Sunny at first; outlook cloudy
In stark contrast to her first State of the Nation speech as prime minister, Jacinda Ardern has fronted up to a top business audience ahead of a raft of reforms that are likely to further unsettle the sector.
Ardern’s first State of the Nation speech was delivered at a Wellington church to a group of largely community and voluntary agencies and focused on poverty and children.
The setting for yesterday’s speech was a room at the upmarket Hilton Hotel in Auckland overlooking the glitzy Viaduct Harbour, attended by top chief executives and managers.
That was not the only contrast: in an unusual move, Ardern was preceded by speeches from business sponsors, including a three-minute speech about the Fly Buys programme, which did not refer to the Government nor Ardern. The second speaker from another sponsor, IBM, did briefly acknowledge the PM.
The PM used her speech to talk about the reasons for optimism in the economy – but acknowledged there were also economic clouds ahead.
She also addressed the elephant in the room – a reference to her speech in mid-2018 at the height of a chill in relations with business that saw business confidence plummet to lows not seen since the global financial crisis.
‘‘Last year I talked about the elephant in the room. Pleasingly, the elephant has gotten a little bit smaller in the past 12 months.
‘‘Perhaps it got to know its company and decided it wasn’t quite as scary as it first thought.
‘‘Either way, it’s pleasing progress and it is based on some strong fundamentals,’’ Ardern said.
‘‘Yesterday’s employment data showed wages are growing and unemployment is at 4.3 per cent, the second lowest in a decade.
‘‘The lowest was of course last quarter, and we are confident that we’ll reach our 4 per cent target by the end of our term.
‘‘Growth is relatively strong at around 3 per cent and is forecast to stay close to that level in coming years. That looks particularly strong when compared to the IMF’s [International Monetary Fund] recently released forecasts for advanced economies that predicts average growth of about 2 per cent a year.
‘‘Inflation is tracking at 1.9 per cent and food price inflation remains low.
‘‘And it is encouraging that one of the Big Three rating agencies recently gave our economic and financial management the thumbs up. Standards & Poor’s have revised its outlook on New Zealand’s AA foreign and AA+ local currency credit ratings from ‘stable’ to ‘positive’ – its strongest verdict on New Zealand since September 2011.
‘‘As you can see, on key economic measures the Government is delivering. There is good cause for the elephant shrinking.’’
But the Government’s tax plans – including a contentious capital gains tax expected to be floated by its tax working group – and industrial relations reforms, could cause confidence to plunge again.
Ardern acknowledged there had also been a shift in the mood globally and, while economic growth remained strong, it was beginning to slow. ‘‘The IMF is projecting worldwide growth to ease from 3.7 per cent in 2018 to
3.5 per cent in 2019 due to rising trade tensions, political uncertainty and less stimulatory monetary and fiscal policy.’’
Advanced economies, meanwhile, were forecast to grow at only 2 per cent a year.
Trade tensions were a contributing factor and the concern for New Zealand was the flowon effect from a further reduction in Chinese exports.
‘‘And then there is Brexit. As all of you will have no doubt seen, the final form of Britain’s exit from the European Union is yet to be decided,’’ Ardern said.
‘‘Clearly, the risk of a no-deal scenario remains high. There is a lot of uncertainty around what such a scenario would mean, and while we are doing our best to create a buffer through, for instance, our recently signed mutual recognition agreement, a no-deal Brexit could still do harm to EU economies or disrupt financial markets.
‘‘Political tensions are beginning to present serious risks to international institutions and the rules-based order that we rely on for security and prosperity.’’
‘‘Now is the time to ensure we not only build greater resilience into our economy but that we modernise it too.’’
Prime Minister Jacinda Ardern
New Zealand was well prepared but needed to be realistic that if the global economy slowed, it would affect our own economic growth.
‘‘Now is then the time to take the foundations we have and to build on them.
‘‘Now is the time to ensure we not only build greater resilience into our economy but that we modernise it too.’’
Ardern said the Government’s plan included:
❚ Doubling down on trade and broadening the trading base to protect exporters and the economy.
❚ Reform of skills and trade training to address labour shortages and productivity gaps in the economy.
❚ Changes to the tax system.
❚ Addressing long-term infrastructure challenges.
❚ Transitioning to a sustainable carbonneutral economy.
❚ Investing in wellbeing.
Ardern also signalled a big shake-up in the tertiary sector to address skills shortages.
‘‘Whenever I talk to business I hear a recurring theme around skills training and the gap between what business needs and what our training organisations provide.
‘‘Businesses are facing a constant struggle finding the people with the right skills at the right time to do the jobs that need to be done.
‘‘Many of you here today have spoken to me about this issue.
‘‘In the past our economy has been too reliant on buying skills through immigration.
‘‘Immigration is vital but we need to get the balance right. I want us to focus on how we can be better at growing the skills our economy needs.’’
The shortages included key areas like construction, yet despite those shortages vocational training institutions were going broke, the Government having to bail them out to the tune of $100 million, with more possibly in the pipeline.
For that reason, Education Minister Chris Hipkins would announce ‘‘far-reaching’’ proposals for consultation next week, addressing major structural issues in the current system.
Other major legislative changes signalled by Ardern included legally binding emissions reductions targets under the Government’s plan to address climate change, and its response to the tax working group.
Ardern said tax reform was an issue of fairness.
‘‘We have long foreshadowed that we will deliver this year a response to the Tax Working Group. There has been a lot of speculation on this topic of late, some of it feverish and not always accurate. But my message to you this morning is succinct.
‘‘Yes, we have received the report of the Tax Working Group and, as we have shared publicly, it will be released on Thursday, February 21.
‘‘That report is now being pored over by officials, and discussed with coalition and confidence and supply partners. Our plan is for the finance and revenue ministers to release the Coalition Government’s full response to the report in April.
‘‘Importantly though, the Working Group’s report will be shared with the public. There will be time for everyone to see that work, to debate what they have said and to share views.
‘‘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.
‘‘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.’’