Source: New Zealand Government
Good morning to you all. Thank you to Simon and his team at the Business Chamber for having me. It’s a pleasure to be here.
I especially want to thank members of the business community for being here this morning. I can imagine it’s been a heavy workload listening to speeches about the economy. Perhaps there’s an opportunity to raise productivity right there, but I hope today I can share ideas that are good for all of us. We know this country cannot change its size or distance to market, and better public policy is our best collective hope.
I’m going to talk mostly about the economic challenges we face, the Government’s policy prescriptions for fixing them, and report on our progress. However, there is one of those proverbial elephants in the room.
The Elephant
This elephant is the breakdown of political consensus on liberal democracy and economic orthodoxy. It is particularly strong across generational lines. If you doubt that, think about Helen Clark’s Government, and how it contrasts with the opposition today.
There will be some who, at the time, believed Clark’s Labour Government was turning New Zealand into Helengrad. But if we’re objective, Helen Clark’s Government was well to the right of the current opposition. It’s not National that’s changed; they have been consistent. It is Labour who’ve moved radically to the left.
A broad based, low-rate tax system without any capital gains tax. A pragmatic approach to government ownership, with occasional interventions in rail and banks. A commitment to liberal democracy above all, with one person, one vote, regardless of background.
In some ways, Helen Clark was even to the right of John Key. She refused to sign the United Nations Declaration on the Rights of Indigenous Peoples, which Key’s Government did. The Māori Party was formed due to her legislating over the Ngati Apa court case with the foreshore and seabed legislation, a position that the Key Government partially reversed.
The debates at the time were really about the parameters of the social insurance scheme that is the welfare state. The premiums, being taxes, could be higher or lower. The payouts, being benefits and services, could be more or less generous, but the big debates of the day were still about the parameters of a giant insurance scheme.
Fast forward to today, and we can no longer rely on a cross-party commitment to liberal democracy and economic orthodoxy. Were the Government to change, we would face a Government where one party seriously suggests an appointed Treaty Commissioner should have a veto on the elected Parliament.
The same party openly opposes the concept of democracy, frequently shouts racial abuse across the debating chamber, where it even gets up to do war dances in people’s faces. Their website even claimed racial genetic supremacy but has few practical policy solutions for the most disadvantaged group in the country.
The Labour Party constitution is clear that political power should be wielded only by those elected in frequent, free and fair elections conducted by secret ballot. Helen Clark lived it; Chris Hipkins has taken two positions on the Treaty Commissioner in one week.
Chris Hipkins is a politician we have to admire. Slipperier than an eel fed on sausage rolls, no politician has glided over failure like Chris Hipkins.
In a multi-year crime wave he was Minister of Police.
In the biggest attendance and achievement slump in the history of our country he was Minister of Education.
When the public service added 30 per cent more workers for no better output, he was the Minister for the Public Service.
In many ways those problems were caused by the COVID-19 pandemic and the Government’s response to it. He was also the Minister for COVID-19, where his responsibilities included testing, tracing, making logical rules, and ordering the vaccines on time.
Now you see why he wants to campaign on the record of the current Government, instead of his own. He is running what political campaigners call a ‘small target’ strategy, which should come naturally.
Except, nature abhors a vacuum. Besides Te Pati Māori, you have the Greens. Like the other two, they are very different from their forebears, when liberal democrats like Jeanette Fitzsimmons and Rod Donald campaigned on the environment.
It you take the time to listen to Chlöe Swarbrick she says things like “Parliament isn’t the system we’d design today,” and “if you think you’re crazy you’re not, it’s the whole system.” She promises taxes on assets, not just gains in asset values.
The underlying message is that your problems are caused by others’ success, but their gains are ill-gotten so they and the system that enabled them must be torn down. It is a revolutionary, rather than evolutionary, message.
Stability
Now, there will be some people here wondering when I’m going to talk about the Government and my role in it. I will, but I think the changes in the political landscape are important and material enough to discuss.
What’s more, the Government has signed up to a number of policies designed to increase policy stability. One of them I’d like to talk about more than the others, but there’s three in the ‘quasi-constitutional’ space that I think are worth mentioning.
The four-year term is an old chestnut. It’s been defeated twice before in New Zealand, and we’re a global outlier as a result. We’re one of nine Parliaments in the world beside around 170 that have four or five-year terms.
The Government is committed to introducing legislation that would put a four-year term to referendum, and make the select committees opposition controlled. Lawmaking would be slower, and would face tough scrutiny at committees where the public can submit. At the moment, select committees have Government-aligned majorities. It is one of the most powerful things we can do to improve the quality of policy making and debate in New Zealand.
The Treaty Principles Bill also seeks to enhance the role of liberal democracy. Even those who say they vehemently disagree with the Bill are showing up to Parliament and submitting. In fact, there have never been so many submissions to Parliament on one Bill.
It is not only the contents of the Bill that reinforce liberal democracy, it is the inherent effect of taking the debate back to Parliament that is important. We need to be a country where, as the Labour Party constitution says, important decisions should be made by people subject to frequent, free and fair elections with a secret ballot. In other words, democracy.
The Regulatory Standards Bill
The policy stabilising initiative I’d most like to talk about, though, is the Regulatory Standards Bill. It is crucial that we improve the quality and stability of our regulatory environment. The reason is our woeful productivity growth.
The Government inherited an economy that, on an individual basis, was in recession. Economic output per person has been falling since the September 2022 quarter. In the year to June 2024, GDP per capita fell 2.7 percent.
Behind those short-term numbers there’s an even bleaker story. While productivity growth averaged 1.4 per cent a year between 1993 and 2013, it only averaged 0.2 per cent over the last decade.
If productivity growth had continued to grow at 1.4 per cent a year since 2013, productivity, and therefore wages, would today be about 14 per cent higher. New Zealanders would have been much better placed to endure a cost of living crisis if their wages were 14 per cent higher. In a sense, the cost of living crisis is really a productivity crisis.
Higher productivity means a pay rise and help with the groceries for parents struggling to get by. It means the ability to pay for a doctor’s visit for a sick child. It’s the difference between owning your own home and continuing to rent.
In short, it’s the difference between a good life and scraping by. Despite what you will hear from the Greens and Te Pāti Māori, we have an obligation to future generations to ensure productivity grows much faster.
Access to skills and capital really matter for productivity. Skillful people, working with good technology, can produce more than people with less of those things. It’s critical that we do better in education, and this Government can point to a content-rich curriculum, a massive effort to reverse the COVID-19 slump in attendance, and education meeting entrepreneurship in the form of charter schools.
Charter Schools
Actually, let’s have a small diversion into charter schools. They are also designed to slow down the political turbulence that prevents people getting their job done. So many times I’ve asked state school teachers, “what if you could sign a contract that stopped the Government of the day introducing new policies, often diametrically opposed to the ones you’ve just got used to, for ten years?”
That’s what a ten-by-ten-by-ten charter school contract does. It gives educators space to innovate, because innovation is what we need.
The first school that opened this year, Mastery School in Christchurch, is a partner school to Mastery in Australia. What’s really interesting about Mastery is their use of interns. I believe the last twenty years of degrees for everyone has been a failure. On-the-job learning is coming back into vogue.
Meanwhile, schools everywhere are desperate for extra teaching assistants, and Bachelor of Education students are working part-time minimum wage jobs completely unrelated to their long-term career. There’s an obvious solution to this, and Mastery are doing it. Because they are bulk funded, they can employ more teaching assistants. It is a win-win.
The real winners are the students, some of whose families have visited Australia to investigate the schools and moved to Christchurch to attend. They are proven for raising educational achievement. Last year their achievement data showed students achieving at much higher levels than state schools in core areas of reading, mathematics and spelling.
- Reading: 1.6 years progress in 1 year.
- Mathematics: 1.5 years progress in 1 year.
- Spelling: Average of 1.5 years growth after 1 year.
- Average of 82% attendance across all campuses.
New funding provided in Budget 24 allows up to around fifteen new charter schools and the conversion of 35 state schools to charter schools this year and the following year. Applications from sponsors who want to open charter schools opened mid-last year.
Preparation for an expressions of interest process for current state schools to convert into charter schools is underway. The next round of applications to establish new charter schools will also run over the next few months.
The independent Authorisation Board received 78 applications in its first application round from sponsors wanting to establish charter schools. The country is thirsting for options and innovation.
Overseas Investment
While we’re on diversions, it is not only the skills where we need better policy, but also the investment in capital.
Attracting more overseas investment is a vital part of the Government’s economic strategy. But our overseas investment laws are among the worst in the developed world and they are seriously holding back economic growth and wages.
Nearly every other developed country has less obstructive laws than New Zealand. They benefit from the flow of money and the ideas that come with overseas investment. The truth is that, in the overseas investment game, New Zealand has been benched by international investors. Being 38th out of 38 countries for openness to investment means we’re simply not in the game.
International investors report that our rules impose significant compliance costs, delays, and uncertain outcomes. The timeframe for a general benefit test is 70 working days and costs $68,000.
That’s not to mention the potential investors who are discouraged from even considering New Zealand as an opportunity and simply go elsewhere.
We are 26th out of 38 for foreign investment as a percentage of GDP, which doesn’t sound so bad until you consider the size of our economy. United States, with its massive internal market, could afford to close itself off, but it is more open than us and gets more investment as a percentage of GDP than us.
It would be bad enough if the world was standing still, but our partners, such as Australia’s Labor Government, are moving to liberalise their overseas investment settings further.
There’s a simple equation that is holding back wage growth: workers with more capital get paid more. They work with better tools and technologies and, as a result, they are more productive. Other countries have more capital than us because we have one of the most obstructive overseas investment laws in the world. New Zealand workers have less capital to work with so they get paid less than they could.
I’ve seen the difference that overseas investment can make. I once visited two businesses in the same industry on the same afternoon. Both had skilled and passionate people with good ideas. One had overseas investment, though, and benefited in two ways. They had more money for machinery, and they had more know-how for manufacturing and marketing their product by receiving knowledge from their partners offshore.
Growth in the capital that workers have available to use has not kept pace with strong labour force participation. As a result, our capital-to-labour ratio has been flat for the last ten years or so. It’s probably not a coincidence that our productivity growth has also be flat over the past decade.
If we are going to raise wages, we can’t afford to ignore the simple fact that our competitors gain money and know-how from outside their borders.
The Government intends to simplify our overseas investment rules and I will be making an announcement about this very shortly.
Back to Regulation
So, yes, skills and investment are important, and I’m proud to be lending a hand to the Government’s efforts to bring entrepreneurship into education and investment into the country, but it’s the regulatory environment where I believe we can make the most progress.
New Zealand’s low wages can be blamed on low productivity, and low productivity can be blamed on poor regulation. Bad regulation is killing our prosperity in three ways.
- It adds costs to the things we do. It’s the delays, the paperwork, and the fees that make too many activities cost more than they ought to. It’s the builder saying it takes longer to get the consent than it took to build the thing. It’s the anti-money laundering palaver that ties people in knots doing basic things but somehow doesn’t stop criminals bringing in half a billion dollars of P each year. It’s the daycare centre that took four years to open because different departments couldn’t agree about the road noise outside. I could go on.
- There’s the things that just don’t happen because people decide the costs don’t add up once the red tape is factored in.
- There’s the big one that goes to the heart of our identity and culture. It’s all the kids who grow up in a country where people gave up or weren’t allowed to try. It’s the climbing wall at Sir Edmund Hillary’s old school with signs saying don’t climb. It’s the lack of nightlife because it’s too hard to get a license. It’s the fear that comes from worrying WorkSafe or some other regulator will come and shut you down. You can’t measure it, but we all know it’s there.
The Kiwi spirit we are so proud of is being chipped away and killing our vibe. Nobody migrated here to be compliant, but compliance is infantilising our culture, and I haven’t even mentioned orange cones yet.
It’s clear that now is the time for a significant reset. Many governments over the years have paid lip-service to cutting red tape. This Government is committed to doing something about it.
Perhaps the biggest single policy problem New Zealand faces is the Resource Management Act. Someone once said you can fill a town hall to stop anything in this country, but you can’t fill a telephone box to get something started.
Chris Bishop and ACT’s Simon Court are designing new resource management laws starting with the principle of private property rights. The result will be a law that makes it easier to get stuff done in this country.
My colleague, Brooke van Velden, as Minister for Workplace Relations and Safety, has repealed Fair Pay Agreements and reintroduced 90-day trials. She’s now set her sights on simplifying our health and safety laws, tackling the problems being caused by the Holidays Act, and providing certainty in the law around contractors and personal grievances.
Another of my colleagues, Nicole McKee, is determined to bring some sanity to our anti-money laundering laws and provide regulatory relief for individuals and businesses who have to use that law. It begins with bringing all AML under the DIA as a single supervisor instead of three, as well as exempting some activities as a start.
Chris Penk is opening up the building products market to foreign competition to get prices down, and Andrew Bayly is making various reforms to the CCCFA.
Red Tape Tipline
In November last year, we launched a new Red Tape Tipline. This is an online tool on the Ministry’s website where people can make submissions about red tape that affects them.
So far, over 500 tips have been sent in. I am not at all surprised to see such an outpouring of discontent from Kiwis who are sick of red tape.
The Tipline has quickly become a key tool helping the Ministry to find and deal to the red tape preventing people from getting things done.
Some of the biggest themes coming through the Tipline are about traffic management and anti-money laundering. The Ministry is working with other government agencies to identify and cut red tape.
My message to all the tradies, farmers, teachers, chefs, and engineers out there – every person doing productive work – is this: If there’s red tape in your industry that needs to go, we want to know about it.
Sector reviews
We also have three sector reviews underway – Early Childhood Education, Agricultural and Horticultural Products, and Hairdressing and Barbering.
The ECE report was delivered at the end of last year with fifteen recommendations. They will reduce compliance costs and headaches for ECE providers and help encourage more providers into the market, so parents have more affordable options. I’m taking all fifteen recommendations to Cabinet.
The Agricultural and Horticultural products review has been widely welcomed by farmers, growers and industry. They say that delays in getting access to these products are too long and the process is too complex. They are put at a disadvantage because they cannot get products that have been approved by other OECD countries. I look forward to receiving the final report and progressing changes soon.
At the end of last year we launched a short, sharp review into outdated rules around the hairdressing and barbering industry. Hairdressers and barbers are a billion-dollar industry of more than 5,000 mostly small businesses employing 13,000 people. They are trying to work with outdated rules from the 1980s which include specifying the amount of space between seats and exactly how bright the lights have to be. The Ministry is engaged with the industry now and will deliver findings by end of March.
I anticipate announcing the Ministry’s fourth regulatory review in the next few months.
Regulatory Standards Bill
I am looking forward to the introduction of the Regulatory Standards Bill later this year.
The Bill is a long-term solution to ensuring quality of regulation. It seeks to bring the same level of discipline to regulation that the Public Finance Act brings to public spending.
The Bill will codify principles of good regulatory practice for existing and future regulations. If we want to remain first world, we need to change how we regulate. No law should be passed without showing what problem is being solved, whether the benefits outweigh the costs, and who pays the costs and gets the benefits. These are the basic principles of the Bill.
Some regulations operate differently in practice than they do in theory. To make regulators accountable to the New Zealanders they regulate, the Bill contains a recourse mechanism by establishing a Regulatory Standards Board. The Board will assess complaints and challenges to regulations, issuing non-binding recommendations and public reports.
This is about raising the political cost of making bad laws by allowing New Zealanders to hold regulators accountable. The outcome will be better law-making, higher productivity, and higher wages. Because New Zealanders will be able to spend more time doing useful work, and less time complying for little reason.
Conclusion
The Government is committed to a goal of delivering more economic growth for New Zealanders. And the way we get that is clear: we need to get government spending down and cut through regulation.
We don’t unlock growth by transferring significant resources from the private to the public sector. We don’t get richer by taxing you to pay your competitors. And we won’t stay a first world country by just nipping and tucking at the regulatory thicket that’s grown in recent decades. We unleash growth by letting the business community free to invest, create jobs, adopt new technology, innovate, and sell to the world.
Thank you.
MIL OSI
