Thank you for inviting me to open your conference, it's a pleasure to be back.

I'd like to start today by thanking you all for your hard work and dedication.

The work you do shapes the future of our communities, our cities and towns, and our country. You are doing an excellent job.

I'd particularly like to acknowledge your hard-working President, Lawrence Yule, who I meet with regularly and enjoy working with.

A special thank you, also, to Local Government Minister Rodney Hide for his leadership. Rodney is passionate about his role and he has done an outstanding job - especially in Auckland and in promoting transparency, accountability, and getting better value for ratepayer money.

Thank you Rodney.

It's been a busy and interesting time for local government since I spoke with you at last year's conference.

A lot of focus has been on the Auckland region, but my Government is enjoying working closely with mayors and councils up and down the country.

We value the relationships we have with you and we know how important it is that we work well with you.

In fact it is vital - because central and local government are a huge part of New Zealand's economy. I want to give you an idea of how significant central and local government are in the economy.

In 2009, central government consumption made up around 21 per cent of the economy. That's actual spending by the government on goods and services, not including transfer payments or spending by SOEs.

Local government spending contributed another 5 per cent of GDP.

So just over a quarter of all spending in the New Zealand economy is from central and local government.

That proportion has been growing over recent years. Back in 2004, for example, central government consumption was 17 per cent of GDP and local government was 4 per cent.

People will always debate whether central and local government should be as big as they are. And there will always be differing views about the appropriate size relative to the private sector.

But central and local government will always be a large part of New Zealand's economy.

They are also an enabling force for the private sector to generate jobs and economic growth.

So what we do in central and local government is crucial for the future of this country. It's crucial for our cities, our towns, our communities, and our people.

Today I want to talk about how local and central government can work together to make New Zealand an even better place. I'll talk about areas where we already are working well together, and where we can do more in the future.

The National-led Government was elected to put New Zealand on a higher growth path and that is precisely what we are going to do.

We are determined to lift the long-term performance of the New Zealand economy.

Growing the economy is the only way we will create jobs, boost incomes, raise living standards, and provide the world-class public services that Kiwi families deserve.

Boosting growth is a challenge - after all, catching Australia doesn't mean we just need to grow as fast as they do. We have to do even better than our cousins across the Tasman.

My Government has a six-point plan to get New Zealand's economy growing faster. The key drivers of it are:

• Changes to the tax system to make it fairer, so that hard work and enterprise are rewarded.
• Demanding better, smarter public services.
• A multi-billion dollar investment in infrastructure.
• Cutting red tape and regulation.
• Better business innovation and an ambitious trade agenda.
• And improving education and skills.

Underpinning all this is a disciplined fiscal policy. We will maintain firm control of the government's finances, so we can return to Budget surpluses and keep debt tightly under control.

You, in local government, can also contribute significantly to economic growth.

As we look to improve infrastructure and go for growth, we're conscious of the role that local government also has to play.

In the case of the Resource Management Act, for example, you know that within 12 months of being elected we changed the Act. The RMA overhaul will reduce costs, delays, and uncertainties.

But while we changed the Act - it's up to you to implement it.

I know that the actions of central government have a direct impact on local government. Sometimes that can mean increased costs, as we've seen in the past.

But our progress in reducing red tape, reforming the Resource Management Act and investing in infrastructure will make a positive difference for you.

Our investment in infrastructure will bring benefits to communities all over New Zealand, as we put billions of dollars towards building and upgrading schools, roads, housing, hospitals and telecommunications.

That includes rolling out ultra-fast broadband, and I'd like to acknowledge the work local authorities have done with us on that project.

We are reviewing regulations such as the Building Act.

There are also changes underway to the planning, decision making, and accountability aspects of the Local Government Act, because we want to improve the transparency, accountability, and financial management of councils.

The Local Government Amendment Bill has three underlying principles:

• Local government should operate within a defined fiscal envelope.
• Councils should focus on core activities - such as waste collection, transport, and water supply.
• And council decision making should be clear, transparent and accountable.

So as you can see, there's a lot of hard work going on to unclog the arteries of growth in New Zealand and to make it easier for you to do your job. I know that when central and local government work together, we can make real progress.

As a government we are now looking at phase two of our RMA reforms in some very specific areas.

The phase two reforms are critical to achieving our aims of growing the economy while protecting the environment.

One of the areas we are moving on is aquaculture.

We want to free up the regulatory bottlenecks that have kept aquaculture planning in limbo.

Fisheries Minister Phil Heatley took another step on the path towards much-needed reform when he released policy in this area last week.

We support the industry's goal of generating annual sales of $1 billion by 2025, and I'm pleased that we're on track to put in place the regulations to help the industry to reach that goal.

Another aspect of the phase two RMA reforms is the important issue of water reform.

The Land and Water Forum will soon deliver its report to the Government, recommending long-term strategies for freshwater in New Zealand.

Improving freshwater management is one of our key environmental priorities and I'm pleased that the forum's collaborative approach is trying to achieve the best outcomes for the community, the environment and the economy.

Better freshwater management is crucial to the development of the New Zealand economy, so it's an important part of our phase two programme.

Environment Minister Nick Smith is also progressing the development of the expanded Environmental Protection Authority, with legislation due in Parliament later this year.

And there is much more to our phase two RMA reforms, including issues relating to infrastructure and urban design.

I won't go into all of it in detail today, but I think you can get the sense that we have a very important programme of reform underway in this area.

There is a lot ahead of us.

I think it's also worth reflecting on some good examples of how we are already working well together - like firstly, to fix leaky homes. 

When we came into office we recognised the significance of the leaky home problem.

There are tens of thousands of leaky homes in New Zealand and many people in your communities are affected.

We also recognised the impact the problem could have on rates if local government was forced to go it alone.

We were not willing to leave you in that position.

So in May we announced our financial assistance package, in which central government, local authorities, and affected homeowners will share the cost of the repairs.

I'm delighted with the support local authorities have given to our package. So far 28 councils are on board, including the eight most affected.

We hope to have the package in place early next year.

Second, we are working constructively with local authorities to make the Rugby World Cup 2011 a huge success next year.

We've had a few issues to work our way through, such as plans for Party Central on Queen's Wharf in Auckland. But I'm confident we will get there in the end and that the result will be something we can be proud of. 

And we all agree on one thing - the Rugby World Cup represents a huge opportunity that we simply cannot afford to miss.

As Tourism Minister, the enormous potential of this event is clear to me. We're expecting 85,000 visitors, and billions more will be watching from home.

It's a unique chance to showcase the very best we have to offer the world.

It is a sign of New Zealand's attractiveness as a destination that our visitor numbers held up during the worst global financial and economic crisis since the Great Depression.

That proves what we can do.

It's testament to our world-class tourism industry, and the resilience of our tourism businesses.

During that time an increase in Australian tourists offset a drop from some long-haul destinations - and I'm pleased that unprecedented growth out of Australia is continuing.

All local councils have an important role to play in helping us make sure the Rugby World Cup is a success.

In the weeks leading up to the World Cup, New Zealand will be in celebration mode, with the biggest festival ever held here underway.

There's a fantastic regional programme and it's great that so many communities all over the country are getting behind it and playing their part.

I look forward to working with you as we get closer to kick off.

Third, we're working together on the New Zealand Cycle Trail Project.

I was in Ohakune to open the first part of the Ruapehu-Whanganui trail, and it was obvious how excited people are about it. This trail - and the others planned around the country - will showcase some of our best scenery.

The trails will be a big draw card for tourists and they'll benefit our communities. They will also create jobs - through design, construction, and project management, and through new businesses opening up along the routes and downstream economic activity.

These trails would not be possible without the support of local authorities and communities throughout New Zealand. While the government can provide leadership and some funding, the success of the cycleway depends on your support and enthusiasm.

I'm pleased to say we have been swamped with ideas and detailed proposals.

This month we announced that work is expected to start on eight trails this summer - in Opotiki/Gisborne, Taupo, Hawke's Bay, Nelson/Tasman, Westport, Mount Cook/Waitaki, Queenstown, and Clutha.

I know there are people here today from those regions, so thank you for your hard work in getting these trails underway. I look forward to seeing the progress.

I'd now like to talk about the importance of how we spend the money that we receive from taxpayers and ratepayers.

In all that we do, we need to keep improving the services we provide to our constituents at a cost that is affordable.

The year since your last conference has been a very challenging one for both central and local government.

We've experienced the worst economic recession since the 1930s. Families have been struggling to make ends meet and they've had to be much more careful with their spending.

They expect us to be just as careful when we spend.

A lot of the money we spend is on vital public services and infrastructure that greatly benefit our communities. That will continue.

But in all the spending we do, we need to be conscious of the fact that we are spending taxpayer - or ratepayer - money. Many ratepayers have been struggling with increases in their rates.

We need to keep looking for ways to do things better.

We need to keep working hard to get more value for money, and we need to spend every dollar carefully.

It's worth noting here also that the world has changed in terms of the appetite for transparency around the way we spend money.

You cannot help but notice the news stories about how politicians spend public money.

It's clear to me that we are well down a pathway toward more openness and transparency that will not be reversed. If anything, the appetite for information, accountability and transparency will only increase.

I'm proud that we have shown leadership in this area.

At Parliament we are now regularly publishing details of MP spending for media and the public, and I believe that is the right thing to do.

Of course, transparency is as important as ever in election year - be it local body elections or central government elections. Local body elections are all about grassroots democracy.

People in our local authorities are very well placed to decide what's best for their communities, and my government is committed to protecting and enhancing this right.

So it's concerning to me that voter turnout at the last local body elections was only 44 per cent. That's the lowest turnout since the restructuring of local government in 1989.

It's a worrying trend given the impact local councils have on people's lives and on our communities.

It's our local authorities that run our public libraries, art galleries, and parks.. It's our local authorities that make sure we're prepared for a natural disaster, administer community grants for local initiatives, and issue resource consents.

The work you do and the services you provide make a real difference to our lives. So I will be personally advocating very strongly for people to have their say and vote in the local body elections this October.

New Zealanders have fought for democracy and it is something to be valued. I want to encourage people to exercise their right to vote. Because local government really matters.

It would be great to see people engaged in their communities - our communities, and New Zealand, would be better for it.

Finally today, no local government speech would be complete without talking about Auckland. The Auckland reforms began last year and the new Auckland Council will be in place from November this year.

The reforms will simplify and streamline governance structures within the Auckland region. For example, the 850 forms currently used by councils in the region will be reduced to 120.

Streamlining will result in better, more cost-effective public services for Aucklanders delivered through integrated planning and service delivery across the region.

Change is always difficult, but unlocking Auckland's potential is vital for the future of New Zealand. The new Auckland Council will begin life with $29 billion of assets, and revenue of $3.2 billion. They are big numbers.

Auckland's performance is critical to the overall performance of the New Zealand economy. We need this city to be performing better.

As we near the first elections for the Auckland Council, I'd like to make one more point. With change of this scale, there are always going to be implementation risks. With any large merger there always are.

But I'm looking forward to working with whoever is elected to the new council to make sure that this is a city that thrives.

This is an exciting time for Auckland and I know we can make this a city we are even more proud of.

I anticipate there will be other regions that will, at some point, come forward to make the kind of governance changes that we're seeing in Auckland.

Any further changes of that type will be community-led, not central government-led.

Ladies and gentlemen.

Today I've outlined the reasons why it's so vital that central and local government work well together.

Together we need to maximise our opportunities to unlock greater growth potential in all our cities and regions.

We need to work together and we need to keep improving the way we do things.

If we can do that we will be on our way to making New Zealand an even better place.

I appreciate the work you do and the challenges you face, and my government is committed to helping you.

There is a lot we are achieving together.

And there is a lot more we can do to secure a brighter future for New Zealand.

I'm confident that we are on the right track. 

Have a great conference.

Ladies and Gentlemen, fellow National Party members, it's wonderful to see you!

I'm proud to be here as Prime Minister.

I'm proud to be the leader of this great Party.

And I'm proud to be leading a government that is making New Zealand a better place.

When our Party was formed back in 1936, it chose the name "National" because it wanted to be a Party that represented all New Zealanders.

That's exactly what we are doing.

The National-led Government is relentlessly focused on what matters to all New Zealanders.

Last election, New Zealanders voted for a brighter future.

And we're doing what it takes to secure that future.

Fellow National Party members, we couldn't do it without you.

So I want to thank all the Regional Chairs, the Deputy Chairs, the Board Members, the Electorate Chairs, the volunteers, and the members.

You make this party strong. You stick with us through thick and thin. You are the reason National is in government today.

In particular, I want to thank our Party President Peter Goodfellow.

I also want to pay a special acknowledgement to my friend and deputy, Bill English.

What a great job he is doing as Finance Minister.

He's delivered two Budgets that have steered New Zealand out of recession and put the economy firmly back on track to grow and create jobs.

I want to thank all our wonderful Members of Parliament, who do such a good job of representing New Zealanders - from Northland to Invercargill, from the East Coast of the North Island to the West Coast of the South Island.

I want to thank my hard-working team of Ministers.

I'm delighted to lead a very talented Cabinet.

And I'd like to thank our partners in Government - ACT, the Maori Party and United Future.

Together we make a very stable and balanced Government.

As with all partnerships, from time to time we disagree. That's healthy and normal - after all, we're not the same party.

But our partnerships work because they are based on trust, respect, and a willingness to find solutions together.

The relationships we have with these three parties demonstrate to New Zealanders our ability to lead a stable government.

I am confident we can do so well into the future.

Delegates, when we meet at next year's conference, we will once again be close to an election.

An election we are in great shape to fight.

An election we are in great shape to win.

We have a strong, united party organisation.

Our opponents have been floundering around trying to work out what they stand for - and indeed what they stand against - and waiting for instructions via text message from New York.

Meanwhile, we have been getting on with the business of making New Zealand a better place.

We have already achieved a lot and we're setting a cracking pace.

I want to talk now about some of the things we've done, and what they mean for everyday New Zealanders.

The first challenge we faced as a government was the global financial and economic crisis.

We steered New Zealand through that crisis by showing strong economic leadership.

We protected New Zealanders from the sharp edges of recession.

But at the same time we resisted calls to spend billions more on extra stimulus. 

Doing so would have left us with a hangover of higher debt, a more vulnerable economy and a credit rating downgrade that would have hurt all New Zealanders through their mortgage interest rates or business loans.

The Government got that balance right and New Zealand is better for it.

I appreciate that some families are feeling the pressure as the economy recovers.

That's why it is so important that we lay the foundation for higher economic growth and better times ahead.

We were elected to put New Zealand on a higher growth path and that is precisely what we are going to do.

Economic growth is not just a theoretical construct - it impacts directly on people's lives.

It means an increase in people's incomes, to give them better choices, more security and a higher standard of living.

It means an increase in the income of New Zealand as a whole, to provide better public services like health care, law and order, and better incomes in retirement.

It means improving our performance compared to other countries, so our young people know there is a bright future for them right here in New Zealand.

We have a six-point economic plan to go for growth.

The drivers of this plan to get New Zealand growing faster are the following:

• Changes to the tax system to make it fairer, so that hard work and enterprise are rewarded
• Demanding better, smarter public services

• A multi-billion dollar investment in infrastructure
• Cutting red tape and regulation
• Better business innovation and an ambitious trade agenda
• And improving education and skills

Underpinning all this is a disciplined fiscal policy.

We will maintain firm control of the government's finances, so we can return to Budget surpluses and keep debt tightly under control.

Ladies and Gentlemen, we are making real progress on our economic plan.

First, let's look at tax.

Right now, a lot of countries around the world are looking at raising taxes.

We have been able to cut some of our taxes.

Personal taxes have been reduced across the board, to reward effort and to give people an incentive to get ahead and make a career here in New Zealand.

Our top two personal tax rates will soon be 30 per cent and 33 per cent. In Australia they are much higher - 37 per cent and 45 per cent.

On a straight dollar-for-dollar basis, Australians earning over $55,000 will soon pay more income tax than New Zealanders on the same salary.

That's a big change from the current tax scale where an Australian doesn't pay more tax than his or her New Zealand counterpart until they earn almost $230,000.

These tax cuts will arrive in people's pockets from October 1. And the vast bulk of New Zealanders will be better off through our GST and personal income tax switch.

The company tax rate will also be reduced to 28 per cent.

That is lower than Australia's company tax rate, and indeed lower than anything Australia is planning.

By lowering the company tax rate we are encouraging productive investment in New Zealand and better paid jobs for our people.

I want New Zealanders to be aspirational - to want more for themselves and their families, and to know that they have opportunities to do that.

Our tax reform encourages that.

As a party which has personal responsibility as one of its core values, we know that the best way for New Zealanders to get ahead is through their own hard work, and their own effort to make a difference to their lives.

We're also making good progress toward better, smarter public services.

Since we came into office - and after years and years of increases - the number of public service bureaucrats has finally gone down.

That's because we are clear about our priorities - and our priorities are frontline services, not a larger bureaucracy.

We're also taking big steps towards addressing New Zealand's gaping infrastructure deficit.

All over the country we've been kicking off major new roading projects to get the country moving.

We're investing billions through Transpower to upgrade the national electricity grid.

We've put money aside for rolling out ultra-fast broadband across the country.

Another important aspect of our economic plan is cutting red tape and regulation.

We're searching in all areas of Government to find places where overly-restrictive regulations are getting in the way of doing business.

That has already resulted in changes. There are more to come.

Let's not forget this is the party who within 12 months of being elected had already changed the Resource Management Act.

Delegates, science and research is a priority in the Budget because we know that our future economic performance depends on generating and using new ideas.

We want to be a smart economy.

Fellow members, we also have an ambitious trade agenda because unlocking overseas markets will boost New Zealand exports and help our companies grow.

We are currently negotiating with some of the biggest countries in the world - the United States, Korea, India and Russia.

At the heart of our trade push are living standards and jobs.

Because we know that only a strong economy can provide financial security for our families, real opportunities for our young people, and world-class public services.

That's why my visit to Korea, China and Viet Nam was so valuable.

I'm delighted that we have injected new life into trade talks with Korea.

I have ambitious goals for trade with China, and I hope that Viet Nam will join us as a full participant at the Trans-Pacific Partnership negotiating table soon.

There is no doubt there are enormous opportunities for New Zealand in Asia - we are determined to make the most of them.

Delegates, education and skills are also essential parts of our plan to lift this country's economic performance.

We're moving forward with our Youth Guarantee and Trades in Schools policies and at the younger end of the education system we've introduced National Standards in our schools.

I want to read from a letter about National Standards. It was written to Anne Tolley from the parent of a child with dyslexia.

The letter reads:

"We struggled for years to try and get some idea of just how badly this was affecting her. I am furious we wasted several crucial years, while we were told by the school ‘not to judge her against everyone else', and that ‘she will catch up when she is ready'. How on earth can any professional teacher object to having a national standard, and object to parents being aware of these?"

I couldn't agree more.

Anne gets a lot of letters like this, from parents who really appreciate being told in plain English how their child is doing at school, so they can do something about it.

With National Standards, we are putting parents and their children first because we are not willing to stand by and let one in five children leave school without the qualifications and skills they need to succeed in a modern economy.

National Standards will help to identify kids who are falling behind or those that can be extended, so that teachers and parents can get alongside them and support them.

Friends, this Government has made a choice. That choice is to put the future of our children and this country ahead of the interests of those who resist change even when the status quo had been so clearly failing our kids.

I for one am very proud of that.

We're getting a great response from the public in other areas where we're making a real difference too.

The second letter I want to read from was written to me by a mother-of-three who was about to begin Herceptin treatment.

She wrote: "I want to express my gratitude and sincerely say thank you for easing the financial burden for my family. In times like this it is really hard to get through day-to-day. I wish you and yours the best of health, happiness and a long life - because that is what you have given me."

I am personally very proud that our party has delivered on our promise to fund a full 12 month course of Herceptin.

It is money that has been very well spent.

The Government's law and order policies have also had a great response.

And why shouldn't they?

We've put more police on the streets and it's making a difference.

We've already got 255 new frontline police officers in the Counties-Manukau district.

The police in that district can be far more proactive because there are far more of them.

For example, bag snatching is down 80 per cent as we add more front line Police on the beat.

We're hiring more Police and we are putting more of them on the street.

Provisional statistics also show that house burglaries in the district are down by almost 14 per cent compared with the year before.

That's not all we're doing to make our communities safer.

We've declared war on P and we're cracking down on the gangs that sell it.

Already in the first seven months of this year a total of 23 kilograms of methamphetamine has been seized - that's four times as much as we seized in the same period last year.

Fellow National Party members, these are just a few of the things the National-led Government is doing to make New Zealand a better place.

We are doing what we were elected to do and we have kept our promises.

New Zealanders put their trust in us and we are delivering.

There is plenty more to come from this Government.

Today I want to announce some policies that will help productivity and employment in New Zealand.

As we continue to grow out of the recession, it's important we have the right environment to create more jobs.

It's also important for greater growth that we improve New Zealand's overall productivity, meaning we generate more value from the hours we work.

I know these can be fairly abstract concepts.

So this is how I look at it.

In the real world, economic growth happens because a business sees an opportunity and is prepared to invest, expand and put its own money on the line.

Employment happens because a business is prepared to give someone a chance - often someone they have never met before and know very little about.

So an important role for the government is to give businesses of all sizes the confidence to do these things - to seek out new opportunities to invest and take on new workers.

Shortly after the 2008 election we introduced a 90-day trial period for businesses with fewer than 20 employees - as we said we would do.

We introduced that trial period to encourage employers to take on new staff, and to expand job opportunities for people who often struggle to get work.

We wanted those people to back themselves - to say "give me a go and I will prove I can do the job".

That law change has worked extremely well.

We recently received an evaluation of the 90-day trial period from the Department of Labour.

It found that half of employers had used a trial period when hiring workers.

And in relation to the last employee they hired on a trial period, 40% of employers said they would not have, or were unlikely to have, hired that person without the trial period.

The evaluation suggests employers viewed dismissals during the trial period as an unfavourable outcome, and actively tried to avoid them.

Take this quote from an employer who used the trial period:

"I think this new 90-day trial period for a small business such as my own is a brilliant idea, and it gives me the confidence to be able to take someone on like I've done and know that if they don't work out we can do something about it, whereas before you were stuck..."

In general, employers have acted responsibly, and workers have been treated fairly.

So I want to announce today that the Government is going to extend the 90-day trial period to cover all employers.

That's all employers, not just those which are small or medium sized.

As with the existing law, the 90 day trial period can only be entered into by a written agreement between the employer and the new worker at the beginning of the employment relationship.

This is a policy of opportunity. It is about giving people the chance to find a job, and nothing is more important than that.

We are giving many more businesses the increased confidence to hire new employees, and giving many more people a chance to prove themselves in the job market.

It's worth noting that many other developed countries we compare ourselves with have similar policies. A number of countries have employment rules that go even further.

For example, in the United Kingdom, no employee - whether or not they have agreed to a probationary period - can normally make a complaint of unfair dismissal until they have completed 12 months continuous employment.

Similarly in Australia, employees must have served a minimum employment period of 12 months if they are employed in a business with fewer than 15 employees, or six months in any other business, before they can make an unfair dismissal claim.

So I consider that the 90-day trial period we are introducing is very fair and balanced.

But that's not all.

Extending trial periods is just one part of a package of amendments to New Zealand's labour laws that the Government is releasing today.

The key elements of these changes were signalled in National's election manifesto.

They are now going to come into effect.

In advancing this package, I would especially like to acknowledge the involvement and assistance of the ACT party, who will be working with us to ensure the passage of legislation through Parliament.

The package contains pragmatic solutions to real issues facing real businesses and employees.

I have often said that I am interested in what works, not ideological changes for the sake of them.

That applies in the area of labour relations as much as it does anywhere else.

National campaigned at the last election with an express commitment to improve labour laws in this country with targeted changes, rather than a radical revolution.

That is precisely what we are doing.

Another area of change will be the personal grievance system.

We are committed to maintaining a fair and equitable system that protects the rights of New Zealand workers.

But there are currently a number of problems with personal grievances.

So we are going to make a number of changes to more speedily resolve employment problems, discourage poor practices, reduce costs, and improve confidence in the system.

For example, we will give the Employment Relations Authority the ability to filter out vexatious or frivolous claims at an early stage.

We will also introduce penalties for delaying behaviour at the Authority, and ensure that an employer's processes are not the subject of pedantic scrutiny.

We are going to make some other changes to improve the way the Employment Relations Authority works, including moving to a more judicial mode of operation, with the right to cross-examine witnesses.

We will be protecting reasonable union access to the work place, although prior consent of an employer will be required. 

That consent cannot be unreasonably withheld.

However, this change will make access to worksites consistent for everyone, enabling visits to occur at times when they will not compromise things such as workplace safety.

Another change is around employers talking to staff.

Currently, many employers feel they cannot communicate directly with their workers during collective negotiations. 

So we are going to amend the law to make it clear that employers can communicate directly with their staff while bargaining is underway, including talking to them about the terms of any settlement offer.

There will also be changes to the Holidays Act.

The issue of "relevant daily pay" has proved to be the most difficult and frustrating part of the Act.

We are going to fix this issue by introducing a new calculation known as "average daily pay" for workers with variable hours and pay.

This will be based on an average of their pay over the last year.

This will fix a festering issue that has proved difficult for both workers and businesses over the past seven years.

National's election manifesto also proposed a change to the Holidays Act to allow workers to "cash-in" their fourth week of leave. 

That is part of the package we are announcing today.

Workers will be allowed to request a trade of up to one week of their annual holiday entitlement for cash.

Strict conditions will apply. Cashing-in leave entitlements can only be at the employee's request and cannot be raised in salary negotiations.

In particular, we do not want to see a situation where employers can pressure workers into taking this option.

Altogether, this is a package of changes that I believe is pragmatic, credible and effective.

These changes will provide more clarity. They will reduce delays in the system and resolve problems earlier, meaning that both employers and employees can have more confidence in the system.

This package is one more step on the road to a more productive economy and increased employment.

This package is about increasing opportunities for employment.

Ladies and Gentlemen, the National Party is firmly focused on looking forward.

We are focused on securing that brighter future that New Zealanders so resoundingly chose when they cast their votes in the 2008 election.

You have today heard of the actions that our government is taking to put New Zealand on the path to that brighter future.

New Zealand needs strong leadership if it is to take advantage of the opportunities that lie ahead.

New Zealand needs responsible management of the country's finances, so that debt can be kept under control and a strong foundation can be built for the future.

And the National Party is the right party to deliver that leadership.

We will back New Zealanders to be the best they can be.

We will make sure Kiwis have the opportunity to reach their personal goals and dreams.

And we will do it by governing in a pragmatic and balanced way.

We will be guided by the values and principles that have underpinned this great Party for so many decades.

Because we believe in a future where we celebrate achievement.

Where we reward effort.

Where the economy is strong and our communities are safe.

Where education standards are high.

Where our young people choose to live in this country because it offers all the opportunities they need and want.

My fellow Party members.

In a year's time we will once again be gearing up to fight an election.

We will be in great shape for that battle.

We will have a team we can be proud of, a record we can campaign on, and forward looking policies that will take New Zealand the next step towards a brighter future.

Thank you very much.

As you all know, this morning I met the Maori Party leadership and Iwi Leaders Group to discuss the foreshore and seabed issue.

The desire to find an alternative to the Foreshore and Seabed legislation Act was an important part of our Confidence and Supply agreement with the Maori Party.  It has been my view as Prime Minister that it's important for the nation to settle these issues so it does not remain as a weeping sore that would have to be addressed at some stage by a future government.

I particularly want to thank the Iwi Leaders Group, and the Maori Party, for the constructive and pragmatic way they have approached these negotiations.  I also want to thank the many thousands of New Zealanders who have been involved in the consultation process over the past few months.

I can report that the National government, the Maori Party, and iwi leaders, have agreed a common position on the foreshore and seabed issue.

Today Cabinet has in agreement with the Maori Party made the following decisions:

- The 2004 Act will be repealed and replaced with new legislation;

- The foreshore and seabed area currently vested in Crown ownership will be replaced by a public space which is incapable of being owned in a fee simple sense;  

       - existing Maori and Pakeha private titles would continue unaffected

       - this is the proposal that to date has been labelled 'public domain'-

         the name may change but the essence of the proposal is the same

- Customary title and customary rights will be recognised through access to justice in a new High Court process or through direct negotiations with the Crown

- To establish customary title, mandated iwi will need to meet a number of tests.  The test for customary rights and for customary title under a replacement regime will be the same as in the consultation document.  The Government is satisfied that the test as articulated in the consultation document reflects the position we think the Courts would have come to if the previous government had not imposed the Foreshore and Seabed Act 2004.

            - Public access, and existing navigation and fishing rights will be protected.

Drafting will commence on a bill which we hope to introduce in August.  Over coming weeks we will seek to build support from other political parties.

There will be a select committee process to allow further public submissions, with a view to a replacement Act being put in place by the end of this year. 

Ladies and Gentlemen.

A year ago when I spoke to this audience, New Zealand was in the midst of the global economic and financial crisis.

If that wasn't bad enough, the crisis came at a time when New Zealand was already well in recession, after several years of unbalanced and unsustainable growth.

The Budget we delivered last year was therefore focused squarely on getting the country through the downturn in as good a shape as possible.

We had to make some tough choices, but they were the right ones.

This year, the context for the Budget is quite different.

The worst of the global crisis has now passed.

And as the clouds part, it is clear that New Zealand has weathered the economic storm better than many other developed economies.

The economy has begun to grow again, although tentatively. The Household Labour Force Survey shows that unemployment is dropping, which is great news.

Unlike a number of countries, our banking system has not suffered major stress. Nor are we in the midst of a debt crisis.

Our longer-term strengths as a country remain just as they were before the recession hit.

Yet, so do our longer-term economic challenges.

New Zealand incomes are below those in the countries we like to compare ourselves with, including Australia.

The growth we did experience over the past decade was largely driven by consumption, borrowing and government spending.

Since 2000, New Zealand's overall debt to the rest of the world has jumped from $90 billion to $170 billion. Government spending rose 50 per cent in the 5 years to 2009.

Productivity growth across the economy - which is what really matters -  was actually negative.

The tradables sector, which includes sectors like agriculture, forestry, food manufacturing and tourism, and through which we actually earn a living in the world is no larger today than it was in 2002 and has created almost no new jobs.

That sets the scene for quite a different Budget this year.

This year's Budget is focused on looking forward - building on the recovery so that we come out of the downturn in a better position to create jobs, build productive firms and attract investment.

It's about creating opportunities for families to get ahead here in New Zealand.

The Budget has four objectives, all of which are inter-linked.

Overall, the Budget is about lifting the long-term performance of the New Zealand economy.

That's why science and research gets such a high priority in the Budget - because our future economic performance depends to a considerable extent on generating and using new ideas.

That's also why we are investing in infrastructure like broadband, state highways, and the national electricity grid.

We've got an ambitious trade agenda, and we are looking at how to reduce barriers to growth across a number of different sectors of the economy.

The second objective of the Budget is reform of the tax system, which I want to talk about later in this speech.

The changes we are making to tax obviously fit with the first objective - that of lifting our long-term economic performance - but they also contribute to other goals, including making the tax system fairer and more sustainable.

The third objective in the Budget is better delivery of public services.

The challenge we are addressing in this Budget is to meet people's expectations of modern public services while at the same time recognising the pressures on taxpayers.

That will continue to be a challenge for many years to come.

The fourth objective is maintaining firm control of the government's finances, so we can return to budget surpluses and pull back our rising debt.

The Government is currently borrowing $240 million a week to fund deficits and roll over existing debt.

That was the appropriate response to the global crisis, but it cannot continue indefinitely.

Crucially, we have to keep a tight rein on spending increases, well out into the future.

We cannot jump back on the treadmill of unsustainable spending increases.

That is why the tax reforms we are introducing have been designed to be broadly fiscally neutral.

While there is an initial upfront cost, this is because the different elements of the package come into effect at slightly different times.

In time, the tax package actually results in a slightly lower net debt track for the Crown than would otherwise have been the case.

That means the tax changes are fiscally neutral once those timing effects have worked their way out.

The tax package is about the mix of taxes, not the overall level of taxation.

What we have done, in a nutshell, is to lower headline personal and company income tax rates, while at the same time broadening existing tax bases, increasing indirect taxation, and tightening up on the ways people have been able to reduce the amount of tax they pay.

In total, these tax changes constitute the most thorough and beneficial overhaul of tax rates in almost 25 years.

They will have a positive effect on economic growth, and therefore the living standards of New Zealanders, through the following routes:

• an increased incentive for people to work hard, increase their hours, develop their skills, and develop new products and services, because they can keep more of the extra money they earn
• lower income tax rates, which will attract skilled people - who are in demand all over the world - to stay in, or move to, New Zealand
• an increased incentive to save, because of the switch in taxation from income to consumption, and by reducing tax rates on savings
• a lower headline company tax rate, which will encourage productive investment in New Zealand, thereby increasing productivity and raising wages
• and a more neutral tax system, which has less effect on people's choices between different types of economic activities (for example, between investing in property and investing in other sectors).

I want to give you an example of the first of these effects, by comparing income tax rates when this Government first came into office, with the income tax rates announced yesterday.

Take a person who is earning $45,000 a year, has a spouse at home looking after their two small children, and who pays $300 a week in rent or mortgage payments.

If they are considering applying for a better-paid, but more challenging, job; or if they are thinking about studying for qualification; or if they are thinking about increasing their hours; or if they are looking at going into business for themselves; they need to take into account how much they would get in their hand from an extra dollar of income. Then they can work out whether the extra effort, commitment or risk is worth it.

In early 2009, a person in that situation who earned an extra dollar of income would get to keep only 47 cents of it in the hand, because of tax rates and Working for Families.

That is a big disincentive to getting ahead.

Our tax cuts on 1 April 2009, plus the Budget tax changes announced yesterday, have changed work incentives quite considerably.

A person on $45,000 with two kids will now get to keep 62.5 cents from an extra dollar earned.

That is because their marginal tax rate has almost halved in just 18 months, going from 33 cents in the dollar to 17.5 cents in the dollar.

As a result of this tax package, 73 per cent of all income earners will face a statutory tax rate of no more than 17.5 cents in the dollar.  That is a huge improvement in our tax system, which makes people's choices about work, up-skilling and risk-taking, much more appealing.

I want New Zealanders to be aspirational - to want more for themselves and their families, and to know that they have opportunities to do that.

Right now, for many people, the tax system is telling people not to bother extending themselves because it isn't worth it.

Our tax changes deal with that issue head on.

They also give people more choices.

Consider the family on $45,000 again. After our two rounds of tax cuts they now get over $2,100 a year extra in the hand, or close to $1,500 once the increase in GST has been taken into account.

They can use that increase to save, or pay off their mortgage, without being taxed on it. The interest they earn on savings will be taxed, but it will now be at a rate of 17.5 per cent rather than 33 per cent as it was previously.

The tax package we announced yesterday reduces marginal income tax rates right across the board, so the labour supply effects, as economists call them, are quite significant.

The Treasury has allowed for a one-off increase in the level of GDP of around one per cent, phased over 7 years.

That forecast is largely based on estimates of the growth effect of reducing taxes on boosting labour supply, because a lot of the other beneficial effects of the tax package cannot reliably be quantified. In the long run, an impact of anything up to around two per cent of GDP would not be particularly surprising.

What may be surprising to some people, however, is that these changes have been done in a way that doesn't affect the broad distribution of income in New Zealand.

That is for a number of reasons.

One is that we have reduced income tax rates across the board and by a considerable amount. Two-thirds of the cost of our income tax cuts have  gone to reducing the lowest two rates - that is, to taking the current 12.5 percent rate down to 10.5 per cent, and taking the 21 percent rate down to 17.5 per cent.

Second, the package contains upfront GST compensation for beneficiaries, Superannuitants, and people getting Working for Families, among others.

And third, higher-income earners will bear the brunt of the revenue-raising measures in the tax package. Base-broadening measures like the depreciation changes will affect asset owners who are predominately higher income earners. Many of the fairness and integrity measures will also disproportionately affect higher income earners.

As a result, the tax changes when considered as a whole are broadly neutral in terms of their effect on income distribution.

When all the effects of the package are considered, it does not unfairly favour one household income group over another.

Furthermore, low to middle income earners, particularly those with children, have been the biggest proportional winners from tax changes over the past decade, including the changes announced yesterday.

High income earners, on the other hand, have had the lowest proportional increases of all.

The tax system has therefore become significantly more progressive since 1999.

For example, after our tax changes are implemented, a person on the average wage of $50,000 with two kids will effectively pay no income tax whatsoever, because of Working for Families.

However, the same person earning just over $80,000, and still getting Working for Families, effectively pays 20 per cent of their income in tax.

So I reject criticism that the Budget tax package is unfair.

Our tax package actually makes the tax system fairer, for a number of reasons.

It ensures that wage and salary earners in the top tax bracket - like many teachers, nurses, doctors and police officers - do not pay higher rates than people who can structure their business affairs for tax purposes.

It makes the taxation of different investments more equitable, for example by decreasing taxes on savings vehicles and increasing the effective tax rate on property investments.

It closes Working for Families loopholes, makes sure qualifying company shareholders pay the right amount of tax, and prevents abuse of the GST system.

It gives IRD the resources to crack down on people who are not paying their fair share of tax, or evading it altogether.

That adds up to a very fair tax package.

Some people think we should have kept the top rate at 38 per cent but made it apply from $100,000 onwards.

I don't agree.

To begin with, such a move would raise very little tax in the scheme of things - around $450 million a year.

To put that in context, it would, for example, enable a future government to reduce GST from 15 per cent to 14.5 per cent. That would hardly be noticed.

It would also wreck the integrity of the tax system.

Aligning the top tax rate and the trustee rate at 33 per cent is the most important thing we are doing to improve the coherence and integrity of the tax system.

It is not fair, for example, that a wealthy property owner can structure their affairs so they face a marginal tax rate of only 33 per cent, whereas a hard-working salary earner has to pay 38 per cent.

Introducing a high top tax rate would simply increase taxes on people like doctors, engineers, and other skilled, experienced professionals this country needs, who earn a salary and pay PAYE.

It wouldn't affect the really wealthy people who earn business or investment income and who for the most part are not paying high rates of tax on their income at all.

Furthermore, a top personal tax rate of 33 per cent is not low by international standards.

A recent KPMG survey showed that the average top personal tax rate in 86 countries, including the high tax countries of Western Europe, was just under 29 percent.

A top rate of 33 per cent therefore helps our international competitiveness.  It helps attract skilled people to live and work in New Zealand, including our own graduates, one-sixth of whom now work abroad.

In particular, it means we have a very competitive tax system compared to Australia.

From 1 July, Australia will have personal income tax rates of 37 per cent, for income between A$80,000 and A$180,000, and 45 per cent for income over A$180,000.

On a straight dollar-for-dollar basis, Australians earning over $55,000 will pay more income tax than New Zealanders on the same salary.

In addition, we are reducing our company tax rate to 28 per cent, three years earlier than Australia.

And for those who may have been wondering, I can confirm that Cabinet decided to lower the company tax rate before the Australian Government announced its intentions and before the Henry Review was released.

The fact that both countries ended up choosing a 28 per cent rate means we have similar opinions on the balance between improving our international competitiveness and finding the revenue needed to do that.

Ladies and Gentlemen

As the economy continues to pick up, the Government's economic focus has shifted from managing through a crisis to creating opportunities.

Creating opportunities is all about incentives and giving people the confidence to believe they can get ahead.

That is what this year's Budget is all about.

Tax is an important part of that because it affects everyone's decisions about how much they spend or save, how they invest, whether they're doing overtime or not, whether there's a second earner in the house, whether they take on more employees, whether they increase their hours of work, or whether they stay working here in New Zealand.

Tax is a pervasive influence in the economy and one of the biggest levers any  government can pull to increase economic growth.

I said in my Statement to Parliament in February that the Government had a number of objectives for the tax system:

• we need a tax system that creates incentives for people to work hard, improve their skills and get ahead here in New Zealand.

• we need a tax system that encourages saving and boosts the productivity of investments.

• and we need a tax system which is not difficult to comply with or administer, which is regarded as fair, and which limits opportunities to divert income and reduce tax liabilities.

That is precisely what the Budget has delivered.

Thank you