Parker DavidHon DAVID PARKER (Minister for Economic Development): Thank you Madam Chair. I rise to talk to the economic development part of this debate.I often hear it said by the now Opposition that New Zealand has enjoyed relatively strong economic growth compared with the rest of the world. Their analysis of this is very shallow. It is true that New Zealand has experienced relatively strong total nominal economic growth over recent years which has been bolstered by some very high commodity prices the best terms of trade that we've ever had huge population growth and also an increase in tourism. But when you strip it back that headline growth has been achieved mostly by more people—more inputs—into the economy not with an increase in productivity. And in fact when you strip out population growth New Zealand's productivity record in the last nine years—and actually going further back—has been poor by world standards. That's one of the reasons why in the last few decades the gap between New Zealand's prosperity and Australia's prosperity has grown ever larger because their growth has had at its core more productivity growth than New Zealand's. New Zealand does have a productivity problem.We misallocate capital in New Zealand and one of the problems that this Government has inherited is that far too much money is being invested in speculative asset classes. We see the effects of that in this huge house price inflation and investment housing in Auckland and we see the decrease in the homeownership rate as a consequence. But the flip side of that over-investment in rental housing as an investment class has been that we have been under-investing in our regions and under-investing in the new products and services that we need to grow as new points of comparative advantage in order to export more in the world.In the last nine years the prior Government had an ambition to lift exports from 30 to 40 percent of GDP. In fact they went backwards. After nine years of pursuing that target they went back to 27 percent of the economy. So exports as a percentage of the economy went back—another point of information that proves the failure of the economic growth model of the last Government which was built on more people not more productivity—Hon Dr Nick Smith: Rubbish.Hon DAVID PARKER: Rubbish." Nick Smith says. Well Nick Smith that problem showed up with the million extra cows that were added to the land during your period—a million extra cows with resultant degradation of our waterways and the drop in our exports as a percentage of the economy.To turn this around we need to invest more in our regions and the regional development fund will assist in that. We need to invest more in research and development. New Zealand's private sector research and development spend is much lower than the countries that we like to compare ourselves to and it's one of the reasons why our productivity record is poor.If we're going to—and we will—in this Government improve our economy we will do it by growing new exports by growing more points of comparative advantage. We need to grow the spread of our markets. We need to grow the spread of our products and services that we sell to the rest of the world. As we diversify our markets and diversify our products we will be on the path from volume to value.There are lots of parts to that. Research and development tax credits are coming in the next little while. They were abandoned by the last Government—unwisely—after they'd been introduced by the prior Labour Government. We're going to reintroduce them so as to give some support to the industries that do invest in the research and development that we want them to invest in. There is a good reason for that. Not all of the benefits of the research and development are captured by the firms spending the money. There are spillover benefits to the wider economy that are in the interests of the wider economy and therefore it's justified that you have a tax incentive. The tax review being led by Sir Michael Cullen is an important part of the mix. We need to get the tax signal right so that we're not encouraging the wrong forms of investment. All of this is with a view to lifting New Zealand's export performance and lifting the economic performance so that we all have better jobs and higher incomes."