New Zealand Executive Government Speech Archive

President Kevyn Moore; grape-growers, winemakers, viticulturalists and research scientists; Ladies and Gentlemen.When I became Minister of Agriculture, I delegated most of horticulture to my Associate Minister, Denis Marshall. Viticulture, however, I kept for myself. I figured that if one of us needed to go to Kumeu, Hawke’s Bay Martinborough or Marlborough to “research” the product in processed and bottled form, it may as well be me. Unfortunately, especially with this being an election year, those “research” trips haven’t transpired. Nevertheless, I’m delighted to be here today to open your 1996 conference.

Today, I intend to spend much of my time speaking about the prospects for the economy as we enter our first MMP election. But I also intend to touch on the particular concerns of the grape-growing and wine industries.

The wine industry is a genuine New Zealand success story. I for one believe our white wines are now the best in the world. Even as recently as 1990, wine exports were worth only $18.5 million dollars fob. This last year, exports were well over $50 million.

By the year 2000, you’re aiming for exports of $125 million. I applaud the industry for setting such an ambitious goal. Were it to be achieved, it would place the wine industry where I believe it should be in the economy - as a major export earner.

I’m advised that we have the vines in the ground to achieve it. What’s needed is the investment in wineries. Much of that will be domestic investment. In the last year, 39 new wineries have opened, bringing the total to 239. But I also believe we can benefit from foreign investment in wineries, through joint ventures, as we have already seen in the industry.

Any foreign investment in the industry should be welcomed. There’s no benefit to anyone if we fail to reach the industry’s export target simply through a lack of investment. If we need to look off-shore for some of that investment, then we should. It provides jobs and export returns for New Zealand which would not be available otherwise.

I want to bring you up to date briefly on our negotiations with the European Commission on the protection of geographical indications and traditional expressions. The New Zealand Government - and, I believe, our wine industry - is prepared to offer full protection of geographical indications. We all accept that it’s fair enough that we can’t call any of our wine “champagne”.

We are not, however, prepared to provide the EU with the exclusive and generalised protection of so-called traditional expressions. Some traditional expressions are protected because they are registered trade marks. Others could be protected under the Fair Trading Act or common law if their use was deemed to be misleading or deceptive. But we are not prepared to accept that traditional expressions should be considered to be intellectual property and we are making that clear to the EU.

An issue of concern to the industry is excise tax. Excise tax is a cost to the consumer and therefore the industry. The Government has pledged that there will be no increase in excise tax in real terms. And we have also scrapped the process of increasing the excise automatically, in accordance with inflation every six months, and will now adjust it annually, at our discretion. Payment dates for excise on alcoholic beverages will be extended to the last day of the month following.

As the economy continues to grow, and for as long as there is control over Government spending, there is no need for the Government to look at significantly increasing taxation, including excise tax. We expect that GST will come to be regarded as the primary source of indirect revenue and excise will reduce in importance. Already, excise has fallen from representing 4.5% of indirect revenue to less than 4%. I believe that trend will continue.

Another issue of concern to all exporters is the current value of the New Zealand dollar. The New Zealand dollar has risen significantly since 1992 and that has impacted on export returns. To be fair, I must point out that our dollar is still only as high as it was in the mid-1980s and far below what it was in the early 1970s.

As long as we maintain an inflation advantage over our trading partners - in other words, for as long as we become more competitive - our dollar will trend upwards. I can’t offer you any promises that the dollar will fall unless I also offer you more inflation.

The main problem for exporters right now, in my view, is that the dollar has risen more quickly than our inflation advantage over our trading partners would appear to justify. That’s probably why it has fallen back over recent months. The rise ahead of our inflation advantage was largely the result of increases in interest rates caused by election uncertainties. As those interest rates fall back again, particularly if a National-led Government emerges after the election, we should expect there to be less upward pressure on the dollar.

All these issues of importance to you have one thing in common - the need to maintain the current economic framework. A lack of control over Government spending will inevitably lead to increases in tax, including excise. Failing to keep fiscal policy in sync with monetary policy will inevitably lead to increases in interest rates, and rises in the dollar not justified by our inflation advantage. Abandoning our commitment to an open, competitive economy will mean possible foreign investment in wineries will be unavailable. So I want to turn now to the economy in general and our prospects as we approach our first MMP election.

The previous Government began to put in place some of the five pillars of sustainable economic growth, and the current Government completed the job.

1. The Reserve Bank Act and low inflation
2. The Employment Contracts Act and labour market flexibility
3. The Fiscal Responsibility Act and paying back debt
4. A low-rate, broad-base tax system
5. An open, competitive economy

The returns are plain to see. Over 200,000 more jobs have been created in the last four years. By the end of this year, we will have eliminated our net foreign debt, for the first time since the Korean War. At the same time, we’re able to spend billions more on health and education than was possible in 1990. We’re cutting tax and boosting support for families. By the middle of next year, a family on $35,000 a year with three children under 12 will be $5,110 a year better off in net terms, or $98 a week. $5,000 a year makes a massive difference to a family on $35,000 a year.

The Government’s framework has set the environment for industry - including your industry - to get on and build an economy which can deliver these improvements in people’s lives. Most importantly, maintaining the framework will mean we can plan for ongoing, constant improvement in people’s lives.

The framework is clearly at risk this election. There are effectively only two choices on the ballot paper this election: a National-led Government, or some combination of NZ First, Labour and the Alliance.

A vote for one of those three is a vote for a package deal which includes the other two. In all but the most recent TVNZ poll, those three would have enough MPs to form a Government over a National-led administration. Clearly, it is difficult to speculate exactly what a coalition of the left would mean, because we don’t know exactly who would be most influential.

The co-deputy leader of the Alliance is Jeanette Fitzsimons. Presumably, she would be influential in a Government which included the Alliance. She recently told Wellington’s City Voice newspaper that an Alliance Government would discourage trade. She does not care for export-led growth, instead preferring “local production for local needs”. She believes that the environmental cost of shipping freight and air-travel is such that trade should be discouraged, and presumably tourism as well. We don’t know the extent to which Jeanette Fitzsimons, as co-deputy leader of the Alliance, would have influence.

Nor do we know the extent to which New Zealand First deputy leader Tau Henare would have influence. He’s on record as saying that all land currently in the hands of the Crown should be returned to Maori.

It is also difficult to assess what influence the right wing of the Labour Party would have over the coalition. Labour’s policy is to repeal the Employment Contracts Act, but I note, according to the Southland Times, that its agriculture spokesperson, Jim Sutton, told Federated Farmers in Southland that Labour would do no such thing.

I give these examples to underline that the direction of the country in the event of the three-headed coalition coming to power is at best uncertain, and at worst could involve fundamental changes to our trade and economic policy.

However, we know for sure that a three-headed coalition of the left would inevitably mean higher interest rates for growers, farmers, business and home-owners. All three parties have buckled to pressure from Wellington lobby groups and are promising to massively increase Government spending. At the same time, Labour and New Zealand First are promising to control inflation. In the case of Labour, it says it would aim for an inflation rate of between -1% to 3% with the same midpoint as currently, 1%. New Zealand First promises to keep inflation at the same rate as our trading partners, or around 3.5%. I’m not sure how you predict the inflation rates of your trading partners in advance, but never mind.

We all know what happens when a Government tries to control inflation while massively increasing spending. Interest rates go through the roof. In the mid-1980s, that’s exactly what happened when Labour established the 0-2% goal but increased spending. 90 Day Bank Bills went well above 25% and overnight interest rates went above 100%. It would happen again if the three-headed coalition came to power.

As I said, the polls suggest that New Zealand First, Labour and the Alliance have enough support to form a Government, were an election to be held right now. I believe, however, there is a good chance it can be prevented.

First, National will be running an aggressive campaign, and will be explaining why it’s so important for supporters of the economic framework to vote.

Secondly, I believe that the media, as we draw closer to the election, will begin picking up on more of what some of the second tier of New Zealand First and the Alliance stand for. And I expect many New Zealanders will find what people like Jeanette Fitzsimons or Tau Henare have to say unpalatable.

And thirdly, I believe there will be sufficient MPs in parliament after the election who do not want to risk unravelling the successful economic framework, which is providing jobs, extra social spending, tax cuts, boosts to family support, and which has meant we will have eliminated our net foreign debt by the end of the year.

In one form or another, a National-led Government should emerge which will maintain the framework.

That means, I believe, that your industry can plan with confidence to reach your goal of $125 million of exports by the year 2000. It means you can plan for lower interest rates. It means foreign investment will be welcome, and that there should be no need for real increases in excise. Less importantly, it also means that I can look forward to continuing to work with grape-growers and the wine industry as Minister of Agriculture, and maybe even get the opportunity to do the “research” I mentioned at the outset.

I am pleased to declare your conference open.