I’m delighted to be at the New Zealand Economics Forum with you today, to discuss the challenges facing our economy and to share National’s plans for reducing the cost of living and lifting incomes for all.

Let me acknowledge the esteemed guests in the room, Pro Vice-Chancellor, Head of the Waikato Management School and my former Fonterra colleague Matt Bolger, economists, experts, students, all of you.

 

I’m impressed by the academic qualifications, research expertise and economics skill assembled at this forum.

 

Truth be told, I don’t share anything like your depth of formal economics training. I first learnt about small business, economics and global trade not from textbooks but by observing the efficiency of the commercial kitchen at the Wholly Bagel café where I worked in the early 2000s, through my successful (and unsuccessful) adventures in upselling at the Wallace Rose clothing boutique and by comparing stock lists, sales volumes and price points at the Timberland shoe shop I once helped manage.

 

I learnt about what economics means for households through juggling my first mortgage and the childcare costs of our four kids and by being invited into the lives of New Zealanders from all walks of life who have had the generosity to share their stories and hopes with me.  

 

I learnt what matters for our exporters by talking with the team at a factory in Colombo turning New Zealand milk into branded consumer products; by watching closely as my senior managers negotiated deals with global food producers in Shanghai and by listening to farmers while gazing out over muddy paddocks here in the Waikato.

 

Experiences like these left their mark on me and many of my National Party colleagues. Our team holds our economic policies up to the practical tests of every-day life: if it won’t make a meaningful difference to shop owners and workers, everyday families and exporters, then we won’t pursue it.

 

National knows that a strong, growing, productive economy is ultimately driven along by people taking action. By people choosing to put in extra effort, knowing they’ll be rewarded for it; by people applying greater skill to the tasks at hand so they can be done quicker and with less expense, by people innovating better ways to do things, dreaming up and delivering new ideas, new products, new services; by people making better use of the resources geography and history has granted us and by people selling more to the world beyond our shores.

 

As we meet here today, there are many practical challenges standing in the way of that effort, entrepreneurialism and reward.

 

The destruction and devastation caused by Cyclone Gabrielle and North Island flooding are immense. We owe those affected a swift recovery and rebuild and we owe all New Zealanders the assurance that we will apply lessons learnt.

 

The cost of living is higher than it’s ever been. Inflation has now been out of the Reserve Bank target range for 21 months and isn’t forecast to come back down to target for another year. 

 

With the thief of inflation comes rising interest rates. Not in the history of the Official Cash Rate have New Zealanders experienced such a fast and dramatic lift in interest rates as has occurred since October 2021. The result is that many home-owners will be left scrambling this year when their mortgage switches from a rate with a 2 or 3 in front of it to something with a 6 in front of it.

 

The average hourly wage may be nominally higher, but for many people it hasn’t kept up with rising prices, meaning each fortnight’s pay gets stretched thinner than the last.

 

Worker shortages are persisting and slowing activity down – from the wait for your coffee, to the building of new roads to the filling of exporters’ order books.

 

Inflation and fiscal drag have pushed New Zealand workers into higher tax brackets, meaning typical income-earners are paying more tax. 

 

Government spending has crept up to 35 per cent of GDP, higher than it’s been in 17 years, yet it’s difficult to find solid evidence that the performance of key public have actually improved.

 

New Zealand must fix these problems and simultaneously rise to global challenges  - decarbonising our economy, adapting to the more frequent severe, weather events climate change is bringing and maintaining a secure footing in a world of less stable foreign affairs, of deglobalisation and growing protectionism. 

 

So how should New Zealand address these challenges and chart a path forward?

 

Today I will set out National’s approach for fighting inflation, growing our economy and building resilience for the future.

 

The growing cost of living is the number one economic issue for New Zealand today. People are really hurting. Debt arrears are up, queues for foodbanks are up, anxiety about household finances is rising. 

 

National maintains the orthodox view that the Reserve Bank must play a leading role. We will return the Bank to a single mandate of delivering price stability, with a 1-3 per cent inflation target band.

 

We will commission an independent review of the Bank’s performance over the period 2020-2022, when extraordinary monetary policy decisions were taken, including a volume of quantitative easing that, proportionate to the size of our economy, put us amongst the top handful of Covid money-printers in the world.

 

Second, we will unblock major supply-side constraints to productive growth, starting with worker shortages. We will cut through the hold-ups in the immigration system so businesses and hospitals can get the workers they need.

 

Third, we will stop the tidal wave of new costs and regulations that have added more price pressure to everything from food to rent.

 

Case in point - changing the tax treatment of rental properties.  Officials warned that a Beehive proposal to change the tax treatment of rental properties could increase rents and churn in the rental market. That’s exactly what’s happened. We will back tenants and reduce pressure on rents by restoring interest deductibility for rental properties and rolling the brightline test back to two years.

 

We’ll also remove the Ute Tax , the Auckland Regional Fuel tax and the proposed “App“ tax that increase the prices people pay for vehicles, petrol and soon their Airbnb and UberEats too.

 

Fourth, National will restore discipline to Government spending. This will help ease the pressure on inflation and interest rates that has been exacerbated by loose fiscal policy; it will increase the focus on results for money spent; and it will allow our Government to reduce the tax burden on New Zealanders.

 

I want to spend some time on this point because it is very important.

 

Government spending is up $1 billion a week since Labour took office in 2017. In the last financial year Government spending crept up to 35 per cent of our economic output – a higher level than we’ve seen in at least 17 years.

 

And yet, from elective surgery to emergency care and social housing, waiting lists are bigger and waiting times are longer.

 

Whether it’s the stalled Auckland Light Rail project, the excruciatingly slow Dunedin Hospital build or the 176 incomplete yet supposedly ‘shovel-ready’ projects begun with Covid money, it seems infrastructure just isn’t get built in a timely way.

 

The Minister of Finance chose 2022, a year when inflation ran at a 30-year high, as the time to introduce the biggest spending Budget in New Zealand history.

 

We see plenty of evidence that this largess has enabled an ill-disciplined approach to Government spending. Here’s a few examples I think of:

 

The huge growth in the core public service, with 10,000+ additional public servants being hired into non front-line roles such as policy advice, HR and communications; even while consultancy fees have risen to over $1.7 billion per year. 

 

Millions upon million spent on projects such as the TVNZ-RNZ merger, the failed Te Pūkenga reforms and the social insurance scheme proposal, only for some of those projects to be put on ice when the political temperature heats up. 

 

The decision to forge ahead with a $30 billion Auckland light rail project even while hundreds of kilometres of roads need urgent repairs.

 

The willingness to fund hundreds of millions of dollars in corporate welfare for large firms using funds raised by the Emissions Trading Scheme and ultimately paid for by everyday taxpayers.

 

National will deliver more value for Government spending by prioritising better, setting clear public service targets and holding Government agencies accountable for results.

 

We will cut through the complexity of Government social services provision with a social investment approach that will drive more responsibility to community organisations. We will not tolerate the ongoing failure of Wellington-designed initiatives and programmes to actually change people’s lives for the better.

 

Finally, part of National’s approach will be to reduce the rising tax burden that has made it harder for New Zealanders to keep up with rising prices.

 

Tax revenue has jumped an eye-watering $43 billion in just five years, helped along by rampant inflation, its hand-maiden fiscal drag, and a clutch of new taxes. That extra tax take is equivalent to $17,500 per household. 

 

Despite the claims of Prime Minister Hipkins, core crown tax revenue is a higher proportion of the economy than it has been for many years, exceeding 30 per cent of GDP in the last financial year, a level not reached since Labour was last in office.  

 

In the past few years rampant inflation has acted as a secret tax hike on every New Zealander paying income tax, with higher nominal incomes pushing people into higher tax brackets even while their purchasing power has dragged behind.

 

Last year National Party Leader Christopher Luxon put out a fully-costed, specific proposal to adjust tax brackets. The changes he proposed would adjust the income level at which the 17.5 per cent, 30 per cent and 33 per cent tax rate would kick in.

 

These changes would deliver someone on the median wage of $55,000, $800 a year in tax relief. Someone on the average wage would be better off by $870 a year. Anyone earning $78,100 or more would benefit from around $1043 a year.

 

Superannuitants would also benefit. Super is indexed to the average after-tax wage, and because our tax changes will increase average after-tax wages, Super payments for a couple would increase by around $540 a year.

 

National can afford these tax commitments because we will be more disciplined about Government spending.

 

We hope to deliver more tax reduction, but only if fiscal and economic conditions permit.

 

Our fiscal strategy will be mindful of the need to invest in infrastructure and to chart a path back to surplus and debt reduction. We are mindful of the work John Key and Bill English did to get New Zealand’s books back in order after the GFC and Canterbury Quakes.

 

Key and English rightly increased borrowing to support people through the hard times, ensuring a strong social safety net for people who lost their jobs when the global economy tanked, increasing funding for health and education even while tax revenues fell, and investing carefully in the Canterbury rebuild.

 

If National is elected to lead the Government this year we will honour our Party’s legacy of strong economic management.

 

We are steadfast in our belief that the best way to increase investments in frontline public services, to maintain the social safety net and provide resilience to future shocks is to grow the New Zealand economy.

 

Productive, sustainable, low-inflation growth doesn’t just happen. It’s not actually created by Government taskforces and committees – no matter how well intentioned they are.

Instead, Government policy must create the conditions that will maximise the contribution each individual New Zealand can make and will choose to make.

 

National’s prescription for stronger economic growth can be summarised across five headings.

 

It starts with education. Education is the greatest equaliser the state can bestow – the most reliable ticket to a better future that a child can receive and a strong predictor of the quality of life they’ll have access to.

 

In a world of challenging demographics, of greater automation, of AI and competitive global labour markets New Zealand simply must do better at ensuring our own citizens have the greater skills and knowledge needed to do the jobs of today and tomorrow.

 

It should be of grave concern to us all that by many measures New Zealand school students today are less numerate and less literate than they once were: not only relative to students from many of the countries we like to compare ourselves with but, even more worryingly, compared to New Zealand students of past decades.

 

That’s a moral failure, it’s a social failure and it’s a future economic disaster.

 

National will get back to basics in our schools; set clear achievement expectations and put employers back at the centre of applied training.

 

Second, we will deliver the infrastructure New Zealand needs to support future growth, resilience and zero-carbon connectivity. That means working much more effectively with the private sector, more flexibility in the way we finance big projects and sequencing those projects with greater co-ordination and foresight.

 

Critically, it means getting our consenting regime right.  We are concerned that the Government’s proposed RMA replacements may in fact be worse than the status quo with one submitter confirming he changes would make it harder, not easier, to consent windfarms.

 

Third, we will turbo-charge the innovation engine, backing firms to embrace productivity-enhancing technology; easing access to global capital that will allow new ventures to expand and flourish, and remaining open to the talent and skills immigrants can bring.

 

Fourth, we will stop the tidal-wave of mostly well-meaning but ultimately destructive regulation that has come to smother too many business owners – from the CCCFA which has strangled access to credit particularly for low-income and low-wealth individuals; to the so-called Fair Pay legislation which is set to tie hundreds of people down in negotiating rooms even when many of their employees have no desire to be part of it; to the prescriptive farming regulations that defy practicality and ignore regional reality.

 

How do we quantify New Zealand’s growing regulatory burden? Perhaps the best measure is the hours small business owners tell me they spend at their kitchen table with the lamp on, responding to the latest compliance email from a Government Department. Those are hours not spent working on the business, hours not spent nabbing a new customer, hours not spent with family. Those are hours that the National Government will work hard to give back.

 

Fifth, National will keep strengthening our connections to the world, building on existing trading partnerships and easing the door open to new ones. New Zealand must diversify the places we sell to, and extract more value for the selling we do.

 

We must continually seek to compete with the rest of the world. Right now we are slipping. Last year New Zealand suffered the biggest drop in rankings among 63 countries compared on measures of their competitiveness, including in technology, science and business productivity. This is a warning bell, and if policy makers don’t react then they are accepting a slide backwards for our country.

 

Let me close this speech by saying why I remain fundamentally optimistic about New Zealand’s prospects. It’s because the strengths we have as an economy are almost exactly the strengths countries will need to succeed in the changing world of coming decades.

 

In a world of growing food insecurity we feed 40 million people and have huge opportunity to get more value for the sustainable, carbon-efficient, nutritious food we produce.

 

In a world desperately seeking to transition from fossil fuels to renewable energy we already depend on largely renewable energy and, with the right approach to consenting, we have the ability to produce much more abundant renewable energy for the future.

 

In a world increasingly nervous about conflict and border disputes, we remain an independent nation committed to the rules-based international order.

 

We remain a country of the best people in the world. Hard-working, community-minded, innovative and entrepreneurial. New Zealanders are this economy’s magic ingredient.

 

National’s economic management approach will back all the New Zealanders working hard – doing double-shifts, early mornings, late nights and weekends; we will back all the New Zealanders fuelled by determination to provide for their families and do well by their kids; and we stand with all the New Zealanders who simply want to get ahead under their own steam.

 

People are at the heart of our economy and I know they will be at the heart of the discussions this forum will lead over the next two days. I wish you well as you do.

 

Thank you for this audience. I look forward to your questions.