Prime Minister's speech to Westpac Business Breakfast

Thanks and acknowledgments.

I want to use this opportunity to speak really frankly with you at the beginning of our term in Government.

If we are speaking frankly I should really name the elephant in the room, and that is the business confidence surveys.

Oh I’ve seen them. I’ve seen them. In a way they feel akin almost to being in high school and suddenly discovering the notes people are passing around the class about you.

I know that it’s a reflection of the perception that exists about primarily the change in Government.

There is some hope that, particularly in the fact that confidence as it relates to businesses’  individual activities is still high, and given that’s the marker that bares the most correlation to GDP growth, then I feel we have at least some cause to feel confident in those numbers.

We’re probably okay. But I’m not satisfied with that. I want perception to meet reality.

What is the current reality that we face?

Well, growth is sitting around 3 percent and is forecast to sit around 2.9 percent.

Unemployment is forecast to drop to an incredibly low 4 percent.

Debt is tracking down - we are sitting in the early 20s and tracking to hit 20 percent.

So the forecast is good. But business is still carrying an umbrella with them.

Now I could just sit back and say that is the way it is. I am of course in good company, the same thing happened to the last Labour Government. It was a continuous issue with the last Labour Government despite having the strongest continuous economic growth since World War II.

Now I could either accept that that’s just what happens to Labour, or we can try to find a way to challenge it.

The reason ultimately I want to find a way to challenge it is it says to me we are not making the most of our relationships. That we are co-existing in spite of each other, and not collaborating in areas where we could make a genuine difference together.

That’s the primary reason -  it’s not simply my ego - that’s why I would like to see those numbers come into alignment.

I accept that there is a reason why the numbers are the way they are.

Business confidence is really a measure of the level of certainty that business feels.

We have come through very uncertain times.

I was reflecting that, 12 months ago I was still a list MP in central Auckland; we hadn’t even had a Mount Albert by-election; I wasn’t Deputy Leader, let alone Leader of the Labour Party; and we certainly weren’t looking at this particular final outcome.

So I understand that in 12 months, we have had a lot of rapid change.

And that means there is a level of uncertainty, which is why I am very eager to make the most of opportunities, like this, to share very openly what our plans and priorities are as a Government.

But not just what we want to do - how we want to do it. Because the way we would like to operate as a Government is open, transparent and collaborative, particularly with the business community.

So I want to take this opportunity to share some of our priorities, primarily as they relate to the economy and, as we have talked about many times before, how we want to transform our economy.

There is a whole separate speech I could give about our social agenda. I’ll touch on points of it, but I’ll primarily focus on this side of the ledger.

Our first priority is to both generate and share prosperity. Probably there is an assumption that we don’t put enough emphasis on the ‘generate’ element of the ledger, so I want to speak to that a little bit first.

You might remember that Grant Robertson, not too long ago, led a significant piece of work called The Future of Work. It was an opportunity for us to bring together business and unions - employees - and it nutted out the challenges we face as a country as our work environment transforms.

We know that over 40 percent of jobs that exist now will not exist in a few decades as they’re either replaced or disappear entirely.

In that transformational environment we can either approach that with fear or we can tackle it by making sure we are prepared with an utterly prepared workforce.

We can’t predict where the future will take us but we can prepare our people for it. Helpfully some of what came out of that work is the other challenge we face - our productivity challenge.

Of course we’ve had this raised with us before by the OECD and the IMF and they’ve pointed frequently to New Zealand needing to address that challenge, primarily through the same thing that will make sure we’re prepared for the future, and that’s education and training.

When I attended the last APEC round table in Da Nang we had a chance to meet with senior leaders from the IMF and talked through with them some of our plans around training and education. They were heartened that we were finally taking on what they saw as our major productivity challenge.

What does that look like?

I like to characterise it as a goal that we have as a Government for everyone to be earning, learning, caring or volunteering, so that everyone in our communities has a role that is both valued and actually deals with questions of social isolation. It’s a double whammy.

If everyone has a role in earning, learning, caring or volunteering you can also make an assumption that they’re engaged in society and contributing, and feeling valued in some way.

The ‘earning, learning’ areas are where we have put a great amount of emphasis in our first 100 days.

Many of you will be familiar with our investment in the principle of the first year fees free.

There’s been a lot of talk about the focus on someone who's going into tertiary education for the first time - going to university - having the first year free.

It might surprise you to learn that the eligibility actually means that the vast majority of people who could take that first year up are those who’ve never studied before, but not the ones who’ve come straight out of secondary school.

It’s the people who need to retrain, who might be in precarious work or work that may disappear, who represent the majority of those eligible for fees free.

Secondly the vast majority is likely to be taken up by students and trainees in polytechs, wananga, vocational training and apprenticeships - exactly where we need people to be.

When people say ‘why didn’t you invest in the third year, not the first year?’ they’re taking a very university-centric approach. What we’re trying to do is make sure that we’re upskilling in those areas where we have a major skill shortage. I hope they will be working in the areas of business where you need them to.

But addressing that challenge is not just about making education and further training accessible - and there’s a lot of work I know business is doing in those areas too. It's also about what we are doing in research and development, and innovation.

I often reflect on the amazing talks that Paul Callaghan used to give, the way he was able to capture the real psyche of New Zealand as not the largest, not always the one that will dominate for instance the area of health innovation,  but as a place that could be the best in the world at sleep apnea equipment.

It's the ability to find that little niche. And if we find that niche a hundred times over, we suddenly become an economy that starts lifting its wages and its sights about where its future might be.

We do have the ability to be not the biggest, but the smartest. That means though not just the education part of the picture, but what we do around R & D.

Megan Woods, Minister for Science, Research and Technology, is reviewing that environment because at the moment our contribution to R & D as a percentage of GDP is 1.3%. It’s half of what the OECD level is.

Our goal - and actually this was something that was brought to the table by New Zealand First during coalition talks – was to lift that to 2 percent in a period of 10 years.

So the next step is what we do to incentivise private investment in R & D alongside Crown investment.

I have no doubt that we have the smarts; I have no doubt that actually we have the regulatory environment. There is a reason that Peter Beck is launching from Mahia, and it is not just the beautiful scenery or the fact that the biggest disruption is a little fishing boat running across the water. There is an environment here that we should capitalise on and that is based on our size, but we do need to make sure that we are investing in research and development.

The other way of course we can generate prosperity is trade.

Now you’ll have seen that very early on this Government was faced with a pretty significant challenge. We have always been a pro-trade party. We know that we are able to generate wealth in New Zealand as a small corner of the world if we are able to exchange our goods and services, its long been our focus of the Labour Party.

We of course negotiated the China FDA. We also wanted to make sure that the kind of trade we were engaging with didn’t come at too great a cost, but also that it was inclusive, that people were genuinely benefiting from that increase in trade.

We went into the negotiations over the TPP with a really clear view that we could do better. Now I can tell you sitting down with our chief negotiator, a matter of days after we were designated as the new government, and saying to him that I know we’re meant to be only a few weeks away from closing this deal but we’re changing your entire mandate. And he was an absolute professional, didn’t bat an eyelid as we told him to try in and go and renegotiate ISDS clauses.

Now I put a lot of weight on the work that he personally did, but also that David Parker did as our Trade Minister, to be able to go into that environment and say ‘well actually, on things like our investor screening, we want to be able to manage that within our domestic legislation, not through ISDS,’ and he managed to successfully argue that.

I, of course, would get updates throughout the negotiation and after every update I would get, I would think ‘I owe that man a beer’. So when we finally at the conclusion -  obviously Da Nang was not the final place we were able to conclude TPP - I could hand on heart say that, alongside of a number of other changes that we managed to get through in a short space of time, we fundamentally improved that agreement for New Zealand.

It is now more in line with the Malaysia FTA when it comes to things like ISDS and, at the same time, does deliver benefits to our exporters - particularly beef, kiwifruit and wine.

But going forward, if we are pursuing a trade agenda as we intend to, with a particular focus I can tell you on the EU FTA, and priority on trying to be first cab off the rank for negotiations with the UK once they’re ready, what’s the framework that we are looking for?

Well if it’s about generating prosperity and sharing prosperity then we need a more inclusive trade agenda. And at the moment David Parker is working up what that framework looks like so when we go into negotiations we know what our goals, expectations and starting point is. But I can assure we will be pursuing that agenda aggressively as well.

On the sharing, you’ll know a lot of the work that we’ve done and are undertaking already. I want to expand briefly on one element.

We have put in place a Tax Working Group, I am not sure if Kirk Hope is in the room, he is a member in that group. We have tried to make sure that it is a really diverse group of expertise who will be sitting around under our terms of reference that actually might not be familiar to all of you in the room.

We have long argued that we need a fairer tax system in New Zealand particularly when it comes to the way that we treat wages versus investing in unproductive classes of our system. So we have always argued that, that will be known to you, probably what you won’t know is that we have also asked that group to look at some innovative  ideas.

I have often talked about what we can do to incentivise, not just disincentive, but incentivise greater investment in the productive economy. I am interested in the fact that in the UK they have a seed investment regime where you get tax breaks if you invest in small to medium size enterprises, because you’re the one taking a risk to grow a business and grow jobs.

We are also interested in what, right now, looks to be almost a form of progressive stepped taxation for smaller and medium sized enterprises in Australia, based on turnover, a concept that I don’t believe anyone in New Zealand has really analysed before.

So we’ve asked that group to look at that wide range of different options within the Tax Working Group and we are looking forward to see what kind of ideas that generates.

Also the Minister of Finance would be very upset if I didn’t tell you that we are also looking on the application of GST for online purchases.

Again, if you read the MYOB surveys as I do, you’ll see that actually is one of the biggest bugbears for our small businesses. They want a fair playing field and this is one of the ways we can look to do that.

On generating and sharing prosperity, of course, there’s the work that we are doing on minimum wage that will go up to $16.50 in February. But we do want to give certainty to business. We’ve made a goal of reaching $20 by 2021 but we will be working with business to look at how we stage that over the coming years between now and 2021.

In terms of that collaboration, the final element I will speak to you on that category is the issue of Fair Pay Agreements.

It came up a lot during the election. This is where we see an area for us again to make sure that we start lifting our sights beyond the low wage economy. We already actually have what I would call a fair pay agreement in the Terra Nova Settlement for Home Care workers.

 It was a settlement we were all proud of. What we are looking to though is rather than using the Courts to generate that outcome, working collaboratively between unions, business and Government to generate what they might look like for other sectors.

We’ve said that might an expectation of perhaps two or three a year. They will not have strike action attached to them. Our view is that this can be work that we form consensus around.

A good example, the film industry around the so called ‘Hobbit Legislation’ has come forward and said that rather than us just tweak that element of the law, why don’t we sit down and see if we can form an industry standard together. So we, as Government, see ourselves as a bridge for those tripartite agreements. I see that not as something to fear but as something that can actually improve the productivity and the conditions that employers and employees are working with.

Priority number two is sustainable and thriving regions. You will have heard us talk a lot about this during the election as has our coalition partner, New Zealand First; this is a priority for them, which is why we have established the Provincial Growth Fund. We will be talking more about the detail next week.

What I can say is that, at its core, we are acknowledging the infrastructure deficit we have in New Zealand. We think we have a problem in Auckland, we do.  And we are sitting down with Council to renegotiate ATAP as we speak. But our regions do as well.

When you go into areas like Northland, the East Coast, the Bay of Plenty, they’ll talk to you about the underinvestment in their infrastructure, but also their services, and their higher rates of unemployment particularly amongst young people.

We have already started trying to design employment programs in those areas that particularly target young people and some of them will be specific to those regions. But all of it comes back to that mantra, that priority of growing sustainable and thriving regions.

The third priority is a clean, green, carbon neutral New Zealand. So many of us trade on our brand and there’s probably been a bit of international question over whether or not we are as genuinely clean and green as we could be.

We absolutely can be but I do think that making sure that we are investing in swimmable rivers, but also that we are expanding that mantra to go to the next environmental challenge, which is of course is climate change.

I don’t see this is something that we should fear but something we should grasp as an opportunity. This is a brand exercise for New Zealand as much as it is a responsibility.

I had the opportunity last week to sit down with people who work in our food production sector. I said to them ‘please as we introduce ourselves, please tell me what your belief our brand proposition is as a country’. There was a common theme amongst all of them; they said in terms of their products it was safety, it was trust and it was our environment.

It is fundamental to who we are as New Zealanders, but also to our business proposition for a lot of our exporters. So what can we do to enhance that?

Well in our view as a government, our goal around becoming carbon neutral by 2050 has a real opportunity to enhance that brand for those who work in food production, but particularly those who export.

We know though that means working together on that challenge. We’ve established with the New Zealand Green Party, a commitment to establishing a $100 million Green Investment Fund, which is really a plan to leverage private sector investment in the area of clean and green technology.

But of course that does also mean sitting down sector-by-sector and identifying the challenges we have. But I am heartened by those early conversations with the dairy industry, food production industry and horticulture around what we can collaboratively achieve together because I actually believe we are on the same page.

Final priority, you will be pleased or at least if you’re not then Grant Robertson will be, I’m going to mention our responsibility mantra which, I can assure you, like a broken record, he repeats at every Budget meeting I go to.

The Budget Responsibility Rules were something that we launched last year for a very specific purpose. We knew we have a perception issue and we wanted to be transparent around the parameters we were setting for ourselves. Some of you may have heard us mention them before.

They are that we will operate surpluses, bar of course a significant event like a GFC or an earthquake, that we would operate with budget surpluses. We would get net Crown debt to 20 percent, Crown spending would sit at roughly 30 percent of GDP, and that we would make sure that we, at the same time, invested in the infrastructure we needed, like housing and preparing for our retirement.

Those in the nut shell are our Budget Responsibility Rules. We’ve said that this government will keep to those as well so that you can have certainty around our parameters.

What I don’t want you to walk out of this room thinking, though, is that those are the only things that we consider important or a measure of success.

In fact, in many areas we take of departures from previous administrations. But a significant one for us is that economic success is not a good picture of the well-being of your nation.

You can have GDP growth and environmental degradation and a complete social deficit at the same time. So our view is how do we get a more holistic picture?

Yes, balancing the books matters but so does making sure your people aren’t sleeping in cars and your children aren’t living in poverty.

We’ve set ourselves an expectation that by 2019, we will be the first country in the world who will use a Living Standard Framework to develop their budget.

So that you will be able to see how we are performing on every measure that should matter to a well-functioning society.  Now Treasury has already done a bit of work on this but it is something we have said we want to expedite and we see as really a core difference that we can make for the way that government’s operate in the future.

If you want an example of what it would look like, our child poverty work is one area. We’ve already had now the first reading of our Child Poverty Reduction Bill and set targets for ourselves as a government to get child poverty down to, on one particular income measure, Five percent.

Five percent would mean that we would sit alongside countries like Denmark, and Sweden, and Finland. Virtually no one gets much lower than five percent in the OECD. We would be amongst the best in the World and it’s a rate we’ve never reached before. We have given ourselves 10 years to get there and you will find ourselves tracking our progress because as a duty under the Public Finance Act we are requiring ourselves to do that.

That’s an example we think of demonstrating whether or not in generating prosperity we are sharing prosperity with the next generation of New Zealanders, including the next generation of tax payers - who we need to make sure are having a decent start in life.

So that I hope gives you just a little snapshot of the other side of the ledger of the plans we have around social prosperity as well.

Now I really want to finish with just one little request. You will hear from just even one side of that program and that is not even talking about in detail sort of the things we want to do on housing, education and health, that we have a very large agenda.

We’re being really honest that we can’t do it alone, which is why the request I would make to you in particularly in areas like housing, climate change, skills and jobs, I’m looking for opportunities to collaborate.

I haven’t set it up yet, but I would like to set up an informal group of business leaders, I have had a couple of offers, to work alongside me in developing a work program between business and Government in some of those key areas where you have great ideas, we have great ambitions, and we can pull them together.

So I hope though, at the end of this, you have a sense of the kind of agenda we have - our desire to collaborate, the kind of government we hope to be and the legacy we want to leave.

I hope that it also gives you some certainty over the impact, which I hope will of course be positive, on you and your business. And my ultimate hope is that, in say a year or two years’ time, those notes that get past around the classroom might start looking a little more friendly.

But in the meantime, thank you very much for the opportunity.

Kia ora koutou katoa.