Copeland Gordon: Address in Reply 
Copeland Gordon: Address in Reply 
[Volume:628;Page:368] 
GORDON COPELAND (United Future) 
: 
 I am going to talk tonight about productivity. Buried in the Speech from the Throne—we are now in the Address in Reply debate to that speech—there is a reference to the confidence and supply agreement between the Labour Party and United Future. I will quote from that agreement. It states: “The Labour-led Government has agreed during this term of Parliament to adopt and implement the following broad principles policies and priorities advanced by United Future … a review of the current business taxation regimes with the view of ensuring the system works to give better incentives for productivity gains and improved competitiveness with Australia.” 
The reference to improved competitiveness with Australia takes us immediately to the question of the corporate tax rate. Australia’s rate is currently 30 percent; ours is 33 percent. It is interesting to look back at the position the various parties held in relation to the company tax rate during the election campaign. Labour’s was straightforward: no way it is not going to happen. The Greens’ was straightforward: no way it is not going to happen. National’s was: well maybe but not until 2008. New Zealand First’s was a 20 percent tax rate on profits derived from increasing exports. Jim Anderton’s Progressive was to cut the rate now and to 30 percent. The Maori Party’s was also to cut the rate now—I must say that that came from Monty Ohia and I am not too sure what rate he was referring to; we might be enlightened on that later. ACT’s was to cut the rate to 25 percent. United Future’s was to cut the rate now to 30 percent provide a 2-year tax holiday for new business start-ups and pay a 1 percent commission on net GST collectable up to the first $200000 per annum. 
Rodney Hide 
: Yeah what happened to that? 
GORDON COPELAND 
: It is in the agreement. It is going to happen. 
Therefore the fact that all four parties in the unlikely alliance of Jim Anderton’s Progressive on the extreme left the ACT party on the extreme right and the Maori Party and United Future in the middle are calling for immediate tax cuts actually means we will make some progress in this Parliament due to our presence here. We might have had fairly small pickings in the election result but that particular policy of those small parties will now be picked up and advanced by this Parliament. I invite the National Party—because Labour has wisely come to the conclusion that this needs to happen—to also decide it should happen and happen fast. I invite that party tonight to put its shoulder to the wheel and make sure that New Zealand companies get a reduction in their tax rate as soon as possible. 
There is of course a direct relationship between a lower tax rate and productivity gains. If we think it through we come to the conclusion that a lower tax rate for companies will incentivise companies to retain more of their profit within the company which will lower the cost of capital and give them more funds to invest especially when compared with the personal income tax rate of 33c or 39c. That will give a spur to additional investment and therefore to additional productivity. 
Productivity emerges very strongly in the OECD’s employment statistics for 2005 and those statistics are not encouraging with regard to New Zealand’s performance. New Zealand now has the highest workforce participation rate of any OECD nation. We work longer hours than the OECD average but our productivity per worker is just US$26.40 per hour compared with the OECD average of US$34 an hour which is also the productivity rate for Australia. In other words we are significantly off the pace in terms of productivity per worker compared with that average and compared with Australia. More worrying however is the productivity trend in New Zealand compared with our major competitors. Over the 14-year period 1990 to 2004 the annual compound productivity growth rate for New Zealand was just 1.2 percent per annum compared with 2.2 percent in Australia and 2.6 percent in the United Kingdom. There in a nutshell we have the reason why those two countries have long since passed our standard of living. I remember that when I was younger on a per capita basis we were actually the third wealthiest country on the planet. We are now down to 24th. Australia and the United Kingdom were quite some distance behind us in 1972; now they are way in front of us. In essence that is the reason why the standard of living for New Zealand has declined during that period relative to the other countries I have mentioned. 
I therefore want to outline tonight some immediate steps that New Zealand needs to—and indeed must—take to increase productivity. Firstly we need to take the message that productivity should now be a key priority to the hundreds of thousands of farms and businesses large and small in New Zealand. Secondly we need to involve the unions in a new strategy that would link wage rates directly to productivity gains. That is what they did in Australia in the early 1990s and that is what has made the difference between our two countries since then. It is very important that that message be accepted by unions and other employee representatives of this country. It is also very important that companies themselves—the employers—make that link. I know for example of some instances where companies have used new technology; they have put in good mechanical systems made investments and increased productivity. At the same time as the result of all that happening they have downsized their workforces but they have failed to deliver any appreciable wage increase to the remaining staff members. 
I believe that that mentality needs to change and needs to change fast. Simply stated both business employers and their employees need to agree that the objective for the foreseeable future needs to be productivity growth followed by real wage growth. That will be followed of course by a higher standard of living for all New Zealanders. It is the only way forward. It is the only way we will return to First World standards in terms of health and education for our country. It is fundamental to our future progress and that point was made very eloquently in the Speech from the Throne. 
In addition the Government needs to do its part. The Allen report tells us that Auckland roading congestion is costing the economy there $1 billion per annum and the figure for Wellington was put at $150 million per annum although both figures are now somewhat out of date. If we put them together we see that the decongestion of roading in those two cities alone would yield immediate productivity gains in the order of $1.25 billion per annum. Why do we not just get on and do it? If we need to speed it up why do we not borrow the funds to do it? There is no reason why not. Productivity gains actually give us the cash flow and the tax revenue to repay such a loan and on this issue Dr Michael Cullen is adopting a completely unorthodox approach to roading by insisting that it must be paid for from current revenue. The orthodox approach to any investment of that sort is to borrow the money and repay it over 30 years and I make a plea tonight that he adopt such a policy forthwith. 
Let us also talk about compliance costs. We need reform desperately in this area. I put it to the House that we need a task force or similar to objectively examine the compliance cost burden on New Zealand businesses. It could be a cross-party task force—it does not matter just let us get the job done—and we should follow that with a razor gang to bring legislation to Parliament that would cut red tape and bureaucracy across the board. We have lumbered New Zealand business with so much in terms of compliance costs that many companies have become risk-averse which is the very thing that will kill productivity growth and prosperity. Boards of directors now tell me they spend a lot of their time on governance matters trying to adhere to all the regulation we have heaped on them to the exclusion of traditional entrepreneurial risk-taking and growth. That is a tragedy for New Zealand business and New Zealand farmers. 
Paying GST is an example. It has nothing to do with the essence of running a business—businesses are simply unpaid tax collectors for the Government. We should recognise that I believe by giving them a 1 percent commission on the GST they collect up to $200000 a year. 
Productivity is the silver bullet that will deliver rapid economic growth without inflation. This point has been made repeatedly by Dr Alan Bollard the Governor of the Reserve Bank. It is the silver bullet. If we get productivity gains we can have growth without inflation. That has been done in the USA the UK and Australia so why not in New Zealand? All of us in this Parliament should resolve to make this a priority for the next 3 years and I again invite all parties to cooperate fully with the review initiated by the Minister of Revenue the Rt Hon Peter Dunne—I should say the Hon Peter Dunne as he is not yet a Privy Counsellor; that is tomorrow’s announcement I think—so that we can start to move our nation in the right direction for the benefit of all its citizens.