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This morning I intend to discuss social policy issues, an area of reform New Zealand has hardly begun. Before doing so, I will outline some economic changes we made.

For those of you who are coming fresh to the changes in New Zealand, I suggest you should not attempt to absorb the details of every change. Instead I suggest you focus on the comprehensiveness of the change and the consistency that underlines the type of change.

Border protection had been intended to permit the growth of viable domestic industry. Instead, the main effect was to reduce the range of goods available and to push up prices. The consequence of this was to reduce New Zealand’s competitiveness and so reduce our participation in world trade.

• Free trade agreement between New Zealand and Australia

• Removal of import licensing mid-1980s

• Reduction in tariffs was due to be totally eliminated by 2003 but a Labour Government has put them on hold

In order to compensate for increased domestic costs as a result of border protection, we had developed a growing range of subsidies and guarantees to assist exporters. These subsidies had even extended to the farming area, income support and import subsidies.

• Removed Regulations on Prices and Incomes

• Abolished farm subsidies ($1-$3)

• Removed tax concessions to exporters

• Removed all export guarantees

• Removed low interest loans

Now both farming and manufacturing are growing in New Zealand based entirely on world prices.

• Abolished sales taxes so that all goods would be taxed on the same basis in future.

• Introduced a goods and services tax (our VAT) at a single rate on all products (except financial services).

• Reduced top marginal tax rate (66c - 33c).

• Company and personal tax rates aligned.

• Old depreciation regime that offered favouritism for some industries now gone.

There have been a number of important changes in the area of transport and communications.

• Old protection for Railways removed (40-mile limit on all other forms removed).

• Ports deregulated and corporatised.

• Air New Zealand’s domestic monopolies removed with competition from Australian

• airlines.

• Air New Zealand privatised.

• Competitive tendering for bus routes

• Open entry for taxis (no licence)

• Telecom New Zealand sold - prices down - connections 1 day not 1 month

• Ministry of Works - corporatised, then privatised.

• Television and radio spectrum - auctioned to highest bidder.

• Government Printer sold (departments now buy from whoever they wish).

In many countries of the world there are regulators who closely scrutiny the activities of various monopoly or dominant providers of services.

They are supposed to understand the operations of these providers and to prevent them manipulating the market. However, in New Zealand we have no such regulators. Instead, we rely on the threat of possible competition protected by standard market entry provisions to control the monopolist.

The Government has not privatised any industry without first ensuring that there will be contestability (or hopefully actual competition) for that market. It is this contestability which the government relies on as the main means of preventing excess price rises.

All industry and commercial activity is regulated under the Commerce Act. This gives the Commerce Commission the power to enquire into monopolies and to prevent mergers that could establish a dominant market position.

So far this reliance on an overall market test appears to be working satisfactorily. The principle evidence for this is the decline in real prices across the range of previously government-controlled industries and the improvement of competitiveness of New Zealand providers in virtually all sectors of the economy.

• Control on entry to financial markets was removed, now -

• Any Bank that can demonstrate soundness can get a licence in New Zealand

• Removed formal controls on Banks and financial intermediaries (e.g. specific ratio sector investments).

• A devaluation followed by removal of Exchange Controls.

• Inflation goal was 0-2%, now 0-3% - a public contract between Minister of Finance and the Governor of the Reserve Bank spells this out.

• Operational independence to Reserve Bank to achieve targets.

• Flatter tax scale.

• Reduced Welfare Benefits [targeted to those in need].

• Tighter Social Welfare eligibility rules.

• Education and training for unemployed.

• Industrial Relations Law Reform.

For many people government management is a fairly esoteric subject which is not considered to be at the heart of economic management. In New Zealand we take the opposite view. We consider that it is impossible to construct an efficient economic process if the largest player in the economy is inefficient. Government expenditure in New Zealand accounts for over 30% of GDP. It is impossible for exporters to maintain international competitiveness if the government services that they need are provided on an inefficient basis.

It is fundamental that the Government must continue to review all spending to ensure that unnecessary programmes are removed. That is a well-understood policy approach world-wide.

In New Zealand we have taken a stronger stance and have said it is also critically important that the processes of management and accountability are as clear and as straightforward as possible so that the Government can be as efficient as possible.