Key’s plan for NZ to require lots of tug-boats

Written By: - Date published: 1:50 pm, April 9th, 2008 - 42 comments
Categories: john key - Tags:

europenz.JPGFrom Key’s speech to the NZ Institute of Foreign Affairs on emulating the ‘Celtic Tiger’:

“Thirty years ago, Ireland was a total basket case. Today, it has all of the trappings of a considerable economic success story, including the capacity to attract and retain smart, educated, enterprising people.
three key policy initiatives which were critical to this success:
• They got the tax rates down to really competitive levels.
• They got infrastructure, especially communications infrastructure, up to an impressive standard, and
• They made sure the educational institutions were turning out graduates of the high standard demanded by the sectors that were seen as their areas of competitive advantage.
But the most important point is this: all these initiatives were deliberately targeted at leveraging off their most important strategic asset their location on the edge of the European Union.
Leave aside some of the EU subsidies that someone will mention if I do not the secret to Ireland’s success was location, location, location
And that, surely, must be the key to New Zealand’s economic success in the years ahead.”

Ok first, you can’t ‘leave aside’ the fact that Ireland’s had EU injections of several billion euros per annum into its infrastructure for 30 years, they’re worth 5% of Irish GDP each year.

But, more importantly, is Key really saying we should emulate Ireland by being on the edge of the EU? To be fair, he’s what he’s saying isn’t that stupid, its more so:

“..If we, sitting on the rim of the fastest growing region on the planet, cannot turn that geographical advantage into a significant economic success story, we have only ourselves to blame.
Ireland made much of its location on the edge of Europe to fuel the economic revolution we have seen there, and I believe New Zealand can do much the same in relation to its proximity to Asia ”

But we are not proximate to Asia like Ireland is to Europe. It’s 10806 bloody kilometres to Beijing. And guess what? It’s only 8275km from Dublin to Beijing.

Key’s a fool if he thinks we are in a position analogous to Ireland. Without its massive advantages in EU subsidies and proximity to markets, adopting Ireland’s high expenditure/low revenue model doesn’t make sense. We should not run our economic policy based on other country’s conditions. What does Key plan to do, move New Zealand closer to China?

42 comments on “Key’s plan for NZ to require lots of tug-boats”

  1. higherstandard 1

    SP

    Not sure what point you’re trying to make ?

  2. Steve Pierson 2

    My point is “Key’s a fool if he thinks we are in a position analogous to Ireland. Without its massive advantages in EU subsidies and proximity to markets, adopting Ireland’s model doesn’t make sense.”

  3. higherstandard 3

    SP

    So

    • Getting tax rates down to competitive levels.
    • Getting infrastructure, especially communications infrastructure, up to an impressive standard, and
    • Making sure that educational institutions are turning out graduates of the high standard demanded by the sectors that are seen as their areas of competitive advantage.

    Are foolish policy – sorry but I must disagree

  4. Rocket Boy 4

    higherstandard: It certainly makes sense to do the things you suggest but they should be done because it makes sense to do them for New Zealand, not because we are trying to emulate another countries ‘success story’.

  5. Steve Pierson 5

    HS. Ireland can only afford to run a low revenue/high expenditure government because it gets 5% of GDP from the EU. It doesn’t make sense to try to do the same without the same subsidies, we’d have to go into deficit or cut public services.

    And we are simply not in the position to attract all the high-end service and tech industry work from Asia that Ireland has from Europe.. we do not have the same geographic proximity, even if Key thinks we do…nor do we have the advantage of having a population speaking the same language as one of the region’s powerhouses.

    like I say, Ireland is on europe’s doorstep, we are further from Asia than Ireland is.

  6. Steve Pierson 6

    National is always voicing this stupid empty stuff about emulating the Asian Tigers (before the Asian crisis) and the Celtic Tiger, or Finland, or Singapore but they fail to acknowledge the fundamental advantages these countries have that we don’t. We have other advantages, constructing an economic policy based on other countries’ circumstances is stupid.

  7. higherstandard 7

    RB

    I agree perhaps that’s why people should read the entire speech not just a soundbite with a highly partisan spin.

    Honestly it could just have easily been Helen Clark or Winston saying much the same thing but because it’s Key the person/’ posting on this site seem to be unable to step beyond their anathema of anything or anyone who is in opposition to the political left of centre.

    Honestly the day after signing a FTA with China to have a go at comments like these from Key (or indeed anyone) is bizarre.

    [You don’t hear the Government saying we should emulate Ireland because it doesn’t make sense to base your economic policy on another country’s conditions.]

  8. Joker 8

    What is the difference between what John Key is suggesting and the labour Governments publically acknowledged attempt to economically and socially emulate the Scandinavian countries.

    Have a look at alot of our lastest policy and regulation and you will see it has been lifted chapter and verse from either Copenhagen or Stockholm.

  9. DS 9

    If Key is such a big fan of the Irish model, does this imply he’s going to implement free teritiary education like, you know, Ireland? Or implement varying level of corporate tax rates dependent on the nature of the industry (heavens above, government picking winners!). Or a top income tax rate of 41%?

  10. Daveo 10

    New Zealand already has a very ‘competitive’ tax system:

    http://www.oecd.org/document/57/0,3343,en_2649_34533_40233913_1_1_1_1,00.html

  11. Steve Pierson 11

    Joker. Key is suggesting our position relative to Asia is the same as Ireland’s is to Europe. Labour isn’t saying we are in Scandinavia.

    Speak to a policy analyst. Our greatest foreign sources for policy development are the same countries they’ve always been: Canada, Australia, UK.

  12. Patrick 12

    I agree DS, he is totally ignoring the huge benefit that free tertiary education and massive EU subsidies (which have paid for much of the new infrastructure in Ireland) have had on the country.

    Try again Slippery John…

  13. higherstandard 13

    SP

    In relation to your addendum to my last comment

    Our economic policy mus be based on other countries conditions otherwise we will disappear up our own fundament.

    What Key is saying is that we should, like Ireland or any competently run country or business, base policy on taking advantage of trading relationships and competitive advantage where we can – tax, education and infrastructure are surely key to taking advantage

    Once again I would encourage people to read the entire post …

    “But let me draw again on the lesson from Ireland. What the FTA with China will give us is access on reasonable terms. But that is no guarantee of success. Like the Irish, we still need to get our tax levels competitive, our infrastructure up to scratch, and our education system delivering the graduates if we are to turn trade access into economic success.”

  14. Pablo 14

    HS

    Those are good policies, but they have already been implemented or begun implementation.

    Taxes already dropped and dropping (tick)
    Improving infrastructure investment (tick)
    Education supporting our growth goals (well, I think we are, but you might beg to differ)

    So we agree then? Why are we arguing?

  15. But the most important point is this: all these initiatives were deliberately targeted at leveraging off their most important strategic asset their location on the edge of the European Union.

    They also have a system of centralised collective bargaining which ensures that nearly all the workforce is covered by a union-negotiated collective agreement. Also, as training/apprenticeships are a compulsory part of the agreements. So these costs are taken out of market competition (they are currently seen as a labour cost in NZ), so there’s no disincentive for employers to scrimp on training costs. Because of this, Ireland has higher work place skill standards, which makes each employee more valuable to the employer as they’re more productive. So employers work harder to retain their staff (they pay them more), which results in lower staff turnover, and further productivity gains. Because the staff are worth more, employers are more likely to invest in expensive capital – resulting in further productivity gains.

    Oh and did i mention that National got rid of this system in 1991, and our productivity growth levels have been near the lowest in the OECD ever since?

  16. higherstandard 16

    Pablo

    Yes …….. see my point about 10 posts above.

  17. Steve Pierson 17

    does Key also buy into the rest of the Irish model? – higher top tax rate, stronger unions, less focus on inflation, free university? because you can’t just take the parts that suit you ideoloigcally and hope it will work.

    Maybe we should join the EU and adopt the euro too
    (btw, we can’t join the EU, it’s in the EU Treaty)

  18. Steve Pierson 18

    incidentally. Ireland is running inflation near 5% and unemployment is 5.5% http://home.eircom.net/content/irelandcom/topstories/12559860?view=Eircomnet&cat=Top Stories

  19. Joker 19

    Steve, by quoting mileages from Dublin to Beijing its seems you are basing your position on geographic realities instead of regional trade relationships.

    Having just signed an FTA with one of the worlds biggest economies puts us in a very similar position to Ireland (subsidies aside).

  20. “Steve, by quoting mileages from Dublin to Beijing its seems you are basing your position on geographic realities instead of regional trade relationships.”

    More expensive transportation costs make your goods more expensive, and put you at a relative disadvantage to your competitors that are closer to the larger markets. Simple really.

  21. Occasional Observer 21

    Funny how no less than 8 Labour Ministers have praised Ireland’s economic success, and noted that there are lessons we can learn from their experience, but as soon as John Key says it, the Standard says he’s wrong.

    Funny also how Ireland has risen from the bottom five in the OECD rankings to the top five in just eight years, whereas despite Labour stating that its key economic goal was to rise to the top half of the OECD within eight years, New Zealand has slipped down the rankings.

  22. Occasional Observer 22

    And how come my comments are awaiting moderation? Is this the new way the Standard has worked out to censor people?

    [Tane: I’m not sure why it’s happening, I’ll have a look when I get a free moment]
    [lprent: You annoyed me and wasted my time. I put it in moderation so I could follow up on subsequent comment more easily. I’ll remove the moderation.
    see: http://www.thestandard.org.nz/?p=1612#comment-27450 ]

  23. James Kearney 23

    Occasional Observer- how do you know that 8 Labour ministers have said that about Ireland? Is this publicly available information or are you another of National’s parliamentary insiders?

  24. higherstandard 24

    Roger

    Quite correct.

    Just as lower tarifs, production costs and added value products put you at an advantage to your competitors.

    As an aside I wonder if it is chepaer shipping product to Chain from NZ or Ireland ??

  25. higherstandard 25

    Chain Feck ……… Meant China of course

  26. randal 26

    hs stop whingeing and start figuring things out for people to do… seeing as you are so smart an all

  27. Steve Pierson 27

    hs. Of course, the point is that NZ is really far away from China, whereas Ireland is really close to Europe – the fact that even Ireland is closer to China than NZ is just an exemplifier of the weakness of the argument that we could be an Asian version of Ireland.

  28. HS – we already have virtually 0 tarifs, haven’t got an over-taxing regime. And our labour-income share is among the lowest in the OECD (probably due to us having a deregulated labour market, and therefore pitiful wages).

    http://en.wikipedia.org/wiki/Image:Income_Taxes_By_Country.svg

    Also, according the the world bank we are the second most business friendly environment in the world.

    http://www.doingbusiness.org/economyrankings/

    Your solution – Kill The Poor!

  29. higherstandard 29

    Randal

    Whingeing … don’t know what you’re on about.

    SP

    No the point is that we can develop NZ to take advantage of export opportunities in the region which was Key’s point as you well know.

    Roger Nome

    Yes so
    -Getting tax rates down to competitive levels.
    -Getting infrastructure, especially communications infrastructure, up to an impressive standard, and
    -Making sure that educational institutions are turning out graduates of the high standard demanded by the sectors that are seen as their areas of competitive advantage.

    Can only serve to improve our competitive position in export markets and exploit the opportunities that the FTA provides in China

  30. Occasional Observer 30

    Fair enough, LPrent. I didn’t intend to annoy you. Thank you for your consideration, Tane.

    With all due respect, Steve Pierson, Ireland’s economic success is not just to do with its geographic proximity to Europe. Yes, it means that it can shift its dairy production to Europe much more easily, but it’s been in services where Ireland has really lead the way. That is to do with non-merchandise trade. Ireland’s success is in its growth in international trade, in both merchandise and non-merchandise trade.

    Non-merchandise trade has little to do with geographic proximity to markets: it has much more to do with market access. If you’re selling financial services, or software services, for example, you don’t necessarily have to be geographically close to your markets. If you’re trying to sell meat and dairy, sure, you’ve got a steeper hill to climb.

    New Zealand’s trading future is self-evidently in non-merchandise trade within our natural trading bloc, which is the Asia Pacific. Just as Ireland’s trading future is self-evidently in both merchandise and non-merchandise trade within its natural trading bloc, in the EU.

    Ireland has had some natural advantages by being part of the EU–it has attracted substantial agricultural subsidies, which we will never get in New Zealand, and aren’t sustainable for the EU in the long-term anyway. But it has also made enormous progress in financial and IT services. Much of that recipe has been about changing the tax base, aggressively attracting foreign investment, investing in high-skilled education, and aggressively poaching talent from places well afield of Europe.

    There’s nothing in that recipe that we can’t learn from, and even emulate, in New Zealand.

  31. Pascal's bookie 31

    I’d certainly not argue with the three points John suggests, but I’d like to see them fleshed out a bit.

    The way they are phrased makes them a bit tautological.

    Obviously our tax rates shouldn’t be rule us out of competition. But tax isn’t the only thing that people look at. The way this point is phrased begs the question of whether our tax rates are in fact the thing that is holding us back. Maybe they are but I’d like to see it shown rather than just assumed.

    Obviously our infrastructure needs to be impressive. But again, this is meaningless unless we see concrete policy about what infrastructure needs to be developed to what standard, (who exactly does John think needs to be impressed, and what will that look like?), and most importantly, who is going to pay for, control and own that infrastructure, who is going to carry the risk of it turning into a white elephant, and can John convince them to build it?

    It is self evident that we will need to educate a workforce to the level required. But once again, what does this mean? Are we talking about picking winners amoungst industries and then subsidising training for their needs in 5 year plans? Who pays for this? The industry, the govt, or the other departments at the education factory?

    It’s just fluff.

    It reminds me of people that say that they are against ‘unnecessary violence’ or ‘wasteful spending’.

    No kidding, I like ‘yummy food’ and dislikes ‘bad beer’.

  32. Razorlight 32

    Steve Pierson.

    Your Key attacks sometime have some strong arguments, but this one is bizzare.

    Key has pointed out how a country of similar size and population has prospered. There are lessons in their rise which we can take. We should look closely at what they have done and adopt the parts which will work for us.

    He isn’t saying we can be the Ireland of Asia. He is pointing out their are lessons we can learn.

    What is wrong with that?

    Because we are geographically isolated from our trading partners should we just sit down here and look on at Ireland in envy.

  33. Matthew Pilott 33

    Razorlight – the bizarre bit would be this: “Leave aside some of the EU subsidies that someone will mention if I do not the secret to Ireland’s success was location, location, location “.

    Key, to, er, Key, is location. Steve points out that Key is wrong, and talking shite. Fairy ’nuff I says.

    I believe the point isn’t that we should sit in the naughty corner and have a sulk, but that we can’t model our future on Ireland either.

  34. Gobbler 34

    Mostly fluff from Key and Steve unfortunately.

    The two main points of your post Steve can be broken down as follows:

    A) European subsidies that allow Ireland to have tax rates that are lower and social services that are higher than they would other wise be – cannot be emulated in New Zealand.

    Answer fair-enough. Although the recent signing of the free-trade agreement with China the expansion of the agreement with Singapore continued opening up of the CER and continuing efforts to start an agreement with both Japan and the United States would suggest that New Zealand is attempting to milk as much out of the APEC trading bloc as it can. Although it won’t emulate being a member of the European union it is better than simply sitting on our hands.

    B) That New Zealand isn’t closer to Asia at all – despite what Key is suggesting.

    Unfortunately this is wrong.

    New Zealand is closer to Beijing; Shanghai; Hong Kong; Singapore and Tokyo than Dublin in a major measure – shipping – which considering that most of New Zealand’s exports are currently physically shipped somewhere is a very important consideration to take in when making such an argument. And as another reply pointed out – when it comes to a lot of software and financial services provided you have access to state of the art communications it doesn’t matter if you are in the Beijing CBD or under a polar ice-cap as the job can be done from anywhere.

    Also considering Beijing doesn’t even have a major port I can only think you chose it as it as it is the only city out of the major cities in Asia that is closer to Dublin than Auckland when flying.

    http://gc.kls2.com/cgi-bin/gc?MAP-STYLE=&MARKER-STYLE=default&PATH=AKL – IST&PATH-COLOR=red&PATH-MINIMUM=&PATH-STYLE=&PATH-UNITS=nm&RANGE=&RANGE-COLOR=navy&RANGE-STYLE=best&SPEED-GROUND=&SPEED-UNITS=kts

    Also according to the city of London corporation’s global financial centres survey in terms of business Singapore; Hong Kong; Shanghai and Tokyo are all more important than Beijing and considering John was making a point regarding trade these would all be of more interest than Beijing in any such argument.

    So although he was once again being high in fluff and spin; he was making some valid points about how to snuggle up to Asia as best we can.

    As like it or not New Zealand isn’t ‘close’ to anything and if it was ‘close’ to anywhere it’s Asia.

  35. reid 35

    As I posted in a previous thread two days before this speech, one of the architects of the Irish reforms revealed to an AU School of Business audience two factors, neither of which have been discussed in the comments above.

    Before I discuss those, let me just say that the Architect, who was BTW I think the Chancellor at the University of Limerick, didn’t mention the EU subsidies as being a factor, and also consider that Ireland was a basket case even when the subsidies were in operation, so I think logically you could rule that out as a root cause.

    The fundamental idea was to make Ireland attractive – more attractive than any of its regional competitors – to overseas companies who were interested in setting up either manufacturing or research operations. Of course Ireland had tariff-free access to the entire EU and that was of strong appeal to such companies, but we also have that with the FTA – anyone know what the FTA says about software exports to China?

    Anyway, as I said in the post, there were two prongs. One prong was to educate the population in two specifically defined disciplines the architects had determined would appeal to such companies. They chose IT and Bioinformatics, which appealed to IT and Biotechnology companies. We would need to chose differently, but we have two advantages: one is our ag science knowledge base, which is the best in the world. How can we leverage that and expand it beyond ag? Second is our No.8 wire heritage, which allows us to be innovative, lateral, and highly adaptive. How can we leverage that? Once they’d decided the disciplines they focused, as I said, like a laser on educating the population accordingly.

    Second prong was to design appealing tax structures as I outlined.

    I think one thing NZ needs to avoid is the apparent perception that large multi-national corporations are inherently evil and need to be avoided. If we hold fast to that view we will never get anywhere in terms of emulating the Irish model. We have a limited time window of opportunity in which to take advantage of our Asian access. If we waste it, and remember it’s a one-off, there are no more Chinas, then IMO, we’re idiots.

  36. Matthew Pilott 36

    Gobbler, I think you have missed the cut & thrust of the topic with your second point.

    It has nothing to do with the distance between Beijing and Dublin (that was an illustrative point by Steve regarding our proximity to Asia, or lack thereof) and everything to do with the distance between Ireland and the trading partners with which it has few, if any barriers – the EU. I.e. we’re meant to be right in the lap of our new FTA buddy right? Steve merely points out this is not the case, especially when compared with Ireland’s proximity to the EU.

    However, all points regarding service provision are valid, by and large. You don’t need to be present, physically, to provide an electronic service. One point to consider, though, is that you may need to be there to sell your services in the first place.

    I’d also like to suggest that the language and cultural differences (barriers…?) are more marked in a Sino-NZ relationship that that of Ireland & the EU.

  37. Lampie 37

    Long last, a good debate here

  38. Lampie 38

    I’d also like to suggest that the language and cultural differences (barriers ?) are more marked in a Sino-NZ relationship that that of Ireland & the EU.

    Hence why most NZ firms have an agent representing them 🙂 Takes a long time to establish a relationship over there than here 🙂

  39. Lampie 39

    Funny, no one has mention the ASEAN trading block here

  40. Draco TB 40

    I think one thing NZ needs to avoid is the apparent perception that large multi-national corporations are inherently evil and need to be avoided.

    But they are and everything in economics tells us that they are. Monopolies and oligopolies are what you end up with corporations can set themselves up in every country in a way that will crush the competition.

    It also doesn’t help when those corporations can come in, buy up a company, and then remove the whole lot off-shore. This leaves several people without jobs and without the produce of their work.

  41. Lampie 41

    Question, why does Key mention in his speech initiatives already well underway but words them as they are not? Hmmmm I know the answer.

  42. Gobbler 42

    Matthew –

    Agreed language barriers are probably bigger in the case of NZ/Asia than Ireland/Europe.

    In the same way that I missed the cut-and-thrust of Steve’s argument. You have missed the cut-and-thrust of John Key’s argument and like I said in my last line:

    “As like it or not New Zealand isn’t ‘close’ to anything and if it was ‘close’ to anywhere it’s Asia.”

    New Zealand can only cosy up to sea-life and birds following the logic that has been employed in the argument.

    New Zealand is simply not close to anything and by trying our best (regardless of the fact that by almost any other country’s measure of distance to/in or around its nearest trading bloc that New Zealand is in comparison far away) to become as close to Asia as possible can only be a good thing!

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