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For New Zealanders to improve their lives, the economy must be strong and resilient. That is why in 1993 the Government set the aim of an average economic rate of growth of 3.5Ð5.0 per cent per annum to 2010. New Zealanders want to enjoy again a place near the top of the global per capita income ranking table, with high standards of living.
Although we have a lot of catching up to do, we have made a bold start on the path to higher incomes and better living standards. The economy grew at an average of 4.8 per cent over the last three years. This is one of the highest growth rates in the OECD and represents a significant improvement over our recent past.
Growth has already improved the lives of many New Zealand families. Most of the credit for the improvement in New Zealand's economic fortunes can be attributed to the many individuals and firms who, when given the opportunity, supplied the effort and ingenuity to lift productivity and performance.
The Government has also played its part. Responsible economic management has created an environment where individual effort can flourish and be rewarded.
The Government's strategy for strong sustainable growth and the job creation that goes with it has been based on five fundamental policies:
These policies have created a stable environment, encouraging people to develop new skills and be more independent, to save, to expand their businesses or to invest in new businesses.
New Zealand's recent growth record has broken with the past, but we cannot stand still. We must continue to work towards our ambitious goals.
New Zealanders want more opportunities to improve their knowledge and skills, and to work. We want even better health and education standards. We want improvements in our standard of living.
Achieving these goals will be difficult but the more the economy grows the closer to our grasp they come.
Good management involves anticipating and reacting to a changing world - yesterday's policy responses will not be sufficient for dealing with tomorrow's concerns.
Increased international trade and capital flows are binding national economies more strongly into the international economy. Technological change makes distance less of a constraint and allows a wider range of goods and services to be traded.
Trade liberalisation and the opening up of large, previously closed, economies bring greater trading opportunities for New Zealand.
Consumers in developed and developing countries are ever more demanding on quality and service. We will need to put more 'service' into traditional exports - through niche exporting, product innovation, quality and branding.
Firms will need to compete on value, captured through quality, technology and product design, rather than just on cost. A strong customer focus will be essential.
Foreign investment will help the transfer of technology and improve market access. Investing offshore will help some exporting firms come closer to their customers.
New Zealand will continue to face greater competition from economies with abundant labour. To remain competitive with higher wages we need to maintain high productivity through better education, better infrastructure, good government and excellent management.
Our society changes as fast as the rest of the world. We must prepare for the demands of an ageing population; we must respond to concerns for the environment; and to New Zealanders' demands for opportunities to earn higher incomes.
Increasing fiscal surpluses offer choices on the mix of debt repayment, additional spending and tax cuts.
The Government will continue to pursue a balanced mix of policies to deliver a more resilient economy and achieve our social aims.
The Government is committed to reducing net public debt to below 20 per cent of GDP. Net public foreign currency debt is projected to be eliminated altogether in the coming financial year.
Repaying debt reduces the country's interest bill, releasing funds for other priority areas. Lower public debt reduces real interest rates throughout the economy and reduces the vulnerability of our economy to shocks.
Repaying debt now is critical. The ageing population will put increasing pressure on health and social services and on access to retirement income. Strong growth makes it relatively easy to repay debt now.
In 1994, 12 per cent of the population was aged 65 or over, but this is expected to have grown to almost 23 per cent by 2049. Reducing public debt now means future taxpayers will not face high debt servicing costs on top of costs associated with ageing.
The level of retirement income enjoyed by the current working population in retirement will depend on the quantity of their savings and the quality of the investment based on these savings.
The Government can assist by running surpluses and reducing public debt, but ultimately it is the level and quality of savings and investment that will determine standards of living in retirement. In practical terms this depends on economic growth increasing the size of the economy.
The work of the Prime Ministerial Task Force on Positive Ageing this year and the review of retirement income in 1997 under the Accord will need to be conducted with these wider considerations in mind. We will also address national savings levels and the Government's other strategic objectives.
As debt falls, some of the money saved will be available for spending in priority areas. Debt reduction is a key reason why the Government can control its overall level of expenditure and still increase the resources going to education and health.
But for common sense reasons we must get best value for every dollar we spend. Poor quality spending constrains growth by diverting resources from productive areas of the economy.
Priorities for future investment are education and health. Other priorities include:
Tax reductions - by increasing the return from work, training and investment in businesses - increase New Zealand's growth potential and its ability to create jobs. The Government's Tax Reduction and Social Policy Programme will be implemented over the next two years.
We no longer face the old expectation of rising taxes. To the contrary, the long-term fiscal outlook indicates that we should be able to go on reducing both debt and tax rates, as long as we can maintain strong economic growth and good fiscal management.
We should be able to take advantage of a virtuous cycle of lower debt and tax rates feeding strong growth. After the tax cuts in 1996/97 and 1997/98 the Government will consider further tax reductions, if economic and fiscal conditions permit.
The Government is still an enormous enterprise. It spends over $30 billion each year and by June 1997 is likely to own assets worth about $59 billion and have liabilities of about $54 billion. In addition Government regulations affect all of us.
How the Government manages this enterprise has an enormous impact on the economy and on the level and quality of social services.
This Government recently passed the Fiscal Responsibility Act which will help achieve consistent good quality fiscal management over time. We will continue to find ways to improve government management, both in terms of value for money spent and accountability.
Part of successful management is ensuring effort and resources are focussed in the right areas.
The Government will remain in activities where there is a good public policy reason for doing so. Where there is not, the Government will continue to move businesses into the private sector.
Moving public enterprises into private ownership will help ensure that these businesses are operated as efficiently as possible. For example, in forestry the Government is unlikely to have the private sector's technological edge, its access to, and knowledge of, future market demands, or management skills.
New Zealand will only achieve its social and economic aspirations with an entrepreneurial private sector that invests and quickly moves resources to areas where they can be used most productively. So the economy must be open, competitive and skilled.
An open economy means access to best business practices and technology. It helps firms increase their competitiveness, earn more and employ more. An open economy challenges New Zealand firms to innovate and 'work smarter'.
The Government has a programme of tariff reductions in place. At the same time we will continue to work for free trade arrangements, to improve trading opportunities.
High-value exports reflect the ideas, productivity and innovation of the people.
A skilled and adaptive workforce is needed if we are to make the most of new export opportunities for both markets and products. A skilled workforce can see ways to better match products or services to customers' needs, and ways to improve production.
The Government is making huge investments in education and training and will continue to be the dominant funder of education and off-the-job training. Industry's role in training on and off the job will also be vital.
Improvements in productivity and innovation flow from many tangible and intangible investments. Growth in the future will inevitably be influenced by the investment decisions made by the Government, firms, communities, families and individuals both here and overseas.
Three key factors influence investment decisions; the economic environment, the risk premium in interest rates and the cost of capital in New Zealand relative to the rest of the world:
Maintaining the quality of our infrastructure is a key to ensuring businesses run smoothly and efficiently. Households will also benefit from the likes of good quality water, telecommunications, tourist facilities, airports and roads.
As the economy grows, pressure on infrastructure will increase. Recognising this the Government has agreed to include land transport as a new strategic priority. Pricing and other policies will be put in place to ensure an efficient level of investment in land transport.
But infrastructure is not necessarily the sole responsibility of Government. The move to a private telecommunications industry demonstrates the benefits of private investment in infrastructure, once the regulatory environment is right. There is scope for private investment in most areas of infrastructure, including some now dominated by public investment, such as roads. Recent reforms in the electricity industry are encouraging private investment in that area.
Competition is another key factor in ensuring firms have incentives to work smarter and be more successful. To ensure that our businesses do not face unnecessary barriers that hinder their competitiveness, we want to:
The policies and direction we have outlined will give New Zealand its best chance of achieving growth at the top end of the range.