Annex A: Economic Transformation: Progress, On-Going and Future Initiatives

• A cut in the company tax rate to 30% for the 2008/09 income year;
• A research and development tax credit of 15% of eligible expenditure, planned to commence from 1 April 2008;
• Announcements of the key policy direction for the international tax review; and
• Improved tax treatment of savings vehicles.

Legislation introducing the majority of these changes is currently before FEC.

• Inter-agency development of a framework for evaluating the impact of the R&D tax credit
• Next stages of the International Tax Review involve the release of Officials' Issues Papers outlining key policy design for a tax exemption for active foreign income of Controlled Foreign Companies
  • Officials' Issues Papers will be released around the end of September 2007.
  • Final policy decisions on the key elements of the reform are expected early 2008.

Legislation is expected to be introduced in the first half of 2008.

Monetary and Fiscal Policy is currently the focus of a government-initiated FEC inquiry which includes growth and productivity and how they can be improved. The outcomes of this inquiry may have implications under the Growing Globally Competitive Firms Theme.

• Matched tax credit up to $20 per week.
• Phase-in of compulsory employer matching from 1% in 2008 to 4% in 2011, with offsetting tax credit up to $20 per week.

In November 2006 investment ratios of the VIF Venture Capital Programme were amended in an effort to help fund managers attract private sector capital. The venture capital industry is vulnerable to stagnation unless there is an increase in new investor activity. At this stage the issue is lack of private investment capital, not government investment. Cumulative programme performance to June 2007 includes:

• 37 companies have been invested in
• 16 companies exporting
• 9 companies originated from CRIs & Universities

• Programmes to boost independent equity research on NZ firms
• An integrated finance sector industry body
• Education initiatives to boost capability in the sector.

Officials will report back to the Ministers of Finance and Economic Development in October 2007 (interim) and December 2007 (final).
Public sector discount rate: Treasury is leading a review of the public sector discount rate aimed at identifying an appropriate rate going forward and the impact of a change in the rate on major public sector projects or groups of projects. This may affect the relative weights given to short- and long-term benefits in the assessment of projects. An initial report is due by December 2007.

• Evaluation of NZTE and MED business assistance programmes

Lead: MED.
Contributing: MFAT, NZTE, MoRST, Treasury, SSC, DPMC.

• The "Alignment" Cabinet paper (12 September 2007) outlined suggested priorities (key areas of focus) and a process through which these can be confirmed, refined and given greater specificity.
• Transformational Initiatives Cabinet paper (12 September 2007) proposed the establishment of a mechanism to generate, test and implement major co-ordinated projects with a significant economic impact.

• Report back to Cabinet with final proposals for areas of focus by 31 October 2007.
• Report to Cabinet on mechanisms for joint policy and implementation on areas of focus identified through stage one of the alignment project. 15 December 2007.
• Develop the Transformational Initiative as a mechanism to deliver major, project-based interventions on an immediate basis, but situated within the overall strategic framework provided by the areas of focus. 15 March 2008.

Regional level provision of government economic development services and activities: report to Ministers on opportunities for the improving the provision of the range of economic development services and activities provided by central government at the regional level and identifying opportunities for better co-ordination of central government economic development activity at the regional level. By 15 December 2007.

• stronger, deeper international relationships through the concentration of greater resources in key offshore locations: permanent "hubs" housing investment and specific sector and market specialists; and
• flexibility to respond to emerging international market opportunities: "spokes" – approximately 30 locations staffed by a mixture of seconded New Zealand staff, local employees and contractors.

Enhancement to NZTE's presence in Asia was approved as part of the Budget process 2007, including a new office in India (Mumbai), concept centres in Shanghai and Tokyo and a presence in five Chinese provinces to investigate further investment.

• China FTA on track for completion and signature by April 2008 or sooner. Implementation plan in place.
• GCC FTA negotiation launched – projected completion during 2008
• Korea FTA study on track for completion by November 2007.
• Japan strategy and working group process under way.
• US – improvements in NZ/US relationship at political level provide platform for furthering FTA objectives.
• India FTA study launch imminent (Oct 2007).
• ASEAN/NZ FTA on track for completion during 2008.
• P4 implementation on track.
• Pacer – discussion in New Zealand scheduled early 2008 on path ahead
• Mexico – Joint Experts Group Study completed. Dialogue on possible FTA under way.
• Active participation under way in regional initiatives – CEPEA, FTAAP.

• how requirements are implemented;
• how people and businesses are made aware of regulatory requirements; and
• how regulation is enforced.

• The establishment of a Regulator's Forum to promote improved approaches by regulators to developing quality regulation and to their use of the standards and conformance infrastructure in this context;
• The establishment of a web-based information clearing house with an accompanying physical point of contact to improve access to information on standards and conformance and regulatory regimes;
• Restructuring of the Standards Council and the Testing Laboratories Registration Council to improve and focus the governance of the organisations; and
• The establishment of sector advisory boards under the Standards Council to develop and manage strategic plans for standardisation within the sectors.

The last two initiatives will require changes to the Standards Council Act 1988 and the Testing Laboratory Registration Act 1972 respectively. Approval has been given to include a Standards and Conformance Bill on the 2007 Legislation Programme with a priority 5.

• by 31 December 2007 on the issue of accreditation of inspection bodies; and
• by 31 May 2008 on any outstanding issues relating to the Standards Council Act 1988 and the Testing Laboratory Registration Act 1972.

It is anticipated that the Standards and Conformance Bill will be introduced into the House by June 2008.

• Response to Food and Beverage Taskforce

The Government's response CBC Min (07) 8/15 to the Food and Beverage Taskforce was announced on July 10 2007. The response was built around 6 key initiatives:

1. Food & Beverage Product Development Infrastructure project
2. Increasing the business capability of exporters
3. Increase the profile of NZ food & beverage firms internationally through expanded in-market assistance
4. Raising productivity – pastoral industries content.
5. Setting clear directions for food & beverage research
6. Implement skills action plan – outcomes:
   • improved industry training organisations' strategic planning,
   • improved attractiveness of careers in the food and beverage sector;
   • improved productivity and adoption/integration of science and technology.

Lead: MED.
Contributing: NZTE & MAF

• implementation of the market development component of the Aquaculture Strategy ($6.5 million as indicated below in section on Aquaculture);
• industry participation in three international trade shows in Shanghai, Tokyo and Chicago, part of a collaborative approach to developing the New Zealand F&B brand in these key markets. ($1.8 million);
• establishment of a F&B presence in the proposed Shanghai Focus Centre ($100,000);
• funding for the F&B Product Development Infrastructure Project scoping and feasibility study ($150,000);
• funding for the establishment of an Industry Reference Group to provide industry input into scoping further in-market initiatives ($100,000); and
• operational expenditure ($1.6 million over 4 years).

Initiatives to raise pastoral productivity received a $12 million funding boost in May 2007. This was additional to the 2006 Budget provision of $16 million over 4 years to Pastoral 21 – a figure to be matched by industry funding.
MoRST has work underway on development of a Food and Beverage Research roadmap to provide broad context and high-level direction for food and beverage research.
Government departments are investigating an apparent gap in the infrastructure of NZ food & beverage innovation system: pilot scale facilities situated between research and full-scale commercialisation of new products. A scoping and feasibility study phase underway – for completion November 2007 – into need and potential for a co-ordinated investment across regions (3 separate regional proposals have already been developed).
A joint industry/government body – the Skills and Training Action Group (STAG) – was established in December 2006 to oversee support and monitor implementation of the F & B skills action plan.

• $14 million over four years was allocated in the May 2007 budget for research into innovative foods.
• Policy work on the Transformational Initiative is continuing and set of resulting pilot initiatives is likely to have a strong food and beverage and ancillary industries component.
• Policy work on sustainability and the primary production sector being led by MAF.

MED will report to the Minister for Economic Development by December 2007 on any remaining issues arising out of the Food and Beverage taskforce process.
MED to report to Cabinet by March 30 2008 seeking agreement to appropriations from the remaining contingency up to $8.750m over four years and $4m in outyears.

Outcomes sought:

• NZ students are equipped to thrive in an interconnected world
• International students are enriched by their education and living experiences in NZ
• Domestic education providers are strengthened academically and financially through international linkages
• NZ receives wider economic and social benefits

Lead: Ministry of Education
Contributing: MFAT, DoL, NZTE, NZQA, TEC, MoRST, ERO, NZAID

• supporting rollout of the new curriculum, focusing on Asia knowledge;
• development of a strategy and greater support for language teaching in schools, especially Asian languages;
• reducing barriers to international graduates finding suitable employment in New Zealand after studying here;
• increasing international recognition and understanding of NZ qualifications, especially NCEA;
• integrating international education into tertiary providers' investment plans;
• extending education diplomacy; and
• increasing government resources for generic marketing.

• affordable, fast broadband for all New Zealanders;
• ICT driving creativity, innovation, productivity and wealth creation;
• ICT skills and capability – education and life-long learning; and
• NZ Community Content - strengthening communities and celebrating our identity; and
• sustainable development – ICT supporting efficiency and conservation of resources.

• providing clear direction for the future of New Zealand's energy system;
• utilising markets and focused regulation to securely deliver energy services at competitive prices;
• reducing greenhouse gas emissions, including through an emissions trading scheme;
• maximising the contribution of cost-effective energy efficiency and conservation;
• maximising the contribution of cost-effective renewable energy resources while safeguarding our environment;
• promoting early adoption of environmentally sustainable energy technologies; and
• supporting consumers through the transition.

Future work and actions linked to the NZES include:

• enactment of Biofuel Bill;
• introduction of Biofuels Sales Obligation from April 2008
• draft Implementation NZ Transport Strategy document released in October 2007(led by MoT);
• launch and implementation of NZEECS (from October 2007, led by EECA);
• implementation of Marine Energy Fund (from October 2007);
• refresh of Government Policy Statement(s) on Gas & Electricity Governance, revised in light of NZES (from October 2007);
• relaxing of line energy separation rules; and
• completion of Commerce Act review – regulation of gas pipelines and electricity lines companies.

• Auckland Central Motorway Junction upgrade
• Auckland Western Rail Line – double-tracking between New Lynn and Henderson
• Wellington Inner City Bypass

Significant progress has been made, for example on:

• Auckland's Northern Busway - stage 1 due for completion in December 2007
• SH20 Mt Roskill – scheduled for completion in mid 2009 as part of Auckland's new Western Ring Route

Transit's 2007/08 State Highway Forecast has been approved.
Key deliverables are on track.

• Upskilling The Workforce

Lead: MinEdu/DoL
Contributing: TEC/MSD

• improve employer incentives and support, including strengthening the literacy brokerage role of ITOs;
• improve support for employees, including strengthening the Learning Representatives initiative;
• targeting industries and regions with high literacy need
• multi-faceted publicity campaign, targeting priority groups (2008)

Growing supply:

• increase the Foundation Learning Pool for both intensive and embedded provision through ITPs, PTEs and wananga;
• increase Workplace Literacy Fund for employer-initiated workplace literacy training through 2010;
• increase the amount of literacy taught in level 1-3 certificates through investing in a plan process; and
• 2008-2010 – Tertiary Education Strategy signals Adult Literacy and Numeracy as a priority.
  (note: workplace-based provision cannot provide the intensity of specialised learning needed by those with very low literacy levels, and workers will also need to access community- and institution-based provision to reach Level 3 IALS)

Capability:

• increase funding for ITPs and wananga to support organisational capability to deliver high quality embedded literacy.

• $53 million over 4 years for additional trainees
• $16 million over 4 years to support the strategic leadership role of ITOs

For ITPs there was:

• $55 million in capital and $21 million in operating over 2 years to support the distinctive contribution of ITPs
• $35 million in capital over 2 years to support strategic change through the Quality reinvestment Programme (this is also available to the wananga sector)

For the wananga sector there was:

• $6 million over 4 years to support research capability development
• and access to the $35 million noted above re ITP strategic change.

• Workplace Best Practice/Firm Capability
• (Implementing the Workplace Productivity Agenda)

Lead: DoL, MED
Contributing: NZTE, TEC

• MED and Statistics pilot of Longitudinal Firm Performance Dataset to monitor current and future business assistance programme outcomes – on-going through 2007; and
• www.business.govt.nz website launched by NZTE 17 August 2007 to act as single business portal for government business information and assistance.

• align and co-ordinate government firm capability building services, information and support to ensure maximum efficacy including the determination of best practice;
• significantly raise awareness to create demand of the benefits of improvements in adoption of best practice particularly in management and leadership; and
• support the further development of existing trusted advisor networks

NZTE, DOL and MED work on alignment of Enterprise Training delivery and awareness mechanisms between agencies: late 2007.
Knowledge Transfer: officials will report back to Ministers in February 2008 on options for helping New Zealand firms to locate, transfer and absorb new knowledge and technologies from overseas.

• strategic investment to develop optimal combinations of labour and technology; and
• with TEC, review current availability and funding of F&B tertiary education to better focus ITOs.

Innovation:

• agree mechanism for guiding R&D based on the Healthy NZ brand; and
• develop approaches to focus R&D on sector problem solving and economic transformation.

Collaboration:

• establish R&D collaboration through industry/government joint investment.

• Paid Parental Leave

Lead: DoL, IRD

• achieving quality outcomes for children, families and others who require care;
• achieving greater fairness in opportunities for men and women from all socio-economic groups to participate and progress in high quality, diversified employment;
• enabling people to balance their work and other aspects of their lives; and
• increasing productivity and economic growth.

Out of School Services draft Action released for consultation:July 2007.
Carers Strategy consultation document released for public comment: August 2007.
Flexible work practices being addressed through the Work-Life Balance Programme.

• Economic Transformation
• Families Young and Old
• National Identity

A progress report on the potential extension of government services to temporary permit holders was provided to the Minister of Immigration by 30 June 2007.
Build an improved understanding of the settlement outcomes for newcomers to New Zealand. The work programme was completed in June 2007.
Auckland Regional Settlement Strategy and Action Plan launched by 31 January 2007.

• an emissions trading regime covering all sectors by 2013;
• measures to encourage forestry and more sustainable land use;
• adaptation measures; and
• initiatives in bioenergy, low carbon technology and biochar.

Measures to address climate change are also being addressed in other initiatives, including in the transport sector, through the carbon neutral public service initiative and through "carbon foot printing".

• leadership in methane and nitrous oxide mitigation;
• research, development, and commercialisation of bioenergy (including biofuels) and biochar opportunities; and
• Part 3B has been inserted into the Forests Act providing for regulations to promote Permanent Forests Sinks to be administered by the Indigenous Forestry Unit. An Administrative Toolkit and draft regulations developed by MAF have been through a public consultation process and are being further developed.

Adaptation initiatives include:

• developing detailed regional information across New Zealand on climate impacts on current agriculture and forestry management regimes;
• identifying the most vulnerable areas in New Zealand to gradual and extreme climate impacts; and
• identifying farming and forestry practices that are less vulnerable to, and can capture any opportunities associated with, a changing climate.

Business opportunities
The aim is for New Zealand to be positioned to take advantage of the economic opportunities arising from new technologies and management practices developed at least partly as a result of climate change (e.g. carbon farming etc.)
This will involve the development of a Government-Primary Sector partnership focused on maximising business opportunities from climate change. This work is likely to include:

• development of an extensive carbon footprinting response for the primary sectors, including research, market development, and international engagement;
• market and property rights mechanisms and trading opportunities: including carbon "grey markets", creation of markets for emission-reducing technologies, Clean Development Mechanism and Joint Implementation opportunities, opportunities in emerging markets; and
• Sustainable Building Strategy, promoting greater use of wood (as embodied carbon).

Research underlies mitigation, adaptation and opportunities, and will address issues such as:

1. Mitigation
   • Agriculture: carbon dioxide – soils, energy co-generation and efficiency; methane from ruminants, nitrous oxide from nitrogen fertiliser and livestock waste.
   • Sink enhancement; including soil carbon sequestration, afforestation and deforestation, changed land management practice.
   • Biofuels: supply side resource capacity and economics.
2. Inventory, GHG measurement and validation
   • Improvement of agriculture on-farm activity data, including statistics;
   • Agricultural and forestry inventory capability;
   • Agriculture mitigation technology incorporation and monitoring;
   • Agriculture GHG projections and Kyoto Net Position models.
3. Cross-cutting issues
   • Economic analysis of mitigation, impacts and adaptation measures at farm/forest, national and international scales;
   • Life-cycle and material flow assessment;
   • Systems analysis at farm/forest and catchment scale, including nutrient cycles of carbon and nitrogen.
4. The social dimension of climate change in agriculture and forestry.

An important ongoing element in climate change research is the Pastoral Greenhouse Gas Research Consortium, a research partnership that is responsible for coordinating industry research funding and strategy for mitigation technologies for greenhouse gases in agriculture.
Other research will be supported through a range of routes, including government-industry partnerships.

1. Helping households towards sustainability
2. Business partnerships for sustainability
3. Eco-verification
4. Government procurement policy to buy sustainable goods and services
5. Carbon neutral public service
6. Waste management

• national levy on solid waste disposal to help secure ongoing funding for better waste minimisation infrastructure (including private sector initiatives and initiatives to develop new markets for, and new products from, recovered materials), and
• regulatory back-up for product stewardship schemes.

• measures to improve collection and dissemination of market intelligence for firms;
• review of business capability support programmes (November 2007);
• development of a travel miles strategy;
• review of constraints for the development/uptake of environmental technologies/solutions (includes consideration of second generation bio-fuels).

Through the Enhanced Eco-verification programme, government will work with businesses and sectors to identify the standards, tools and verification infrastructure that will support a drive towards the development, use and export of eco-friendly goods and services.
Sustainable Government Procurement (cf notes under Growing Globally Competitive Firms sub-theme) actions include:

• implementation of a joint Australia and New Zealand Government framework for sustainable procurement (agreed in September 2007);
• further review and inclusion of products and services to which mandatory standards, guidelines and targets for government procurement will apply; and
• development of a methodology and procurement policy to incorporate carbon costing into government procurement decisions.

Carbon neutral public service: 34 core public service departments have already begun work to achieve carbon neutrality. Six agencies will have plans to be carbon neutral by 2012 in place by early 2008, and it will be mandatory for the remaining 28 agencies to be on a path to carbon neutrality by 2012.
Waste: A Supplementary Order Paper is being developed to incorporate government policy into Waste Minimisation (Solids) Bill; targets in the New Zealand Waste Strategy are being reviewed; and new product stewardship schemes are planned for IT equipment and televisions, plasterboard, and an expanded scheme for cellphones
Proposed additional measures include developing "Rules of the game" and financial incentives for distributed generation of sustainable electricity: Supporting current progress through the New Zealand Energy Strategy and the New Zealand Energy Efficiency and Conservation Strategy in encouraging distributed generation, including consideration by 2010 of possible specific economic incentives for encouraging additional uptake of renewable distributed electricity generation

• approved SFM Plans and Permits;
• regulated harvests;
• protected natural values;
• regenerated forests.

Lead: MAF

• act as a line of communication between the indigenous timber industry and the Minister of Forestry;
• provide the Minister (and MAF) with the views (and advice) of the industry on new and developing policies;
• identify specific measures and work programmes to sustainably grow the industry; and
• act as a forum for co-ordinating industry developments.

Work programmes underway include linking with the Sustainable Farming Fund funded Beech Marketing Development Project and the hardwoods kiln drying project.

• ECFP delivery mechanism changed from a tender system to a direct grant;
• direct grant rates established; and
• the Gisborne District Council (GDC) notifying a plan variation in its Combined Regional land and District Plan to address sustainable land management issues.

• Sustainable Land Management and Climate Change;
• Sustainable Water Programme of Action;
• On-Farm Adverse Events Policy; and
• Flood Risk Management Review.

The broader benefits generated by the Programme include: carbon sequestration (Sustainable Land Management and Climate Change); enhancing water quality (Sustainable Water Programme of Action) and educating land managers about environmental risks (Adverse Events/Flood Risk Management Review).

• Work with local government to develop "One Plan" for Auckland

Department of Internal Affairs, DPMC, Treasury, MED, MFE, MSD

• Develop a legacy plan for the RWC2011

MED/ Ministry of Tourism (Major Events)

• Transport

Actions:

• Auckland Strategic Alignment Project (ATSAP)
• Significant expenditure on Auckland Transport Improvements

Lead: MOT

• Central Motorway Conjunction completed;
• Northern Busway – completion of Esmond Road Interchange;
• Southern Motorway upgrades completed, including Green Lane Interchange Upgrade and Wairouru Extension Project; and
• Project DART under construction, providing for duplication and upgrading of Western Rail Line.

Government agreement reached on electrification of Auckland Rail Network to be funded by the introduction of Regional Fuel Tax legislation.

• Broadband

Actions:

• Digital Strategy – Broadband Challenge application from the Auckland region.

Lead: MED

1. wireline/fibre;
2. wireless;
3. skills;
4. communication; and
5. funding and governance.

• Auckland branding
• Waterfront

MFE, MED

• Participate in the development of the Metro Plan, which had a key focus on skills

DOL/MSD/MED

• Building a shared understanding of skill needs in the region and promoting greater strategic investment in people
• Promoting workplace productivity and workforce development with business in the region
• Reaching students, parents and diverse communities with better training and upskilling advice
• Explore bold approach to addressing the long tail of underachievement.

• Participate in the development of the Metro Plan, which had a key focus on innovation.

Lead: MED