Forum Archive Index - February 2002

[Mark Hubbard <mhubbard@es.co.nz>]

> can
> someone please post the news clipping of cullens wealth tax
> thankyou


I've simply posted below the text of his whole speech in which the
remarks were included:


22 February 2001
Hon Dr Michael Cullen 
Minister of Finance


Address to the Ladies' Probus Club of Cornwall Park, Auckland

It is my pleasure to be here with you today. Generally as Minister of
Finance, people expect me to talk about the economy and I'm happy to do
that because the government has a good story to tell in terms of our
economic and fiscal management.
But first I want to talk about our achievements in social policy, 
particularly in superannuation and in our policies for the elderly New
Zealander because we have a very strong record in these areas.
Labour went into the last elections with a seven point commitment card.
We 
did this because we were aware that, after years of broken promises,
public 
confidence in the political process was dangerously low. It was important
to the health of our democracy that it be restored - and quickly.
The obvious and only way to achieve this was to be a government which
limited its promises to what it knew it could achieve, and then delivered
on those promises.
We promised to create jobs through the promotion of New Zealand
industries 
and through better support for exporters and small business. We set up
Industry New Zealand in our first year in government and allocated it a
budget of almost $332 million over four years. Industry New Zealand has
developed a menu of programmes to assist talented individuals turn a good
idea into a good business, and to assist new businesses to become 
established and established businesses to grow.
But the government's commitment to economic growth and to the 
entrepreneurial spirit does not stop with Industry New Zealand. We have
introduced a raft of initiatives outside Industry New Zealand to cut
business compliance costs, reduce the international barriers to our 
exports, provide specific assistance to exporters, and to improve the
quality and availability of occupational skills and training.
The goal we have set ourselves is to restore New Zealand's per capita
income to the top half of the OECD league table. The policy framework we
have developed to achieve this was outlined by the Prime Minister last
week 
in her statement to the House and in the Growing an Innovative New
Zealand 
strategy. I will return to this theme later.
In health, we promised to focus on patients not profit and to cut waiting
times for surgery. Health is a huge portfolio and there seems often not
to 
be a direct relationship between the dollars put in and the returns in
terms of improved health outcomes.
However, we have been able to make real progress. The latest reliable
figures we have for waiting times are for the 2000-01 year and show that
82 
percent of new patients received a specialist assessment within the six
month standard the government has set.
Just before Christmas, we announced a $2.4 billion increase for health
spending over the next three years. This is the largest growth package
for 
health in New Zealand history and will give the health boards a firm
funding basis on which to plan.
We promised to cut the cost to students of tertiary education, starting
with a fairer loans scheme. I am aware that there are still problems in
this area but we have had to take a gradual approach. We do not have
unlimited funds and there are many calls on the funds we do have.
Much however has been achieved. One of our first moves as a government
was 
to stop charging interest on student loans while students were still
studying. And since we took office, we have held the interest rate on
loans steady at 7 percent. We have also frozen student fees through the
last two academic years.
And we are engaged on a comprehensive reform of the tertiary sector to
reduce wasteful duplication of resources, to improve course quality and
to 
align courses more neatly to the country's economic requirements.
We promised to restore income related rents for state housing so that low
income tenants paid no more than 25 percent of their income in rent. The
market rentals introduced by the previous government were a major source
of 
poverty and misery and of the resurgence in New Zealand of third world
diseases associated with overcrowding.
Income related rents were restored in December, 2000. Since then those
who 
work with the most vulnerable New Zealanders have noticed a decline in
the 
numbers needing food parcels.
We said we would crack down on burglary and youth crime. Youth arrests
are 
up but that is to be expected when police start taking a tougher line on
youth offenders. And I am delighted to report that the number of recorded
burglaries has dropped by around 200 per week on average since the Labour
Alliance government took office.
To help pay for our policy commitments, we increased by 6 cents the top
tax 
rate for those on incomes of $60,000 plus a year. But we promised that we
would not raise income tax for those earning less than $60,000, and that
we 
would not raise either GST or the company tax rate. We have been true to
our word.
So we have kept faith with the electorate. We have done what we said we
would do, and much more besides and I think we can be proud of what we
have 
managed to achieve. But the achievements I am proudest of and which have
involved me most directly are in the area of superannuation.
We promised to reverse the 1999 cuts to New Zealand super and we have
done 
that. We have restored the floor for the married rate to 65 percent of
the 
average wage. We have also undertaken to deal with another source of
anxiety for older New Zealanders by introducing legislation to remove
asset 
testing from long-stay elderly care. We will not however pass the measure
into law until our second term as we do not have room to finance it in
this 
year's budget.
The other promise we made on super was to guarantee superannuation into
the 
future by putting aside contributions now to smooth the costs of an
ageing 
population. The New Zealand Superannuation Act was passed last year and
the government has been making payments of $23 million a fortnight into
the 
scheme.
The money is now sitting in a special account in the Debt Management
Office 
of the Treasury until the governance and administrative arrangements for
the fund are established.
This will be done by the board of guardians. The Act provides for a board
of five to seven members, and gives the board responsibility for setting
the investment policies of the fund and for appointing the funds
managers.
It requires the board to follow best practice portfolio management, 
maximise returns without undue risk to the fund as a whole, and avoid
prejudice to New Zealand's reputation as a responsible member of the
world 
community.
To protect the board - and the fund - from political meddling, the 
legislation stipulates that the government must make the appointments
from 
a short list prepared by a special nominating committee.
The committee advertised for nominations last year and received over a
hundred expressions of interest. It is now sorting through the candidates
and hopes to be able to present the list to the government by early next
month.
I would expect to be able to make the appointments before the end of that
month, and would hope that the fund was up and operational by around mid
year.
The New Zealand Superannuation Fund represents one of the most
significant 
political initiatives in decades. It is often mistakenly presented as a
policy of special interest to the currently retired but the real 
beneficiaries are not today's superannuitants but the superannuitants of
the future - the people who are in their mid fifties now, and
younger.
Although the previous government cut super in the late 1990s in response
to 
the Asian crisis, almost all commentators, including National, accept
that 
it will not come under serious cost pressure until the baby boomers -
those 
born between 1946 and 1965 - begin to retire.
That is why National is prepared to guarantee superannuation at current
entitlements to people who are now in or near retirement. They cannot
with 
any degree of good faith or credibility extend the guarantee beyond that
because they are not prepared to support the government's partial 
prefunding scheme and therefore have no funding mechanism.
However - at least at this stage - they are refusing to state where their
cut off point would be and what people would miss out. What will they
define as "near" retirement - 55, 50? And remember for the
purposes of 
this discussion that a National government would probably comprise Act
and 
that Act is on record as supporting a raise in the qualifying age for
super 
from 65 to 68.
Until National is prepared to come clean on this issue, we cannot have a
meaningful or honest debate on super in this country.
Now to the economy. New Zealand is surviving the fallout from the events
of September 11 and the global slowdown in surprisingly good heart. Our
growth rate is forecast to average 2.9 percent over the next three years,
peaking at 3.2 percent in 2004. This compares with an average over the
last 15 years of around 2.3 percent.
This resilience reflects good export prices, low interest rates, strong
household income growth and - more recently - a turnaround in the 
immigration figures. We are experiencing a reversal of the brain drain as
New Zealanders start returning home and an increase in skilled migration
as 
a consequence of government initiatives including the talent visa.
We are also using campaigns around the Americas Cup and the Lord of the
Rings trilogy to promote New Zealand overseas as a sophisticated, 
technologically advanced and exciting place to live.
Inflation is under control, the current account deficit is coming down,
and 
the fiscal position is healthy. Our target is to reduce gross debt to 30
percent of GDP. We inherited a ratio of 36.8 percent of GDP and have
brought this back to 32.2 percent so we are making solid progress toward
our goal despite having to increase our borrowings to cover such items as
the bailout of Air New Zealand.
But to get back into the top half of the OECD, we are going to have to
lift 
our growth rate above the OECD average and to maintain it at that level
over a sustained period. We have not set a deadline to achieve this - not
least because there are too many variables at stake to make a meaningful
assessment. But I believe a sustainable growth rate of 4 percent within
five years is a realistic aim.
That means raising our export performance.
We have made significant progress across a range of areas. Exports of
elaborately transformed manufactures have doubled over the last 10 years
and many new and vibrant industries have emerged - biotechnology, 
electronics, marine engineering, wine, education exports and film. Our
dairy industry is an international success story and, with the creation
of 
the mega co-op Fonterra, stands at the doorway of an even brighter
future.
But there is much work still to be done. Fewer than 4 percent of New
Zealand firms export and only a small minority of them become genuinely
global. Last year, only 151 companies exported more than $25 million, and
only 51 exported more than $75 million. And our exports - at 33 percent
of 
GDP - are lower than for many other small economies.
New Zealand faces a number of significant hurdles as an exporter. Firstly
and most obviously there are the trade barriers other countries raise
against us.
Successive New Zealand governments have worked tirelessly at both
bilateral 
and multi-lateral levels to dismantle protectionism. This government has
negotiated a Closer Economic Partnership Agreement with Singapore and is
pursuing a similar arrangement with Hong Kong. We have also taken trade
missions to Chile, Argentina, Brazil and Peru as part of the Prime 
Minister's Latin American strategy.
We also need to increase our connectedness to the world by attracting
more 
foreign direct investment of the right sort. We experienced a significant
inflow in the mid-1990s but it tended to relate to the acquisition of
existing companies in the property, finance and communication sectors and
did little to expand exports - except of profits and dividends.
We have a lot to offer the foreign direct investor: a clean bureaucracy
and legal establishment, an uncluttered tax system with no capital gains
tax, a well-educated workforce, a green image, competitive wage rates by
the standards of the developed world, the security from litigation that
ACC 
provides, low power costs, a stable political environment and much much
more.
But we are aware that we also have to compete on tax as other
jurisdictions 
are using tax rates as a source of competitive advantage. The Tax Review
made a number of recommendations on international tax and in the tax
treatment of entities which I have incorporated into the government's
work 
programme.
Given the fiscal pressures facing the Government, I will be looking for
changes that involve the highest economic payoff for the lowest fiscal
cost.
In the outbound investment area, the Review captured the conundrum 
perfectly.
I quote:
"On the one hand, New Zealand does not want to induce our most
mobile 
taxpayers to consider moving from New Zealand. On the other hand, New
Zealand does not wish to adopt a built in tax incentive that causes
people 
who remain in New Zealand to see a tax advantage in investing off shore
rather than in New Zealand.
"But it is precisely this type of system that produces a tax
incentive to 
invest off shore that is the international standard."
The Review's preferred solution is that investment in listed shares and
securities be taxed at a standard risk-free rate of return, no matter the
country of investment.
I am interested in this idea because it has the potential to make the
relevant tax rules simpler, fairer and more effective. I hope to be in a
position to set out in some detail the likely direction the government
will 
take on these issues in the upcoming budget.
Our greatest problems as a world trader - and our most intractable - are
our size and our distance from our markets.
If I were to draw a circle with a radius of approximately 2000 kilometres
around Auckland I would take in one country with 3.8 million people and a
hell of a lot of seagulls. A similar circle centered on, for example,
Helsinki would capture over 300 million people in 39 countries.
The government's response to the challenge implicit in this statistic is
to 
add more knowledge to our exports and to develop new areas of excellence
to 
complement and enhance our more traditional strengths. That is the basic
thrust of the Innovative New Zealand framework.
It builds on our experience of the first two years in government and on
the 
strong policy platform we have put in place during that time. It brings
together recommendations from the Science and Innovation Advisory Council
and draws on Treasury's recent work on how to create an inclusive
economy.
Since we took office, we have been embarked on a project to transform the
economy in partnership with business, local government and the community
at 
large. The business to government forums, the hui with Maoridom, the
regional development initiatives driven by Industry New Zealand and the
Knowledge Wave conference have all been expressions of that 
mission.
New Zealanders are highly creative. In fact the latest Global 
Entrepreneurship Monitor ranked New Zealand one of the most
entrepreneurial 
countries in the world and the government has already done much to foster
this innovative culture.
We have improved the tax treatment of research and development, sharply
increased funding for basic research through the Marsden Fund and the
Economy Research Fund and are in the process of establishing Centres of
Excellence in our universities.
Our trouble is not generating new ideas but converting them into
commercial 
successes. New initiatives now being developed to strengthen this linkage
include entrepreneur support strategies, more support for mentoring 
programmes, incubators and cluster development, improving our
intellectual 
property protections and encouraging the tertiary institutions to get
more 
serious about commercialising their research.
The government has also identified three sectors for particular focus -
biotechnology, information and communications technology and the creative
industries. All three are horizontal rather than vertical in nature in
that they are capable of exerting an influence and a growth impact beyond
themselves. All three are characteristic of the innovative, sustainable
knowledge-based economy we aspire to. All three were chosen for those
reasons.
The consensus of our advice was that a more focused approach would give
us 
the biggest and best return on our investment. But the focus will not be
at the expense of existing programmes, and the analysis is not static. An
advisory board with strong private sector representation will be
appointed 
to monitor progress and to identify new opportunities as they 
arise.
Our first task in government was to assert a positive role for government
in the economy. We have won that debate. Our next task was to develop a
cost effective, meaningful and successful framework for
intervention.
We have made a huge amount of progress toward that goal already and will
make significantly more progress in future years under the Innovative New
Zealand strategy. This is an exciting time to be in government.
Thank you.