The Economy - the way forward

The Kiwi Dollar - What does it all mean?

Keeping faith with New Zealanders

The Government is putting in place an active programme to raise the living standards of all New Zealanders. We want to grow an open, dynamic, outward-looking and innovative economy. We will build on our unique strengths and our special environment.

The hands-off policies of previous governments did not work. They assumed that the only economic solution is simply to deregulate and allow market forces free rein.

As a result New Zealand has one of the freest markets in the world but we don't have one of the world's top performing economies. Not only that, but New Zealand paid too high a price for the gains of the last fifteen years. The social costs were too high. The gains that were delivered went to the few not the many.

This Government has learned from the mistakes of the past. Our approach is multi-faceted, more hands-on and consists of a broad range of interlocking policies across many fronts.

Our economic strategy focuses around two themes:

• To increase our export earnings and
• To improve the quantity and composition of our savings.

To increase our export earning, we need to both expand export volumes and to add value to the export base, reducing our reliance on commodity export volumes and transforming New Zealand into a knowledge economy.

To expand the volume of exports, the Government is:

• Developing a free trade agreement with Singapore
• Expanding the Closer Economic Relationship with Australia
• Strengthening our relationship with Latin America
• Pushing, through Apec and the WTO, for better access for NZ exports
• Running trade missions to coincide with the Prime Minister's overseas trips
• Putting more resources into Tradenz
• Encouraging "greeenfields" foreign investment
• Helping new businesses to get established and existing businesses to access new markets through Industry NZ

• Pouring record amounts of support into R&D
• Encouraging new technologies through Technology NZ
• Lifting the skills of our young people through the Modern Apprenticeships Programme, lowering the cost barriers to tertiary education, streamlining the tertiary sector to minimise the duplication of resources and encouraging more students to study sciences, engineering, technology and design.

• Developing a New Zealand Superannuation Fund
• Putting in place a tax regime more supportive of private superannuation savings.

• Allowing the Government Superannuation Fund, and possibly the National Disaster Fund, to expand their portfolios into equities
• Reforming the stock market rules governing insider trading and takeovers to better protect the small investor
• Beefing up the Commerce Commission

The Kiwi Dollar - What does it all mean?

Recent survey of 1000 farmers nationwide: 55 percent say agricultural performance will improve over the coming year; 70 percent expect to earn more. Why? Soft weather, good commodity prices, and a weaker dollar.
Total exports rose 13 percent from last year and are expected to continue rising. Why? Strong world demand and a weaker dollar.
Tourism industry experienced the best winter season on record - bringing an extra $55 million to the NZ economy during the month of July. Why? Aggressive marketing and a weaker dollar.

The point here is that a weaker dollar is not all bad news to all sectors all the time. It improves the competitiveness of the export sector, and New Zealand relies upon exports.

Neither is a high dollar necessarily a sign of a strong economy. We know from the mid-1990s, when a high exchange rate devastated our exporters, that a currency can be propped up artificially by asset sales and unsustainable borrowing.

To a large extent, the dollar's recent fall is a story about the US dollar. All currencies except the yen are falling against the greenback as the powerhouse US economy sucks in investment from around the world. The British pound is at seven year lows, the Australian dollar at 12 month lows and the Euro at record lows.

But our currency has been in slow decline over the last four years, as foreign investors have become perturbed at the imbalance in our external accounts, our soggy sharemarket and our high levels of private indebtedness.

Through the 1990s we went on a consumption binge fuelled by tax cuts and by borrowing, via the bank and the credit card, from the savings of people overseas.

The result was an unsustainably high current account deficit. The weaker dollar will speed the correction in our external accounts. Economists agree the kiwi dollar is undervalued. When it will correct, and by how much, are impossible to predict.

In the meantime, if the softer currency is exploited correctly, it will give us a strong foundation for future economic growth.

But adjustment means change, and change always creates winners and losers. Householders and importers will find their money does not buy as much as it used to, some companies supplying the domestic market will find their profits squeezed. Rising petrol prices hit home hardest. These effects have to be acknowledged honestly and openly.

I acknowledge the pain this will cause some people.

New Zealand's interests will be best served if, instead of looking for scapegoats, we pull together as a nation. There is no quick fix but there are some small things we could all do.

We could, for example, make a point of buying New Zealand-made wherever possible. When the dollar is weak, there is a price advantage in buying locally - and it will have the effect of reducing the trade deficit and of creating New Zealand jobs for New Zealanders.

I have already talked about the need to strengthen and add value to our export base. Encouraging things are happening now. We need to focus on these positives and be lifted by them.

Exports into the United States of elaborately transformed manufactures [the clever, high value stuff] have risen 46 percent in the last 12 months. Many of the companies involved are new to the US market. That is a huge achievement. We should celebrate it and build on it.

The Government stands willing to do what we can, but we cannot do it alone.

Keeping faith with New Zealanders