Reflections from New Zealand

Source: AP/Rob Griffith

I want to discuss my approach to politics, what drives me, and what the Government I lead in New Zealand has been doing.

I want to make it clear that I am not suggesting any particular policies or approaches for Australia. That is for Australian politicians and Australian voters to decide.

But I can give you a sense of where I come from and how the National-led Government has been dealing with some the challenges facing New Zealand.

There certainly have been challenges: one has been to begin the long process of rebalancing the economy.

The New Zealand economy lost competitiveness in the 2000s because growth was built on all the wrong things – debt, consumption and a fifty per cent increase in government spending in just five years.

Those factors acted together to suffocate the tradables sector in New Zealand, which was effectively in recession from 2004 onwards.

So we have been doing a lot of work to change some of the key settings in the economy, help keep the pressure off interest rates and the exchange rate, and ensure the public sector is not diverting too many resources away from the tradables sector.

Another test for the country has been the fiscal challenge posed by the combination of a domestic recession, the impact of the Global Financial Crisis, and the cost of the Canterbury earthquakes.

From the beginning of the recession, in early 2008, the New Zealand economy shrank 3.3 per cent in eighteen months, and tax revenue fell ten per cent.

And while most of the damage from the earthquakes is covered by insurance, the Government is still expecting to face a final bill of around $13 billion, or around six-and-a-half per cent of Gross Domestic Product.

As a Government, we absorbed much of the cost of the recession and the earthquakes on our balance sheet, thereby cushioning New Zealanders from the worst impacts.

But that money has to be paid back, so we have put a huge amount of effort into making savings and, in particular, into changing some of the long-term term drivers of government spending, so we can get back to surplus over the next few years and start getting our debt down again.

The challenges we have faced have not just been economic, of course; we have also been dealing with long-standing social problems that have defied easy solutions.

The 2000s in New Zealand were characterised by the idea that big increases in government spending, dispensed across a whole range of areas and in a relatively untargeted way, could transform society.

However, that particular experiment ran out of money in 2008 with little genuinely transformational to show for it, and the problems still remain.

As Prime Minister, I am responsible for leading the Government’s responses to these and other challenges.

As John F. Kennedy once said, we in government are not permitted the luxury of irresolution.

Everyone else can debate issues forever but, in the end, the government has to cut through all that and make a decision, which will invariably please some and disappoint others.

In making those decisions, my Government is very pragmatic.

We are guided by the enduring values and principles of the National Party, but we are also focused on what is sensible and what is possible.

Partly, that is the nature of the political system in New Zealand. It is sometimes said that politics is about convincing fifty per cent of the population plus one, and that has never been truer than under the mixed-member proportional system we have in New Zealand.

But, in any event, I think government is a practical business. You do not start with a blank sheet of paper; you start with the country as it is.

And by making a series of sensible decisions, which build on each other and which are signalled well in advance, and by taking most people with you as you go, you can effect real and durable change, which will not simply be reversed by the next lot who come into government.

Over time, a series of moderate changes can add up to a considerable programme.

That has been our experience in New Zealand.

In terms of the fiscal outlook, we have effected a significant turnaround.

The advice we had from the Treasury when we first came into office was that if we continued with the settings we inherited, net government debt was likely to reach sixty per cent of Gross Domestic Product by 2026.

Now, after all the changes we have made, net debt is projected to be zero in 2026, despite the Government also picking up much of the cost of the earthquakes.

We have also implemented the biggest changes to the tax system in a generation, to increase the incentives to work hard, save and invest, and decrease the incentives to consume.

That has included increasing Goods and Services Tax, bringing down personal tax rates across the board, and dropping the company tax rate to 28 per cent.

We have reformed our planning laws and labour laws, and we are investing heavily in New Zealand’s infrastructure, including state highways, ultra-fast broadband and the national electricity grid.

We have embarked on a process of selling minority stakes in four state-owned energy companies.

We are making significant changes to the welfare system, including work obligations for sole parents when their youngest child turns five.

And we are undertaking a long-term programme of public sector reform. This includes a real focus on results – getting traction on difficult issues like reducing crime and long-term welfare dependency.

Throughout this time we have been consistent and up-front with New Zealanders about what we are doing and why.

And we have retained pretty broad support across New Zealand.

I want to stress, however, that while I think government is about practical, considered decision making, it is not a technocracy.

In the end, the biggest, most fundamental decisions governments are called on to make are not reducible to calculation in a spreadsheet.

Those decisions rely on the judgements of politicians around concepts like fairness, opportunity, and the balance between individual and social responsibility.

As a politician, my own gut-level judgements have been hugely influenced by my upbringing and my life experiences.

I was a kid who benefited from both the welfare state and a mother who pushed us to improve ourselves through hard work.

My father died when I was young. We had no other family in New Zealand and we had very little money. My mother was on a Widows Benefit for a time, before she started working as a cleaner.

The State provided us with somewhere to live, and ensured my mother had food to put on the table when we most needed it.

The State also gave me the opportunity to have a good education at the local high school and at university.

My mother made sure I seized that opportunity with both hands.

She was a very strong character, and had escaped persecution in Austria before the Second World War. What she gave to my sisters and me was far more valuable than money. Her constant refrain was that, “you get out of life what you put into it”.

My early life was therefore a mix of strong influences: a close family; an emphasis on individual responsibility and hard work; first-hand experience of the welfare system; and a realisation of the opportunities that education offers to kids from even the humblest of homes.

Those influences have undoubtedly shaped my views on the appropriate role of government.

I believe in a government that looks after its citizens and provides them with opportunities to flourish, but recognises that people are responsible for their own lives and the well-being of their families. The way to a better future is ultimately in your own hands.

I believe in a government that gives people security in times of misfortune and hardship but does not trap them in a life of limited income and limited choices. I have often said that you can measure a society by how it looks after its most vulnerable. Yet you can also measure a society by how many vulnerable people it creates – people who are able to work, yet end up depending for long periods on the State.

I believe in a government that supports people’s hard work and enterprise, and encourages them to set high aspirations.

I have had a successful career in international finance.

But I have learned that the most valuable assets in life are those closest to home. As a husband, and as a father of two wonderful children, I can say that families are in my view the most important institution in our society.

So I believe in a government that supports families.

At some point, years ago, I found that my own personal beliefs and drivers were a natural fit with the principles of the National Party.

Those principles will not be a great surprise to you because the origins of the New Zealand National Party are broadly similar to those of the Australian Liberal Party.

The National Party was formed in 1936 from the merger of existing liberal and conservative parties. It was formed to consolidate opposition to the Labour Party, which had won its first general election the previous year.

The name “National” was chosen in part because the new party sought to represent the whole country, without favouring any one class, region, gender, race or religion.

The name “National” also emphasised that the Party’s principles and policies were rooted strongly in New Zealand.

Its first leaders were men born and brought up in New Zealand – Hamilton, Holland, Holyoake and Marshall – who thought of themselves first as New Zealanders, not Irish, Scots, or English.

Keith Holyoake, for example, was a fourth generation New Zealander, all eight of his great-grandparents having arrived in New Zealand around the 1840s. While he maintained New Zealand’s traditional links, he also told Britain quite bluntly that he saw New Zealand as a totally independent nation.

The Party’s founders were not people who saw the world in terms of a fundamental class conflict, where people’s destinies were largely foretold. In fact the Party was set up to oppose that view.

On the contrary, the early leaders of the Party had a belief in the capabilities, and also the responsibilities, of individuals and their families.

People had choices and could make better lives for themselves. The government could help them by enabling better choices, but could not and should not tell them what to do.

Neither should the government get in the way of people exercising those choices. Holyoake, for example, said that while he believed in everybody having the opportunity for success, he did not believe that, “success in one individual should be thwarted by efforts to prevent the failure of another”.

Many in the new Party were practical farmers and businesspeople who wanted common sense solutions to New Zealand’s problems.

As I said, they did not see New Zealand as a battleground where a conflict between workers and capitalists was playing out.

Nor were they interested in many of the things British conservatives and liberals exercised themselves about.

It seems to me they were a fairly straightforward and pragmatic bunch of people who wanted to continue building what was still a relatively young country.

They did not believe in uniformity – they thought that was a socialist idea as well. Rather, they thought that the individual freedom promoted by National involved many diverse groups with conflicting interests. Tolerance was the key to working through those conflicts – giving everyone a say, but ensuring the Party ultimately focused on the good of the country as a whole.

The National Party has also always understood that businesses large and small create jobs and prosperity.

It is extraordinary how many people, including a lot of Opposition MPs in New Zealand, think the economy is something separate from the normal life of the country – something that will just keep chugging along while Parliament worries about supposedly unrelated social issues, like employment.

In fact – as I am at pains to point out most days in Parliament – jobs are only created when business owners have the confidence to invest their own money to expand what they are doing or to start something new.

Giving businesses that confidence is the most important thing the Government can do to ensure people have jobs, and that those jobs are sustainable and well-paid.

So those are the general principles the National Party has been promoting for the past 76 years: individual responsibility; equality of opportunity; competitive enterprise; tolerance and respect for all New Zealanders; and an essential pragmatism – a belief in the practical and the possible.

Policies change over time, of course, as knowledge develops, attitudes change, and new challenges arise.

But principles and values are an intergenerational guide that ensures the essence of the Party remains the same, even though individual policy prescriptions may differ.

They are an important guide for the future.

When they elect a government, voters accept that that government will have to make decisions on issues yet to reveal themselves, and react to situations no-one could have predicted.

It is important that voters have some idea of the considerations that will inform those future decisions.

Sometimes voters have been thoroughly surprised by the government they elected.

Those governments have never worked out very well.

So one of the things my Government has tried very hard to do over the past three-and-a-half years is to be predictable, consistent and up front with voters.

John Howard made the same point about the Liberal Party in his lecture to this Centre in 2009.

“Love us or loathe us,” he said, “and there were plenty of both, the Australian people knew what we believed in and what we wished to achieve for their country.”

That is the approach we have been taking as well.

In particular, we have sought a mandate at each election to implement certain policies, we have made assurances about others, and we have stuck closely to our word.

Looking forward, the biggest challenge to New Zealand is the on-going debt crisis in Europe and the prospect of subdued world growth, or even recession.

New Zealand makes up less than a quarter of one per cent of the global economy so we cannot help but be affected by events in the rest of the world.

But I remain optimistic about New Zealand’s prospects.

We have sound economic and financial institutions.

We are producing the sorts of products, and providing the sorts of services, that will be in demand over coming decades.

Sixty per cent of our exports now go to Australia, East Asia or Southeast Asia. A strong Australia is critical for New Zealand. And Asia is the most vibrant and growing region in the world.

In addition, the rebuilding of Christchurch is effectively a massive stimulus programme.

Compared to many other developed countries, New Zealand faces a relatively favourable set of circumstances and opportunities. From what I can see, looking across the Tasman, so does Australia.

Our corner of the world, with its 27 million inhabitants, is in a good space. It is now a matter of making the most of the opportunities that are out there for us.

This is an adaptation of John Key’s John Howard Lecture at the Menzies Research Centre in Sydney on 5 July 2012.

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