Making the elephant smaller
By Richard Harman (author)
The Prime Minister set out this morning to reassure business that if the worst comes to the worst and the economy slows later in the year, the government has a plan to manage it.
She was speaking over breakfast to an audience of around 200 top business people in Auckland brought together by Business New Zealand.
She made a similar speech last year, when, as she said yesterday, she talked about the elephant in the room which was the lack of business confidence.
“Pleasingly, the elephant has gotten a little bit smaller in the past 12 months,” she said.
“Perhaps it got to know its company and decided it wasn’t quite as scary as it first thought."
But even so, she was taking no chances.
One Government source said she knew that any Labour Prime Minister had to work harder with a business audience than a National one.
And it was important today that she showed the audience the government could cope with what they seem to believe is the increasing likelihood of an economic slowdown.
“There is a shift in mood globally,” she said.
“While global economic growth remains strong, it is beginning to slow.
The IMF is projecting worldwide growth to ease from 3.7% in 2018 to 3.5%
in 2019 due to rising trade tensions, political uncertainty and less stimulatory monetary and fiscal policy.”
She said the finger of blame for the slowdown in global trade growth is generally pointed at countries pursuing increasingly protectionist policies, which are naturally affecting confidence and investment plans.
“Political tensions are beginning to present serious risks to international institutions and the rules-based order that we rely on for security and prosperity.
“The World Trade Organisation, for example, and other multilateral organisations, are facing challenges to their legitimacy that undermine their effectiveness.
”At Davos, a significant conversation revolved around how we could ensure the reform of these institutions, whilst not seeing them blamed for the current political environment which, ultimately, they didn’t cause.”
So overlaying the government’s economic plans for the year is an emphasis on addressing the forces that have created the populist politics of President Trump, Brexit or Italy.
Ardern said the key planks of the economic policy for the year were:
- Doubling down on trade and broadening our trading base to protect our exporters and economy
- Reform of skills and trade training to address long-term labour shortages and productivity gaps in the New Zealand economy, and to make sure we are prepared for ongoing automation and the future of work
- Changes to tax to make the system fairer
- Addressing our long-term infrastructure challenges
- Transitioning to a sustainable, carbon-neutral economy
- And of course investment in wellbeing, because this is inextricably linked to our economic success too.
On trade, she said the EU leaders she spoke to in Brussels last month had assured here they wanted the EU-NZ free trade agreement completed this year. That would make it one of the fastest set of negotiations ever conducted by the EU.
There are still difficulties over Tariff Rate Quotas which apply to lamb and which have to be split up between Britain and the EU once Britain leaves.
New Zealand is objecting to the way the split is being applied because it would effectively reduce our flexibility to move exports from Britain to the EU according to demand.
Government officials and Ministers concede that if New Zealand had to it could be possible for it to block British participation in some EU bodies if no agreement was reached.
But they also say they believe that a compromise could be reached within the WTO.
Ardern confirmed that the Government now had the report of the Tax Working Group and that it would be public on February 21 with the full Government response in April.
“ Anything we subsequently decide will also go through a consultation process before legislation and ultimately will be put to voters at the next election before it comes into force,” she said.
“As we enter into a period of discussion and debate, I hope it’s guided by the overriding goal of fairness, and building an economy and system that works in the best interest of New Zealand and its people.”
In effect, she is saying that the Tax Working Group and the decision to tax capital (and therefore wealth) along with income is part of the response to prevent the populism sweeping northern hemisphere countries from reaching New Zealand.
And the Wellbeing Budget is designed to answer the same question.
“The Wellbeing Budget is not only about improving the livelihoods of New Zealanders, but it is also key to ensuring we are protected from the international headwinds the economy may face,
” she said.
“It will ensure that those closest to the margins are protected and that no one is left behind.”
Allied to this will be a renewed emphasis on vocational skills.
In part, this has been forced on the government by the parlous financial state of the Polytech sector.
Bailing failed polytechs out has already cost $100 million and Education Minister, Chris Hipkins, told POLITIK that two more Polytechs could be in financial trouble.
Next week he will announce a radical restructuring of the sector which is likely to include substantial rationalisation both of courses and administration.
But also the government will be seeking to involve the private sector more in training.
Part of the reason for that was polytechs could not keep up with the latest technology, he said.
“So they are going to have to partner with industry to ensure that the skills that people are developing in their off-job training are relevant to on-job and that might actually mean partnering with businesses to do some of the off-job training, on the job.
“Businesses are crying out for this.
“They are saying they want to partner with the vocational education providers so that when people arrive on our doorstep ready to work, they are ready to work.”
Ardern ended her speech by repeating her words of caution about the possible direction of the economy this year.
“As a country, we face challenges on a number of fronts, but in these challenges, the Government sees opportunities to build a more resilient economy, and I know we are not alone in that.
“By diversifying our trade opportunities, upskilling workers, leading the transition to a low carbon economy, ensuring fairness in the tax system and delivering our Wellbeing Budget we have a clear plan that will protect and improve the wellbeing of our people, our businesses, our communities and our environment.”And her last words came back to the question of business confidence.
“I look forward to working with all of you in delivering on this in 2019. And perhaps along the way that elephant might keep getting a little bit smaller.”