Big retrenchment ahead, warns P.M.

Press, 14 January 1986, Page 2

Big retrenchment ahead, warns P.M.

By

SIMON LOUISSON

An economic slow-down is expected, necessary and temporary, and things will worsen in 1986 before they improve, the Prime Minister, Mr Lange, told the Whakatane West Rotary Club in his New Year address.

Speaking in the town where N.Z. Forest Products is negotiating 200 redundancies on the closing of its saw mill, Mr Lange said that if New Zealand was to achieve sustainable economic growth then a period of retrenchment and regrouping was unavoidable. He predicted a significant fall in private consumption, a fall-off in house building, and a contraction of the economy generally in the year to March, 1987. While he expects export growth to be positive it will be slower than in the last few years. Overriding all will be “genuine uncertainty” about the economic slow-down which may be shorter than expected, if, for example, a lower exchange rate were maintained.

Mr Lange said that only the timing of the economic pain of slower job growth, and a poorer balance-of-payments position was uncertain. The slow-down had been expected earlier which meant interest, inflation, and exchange rates had held up longer than anyone could have foreseen.

He spoke of the Government’s three most pressing preoccupations — social policy and the distribution of income, the future of farming, and employment.

The Government’s function was to ensure that the economy worked for the good of the community, and that laws, attitudes, and services reflected New Zealand as it ought to be, not as it was.

Mr Lange reaffirmed the Government’s commitment to a firm fiscal policy and monetary stance and hinted

that deregulation of the economy would be extended into areas of the public sector. The Government would maintain pressure on the more protected areas of the economy to bring them into a “more open environment,” he said. The economy had to be brought out of its straitjacket and the public sector become more responsive to the society it served. Mr Lange said New Zealand was spending more and achieving less in social welfare. He said there was a danger of developing a “poor-law mentality.” He rejected a system which stigmatised welfare, saying that there used to be a welfare State for farming, industry, and business. To put money or services in the hands of those who needed them was not the function of the tax system, he said.

Mr Lange announced that a Royal commission would be established to consider the principles and philosophy of social policy and how welfare principles could be actioned. In addition, two task forces would start work this month to look at the fairness and efficiency of present welfare.

Mr Lange attacked subsidies as a means of relieving farmers of their plight. He said his Government’s measures would result in a more realistic farm debt structure and a lowering of the over-all cost structure on and off the farm. The result would be a farm sector which was genuinely productive. Mr Lange admitted that any reduction in farm incomes would flow through to service towns and so affect employment, a top Labour priority. “The Government’s enduring difficulty lies in the certainty that massive intervention to maintain farm incomes or reduce regional unemployment will sink us back into the swamp of control and subsidy which

would in the end absolutely defeat the aspirations of us all.”

On a brighter note he expects jobs lost in 1986 to be only a fraction of those created in 1985.

Mr Lange challenged the unions not just to look after the interests of those in work. Reorganisation of the labour market would be thoroughly looked at this year, particularly the national award system. He raised the questions of whether the Government should provide the framework which determines who belongs to a union and which one it is, places limits on strikes and lockouts, subsidises the bargaining process, and provides procedures for settling disputes. On health, Mr Lange said that money spent in the public sector must take precedence over private initiatives.

He closed his address with comments on the subject of race relations, which he said could be endangered in times of economic stress. He called for tolerance, which he said was one of New Zealand’s hallmarks.