Ladies and gentlemen, thank you for inviting me here today. I want to talk to you today a little bit about how I see the future. We've got some big decisions ahead of us as a nation. It's important that we confront them with honesty and real facts. There is no doubt that political uncertainty in the lead up to MMP is a

factor in pushing up interest rates. Our future can be secure if we confront issues with information rather than half-truths. With a real strategy rather than empty promises or political posturing.

That's what our Budget last month was all about. I was determined all along that this year's Budget had to strike a balance between the competing demands of additional social spending, tax cuts and debt repayment. We all know you can't legislate for prosperity, nor can you buy it. But you can strategically manage your way towards it. That's what we're doing in the Budget.

You no doubt recall our strategic document Path to 2010. Then let me give you an interesting fact. This year's Budget confirms us on a growth path that will see the average New Zealander 50 per cent better off in 15 years - 2011. - 3 - We are still on target for great things for New Zealand. You might have heard about the OECD report released last month which commented that New Zealand is likely to remain one of the fastest-growing economies in the OECD.

That's no fluke. It is about management. As the report says, and I quote, "while other OECD countries have pursued similar policies, few, if any, have done so in the context of such a coherent overall framework, stressing predictability, transparency and accountability." Let me explain briefly how our Budget put those principles into practice. The tax reductions are one of the major planks. New Zealanders must see a dividend for their work and the country's success. Tax reductions worth $3.3 billion will boost their take-home pay substantially, starting from 1 July.

A family with two children and one working parent earning $25,000 will be $61 a week better off by next July. The same family with three children gains $81 a week. Show me a hard-working family who will not welcome that. There is no need to convince those families of the economic sense in healthier pay cheques. It is also makes sound economic sense for the country. When ordinary New Zealanders can maximise the benefits of working, the whole country gains.

That's how we get ahead and create the wealth that will sustain us in the future. Another major plank is social spending. That is the concrete investment the Government can make in the country's future. We must deliver the best health, education and community services that we can afford. So an additional $3.7 billion will be invested over the next three years in education, training, the environment, health, family assistance and family safety. In the broadest sense, that is an investment in security. A nation that is well-educated, healthy, safe in their families and communities is secure and stable.

Take one area at the core of our effort. Excellent education cannot be a choice for just a few. It must be an opportunity for every New Zealander. It represents nothing less than the chance to improve one's life and the life of one's children. In grabbing that opportunity, individual lives and the future prosperity of the country are lifted immeasurably. I am passionate about that. Hence our commitment to more classrooms, better schools and top-quality teachers. You will have seen that we made a huge commitment this year to special education - spending an extra $55 million over the next three years, an increase of 10.8 per cent. We were determined to make special education a priority.

In the Tomorrow's Schools reforms, special education had been left to one side. The efforts that had been made to address this vital area had not gone far enough. Along with this large financial boost for special education, we've started on a whole new approach, the Special Education 2000 policy. For parents, schools and children with special needs, it will remove the uncertainties that have hung over special education for too long. Funding will be clear and predictable - and more substantial. It is a very important example of our approach to social spending. We looked for investments we can make now that will secure better lives in the future.

I could point to others, such as steps to address violence in families and communities or flu immunisation for the elderly. You all know about the $110 million commitment we have made to improving New Zealand's environment. These are concrete things we can and must do now. The pay-off will be with us for generations. The bottom-line of our approach is simple. We're using the opportunity we have now to strengthen our most valuable assets - people and the environment. The third plank in our approach is debt reduction.

By reducing Government debt by a further $8 billion over the next three years we will have reduced New Zealand's net public debt from 52 per cent of GDP in 1991/92 to below 20 per cent of GDP. Further Government net foreign debt is forecast to be nil by the end of 1996/97 year. That is vital and I'll give you a simple reason why. In less than 15 years, New Zealand will face the demands of a rapidly ageing population. At the turn of the century there will be around four people in work and paying taxes for every superannuitant in the country.

By 2040 there will be just two people in work for each superannuitant. That change in the balance between the age groups has very far reaching implications for the country's earning capacity and for government spending. It's figures like this that demand we make responsible decisions on the provision of New Zealand superannuation.

The Government's proposal to the other political parties is that there should be universal provision of superannuation until the income received by a married couple in retirement is the equivalent of 10 per cent above the average ordinary time wage - $671 per week. And for a single person it would be 80 per cent of the average wage or $448 per week.. What this change would mean is that a married couple could earn/have $15,444 a year in addition to super before there would be any reduction in their super payment, and a single person could earn $10,296 in addition, before any reduction.

We believe the above proposal is fair and we want to secure the agreement of the other political parties to put it into place before the October election. Superannuation has been a very difficult issue for New Zealand for the last 20 years. In less than another 20 years the total cost of superannuation will start to increase very sharply because of the increasing numbers of retired New Zealanders. In my view we should settle on a fair basis now so that younger New Zealanders know what to expect and can make their own savings plan. Looking out to the future all prudent New Zealanders should save some for their own retirement. I want to now speak a little about MMP.

Although the '96 election is over four months away pressure is mounting as people seek to determine how the first election under MMP will go. After you vote will individuals have improved security or chaos? That is one of the central issues of this campaign. MMP changes the rules.

The most important and far-reaching rule it changes is that voters no longer directly elect the Government unless a single party gains more than 50 per cent of the MPs. What happens now is that the voters with their two votes elect local MPs and they vote for the party of their choice on the list. The list vote is the most important because it will determine the number of MPs each party has. When the shouting has died down and the votes are counted the various parties, through their leaders and other senior personnel, will sit down and form a coalition government which will comprise two or more parties.

This is different from say Australia where two parties campaigned as a coalition and won and formed the new Australian Government. The practical implications of the change are enormous and it is apparent that a large percentage of voters, including many journalists and commentators and I suspect many MPs, do not really understand the full implications of the change. First, it requires an entirely different way of thinking about politics which leads to an entirely different way of approaching politics and the formation of a government. The last three years has shown that MPs elected from different parties can work together.

It started shortly after the '93 election when the Labour MP for Eastern Maori, Hon Peter Tapsell, accepted my invitation to become Speaker. In doing so he broke totally new ground in modern New Zealand politics and that single decision gave New Zealand stability instead of chaos. All New Zealanders should thank Peter Tapsell for that. After many changes, some multiple changes of MPs allegiances, we now have the position in Parliament where three members elected for Labour regularly vote with the National Government, with four others elected with National now in a separate party - United - and another three are in parties or as independents but still vote National on most issues.

One remaining member, Peter McCardle, elected as National votes with the New Zealand First, Alliance, Labour block and another, Michael Laws, did so as well until he had to resign from Parliament. I know it sounds confusing but the clear point to emerge is that people who are elected from various parties can, and do, work sensibly together when agreement is reached on policy. That leads to the most important point in forming a coalition government. The coalition should be formed not on personalities but on the policy content that the parties can agree are in New Zealand's best interests.

To reach that position will often require 'give and take' but then that happens within parties now anyhow. The next point to make is that it is foolish for commentators to be dogmatic in advance which parties may form a Government after the election and it is equally foolish for party leaders to emphatically proclaim who they will or will not be prepared to work with after the election. After all we, the political leaders, don't deal the political hand that has to be played after the election. That hand is dealt by the collective choice of the voters and it is up to political leaders to then produce the best government they can for New Zealand. This is the approach I have followed since '93 and it's worked to provide stable, forward-looking government.

I can hear someone say "but what if two or more parties have absolutely different policies on certain key issues"? The answer is simple. Such differences may make it impossible to form a coalition. But equally when the party leaders sit down after the election they may find that an acceptable accommodation can be reached or they may decide that the issues should be put to one side and left there for another time while a coalition is formed on the other important issues where there is broad agreement. Let me look at some specifics.

Take two key issues like education and health. If you listen to the political debate you could be led to believe that the differences between the parties are huge and unbridgeable. In my view not so. All parties would sign up to the goal of providing New Zealand with a world-class education and health system. There is agreement that both should primarily be provided by the state but with room as in the past for private provision.

For education we all want top-quality professional teachers with the necessary school buildings and facilities. For health the details are naturally different but the same general approach applies. In both areas the limiting factor is always how much money can be spent and that is determined to a large degree on how well the economy is performing. I have cited the above not to say there are no real differences because there are, or to pretend that it will be easy because it won't, but to show that leaders need to understand and accept the new responsibility thrust on them with MMP and not lock themselves into impossible positions or outdated attitudes. An example is Helen Clark's extravagant statement that she "would rather commit suicide than enter into a coalition with National"!

That is the type of outdated thinking that serves neither her party nor New Zealand well. I surmise that a major reason the majority of Labour's frontbench asked Helen Clark to step aside as leader last week is because she was locking herself and her party into positions that were not realistic or sustainable under MMP. Labour will not be government in their own right yet Helen Clark had ruled out all other options and I guess her frontbench didn't want to be in Opposition forever.

Hence the move against her leadership. Since the night of the '93 election when the referendum for MMP was carried I have worked to prepare New Zealand for the inevitable changes in structure and attitude needed to make the move successful. I knew that night that I had the responsibility to provide the leadership for the transition to the new electoral regime that voters opted for. We had to begin the move towards more consensus and consultation that voters were asking for. And we had to demonstrate that sound policies would still be possible with a new style of politics and coalition governments.

We've shown that it is possible with clear leadership to maintain good government and economically coherent policies while managing electoral change. The National Party will campaign throughout the country to maximise our list vote. And we have every reason to be confident that we will be the largest party in the new Parliament. I am confident, therefore, that we will lead the next Government. We will be at its core.

Over the last three years on the policy front, that has been a matter of the balance I have talked about - between social spending, tax cuts and debt repayment. Politically, it has been a question of identifying like-minded interests in other parties and working constructively with them. That is what MMP requires us to do. It shouldn't frighten us, after all the Government has been doing just that for the past three years.

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