Speech PM Hipkins: Pre-Budget Speech, Auckland

Good afternoon everyone, it’s great to be with you today.

Thank you to Brett and Allan from the EMA for hosting this event, which officially kicks off the 2023 Government Budget period.

The decision to give this speech here, with this audience in Auckland, was no accident.

I’ve said before that Auckland is the engine of the economy. When Auckland does well the country does well.

It’s why meeting with Auckland businesses was my first act as Prime Minister, and it’s a relationship I have sought to develop in the three months I’ve been in the job.

Just days after that first meeting, the rain started to fall. Auckland experienced its worst flooding in recent memory, followed by Cyclone Gabrielle.

For many of you I’m sure, that’s meant these past few months have felt like one step forward and then two steps back.

Just as we were making progress with our borders fully reopening and tourists returning, the weather gods delivered the worst and wettest summer in decades.

But what I love about New Zealanders in general and Aucklanders in particular, and what we see time and again, is Kiwis stepping up and getting on with the jobs at hand, despite the enormity of the challenges they face.

Here in West Auckland, I saw the community, led by former All Blacks Sir Michael Jones, Eroni Clarke and Ofisa Tonu’u, ensure families evacuated from flooded homes had a dry place to stay, food to eat and the support they needed. Businesses donated goods and people were taken care of.

So, while Auckland and the eastern parts of New Zealand have had it pretty tough lately, you have demonstrated your resilience time and again.

I want to acknowledge how difficult it has been, and continues to be, for many. And I want to thank you.

On a positive note, in recent weeks we have started to see some green shoots in our recovery that I hope will start to rebuild some confidence.

The number one message I received back at that first meeting with business leaders was the need for more workers to help fill shortages.

The Government listened. Over recent months we’ve made a number of changes to immigration settings that have

• put more jobs on the straight to residency pathway
• boosted the number of working holiday places
• attracted over 1000 applicants through our special visa to assist with cyclone recovery
• and made the largest ever increase to the seasonal RSE worker scheme.

A recent report from the OECD has ranked New Zealand as the number one country in the world for attracting highly skilled workers. We’re also in the top five for attracting entrepreneurs.

The OECD survey looks at a range of measures including quality of life, inclusiveness, family environment, income and tax. Balanced across all these measures we come out well.

When considering the OECD results, I do worry we talk ourselves down too much. New Zealand’s incredible natural environment, relative safety and easy way of life remain a tonic for those wanting to raise a family or get out of the overseas rat race. We can and should be positive about our country and about promoting these attributes to the world.

Already, the changes we have made, plus the positivity migrants have for us, is starting to show in our immigration figures.

In March the number of arrivals on work visas exceeded pre-pandemic levels for the first time. It was also the most arrivals on work visas in the month of March since MBIE began collating the current data series in 2012.

Our provisional annual net migration gain for the past twelve months of 52,000 is up there with pre-COVID levels.

And as Westpac senior economist Michael Gordon has pointed out.

if our net migration rate across the past four months was annualised, we’d be looking at a net migration gain of around 100,000 for the year.

Now I know many businesses are still facing worker shortages, and I’m not suggesting the changes we’ve made, or the OECD ranking, mean the issue is fixed.

Overall numbers won’t tell the experience of individual businesses and we have a long way to go to fix chronic shortages especially in areas like the health system.

But you asked the Government to take steps to attract more labour to New Zealand — and we have. And those actions are working.

The other issue at the forefront of that first conversation was inflation and the cost of living.

I’ve made the cost of living my top priority as Prime Minister.

The reality is the Government was previously doing too much, too fast, and the effect of that was being tied up with issues taking time and money away from where our primary focus needed to be.

You will have seen a range of reprioritisations with projects like the expensive TVNZ/RNZ merger cancelled, and others deferred.

I want to be clear. Times are tough for many people right now. I get that and I hear that from my local community in the Hutt Valley too. Family budgets are tight and many are going without. The stress this places on families and parents is huge.

I know that business is doing what it can to absorb increasing costs and not pass these onto your customers. I do not think this has been acknowledged enough. Thank you for doing what you can.

But with increasing input costs, supply chains under pressure, and an unstable global picture, there comes a point at which you have no choice but to increase your prices.

Since becoming Prime Minister, I have made it my priority to provide support to New Zealanders, and make sure the Government is doing its bit to tackle inflation.

Over the last three months:

• we’ve extended the fuel excise subsidy to keep down petrol prices
• extended half price public transport to provide cheaper transport choices
• And increased support for those on superannuation and minimum wages.

Of course, it’s primarily the job of the Reserve Bank to bring inflation down and it will have been some relief to many to see the drop in the headline figure last week to 6.7 percent. This is now lower than Australia, the UK and the average across the EU.

It appears we are now past the inflation peak and with inflation trending down globally, this number should continue to fall domestically this year, although the impact of the cyclone rebuild could mean it moves around a bit on its way down.

For our part, the Government is committed to reducing our proportion of spending to dampen demand in the economy.

Overall Government spending as a proportion of GDP is declining.

During the peak of COVID when we were supporting nearly half of all jobs in the country with the wage subsidy, spending increased to 34-35 percent of GDP.

However, Treasury has pointed out that between now and 2024, Government spending is set to fall by the largest amount since at least 1987 — due in part to the rapid rollback of COVID spending underway.

So, despite what you might hear from the Opposition, the fact is Government spending is tracking down towards the low thirties as a percent of GDP, and that is about where I would like it to settle.

Living within our means is an important economic goal for me, professionally and personally.

But getting to that level of spending has to be done carefully and over time. If we tried to get there in this Budget for instance it would require some dramatic cuts to services and cost of living support that New Zealanders rely on.

We are taking a balanced approach that reduces our spending while also delivering core services.

I recently got asked if I still do my own grocery shopping, and the answer is yes. While I don’t make it into the local Pak’nSave as often as I used to, it’s important to me to keep a close eye on the prices New Zealanders are paying at the checkout.

I know I’m very fortunate: my wage can cover the increases in mortgage repayments and food prices that many Kiwis are struggling with.

But I think it incumbent on leaders to not only walk in the shoes of others, but to reflect those experiences in the choices we make.

That means it’s not right for households to be tightening their belts if the Government doesn’t too.

I’d call it a no-frills approach, and that characterises the decisions we’ve made since I became Prime Minister as well as decisions we have made in the upcoming Budget.

You will have seen that yesterday Minister Parker released work IRD have done on the tax that a small number of very high wealth individuals pay in New Zealand.

And while that work highlights gaps in the tax treatment of the income generated off their assets, I want to be crystal clear with you today:

• the Government will not introduce any major tax changes like a wealth tax or CGT in this Budget

We set out our tax policy at the last election and we are sticking to it.

And on the point of living within our means, I can also announce today that there will be no specific cyclone levy in the upcoming Budget to pay for the recovery from the Auckland floods and Cyclone Gabrielle.

Estimates from Treasury has put the cost of asset damage from the floods and Cyclone at between $9 billion and $14.5 billion. This is more than the Kaikōura earthquake but significantly less than the Canterbury quakes.

Half of the total cost estimate relates to ‘public infrastructure’ – assets owned by central and local government such as roads.

While we know we need to rebuild quickly and stronger than before, we also know that the rebuild could add to inflation pressures across the economy, particularly in areas like construction.

This means we have to strike a careful balance across all of our spending in our approach to rebuild.

As such I am announcing today the Government has taken the decision to fund the recovery from here on through a combination of the annual operating and capital allowances we set each year for the Budget, savings and reprioritisations, and some debt as we invest in infrastructure repairs and build back stronger.

I say again, there will be no new tax everyone would have had to pay, such as a cyclone levy, to fund the recovery.

I think of it like this; when you have to do major repairs to your house you usually have to borrow a little and cut back on expenses elsewhere.

Households generally can’t increase their income to pay for repairs and it is not the right time for the Government to either.

The upcoming Budget will have more to say about the investments we will be making to rebuild with greater resilience after Cyclone Gabrielle as well as measures to support New Zealanders with the cost of living.

But before I wrap up today, I want to share some of my thinking about the economy beyond the immediate challenges we face.

There’s no point getting through the here-and-now if you don’t have a plan for the future.

In broad terms my plan is for New Zealand to be the best little trading nation in the world. I want our exports, our people, and our way of life to be the envy of the world.

Meeting this challenge means more than just supporting our exporters and entrepreneurs – although we absolutely will.

It means creating a New Zealand where our young people can reach their potential, where our environment is clean, our communities safe, our elderly, young and disabled people are cared for.

We can’t expect consumers overseas to pay a premium for our goods and services, and we won’t attract the world’s best talent and capital, if we aren’t investing in ourselves.

So, in addition to the cost of living and cyclone recovery this Budget does start to lay the foundation for achieving that goal by making some targeted investments in the things that will help achieve improvements in growth and productivity.

First off we have a plan to expand trade opportunities.

I’m travelling to the UK next week for the King’s Coronation, and prior to that will be focused on securing an ‘entry into force’ date for our UK FTA. There are one billion dollars of opportunity in that deal alone which I want to see our exporters getting the benefits of as soon as possible.

And just last weekend I was in Brisbane with a trade delegation and held talks with Prime Minister Albanese about the close ties between our country and the many opportunities that lie ahead.

What was most impressive about our conversations was the desire for our countries to work together even closer and to modernise Closer Economic Relations – CER.

It’s the fortieth year of CER, and at the upcoming ANZ leadership meeting here in New Zealand, there’ll be a big focus on improving Trans-Tasman systems interoperability and streamlining processes and standards to make the border, innovation and capital investment more seamless.

While markets further afield tend to be dominated by the big players, Australia offers a first stop for small and medium sized business entering the export market. For that reason alone, it’s important we do all we can to boost the benefits of CER.

Sustainability and renewable energy are a huge focus for them. PM Albanese told me he wants Australia to be a renewables superpower and he envisages great opportunities for New Zealand businesses and start-ups in research.

I cannot emphasis enough the PM Albanese Government’s desire to work with us for our mutual advantage. The relationship between our countries has rarely been better.

He has a powerful pro-Kiwi caucus in his Cabinet, with Treasurer Jim Chalmers and Home Affairs Minister Clare O’Neil, in particular, being strong advocates for us. When I spoke to them – and my colleague Grant Robertson speaks to Treasurer Chalmers quite regularly – it’s clear they see us as family.

A second thing we need do as a Government is a small number of things very well. And those small number of things need to be focused on growing our economy.

As a Government we need to pull right back and ask the question – what things are going to make the biggest difference to New Zealand right now?

What is going to help lift our productivity and wealth so we can keep investing in services like health and education?

What are the handful of things that will help get us ahead and stay ahead?

So, I think it’s worth the business community knowing that for me, my priority this Budget will be driving a focus on Skills, Science and Infrastructure investment to grow our economy and make it more secure. These three areas will all receive extra support in the Budget.

We know from looking at advanced economies like Germany, South Korea, Japan and Singapore that the best investments you can make in the future of your economy are in science, skills and infrastructure.

So much else flows from there.

If we’ve got the investment in science, strong and resilient infrastructure – and a skilled workforce to carry all this out – then that supports every area of the economy – agriculture, manufacturing, tourism, SMEs. It’s how we can make the greatest gains in growth and productivity.

As a former Education Minister it will be no surprise that skills is top of that list for me.

In recent weeks the Government has put in a place a range of measures to better support the teaching of maths and literacy. We’re adding 320 teachers across years 4-8, where studies show we are seeing decreases in outcomes

We’ve also put on hold a number of changes to NCEA and the curriculum in order for schools to focus on bedding in maths and literacy teaching.

I know skills is a huge issue for business and this is an area we are keen to partner with you.

Education is the single biggest way that people can change their lives and outcomes. In New Zealand it has been the bedrock of our egalitarian society, the great equaliser providing the same opportunities to both rich and poor.

I’m not sure that aspiration holds true these days to the same extent it once did, which is why investment in skills and trades training has been such a focus for the Government over recent years and will continue to be going forward.

Likewise we must do more on infrastructure. I know that is a massive issue here in Auckland, especially around transport.

When we came into office, we inherited infrastructure investment which had averaged just under $5 billion a year under the previous Government. It simply wasn’t enough and explains the deficit we are experiencing now.

We boosted infrastructure investment in our first five years to an average of nearly $9 billion a year, and the Treasury estimates that infrastructure investment from 2023 to 2027 will average more than $12.5 billion.

That’s before the cyclone is taken into account.

Infrastructure will be a big focus in this year’s Budget not only due to the ongoing need to build hospitals and schools for a growing population, but also to rebuild and strengthen following Cyclone Gabrielle.

While the primary focus will be on rebuilding the regions that have suffered the most, the cyclone has also made us more aware of risks in other parts of the country across our transport network – I bet that there will be more talk about culverts and Bailey Bridges over the next few months than this country has ever heard.

So, in conclusion.

• This will be a no-frills Budget, as befits the times we are in. It’s about getting the basics right.
• There will be a strong focus on the cost of living and cyclone recovery because those are the most important challenges we face as a country.
• We’re not going to rock the boat by introducing major new taxes like a wealth tax or capital gains tax or a new cyclone levy in the Budget. I’ve made that absolutely clear today.
• And the Budget will lay foundations for the future through investments in skills, science and infrastructure.

I’m really energised by this Budget and the opportunities it will create for the economy and relief it will provide to Kiwi households.

Our job as Government is to provide support, security and hope. This Budget will do that and it is a mission I look forward to advancing alongside all of you.

Thank you.