Tēna koutou katoa. Thank you for joining me this morning.
Thank you John Milford for your welcome, and Peter Cullen for your kind
Next week, the Government will present its seventh budget.
Only on rare occasions does a single budget have a profound effect on the
economy, and on people’s lives.
Mostly, Budgets are markers along the way of the government’s plans,
which usually evolve incrementally and – under the present government – in
response to populist political itches.
This year’s Budget is different.
This Budget comes from a government with almost seven years economic
management under its belt.
It comes after four years of reasonable GDP growth, at a time of low
inflation, and increasing labour market participation.
Despite these good conditions, it is a budget that will, once again, fail to
deliver on the defining promise of the Key / English National government –
to get the books back into surplus.
This is not a promise that’s been made lightly.
In 2008, in the depths of the GFC, officials forecast New Zealand would
have a long string of Budget deficits.
National’s chief priority, it said at the time, was to turn that around in short
And in the most recent General Election campaign, National repeated that
its central economic policy promise was to return to a Budget surplus this
That promise, “to return to surplus in 2014/15” sat proudly as their number
one commitment in their election material, distributed to every corner of
They made that promise knowing about the current state of government
They made that promise knowing the Government’s revenue projections
Of the $4.5 billion lower revenue that Bill English is now blaming for his
failure, he knew about $4 billion of that in December last year, when he still
claimed a surplus.
They made their Budget surplus promise knowing world dairy prices had
consistently fallen for 8 months, and were projected to fall further. The
United Nations Food and Agriculture Organisation forecast this price slide
right at the start of the election campaign, and National chose to ignore
National made the promise knowing other commodity prices were falling
and another industry important for exports, the oil and gas industry, was
Even with low inflation, even with growing participation in the labour
market, deep down they knew shortly after last year’s Pre-Election
Economic and Fiscal Update they could not generate a Budget surplus in
this Budget year.
There wasn’t enough milk money. There wasn’t enough oil money. And, as
a result, there wasn’t enough tax money.
But their promise was clear. Their good economic stewardship would see
us in surplus.
And now they’ve abandoned their promise.
National’s talk now is about how achieving surplus was an “artificial target”
and that getting a surplus is “like landing a 747 on the head of a pin.”
A lot of effort has gone into glossing over the broken promise. But I see it
for what it is – one of the biggest political deceptions in a lifetime.
The second major deception related to the Budget is this week’s
announcement on ACC levy cuts. It was a vague promise to do something
two years and one budget away.
It had all the hallmarks of trying to spruik a positive initiative that may not
happen ahead of a budget that has already been defined by what it won’t
New Zealanders deserve better than this.
National’s election message last year was that we are on the cusp of
The only thing special seems to be the late realisation that this promise was
even bigger political pretence than the promise to produce a surplus.
It’s time to put the record straight on this government’s economic
It has squandered opportunity. It has left New Zealand’s economy
vulnerable and exposed.
Too many New Zealanders are working harder than ever, but they don’t
feel like they are getting anywhere.
Middle income families are struggling to get ahead, and seeing the dream
of home ownership slip away.
The rock-star economy is leaving everyday people behind.
A new approach is needed. One that deals honestly with the circumstances
that confront us.
Because of this government’s inaction, today we face major economic
• A 7 billion dollar hole caused by falling milk prices
• An economy dangerously over-reliant on the same old commodities
• An out of control Auckland housing market
• And growing regional neglect
Many New Zealanders ask me :
• When will I get ahead?
• When do I get to see a share of the growth in the economy?
• What does the future hold for me and my family?
These questions are difficult to answer. Not only has there been a failure to
deliver on promises, this government has also failed to lay the foundation
to generate future wealth.
We are entitled to expect better.
Today, I want to talk about how we found ourselves in this situation.
And I want to talk about what a responsible Government would do in next
week’s budget to grow our economy and ensure every Kiwi feels the
Where Have We Come From
So how did we find ourselves here?
How is it that at a time of around 3% growth a year, people still aren’t
feeling better off?
How do we still have nearly 6% of our people unemployed? The last time
growth was this good, our unemployment rate was a full two per cent
How is it that with 3% economic growth, we still have working families
living in poverty? That remains one of the most disturbing statistics in New
Zealand today – two in five kids in poverty live in working families.
When the present government took over at the end of 2008, it inherited
one of the strongest balance sheets in the OECD. Net crown debt was zero,
a result achieved after 9 successive budget surpluses. Labour used these
surpluses to repay debt and establish a sovereign wealth fund to help
cover the future cost of superannuation.
Other factors also set us up well. We had one of the lowest unemployment
rates in the OECD. And we had concluded one of the most important free
trade agreements for our country – the FTA with China.
New Zealand was well positioned to weather the global financial crisis.
Yes, it’s true we had a drought-induced recession, and then the GFC, just as
National came to office.
But we were prepared. And we got through. Just as three years later we
got through the Canterbury earthquakes.
Let’s remember that National’s main response to the fiscal aftermath of the
GFC was to make a tax switch where a backbench MP got ten times as
much as a median income earner.
The truth is: if this government was really concerned about the predicted
decade of deficits, they had a funny way of showing it. They cut the
Even more telling is the government’s lack of response to the obvious need
to diversify our economy.
Since the GFC, we have enjoyed a sustained period of high commodity
prices and superior returns.
This should have been the very time to introduce measures to incentivise
and direct investment into a more diverse range of economic activity.
In the last 7 years, National hasn’t announced a single initiative that has
tackled the structural imbalances in our economy.
They haven’t tackled our over-reliance on dairy, or on housing speculation.
They have done little to encourage innovation.
They haven’t done anything to fix the issues that made our economy
vulnerable in the first place.
A different JK, John F Kennedy, once said the best time to fix the roof is
when the sun is shining.
But our JK would rather leave the hole, and take credit for the sunny day.
None of this will be news to you.
All over New Zealand I’ve had business people come up to me concerned
about the lack of economic vision they’re seeing. They’re worried there’s no
economic strategy beyond the next opinion poll.
Instead of substantive reform, National’s plan was to cheer the rise in
global dairy prices, which reached world record levels in 2014 but have
halved in the past year.
The prospects of that price recovering are not good – Goldman Sachs last
year warned there would be a glut in the global dairy market over the next
five years, and economists are downgrading their forecasts for next
season’s Fonterra payout.
That’s the economic reality we face today – falling income from a
commodity we have been heavily reliant on, with consequences for us all.
The Government likes to tell a simple story about their economic
stewardship, but here’s what really happened over the last seven years:
• The GFC and the Canterbury earthquakes caused major disruption,
but New Zealand was well-prepared to deal with both.
• Spending on rebuilding after the disaster has artificially boosted our
economic performance measures.
• For a while, we also got by on the back of record dairy prices.
• Those prices were a short term fix – a bandage on a broken leg.
• In fact, our exports have gone backwards since 2008.
• Most importantly, this Government has ignored the long term fixes
our economy needed.
What this failure to adapt means for New Zealand families, especially in our
regions, is this:
• Many of them still aren’t better off.
• We have working families living in poverty.
• John Key promised them 150,000 new jobs by 2016. They won’t get
• He also promised them $7,000 more wages by 2017. They won’t get
• And, finally, our economic future looks increasingly precarious.
This government has been more than reckless in its complacency. It made
a surplus promise it knew it could not keep. It ignored the biggest
economic problems facing New Zealand today and tomorrow. It has grown
the number of New Zealanders struggling to get ahead. Next week’s
budget will do nothing to change that.
What they should have done:
So, what would a responsible government have done between 2008 and
I say there were four major missed opportunities.
First, a responsible government would have laid the foundations to
diversify the economy.
Our over-reliance on dairy has never been more stark than it is now.
But the Government has ignored ideas that would help our other
businesses to get ahead.
New Zealand now spends just half the OECD average on R and D.
For a country dependent on innovation and rich in ideas, that’s appalling.
We should have used the economic growth of the last four years to
increase our investment in innovation. The government ignored that
Research and development tax credits would have been a good start.
Business knows this. You understand the benefits.
But right now, the government insists on picking the winners through their
grants programme. This week, Callaghan Innovation admitted they can’t
even be sure that the benefits from the government’s scheme are staying
here, rather than going offshore.
We have to change that.
The next thing a responsible government would do is level the investment
For the average Aucklander, their house makes more than they do.
Our economy has to be so much more than milk and houses.
New Zealand needs less money going into housing, and more money going
into productive businesses.
The housing crisis we now find ourselves in is the result of two things: the
Government hasn’t cracked down on speculators. And they haven’t built
The untold millions speculators have poured into Auckland housing could
have been so much more useful to New Zealand in productive businesses.
Three years ago, we promised a Labour government would build
thousands of houses, and we would start immediately.
We also promised to crack down on overseas speculators, by stopping
non-resident non-citizens from buying Kiwi houses.
More Aucklanders would own the roof over their heads under our plan. The
market would stabilise, bringing interest rates down, and the exchange rate
Instead, this government has dithered, tinkered, and sat on its hands.
The third missed opportunity is that a responsible government should have
revitalised New Zealand’s regions. Instead, this government ignored them.
Of the new jobs created since the start of 2011, 70% have been in Auckland
or Christchurch, where only 47% of the population live. It’s a vicious circle.
Because the jobs went to Auckland and Christchurch, migrants went there
too, and New Zealanders left the regions.
More than three quarters of net migration in the last year went to Auckland
and Christchurch. Spending on infrastructure in our regions has declined,
services have closed, and development has stalled.
An active government partner would reward migrants and businesses who
invest their future in our regions. If someone commits to our regions we
need to commit to them, too.
Finally, this government should have reformed tertiary education to
prepare for the coming tidal wave of change in the future of work.
We live in a world where:
• the largest taxi company, Uber, doesn’t own any taxis
• the world’s largest media company, Facebook, doesn’t produce any
• Xero, for all its brilliance, is putting accountants out of work.
New Zealand’s polytechs and universities, as well as our businesses, have
to keep up with these trends. A global survey found that 73% of CEOs are
concerned about the availability of the key skills they need in their industry.
The government should have listened more to business, found out where
they saw the skill shortages, then invested heavily in vocational training.
That hasn’t happened.
If we keep training people for the old economy, we fail in the new
A broader economy, more affordable housing, regenerating the regions
and educating for the future. That’s where a responsible government would
have acted. This government hasn’t.
That’s what a responsible government would fix next week. This
New Zealand’s next government
I began today by telling you that it is rare for a budget to profoundly affect
people’s lives. But that’s the sort of Budget we need now. This could have
been one of those budgets. With good growth and low inflation, this is the
moment for visionary thinking.
So what is my vision?
I want a New Zealand where neither your postcode nor your parents
determine the success you can achieve in life, only your effort does.
I want a New Zealand seizing the opportunities of new ways to do business
this century, not struggling to catch up as the world moves on.
A country that trains its young people for the jobs they’ll actually do, not
the jobs their parents did.
A country where we reward the risk takers, the innovators, the unafraid.
Where we celebrate growing wealth, and where everyone who works for
that success shares in the rewards.
A country where owning your own home is still an achievable dream.
None of this will be easy. The deep, structural problems we face in New
Zealand don’t have any quick fixes. Anyone who tells you otherwise is a
Tackling New Zealand’s problems takes commitment, perseverance, vision,
and the willingness to take risks. Doing the right thing for New Zealand
requires focus, not focus groups.
That’s why our Future of Work Commission, led by our finance
spokesperson Grant Robertson, is a two-year commitment where we listen
more than we talk, and we come to pragmatic solutions that will guide our
policy in the decades ahead.
The Commission is a model of the way we’ll approach all the big issues.
We’ll listen, we’ll deliberate, and when we act we’ll make a real difference.
That’s the only kind of government I want to lead.
The challenge ahead
We’ll be holding this Government to account on New Zealand’s big issues
next week and beyond, in the House and around the country.
That’s our job, that’s what we do.
But there’s a role for you, too.
After the budget each year, Ministers hit the road.
John Key, Bill English and Steven Joyce will be speaking to businesses
many times in the coming weeks.
That’s the opportunity for everyone to raise the issues the Government
hasn’t delivered on.
Hold them to their word. Ask them:
• Why haven’t we hit surplus?
• Why are we still so reliant on so few commodities?
• Why are you still ignoring the housing crisis?
• Why are you still neglecting the regions?
• And, most importantly, where’s the plan to diversify our economy?
Put these questions to the Government, and see if they have any answers.
Next Thursday, this government has an opportunity to start answering
these questions. They have a chance to chart a new course for the New
It is imperative that they take it.
It’s not unreasonable for every New Zealander to want the best for New
• We deserve a government in surplus
• We deserve a solution to the housing crisis
• We deserve vibrant regions
• And most importantly, we deserve a plan to diversify the economy,
bringing good jobs to all.
That’s what a responsible government would deliver.