

Steven No, no, I disagree with that in fact, you know that’s just frankly a little bit of Green Party spin, because the reality is we actually have a very clean green environment relative to just about every other country in the world. But just going through the reasons why you'd want to consider a broader story, it doesn’t say anything about innovative New Zealanders, it doesn’t say anything about our unique Maori culture. It doesn’t say anything really about our education system as if unless the reason you're coming here is actually to go surfing on the weekend. It doesn’t say anything about a whole range of things about New Zealand. So what we want to do is generate a broader New Zealand story that we can use across a range of industries, such as you know the dairy industry, whether it's the primary sector, whether it's the high value manufacturing sector, or whether it's education. Because you go and do what I did once and go and stand in Downtown Shanghai and look around you, and all the people there, and think to yourself how can a small country like New Zealand with four and a half million people get a brand awareness with Shanghai, let alone the rest of China, that enables small Kiwi exporters to go in the door and tell a little story about New Zealand and what they mean and what they're about, and what are their values and how do they work…

Alex What's the story gonna be then?

Steven Well it's gonna be about innovation. It'll be part of the story. So if you go through the Rugby World Cup last year there was a great video produced called New Zealand Natural Innovators, which combined elements of our scenery, combined elements of our innovation and our high value products and also had element about Kiwis in their work and way the relate to people. And so our challenge is and frankly the challenge for the brand people because we won’t be designing it here today, will be to actually draw that together into a coherent New Zealand story, and the fact that you can't tell that story suggests that there is a very good reason to come up with one.

Rachel Another challenge you face at the moment is the Resource Management Act for a number of reasons, change though it seems is in the wind, or has to be in the wind really. Are you gonna push through change to help accelerate some of these regionally significant projects, and by that I mean mining?

Steven Well again you jump straight to mining, I'll come to that in a second, but we put it in our manifesto last year, and we've been working on it since, so there’ll be no surprises there, but yes it is very important. So go back to that target of lifting from 30 to 40% over 13 years. We'll give you the example of Bathurst Resources down in the West Coast, seeing you picked on mining. That one has been seven years in the consenting process, and millions and millions of dollars. So the interesting thing now is if we said you know we've signed up to this target, and if the country signs up to this target tomorrow, the biggest challenge will be actually presuming you can get the capital investment, is actually getting it invested over the next half dozen or seven years. I mean imagine if we said okay well you can all start, we go and get some investors, we get them to look around and get them to look into some projects, whether it's building factories or whatever, and then say to them oh by the way you’ve gotta wait seven years, well there's no way you'll achieve your target for exports.

Rachel You need to overhaul the Act to make those changes.

Steven We have to overhaul the Act yes we do, we have to get those processes shortened, and again it's not necessarily about changing the answer, because often the answers come out you know pretty good. It's actually about the process and the length of the process it takes to get to those answers, and the Bathurst one being one example. Now in the Waterview project case, the roading case we've managed using the new national consenting process, to get through that process in under a year, with general satisfaction from both the proponents and the appellants to that case, and that’s the sort of process that we really need to see, and that involved changes where appeals were only on legal technicalities and so on and so forth, and it's that’s sort of process, and Amy Adams is working on that at the moment. I understand she intends to bring some papers before Cabinet quite shortly, and then we'll get the opportunity to discuss that. But if you're going to have that sort of investment you have to have a process which allows to happen.

John Attracting that private investment, does that require ironing out the inconsistencies across local authorities, because you know you’ve mentioned Taranaki, moving forward it's got a pretty forward leaning Council there generally, but it's not the case elsewhere, in other parts of the country.

Steven I'm glad you raised Taranaki because it's an interesting example. Their unemployment currently, you talked about our unemployment nationally is about 6.8%. Taranaki's is a 3.8%, it's the lowest in the country right now. One of the reasons it's that way is obviously the oil and gas industry, and it's not just the unemployment rate, it's actually the sort of incomes that people are earning in that industry. So the people that work at the Motunui Methanex plant, the methanol plant, just about all of them earn over $100,000 a year so that feeds into the Taranaki economy, and there's other regions, and John's right, there's other regions that could have that opportunity, Hawkes Bay and the East Coast. So Gisborne is a region that struggles, there are oil and gas companies that want to explore there and quite possibly the indications geologically are that they could be very similar sorts of regions to the Taranaki regions. We do need the councils to step up and say…

John Will you stump them out, I mean will you come over the top and say ….?

Alex Will you regulate over all councils?

Steven No I think what we're gonna do is gonna do improvement of the Resource Management process, and we've got them working with the Taranaki Regional Council to actually understand some of the challenges they face. Because to be fair to those councils it's new to them, you know Taranaki's had this for 40 to a 100 years, whereas the Hawkes Bay and East Coast.

Alex Shouldn’t the government be doing it them, stepping in if the councils aren’t experienced?

Steven That’s a possibility, of course we have a national consenting process now, and any applicant now can go straight through to the Environment…

Alex But regional councils can set their own regulations about farming, farmers in Otago now are being told they can't use as much nitrogen as farmers in Taranaki.

Steven And we're keeping a very close eye on those issues, because yep they’ve gotta set limits, we've gotta get intensification of agriculture but we've also gotta get improving environmental conditions, and that’s challenging, it's possible, but it's challenging, and the way to do that is to work very closely with the councils, and I think you'll find that Amy Adams is working very – I know this for a fact – is working very closely with those regional councils, is sitting on the shoulder of the Otagos and the Canterburys and Nelsons and the Wellingtons of the world to make sure that they are doing it the right way. And I think by staying close to them we can ensure that that happens.

Rachel Is there a case for you know a national environmental standards, is there a case for that?

Steven Well we have got national environmental standards…

Rachel But clearly though it would have to be quite specific cos there is so many inconsistencies between councils.

Steven Well there is a way to work through it, and as I say there's a combination of things. We have to do the changes to the RMA, secondly working closely with councils, and thirdly I'd have to say too is at a population level, cos after all the councils respond to what they hear in their communities, is that the population level are understanding the opportunity and the size of the prize, and for Hawkes Bay and Gisborne the opportunity is very considerable, and again I would come back to the point that I've been making for most of this year, you can't argue for more jobs in your region on the one hand but then say but no development, no oil and gas, no intensification of agriculture, none of these other things that would lead to jobs, and that’s the debate we have to have. Because you know there are reasons why regions like Taranaki are successful, and reasons why Northland and Gisborne aren’t, and the Hone Harawiras of the world can't sit up there in Northland and say oh it's terrible that our people are going over to Western Australia, but by the way don’t you mine in Northland.

Rachel Mr Joyce when can we expect the next big report?

Steven There'll be another one this week, it'll be in the innovation space, and then moving on from then we'll be unfolding the rest through the rest of the year, but again progress reports to update business and I think we're just gonna see an emerging consensus of what needs to be done to actually achieve the results in this country.

Rachel Alright Steven Joyce, thank you very much for your time this morning, Alex Tarrant, John Hartevelt, thank you.

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