Speech to the Auckland Rotary Club on 7 February 2011
When I was first invited to address you today it was suggested that I might talk about the issues I spoke about to the Orewa branch of the National Party in November last year.
In that speech, I noted that as the Government reached the second anniversary of its election there was much to be pleased about.
· The economy was out of recession.
· Unemployment was lower than in most other developed countries.
· Personal income tax had come down.
· We’d come into line with other developed countries by allowing employers to agree a probationary period of up to 90 days when hiring new employees.
And so on.
But I also noted that I was deeply worried.
Some of my worries were quite specific.
For example, I was dismayed that the government had taken no action to reinstate youth minimum wages.
This despite National knowing that after Labour abolished youth rates, youth unemployment shot up by 12,000.1
Thanks to Labour’s action and National’s failure to reverse it, thousands and thousands of young people now leave school or training and quickly become demoralized.
These young people don’t have the skills to earn the minimum adult wage – but they’d be quite happy to take a job for a couple of dollars an hour less.
Maybe you can remember doing the same thing – you were thrilled to get a foot on the bottom rung of the job ladder, and it wasn’t long before you worked your way up.
But the Government says these teenagers have to find a boss who’s prepared to pay them an adult wage for no relevant experience and few skills.
Otherwise they have to go on the dole.
If they can’t get a job for $12.75 an hour, they’re not allowed to accept one for, say, $10. They have to go home and lie on the couch for $4.50!
In doing this, the Government has denied them the chance to support themselves. In effect, it’s said to them, “If the dole isn’t enough, maybe you should do some burglaries, deal in drugs, or get pregnant and live on the DPB.”
I worried that we’ve not put a stop to zoning laws which drive up the cost of urban land to ridiculous levels.
This despite knowing that New Zealanders face higher house prices relative to our incomes than people in most other countries.
And despite our being one of the least densely populated countries on earth.
I worried that John Key told New Zealanders before the election that we should be fast followers and not leaders in the race to reduce carbon emissions.
Yet after the election his government introduced an all-sectors Emissions Trading Scheme.
We weren’t being fast followers, or even slow followers, because none of our three largest trading partners – Australia, China, and the United States – showed any sign of doing the same, and still haven’t.
I went on to argue that I had two more big worries.
One was around economic issues. And the other was around the way the Government was dealing with Maori issues.
I expressed grave concern that these issues were simply not being dealt with.
So more than two months on, where are we now?
Well, the present situation seems rather bleaker than it was in November.
Some economists suggest we may have just experienced a double-dip recession. Even if we haven’t, the economy is barely growing.
Unemployment is almost back to the level of late 2009.
In the short term, we’re at risk from our very heavy reliance on the savings of foreigners.
For almost 40 years, since 1973, we’ve spent more on imports2 than we’ve earned from exports. The difference we’ve had to borrow from foreigners.
Now there’s nothing inherently dangerous about using the savings of foreigners to supplement our own savings. Not if that money is used to increase the productive capacity of our economy.
But it’s not being used for that. It’s being used to finance a spending binge off the back of over-inflated house and farm prices. We’re using it to buy things we haven’t earned.
And that is very risky.
Today, our net debt to foreigners is about 90% of GDP. That’s as bad as in some of the most debt-burdened European countries.
And on present policies, there’s little chance we’ll get that debt down by much.
Indeed, we keep spending more overseas than we earn, even with some of the best export prices in decades, and with local demand for imports reduced by recession.
The risk is that financial markets could become concerned at New Zealand’s vulnerability.
They could decide to stop lending to us – and they could do it quite suddenly.
Even worse, they could start demanding some repayment.
That would force a painful adjustment on all New Zealanders similar to that facing several European countries today.
In the longer term, the threats are of several kinds.
First, the ratio of government debt to the size of our economy is growing fast. To meet the gap between what it earns and what it spends, the government is now borrowing some $300 million every week.
Luckily, right now the ratio of government debt to GDP is not that high. In fact it’s one of the lowest in the developed world.
The reason for that is the prudence of the National Government of the nineties, and the Labour Government between 1999 and 2004.
But in its third term, the Clark Labour Government threw all prudence to the wind.
It embarked on a massive increase in government spending. And much of that was of very poor quality.
So what has this National Government done to reverse this wasteful spending?
Sadly, not much.
In fact, government spending as a share of GDP is now more than it was in any year of the last Labour Government, and the structural budget deficit is now bigger than it was under the Muldoon Government.
The Prime Minister has said this year’s Budget will aim to keep spending for new initiatives to some $800 million.
But of course this is on top of the increased spending built into the system for existing programmes – for education, health, New Zealand Super, KiwiSaver subsidies and so on – so this degree of restraint is trivial compared to the scale of the problem.
As a result, government debt is growing fast.
And the bad news is that if the government doesn’t show more restraint soon, that debt is going to get a lot worse.
Treasury predicts that on current policies the ratio of government debt to GDP will reach 220% by 2050.
How bad is that?
Well, in the late eighties and early nineties, both Labour and National Governments got the jitters when our public sector debt blew out beyond 50% of GDP.
Today, the United States is right to be deeply worried about a government debt-to-GDP ratio of almost 100%.
We just can’t afford to stay on our current track. For the sake of our children and grandchildren, we need to manage our economy better.
Secondly, over the last four decades we’ve gradually drifted off the international pace.
For much of our history, we enjoyed one of the highest living standards in the world. In the early twentieth century we were the highest.
By the early fifties, our living standards were still fourth or fifth in the world.
But today, we’ve fallen to near the bottom of the 30-nation group of developed countries.
Because of this, more and more New Zealanders have voted with their feet. They’ve left New Zealand. Most of them have gone to Australia, where they help to drive the Australian economy forward.
Only two days ago, the Weekend Herald reported that there was a net loss of almost 22,000 Kiwis to Australia last year. All the signs are that this exodus is going to get worse.3
Just before the 2008 election, John Key gave an excellent speech.
In it, he stressed how committed he was to doing something serious about reversing New Zealand’s economic decline relative to Australia.
He sounded genuinely concerned about the resulting exodus of hundreds of thousands of our children and grandchildren.
In the immediate aftermath of the 2008 election, the National Party reached a Confidence and Supply agreement with the ACT Party.
One of the key components of that arrangement was that the Government would aim to lift New Zealand’s living standards to the Australian level by 2025.
Well, promises are easy.
Helen Clark promised to lift New Zealand back into the top half of the OECD within 10 years.
But did her actions match her words? Did she manage to take us even part way up the ladder?
In nine years, she didn’t manage to lift New Zealand by a single rung.
She was careful to avoid being held to account for her broken promise. As time went by and our economy went nowhere, she even tried to pretend she’d never made it.
To John Key’s credit, his arrangement with ACT called for the setting up of an advisory group to suggest the best ways to achieve that catching-Australia goal.
More than that, it required that group to report each year on progress towards the goal.
I have the privilege of chairing that group.
Last November, the 2025 Taskforce, as the advisory group is called, published its second report.
In our first report in 2009, we had estimated that on average Australian incomes were at least 35% above those in New Zealand.
Our second report did not put a precise number on the gap at the end of 2010. But no serious observer believes the gap got smaller over the last year.
The important question, of course, is not whether the gap narrowed over the last year.
It’s whether we’re putting in place policies which will help close the gap by 2025.
And make no mistake, closing the gap is a big challenge.
To close the gap within 15 years, New Zealand incomes will need to grow by about 2% faster than Australian incomes, on average, for that entire period.
On realistic assumptions about Australian growth, this implies that New Zealand incomes will need to grow at about 4% per annum for the same period.
Can it be done?
Pessimists argue it’s impossible. I don’t agree.
I’m absolutely sure it can be done. After all, for much of our history, standards of living in the two countries have been very similar.
But I’m equally certain it won’t be done on our present track. And nobody that I’ve spoken to thinks it will.
Treasury’s own projections suggest that New Zealand’s trend rate of growth is now just 2.7% a year.
Average incomes are growing even more slowly – well below what they’d need to grow by to bridge the trans-Tasman gap in living standards.
So there’s every prospect the gap will keep widening. And the wider it grows, the harder it will be for us to survive as an independent nation.
No, I’m not kidding. Yes, it’s that serious.
Now don’t get me wrong.
Governments don’t create one dollar of wealth. People and firms operating in vigorously competitive markets do.
But government policy choices affect the environment all of us face. Those choices affect the ability of this country and its people to reach their potential.
We need to get those choices right. And sometimes that means asking hard questions, and making tough calls.
But we owe it to ourselves, and to our children, and to our children’s children, to ask those questions, and make those calls.
New Zealand’s economic decline over the last half century is one of the steepest on record anywhere.
Reversing that decline won’t be easy.
To use a phrase sometimes used in another context, we dare not settle for the soft bigotry of low expectations that says “ah yes, but New Zealand is a nice place to live”.
Of course it is.
But we need to transform our economic destiny too.
We need to give our people a reason to believe that we can once again offer a standard of living similar to that in other developed countries – as we had only 50 years ago.
In 1975, another National leader, Rob Muldoon, campaigned on “restoring New Zealand’s shattered economy”.
Sadly, he didn’t. By the time he’d finished with it, it was almost totally shattered.
This generation of political leaders must do better.
The third long-term threat to New Zealand is in race relations.
The Treaty of Waitangi guaranteed to all New Zealanders “the same rights and duties of citizenship as the people of England”. (Those are the words of the English translation of the Maori version of the Treaty.)
And the National Party campaigned in the last three elections on a commitment to one law for all New Zealanders.
But since being elected, they’ve moved time and time again in the opposite direction.
· The Government signed the United Nations Declaration on the Rights of Indigenous Peoples.
Among other things, this says indigenous peoples have a right to “self-determination” and “autonomy or self-government in matters relating to their internal and local affairs, as well as ways and means for financing their autonomous functions”.
· National no longer talks about its promise to abolish the racially based Maori electorates.
· To appease the Maori Party, the Government has introduced legislation to surrender Crown ownership of the foreshore and seabed.
They’ve done this against the wishes of the general public – and despite the fact that the Prime Minister gave a commitment that the new law would not go ahead if there was not widespread public support. At the moment, it appears that not even most Maori Party supporters support the proposed Bill.
· The Government is in a Confidence and Supply Agreement with the race-based Maori Party.
The Maori Party makes no secret of its desire to see the New Zealand constitution restructured.
They want it to be a partnership between Maori and non-Maori. A partnership that confers special privileges on Maori. A partnership in breach of the clear meaning of the Treaty of Waitangi.
· The Government supported legislation which has resulted in non-elected Maori representatives sitting on all the committees of the Auckland Council.
And why? Such an arrangement was clearly not required for Maori to be involved in decision-making in Auckland. The recent local body elections resulted in Maori members on the Council in roughly the same proportion as their share of the Auckland population.
Maori traditions are an important part of New Zealand culture and should be respected as such.
But for the life of me I can’t see why so many public events must begin with a prayer or lengthy speech in Maori, even if none of those present can understand it.
Nor can I fathom why some government agencies assume that all New Zealanders should respect the animist religious views of a tiny minority.
We must not, we’re told, have a barbeque on Mount Taranaki.
We must not build a highway where a taniwha might be offended.
We must not let pregnant or menstruating women visit the national museum.
We are now in the 21st century, when the vast majority of all New Zealanders, Maori and others, do not share these animist beliefs.
And what of the Treaty itself?
I’ve always believed that the Crown should pay compensation where it can be shown that it breached its commitment to protect the property rights of Maori.
I still believe that. Article II of the Treaty guarantees those rights.
But Article III of the same Treaty makes it crystal clear that all New Zealanders should have equal rights under the law.
It doesn’t matter whether those New Zealanders are of European, Maori, Pacific Island, Asian or other ancestry.
And it doesn’t matter whether they’re descended from those who arrived 700 years ago, or whether they became New Zealand citizens yesterday.
Article III makes it clear that all New Zealanders should have equal rights under the law, with no special privileges for any creed, or for any culture, or for any race.
Yesterday marked the 171st anniversary of the signing of the Treaty of Waitangi.
The Treaty was not our constitution when it was signed. And it’s not our constitution today.
But it is a hugely significant document and I strongly disagree with those who wish we could forget it.
But it’s vital that we all know what it involved and what it did not involve.
Article I involved the Maori chiefs who signed it ceding sovereignty to the British Crown.
In other words, Article I made it very clear that New Zealand should be one nation, not two nations within the same boundaries.
Article II committed the Crown to protect the property rights of those who signed it.
And Article III made it clear that all citizens were to have the same rights and duties as the citizens of England.
There was no suggestion whatsoever of a partnership between two races.
There was no suggestion whatsoever that some citizens would have rights based on their race, or the date on which they or their ancestors arrived in New Zealand.
It was a mighty basis for starting a new country.
But today that country is in real trouble. If we’re going to get out of it, we – Maori and non-Maori alike – are going to need to focus all our energy on the serious economic challenges we face.
We just can’t afford to be distracted by revisionist theories about what those who signed the Treaty 171 years ago really meant.
Having said all that, I am enormously optimistic for our country.
We have a great country. A country of wide open spaces, of soaring mountains, of giant kauri forests, of magnificent fiords, with a benign climate.
A country rich in resources – fast-growing forests, rich dairy land, a vast fishery, plentiful water, large deposits of coal and iron sands.
A country which gave the world Ed Hillary, Peter Blake, Katherine Mansfield, Ernest Rutherford, Kiri Te Kanawa, Susan Devoy, Peter Snell, Archibald MacIndoe, Peter Jackson, Jane Campion, Roger Donaldson, Richard Hadlee, Dan Carter and William Pickering.
A country which was the first in the world to grant women the vote, and one of the first to grant all men the vote.
A country where we take it for granted that an election will be held roughly every three years, and that a government will be elected without bloodshed, with the army safely in its barracks.
We have no excuse for throwing it all away by failing to deal with the issues which so clearly threaten our future.
1 An estimate made by Eric Crampton, an economist at the University of Canterbury.
2 In this context, “imports” includes imports of goods, imports of services, and interest payments on the money we’ve borrowed previously.
3 Weekend Herald, 5 February 2011, page 1. The second report of the 2025 Taskforce suggested that, on plausible assumptions, we could lose more than 400,000 New Zealanders to Australia in the next 15 years.
7 February 2011.
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