By Jenée Tibshraeny & Stephen Forbes
The Government is planning a major overhaul of polytechnics and the wider skills training sector in a bid to plug skills shortages hamstringing the economy.
Prime Minister Jacinda Ardern made the announcement in her first major economic speech for 2019, delivered at a BusinessNZ breakfast in Auckland this morning (Friday).
She said Education Minister Chris Hipkins would soon release a “far-reaching” discussion document outlining reform options to raise the status of vocational training as a career and better align the sector with what businesses need.
Ardern questioned how at a time the country faces a critical skills shortage, polytechnics and institutes of technology are in many cases going broke.
“Over the last two years this Government has been forced to spend $100 million to bail out four polytechnics, and that is a pattern that started before we took office," she said.
“We need to move away from the cycle that sees course delivery at institutes boom when the economic cycle turns down and then dive when the economy improves, while on-the-job training providers face the opposite cycle."
Ardern didn't elaborate on exactly how the Government intended to improve the sector, but said she wanted to see institutions "expand their course delivery throughout the country".
National's spokesperson for Tertiary Education, Skills and Employment Shane Reti said industry sourecs had told him the review would include a proposal to centralise some of the functions polytechnics carry out, forcing some to amalgamate into regional hub type structures.
Economic growth warning
The underlying message of Ardern’s speech more broadly was that New Zealand needs to be “realistic” about the effect a global economic slowdown would have on domestic growth.
Pointing out the “strong fundamentals” of the domestic economy, she said the low business confidence she last year dubbed the “elephant in the room” at a similar business breakfast was shrinking a little.
“Perhaps it got to know its company and decided it wasn’t quite as scary as it first thought," Ardern said.
“But there is a shift in mood globally. While global economic growth remains strong, it is beginning to slow.
“The IMF is projecting worldwide growth to ease from 3.7% in 2018 to 3.5% in 2019 due to rising trade tensions, political uncertainty and less stimulatory monetary and fiscal policy.”
Ardern said growth in New Zealand was “relatively strong” at around 3%. She said that being forecast to stay close to that level in coming years, things looked OK compared to the IMF forecasting average growth in advanced economics to be about 2% a year.
“The finger of blame for the slowdown in global trade growth is generally pointed at countries pursuing increasingly protectionist policies, which are naturally affecting confidence and investment plans.
“Trade tensions in the wake of tariffs imposed by the US on Chinese imports dented the strong growth seen in 2017. And the worry for us is that further reductions in Chinese exports could cause a material slowdown in its economy, with adverse effects for New Zealand exporters.
“And then there is Brexit...
“Expanding free trade with other countries can provide our economy with a buffer against a downturn in any of our markets.
“In particular we will seek to conclude a high quality agreement with the EU, as well as establishing the benchmark for a high quality model agreement with the UK."
The crux of Ardern's message was: "Now is then the time to take the foundations we have and to build on them. Now is the time to ensure we not only build greater resilience into our economy, but that we modernise it too."
In addition to a focus on trade and vocational training, she said the Government’s economic plan included the following:
- Changes to tax to make the system fairer
- Addressing our long-term infrastructure challenges
- Transitioning to a sustainable carbon-neutral economy
- Investment in wellbeing, because this is inextricably linked to our economic success too.
Q&A touches on tax, immigration, services, trade & strikes
After concluding her speech the Prime Minister took questions from the audience. Barfoot and Thompson director Kiri Barfoot asked the PM if taxing multinationals was a priority for the Government.
“The OECD has been talking for some time about the tax avoidance of multinationals,” Ardern said.
She said it would be discussed again at its next meeting in June and it’s an important issue which has global ramifications. Ardern said while there was still a lot of debate globally about the best way to tackle tax avoidance the government is keen to address it.
“You will see us saying more on this in the coming months and it was a major theme in the Tax Working Group.”
BusinessNZ’s Phil Love then asked Ardern about what she thought was the right balance for the Government’s immigration policy. She said New Zealand’s immigration levels had reached a peak of over 60,000 and there hadn’t been enough preparation by the previous government to deal with the pressures that put on infrastructure and housing.
“I won’t put a number on it. But I don’t think we had that number right in the last couple of years.”
Beca chief executive Greg Lowe asked Ardern if she thought the country’s services sector should receive more focus from government as part of its trade strategy. Ardern agreed it was an area for potential growth.
“We have a huge opportunity to explore our services and not just be known as the food bowl of the world.”
Ardern then invited Trade Minister David Parker to elaborate.
“In terms of services I agree with you and we recognise we can do better,” Parker said.
He said he has recently had talks with the Australian Government about the mutual recognition of qualifications between the two countries which would allow for greater opportunities for the services sector.
There was also a question from Johnson and Johnson general manager Juliet Hull about the disruption to medical services caused by the nurses’ and junior doctors’ strikes.
Ardern said when the Government came into office in 2017 it inherited a number of problems in the health sector, including the industrial action by the nurses. She said at no time have strikes affected the delivery of important medical services. In referring to the junior doctors strike Ardern said it was a reasonably complicated situation, where one union representing doctors had settled while another hadn’t.
“But it’s not the same level of disruption as you’ve stated. Our health services needed investment when we came into office.”
Here is the full text of Ardern's speech:
Good morning everyone.
I want to start by thanking Kirk and his Business New Zealand team for the invitation.
It’s good to have this opportunity to join you as another year starts.
While this is my first economic speech of 2019 here at home, there has been plenty happening internationally since the year kicked off. I want to reflect on some of that this morning, but before I do, I’d like to take stock of our economic and business landscape, set out some of the challenges we face here and in an international context, and then outline our Government’s plan to address those over the coming year.
First though, I want to take a moment to reflect on the events in Tasman. Twelve months after facing a cyclone, the rain in Tasman has been replaced with a fire that when I visited yesterday, was 22km in parameter, and covered 1900 hectares. It has led to the evacuation of hundreds of homes, and roughly 400 people.
I have been in regular contact with our civil defence team, and evacuations are still happening as they try to predict where the wind movement may take the fire, all the while creating a parameter around it and using fire retardant to try and contain it from spreading across an area that is bone dry, and surrounded by forestry.
I spoke to a few people who had been evacuated yesterday. They told me what it was like to evacuate with only a few hours warning. But they didn’t dwell on that.
Mostly they reflected back to me the amazing work being done by emergency services, MPI, council, civil defence and others. So many who I met yesterday were volunteers. One of the coordinators of the many helicopters hauling water over the fire for eleven hours at a time was from Feilding and had travelled through the night to get there. He also happened to be colleagues with my first cousin – it was a true New Zealand moment.
Situations like this always reinforce to me something that you will intuitively know, we are a nation of extraordinary people. And I don’t separate out situations like this as being a one off example of who we are. The traits we have as a nation are there 24/7, and in many fields of work.
You see it in our social sector, our business community, and in our young and older citizens. The trick is to remember that, and for us as Government to bring together the many groups who want to tackle the big challenges we face regardless of which sector of our society that they may work within. We are not a nation of discrete compartments, so we should be facing our challenges together.
And when it comes to the economy, and the business environment, there are challenges.
There are also good reasons for us to be optimistic though.
Last year I talked about the elephant in the room. Pleasingly, the elephant has gotten a little bit smaller in the past 12 months. Perhaps it got to know its company and decided it wasn’t quite as scary as it first thought…
Either way, it’s pleasing progress and it is based on some strong fundamentals.
- Yesterday’s employment data showed wages are growing and unemployment is at 4.3%, the second lowest in a decade. The lowest was of course last quarter, and we are confident that we’ll reach our 4% target by the end of our term.
- Growth is relatively strong at around 3% and is forecast to stay close to that level in coming years. That looks particularly strong when compared to the IMF’s recently released forecasts for advanced economies that predicts average growth of about 2% a year.
- Inflation is tracking at 1.9%, and food price inflation remains low.
- And it is encouraging that one of the Big Three rating agencies recently gave our economic and financial management the thumbs up. Standards & Poor’s have revised its outlook on New Zealand’s AA foreign and AA+ local currency credit ratings from ‘stable’ to ‘positive’ – its strongest verdict on New Zealand since September 2011.
- The latest Crown financial statements, released just yesterday, show that core Crown revenue and expenses are in decent shape and delivering a better than budgeted surplus. Running surpluses of course gives us the room to make important capital investments while keeping debt under control and importantly provides a buffer against external shocks and international headwinds.
As you can see, on key economic measures the Government is delivering. There is good cause for the elephant shrinking.
But there is a shift in mood globally. While global economic growth remains strong, it is beginning to slow.
The IMF is projecting worldwide growth to ease from 3.7% in 2018 to 3.5% in 2019 due to rising trade tensions, political uncertainty and less stimulatory monetary and fiscal policy.
As I mentioned earlier, advanced economies are forecast to grow at only 2% a year.
The finger of blame for the slowdown in global trade growth is generally pointed at countries pursuing increasingly protectionist policies, which are naturally affecting confidence and investment plans.
Trade tensions in the wake of tariffs imposed by the US on Chinese imports dented the strong growth seen in 2017. And the worry for us is that further reductions in Chinese exports could cause a material slowdown in its economy, with adverse effects for New Zealand exporters.
And then there is Brexit.
As all of you will have no doubt seen, the final form of Britain’s exit from the European Union is yet to be decided.
Clearly, the risk of a no-deal scenario remains high. There is a lot of uncertainty around what such a scenario would mean, and while we are doing our best to create a buffer through, for instance, our recently signed mutual recognition agreement, a no deal Brexit could still do harm to EU economies or disrupt financial markets.
Political tensions are beginning to present serious risks to international institutions and the rules-based order that we rely on for security and prosperity. The World Trade Organisation, for example, and other multilateral organisations, are facing challenges to their legitimacy that undermine their effectiveness.
At Davos, a significant conversation revolved around how we could ensure the reform of these institutions, whilst not seeing them blamed for the current political environment which, ultimately, they didn’t cause.
But where does all of that leave a country like New Zealand? We have strong fundamentals and are well prepared, but we need to be realistic that if the global economy slows, it will affect our economic growth.
Now is then the time to take the foundations we have and to build on them. Now is the time to ensure we not only build greater resilience into our economy, but that we modernise it too.
This is a message that we have been sharing for some time, but that I recently heard reinforced by the IMF executive director Christine Lagarde.
We were at APEC in Papua New Guinea when I first heard her reiterate the message that policymakers need to make greater efforts to prepare for the slowdown, and that is a message we are heeding.
That’s why our economic plan includes the following key planks:
Doubling down on trade and broadening our trading base to protect our exporters and economy
- Reform of skills and trade training to address long-term labour shortages and productivity gaps in the New Zealand economy, and to make sure we are prepared for ongoing automation and the future of work
- Changes to tax to make the system fairer
- Addressing our long-term infrastructure challenges
- Transitioning to a sustainable carbon-neutral economy
- And of course investment in wellbeing, because this is inextricably linked to our economic success too.
On trade, our experiences in the 1970s and early 1980s taught us there are no winners in trade protectionism.
By taking an active role in WTO reform efforts and by committing ourselves to diversifying our export markets through new and upgraded free trade agreements, we are strengthening our safety net.
At all the international forums I have spoken at in the last year I have made the case for the retention of an international rules-based trading system. I believe it’s incredibly important that we continue to be a leading voice on this, in order to retain a system that allows New Zealand exporters fair access to international markets.
With the CPTPP coming into force, 65% of our exports are now covered by FTA preferences which buttress and build on the WTO disciplines.
The Pacific Alliance and RCEP are making steady progress.
The upgrade of our agreement with China is ongoing and we are about to commence the same negotiations with ASEAN.
But a top trade priority this year is a positive conclusion to the EU free trade negotiations and the launch of free trade talks with the UK in the event of Brexit occurring.
On my recent trip to Europe I received assurances from the EU leadership of their desire to conclude an agreement by the end of this year. It’s an ambitious plan, and one we will pursue whilst also being mindful of getting a quality deal.
In the UK, Prime Minister Theresa May expressed her desire for New Zealand to be amongst the first nations they negotiate with, and for our part we made the case that given New Zealand’s expertise in this space we would make a logical partner to establish a benchmark for a high quality model agreement for the UK.
As importantly as the political assurances I received we also got positive backing from leading British business leaders for a high quality free trade deal as soon as practical after Brexit.
And at home, we are working to rebuild the social licence for trade. The Trade for All Advisory Board will continue meeting this year to look at how our trade policy works with other economic policy to deliver the benefits of trade to all New Zealanders.
Through this combination of trade and foreign policy initiatives we will strengthen our resilience to the risks we face from the uncertain global economy.
Of course it is not just in the international scene that our economy faces challenges.
Domestically we are seeing both short and longer-term issues that could constrain economic growth if left unaddressed.
Education and training
One such issue that the Government has big plans for in 2019 is around skills training.
Whenever I talk to business I hear a recurring theme around skills training and the gap between what business needs and what our training organisations provide.
Businesses are facing a constant struggle finding the people with the right skills at the right time to do the jobs that need to be done. Many of you here today have spoken to me about this issue.
In the past our economy has been too reliant on buying skills through immigration. Immigration is vital, but we need to get the balance right. I want us to focus on how we can be better at growing the skills our economy needs.
Without change, the challenge for businesses and Government is only going to increase.
We know the future of work will look very different than it does today.
A future when, by some estimates, a full one third of jobs in New Zealand are likely to be significantly affected by automation. That’s a million jobs.
For us as a government and you as a business community we cannot afford to let the skills gap continue to drift.
We need to act now.
The Coalition Government has already taken steps to make post-school education and training more accessible, with our fees free programme, which provides 2 years of free industry training and apprenticeships, or one year of free tertiary education.
We also announced changes to allow greater use of micro-credentials to ensure our system is more accessible and responsive to business needs.
My Business Advisory Council has also set skills as one of its key priorities. One of the ideas it has put forward which we are working through is how business themselves can take the lead in committing to reskilling their workforces.
The Government has also done some deep thinking on reforms that are urgently needed to the vocational education system.
The Minister of Education will next week announce proposals for consultation. They are far reaching. But we firmly believe they must be.
We currently have a vocational education system that is in many cases, struggling.
Take the building sector for example. We know we need more tradies and they are just not coming through fast enough.
That’s absolutely no reflection of the people who are involved in the sector – far from it. What it is, is a damning statement that the system has been left to drift, to muddle through.
How is it, for example, that at a time when we’re facing critical skill shortages, our polytechnics and institutes of technology are in many cases going broke?
Over the last two years this Government has been forced to spend $100 million to bail out four polytechnics, and that is a pattern that started before we took office.
That is not the sign of a healthy and sustainable sector.
We need to move away from the cycle that sees course delivery at institutes boom when the economic cycle turns down and then dive when the economy improves, while on-the-job training providers face the opposite cycle.
Instead of our regional polytechnics and institutes of technology retrenching, cutting programmes, and closing campuses, we need them to expand their course delivery throughout the country.
We want a sector that meets the needs of our economy. But the current system faces three major structural issues we need to fix.
It is not well coordinated or integrated. It is not easy for business to engage with and it delivers variable results across the country.
We have a duplication of courses and lack of consistency across the sector.
Many of the institutes face an issue of scale and insufficient capital to grow and respond. All of this is unsustainable.
Here is our vision – I want the vocational training system to be the backbone of our productive economy, and of our regions. I want students and parents to proudly choose a career in the trades and I want businesses to have confidence that the system is flexible and preparing a workforce for the future of work.
We need a model where businesses, iwi and local government in every region play an active role in driving skills development. We need a system of training and skills development that is more flexible and more nimble so we can get people with the rights skills into the right jobs much faster.
As I mentioned, we will be putting out some significant ideas in this area in coming weeks. Alongside our education sector, you have a crucial role to play in this matter and I do look forward to hearing your response to what will be some big new ideas.
But we haven’t just looked to the education sector to upskill our workforce, we have also looked for ideas to support you directly.
We are providing assistance in this regard through the Mana in Mahi training initiative, which provides a wage subsidy to businesses who employ as apprentices young New Zealanders who have been on a benefit for six months or more.
This policy is constructive for both businesses and workers, linking employers who need labour with young people in need of a career path.
I’ve met some of the young people in programmes like Mana in Mahi and He Poutama Rangatahi. They are our best salespeople for these types of initiatives.
Recently in Kaikohe a young woman told me all her friends want to join the course she was on. She is learning and earning and it was, in her own words, better than the street. Especially since she had become a supervisor.
Building a sustainable economy
In addition to skills the Government will use 2019 to contend with bigger, longer-term trends that will have a transformational affect on our economy.
As I have said before, climate change is the defining issue of my generation.
We know that we all have to adapt now to avoid catastrophe for the generations to come.
We have a plan for a just transition to a low-emissions economy based on a more sustainable growth model. We want to ensure that this transition is phased and signalled early to give businesses and workers certainty and flexibility.
The Government will soon announce plans for legislation to establish an enduring institutional framework for managing the long-term transition to a low-emissions economy.
This legislation will contain legally binding emissions’ reduction targets and it will see the establishment of an independent Climate Change Commission, which will recommend emissions reduction budgets and provide advice on policy development and initiatives in transport, energy and primary industries.
The Government’s Just Transition work programme will assist New Zealand to successfully transition to a low-emissions economy.
The work programme includes looking at energy, regional economic development and workforce planning. It has a strong connection to education and skills development to create new jobs.
A Just Transition Summit in May this year will kick-start a national conversation about what the Just Transition means for New Zealand.
But it won’t just be a local conversation. We will be testing ideas that the world is interested in too. The conversations I had in bilateral meetings and conferences increasingly demonstrated to me that the world is not only looking for ideas, it is hunting for them. And New Zealand is on its list.
We recently announced a $100 million capital injection to New Zealand Green Investment Finance Ltd to stimulate new private sector investment in low-emissions industries. More and more investment dollars globally are looking for clean, sustainable ventures to invest in.
New Zealand Green Investment Finance Ltd positions New Zealand to attract its share of that investment capital, and will provide businesses with a pathway to being part of efforts to confront the greatest challenge facing the planet.
Another issue currently confronting the Government is inequality, and our commitment to bring fairness into our tax system.
We have long foreshadowed that we will deliver this year a response to the Tax Working Group.
There has been a lot of speculation on this topic of late, some of it feverish and not always accurate.
But my message to you this morning is succinct.
Yes, we have received the report of the Tax Working Group and, as we have shared publicly, it will be released on Thursday 21 February.
That report is now being pored over by officials, and discussed with Coalition and Confidence and Supply partners. Our plan is for the Finance and Revenue ministers to release the Coalition Government’s full response to the report in April.
Importantly though, the Working Group’s report will be shared with the public. There will be time for everyone to see that work, to debate what they have said and to share views. Anything we subsequently decide will also go through a consultation process before legislation and ultimately will be put to voters at the next election before it comes into force.
As we enter into a period of discussion and debate, I hope it’s guided by the overriding goal of fairness, and building an economy and system that works in the best interest of New Zealand and its people.
The Wellbeing budget
Finally though, a few words on what has become a significant topic of debate and discussion internationally. In fact I saw just yesterday the issue of wellbeing economics being discussed in a Swedish newspaper. I can’t tell you what it said but I am sure it was eminently sensible.
Our starting point for the Wellbeing Budget is that while economic growth is important, it alone does not guarantee improvements to New Zealanders’ living standards.
We want to take a much broader approach that uses the full range of factors that affect the quality of people’s lives.
So there will be measures that track the progress of our country based on what enables people to live fulfilling lives – things like material wealth; our capability as individuals, families and communities; and the health of our environment, such as the cleanliness of rivers.
We can all agree that New Zealand has seen solid rates of GDP growth over the past few years, and of course no one is suggesting we get rid of this indicator. But we also need to ask questions about the quality of that growth. An everyday New Zealander - hearing of the “rock star economy” while their housing costs are skyrocketing, or they can’t afford to send their kids to school with a proper lunch or their mental health is strained - tends to have their faith in the system and in institutions undermined.
So embedding wellbeing will require us to shift to a wider definition of success for our country, one that incorporates not just the health of our finances but also our natural resources, people, and communities.
It will represent a shift away from government departments thinking of their Budget bids in terms of their own appropriations, towards a focus on the outcomes they can achieve in collaboration with others.
All Ministers and departments have been asked to consider what they can contribute to the delivery of each of the Budget priorities.
This in itself is different and was the source of great interest when I was at Davos.
While deep reform will take time, the Government has already made significant strides. Treasury has created the Living Standards Framework, we are reforming the way the state sector works to give effect to a more collaborative way of working, and we will amend the Public Finance Act so that priorities around wellbeing are set each Budget. We are giving effect to the new approach in this year’s Budget.
The five Budget priorities this year are:
- To create opportunities for transitioning to a sustainable low emissions economy;
- Lifting Maori and Pacific incomes and opportunities;
- Supporting a thriving nation in the digital age through innovation;
- Reducing child poverty, improving child and youth wellbeing, including addressing family violence; and
- Supporting mental wellbeing for all New Zealanders, particularly those under 24.
In Davos the OECD Secretary General advised the Finance Minister and me that they would be reviewing the Government’s wellbeing approach and Budget in their country review this year, an indication of how closely the rest of the world is looking at this new model and what it can offer other countries.
The Wellbeing Budget is not only about improving the livelihoods of New Zealanders, it is key to ensuring we are protected from the international headwinds the economy may face. It will ensure that those closest to the margins are protected and that no one is left behind.
I want to conclude today by affirming the Government’s strong desire to continue partnering with business wherever we can. We will be using forums such as the Small Business Council, the Future of Work Tripartite Forum and my own Business Advisory Council to develop and test initiatives that can help improve business productivity and workers’ wellbeing. But more than that, to continue to work together.
As a country we face challenges on a number of fronts, but in these challenges the Government sees opportunities to build a more resilient economy and I know we are not alone in that.
By diversifying our trade opportunities, upskilling workers, leading the transition to a low carbon economy, ensuring fairness in the tax system and delivering our Wellbeing Budget we have a clear plan that will protect and improve the wellbeing of our people, our businesses, our communities and our environment.
I look forward to working with all of you in delivering on this in 2019. And perhaps along the way that elephant might keep getting a little bit smaller.