Key Points:

It's a privilege for me as Prime Minister to present the annual statement to Parliament on our government's priorities for the year ahead.

2007 was a year of progress on many major government initiatives - not least on affordable healthcare and early childhood education, on promoting savings and sustainability, and on economic development through the major business tax package, telco regulation, infrastructure investment, and the tertiary education reforms.

None of this could be achieved without the willingness of a range of parties in Parliament to work with the government on issues consistent with their own policies.

I acknowledge and appreciate the assistance our minority Labour-Progressive Government has had on confidence and supply from New Zealand First and United Future, and on a range of bills from those two parties and from the Greens and the Maori Party.

Effective government under MMP is only possible if relationships can be formed across parties on a basis of mutual respect. We may not agree on every matter or detail, but the ability to work issues through in trust and confidence is a precious thing.

It has guaranteed New Zealand stable government for the past eight years - and that is essential for developing and implementing the long-term strategies for change our country needs.

It's also essential for leading our small country through the turbulence created far from our shores - whether that be through terrorism, global market uncertainty, the threat of pandemics, or the major environmental challenges our world faces.

In New Zealand's short electoral cycle, it's not an option for the government to shut up shop in election year to campaign.

We have big policies to roll out and progress this year.

Labour will be campaigning as it always has, on substance - on policies delivered and policies to come.

None of the challenges New Zealand has faced and faces now can be met with short-term fixes.

In government we have been working to bring about the long-term transformational change our country needs for a better future.

That change has to be ongoing so that every family, young and old, in our country, can enjoy a better life.

Our vision is for a sustainable prosperous New Zealand, secure in its identity and proud of its achievements.

We are committed to building the potential of all New Zealanders and big investments in education are critical to that. And so are investments in other services, infrastructure and innovation - all areas of priority for government this year.

Labour goes into this election knowing that:

* we have led the economy through its longest run of economic growth since the Second World War.

* the economy is a third larger than it was when we were elected.

* there are 377,000 more jobs in the economy.

* unemployment hit a new low of 3.4 per cent in the December quarter - the lowest level since the Household Labour Force Survey began twenty years ago.

* the labour force participation rate is the highest ever recorded in the survey; and

* total working age benefit numbers are down by almost 140,000 on the numbers we inherited from the previous government.

Yes, there is global market uncertainty at present and the drought and near-drought conditions in a number of important agricultural regions are cause for considerable concern. The government is liaising with farm leaders and we will work alongside them to support our farmers making the best decisions they can in these difficult circumstances. Today's summit with farm leaders is important in developing a co-ordinated response to the drought.

Overall, the consensus of commentators is that New Zealand has a more resilient economy now than in the past. It is in times of international uncertainty such as this that the full value of the government's strong economic and fiscal management becomes apparent.

While growth will slow this year, it is expected to return to its trend rate of three per cent next year.

Labour in government has been motivated by one goal above all - to secure the best possible living standards for all our people.

Household incomes are up in real terms by 25 per cent in the past eight years - that's 25 per cent over and above cost of living increases. Our investments in services which support families, like health and education, have increased greatly.

But now, we must take the next steps, recognising that while there's been a lot of progress, many of our families are feeling stretched and more must be done.

Strengthening the economy is fundamental so that people can earn between incomes, and so government can fund world-class public services.

Our vision for the economy is to lift its value through innovation, skills and productivity, to underpin its progress with first-class infrastructure and to increase its export focus.

Last year's business tax package, including the incentive for more research and development and the increases in support for businesses seeking to export, were all steps in the right direction.

This year the government plans major innovation initiatives - both in its support for the R and D which must drive our economy, particularly in our food and pastoral industries, and in policy to speed up the roll out of faster broadband than is available to New Zealanders now.

Progress in these areas requires the private sector to step up to the plate too, but government can and will play its part.

On broadband we've got confidence in the new regulatory settings and we are close to finalising Telecom's undertakings on operational separation and commitments on infrastructure investment.

Going forward, the aim is to build out high-speed broadband in our cities and rural areas, delivering benefits to business, the education and health systems, and society at large.

Big investments will continue to be made in New Zealand's transport infrastructure this year - across road, rail and public transport projects.

Our most congested city, Auckland, is already seeing the benefit in all three areas - with the opening of the North Shore busway being the latest achievement.

Last week we announced the next steps on the Waterview Connection project, which is a vital part of Auckland's Western Ring Route. We are exploring a public-private partnership for that, in line with the legislation passed in 2003.
Two important transport bills now before Parliament will be given priority for passage this year:

* the Public Transport Management Act, to give regional councils the ability to get better integrated passenger services and better value for money. I look forward to the not too distant day when Auckland passengers will be able to buy one ticket which takes them across bus, rail and ferry services.

* the Land Transport Management Amendment Act, providing for a regional fuel tax to speed up infrastructure investment and for improvements to regional and national transport planning.

But one can't talk about innovation and infrastructure without linking both to the need for New Zealand to be more sustainable.

That was the major focus of my annual statement to Parliament last year and a great deal of action has flowed from that.

New Zealand is now recognised as a leading nation in stepping up to the sustainability challenge.

We are stepping up because it's the right thing to do and the smart thing to do.

We need to be part of the solutions to the world's biggest problems - and certainly not a reluctant last mover.

And in our economic interests, we have to move or face significant barriers in key markets where consumers increasingly will make ethical choices.

This is particularly important for our land-based industries which will continue to be major growth engines for our economy.

There is good business leadership on sustainability issues, complementing the many government initiatives.

Our priority sustainability initiatives this year are:

* passage of the emissions trading scheme legislation. Government will continue to engage closely with industry and with iwi to get the best possible scheme finalised.

* passage of the Biofuels Bill. This mandates the Biofuels Sales Obligation so that we can lessen our dependence on fossil fuels.

* updating the New Zealand Transport Strategy to sharpen its focus on sustainability. Our policies are aimed at having effective carbon neutrality in the transport sector by 2040.

* implementing the policies signalled in the Energy Efficiency and Conservation Strategies, especially those promoting investment in renewables and energy-saving measures. Following these strategies, we will be effectively carbon-neutral in the electricity sector by 2025.

* rolling out the $175 million Plan of Action on Sustainable Land Management and Climate Change which will help improve the environmental performance of our land-based industries and assist them to adapt to a changing climate.

* working towards a National Policy Statement on fresh water management. As the recent State of the Environment report makes clear, New Zealand's water resource is under considerable strain, both in its quality and in demand for it.

* finalising and passing the Waste Minimisation Bill - a Green Party initiative to which the government has contributed.

*Continuing to lead by example in the public sector on sustainability, and building awareness among households and businesses on how they can contribute to making our country more sustainable.

* Playing a full part in the international negotiations for a comprehensive, post 2012 agreement on climate change. New Zealand has played a key role already, not only in the United Nations-level talks, but also in getting momentum for an agreement within APEC, the East Asia Summit, and the Commonwealth.

Overall, what we are seeking is a better balance between economy, environment and society.

The unifying concept is sustainability.

Inherent in that is the need for long-term, durable strategies backed by clear action plans.

Nowhere is that more important than in policies and initiatives for our families, so that we can offer them all the opportunity and security which living in a first world country should bring.

For the past eight years, the government's top priority has been to improve both living standards and the services our families young and old need.

* 377,000 more jobs in the economy has made a big difference to our families, and so has

* Working For Families tax relief directed to (70 per cent) of our families with children

* The increase in the rate of New Zealand Superannuation

* The big increase in the rates rebate for those on low and modest incomes, which has been especially helpful to many older New Zealanders

* Paid parental leave to enable parents to spend more time with new babies

* Four weeks annual holiday, giving families more time together

* Big reductions in doctor's fees and prescription costs

* 20 free hours for three and four-year-olds in early childhood education, providing considerable financial relief for many families

*Income-related fair rents for state housing and support for first home owners through Welcome Home loans

*Interest-free loans and capped fees for tertiary students to make education more affordable.

* the introduction of KiwiSaver, helping New Zealanders save for our future, with well over 400,000 people now enrolled in the scheme.

* big investments in apprenticeships and other skills training.

Now the next steps can be taken.

Priorities for the government this year in supporting our families are:

* announcements about the programme of personal tax cuts to be made in this year's Budget. This will help ease pressure on household budgets.

* the roll-out of the B4 School Checks for four to five year olds, to give out children the best possible start at school and for life. By intervening early on health and behaviour issues, we can both give our children more opportunity to succeed and head off problems which might otherwise later be destructive of young people and of society.

* lifting the age of participation in school or other forms of education to eighteen.

This is a critical policy for young people and for New Zealand.

We are selling ourselves short with close to 30 per cent of our teens leaving school before the age of 17 and 40 per cent failing to achieve NCEA Level Two.

Major OECD reports are now showing the extent to which our teenage participation in education is falling behind.

There has been no significant improvement in school retention at ages 16 to 18 for fifteen years. The situation is no better than it was before the school-leaving age was raised to 16.

Later this month the OECD will publish a new report on jobs for youth in New Zealand. It is likely to recommend steps to improve retention rates in secondary education and the expansion of apprenticeship training.

This report reinforces the need the government sees to move on these issues.

A buoyant jobs market in recent years has disguised the problem of low achievement in education. But we can't build our country's future on a low-skill, low-wage economy.

That's why we need change in education and a quantum leap in the aspirations we have for our young people.

Our programme of action will be called Schools Plus.

The school of the future will be the gateway to the range of education and training opportunities which are on offer, be it a young apprenticeship, tertiary courses or programmes offered by the school itself.

The annual costs of Schools Plus when fully operational are estimated to be around $170 million. But that investment will be repaid many times over by rising education levels and a greater ability to contribute positively to the economy and society.

And so will the big investments we are making in upskilling the workforce overall.

Strong partnerships between government and industry have enabled us to double the number of New Zealanders in work-based training.

A priority this year will be work on the Unified Skills Strategy for the existing workforce. This will be developed through a partnership between the government, Business New Zealand and the Council of Trade Unions.

There is a public concern which the government shares, about criminal behaviour among young people.

In fact, the rate of youth crime has decreased over the past decade, yet the rate of violent offending has risen. Exactly the same is true for the adult population.
Government has legislation before Parliament now which strengthens the criminal justice system's treatment of young offenders, including by extending to six months the time which can be required to be spent in residential facilities.

We have a strong programme of action in place to counter youth gang activity in the Counties-Manukau area. It brings together central government agencies with local government and the community sector, and it is making a difference. This model will be applied to other areas with these problems.

I will also be making announcements shortly about new initiatives to combat tagging. Tagging is not a nuisance crime, it is a destructive crime which attacks people's homes and other public and private property, and we will be strengthening measures against it this year.

As well, the time has come to do much more to support the community-based organisations which provide essential services for vulnerable families, children and young people.

I have an important announcement to make today about the next steps in our Pathways to Partnership programme between the Ministry of Social Development/CYFS, the Ministry of Justice, and the community sector.

This programme was announced last year and signalled our intention to develop a stronger relationship between the government and NGOs.

Today I am announcing significant new funding to enable that partnership to be firmly established and put on a secure and sustainable financial footing.

Our new funding model will see essential services with which we have multi year programmes, such as parenting programmes, support for at risk youth, women's refuge services, family violence programmes, and services for victims of crime, funded for the full cost of delivering the agreed services.

For the many other small service providers we will move from a contracts based to a grants based model so that they face less bureaucracy and fewer compliance costs.

The new sustainable funding path will begin with an extra $37.5 million in 2008/09 and build to an annual increase of $192.8 million on 2011/12 and out years that's a total of $446 million over the next four years.

The new funding model will enable us to

* make automatic annual cost adjustments to funding which reflect both cost changes and agreed volume changes

* provide more certainty to the sector which will help it build workforce capability

* support NGOs to work together more closely to reduce duplication and direct more resources into services

* enable smaller organisations to focus on providing services with fewer compliance costs

These changes will not only give huge relief to our social service NGOs which are struggling to provide quality services to families, children and young people.
It will also ensure that we can do more to prevent family violence and breakdown and youth offending. This is critical to building a safer and more sustainable society for us all.

The issue of housing affordability is also a high priority for government this year.

Since 1999. We've added 7,500 homes to the state housing stock, and made the rents fair.

We've issued 3,200 Welcome Home loans to help people on modest incomes buy their own home with little or no deposit.

But the fast rising cost of houses in recent years has made the dream of home ownership more difficult to achieve.

The problem is not unique to New Zealand - it's an issue in Australia, Britain and Canada too.

It's not a problem which can be solved by throwing a lot more money at mortgage subsidies - that would only drive prices up still further.

Fundamentally, the problem is the undersupply of affordable homes.
So our solutions have to focus on increasing supply, and this year we are launching a comprehensive action plan to do that.

Our country needs large-scale urban housing projects which incorporate realistic numbers of affordable homes. The private sector and central, regional and local governments need to work in partnership to deliver these projects.

The Hobsonville development in Auckland is one example of this approach, utilising Crown land to provide over 3000 new dwellings, alongside schools, employment, heritage areas and reserves.

Five hundred of these houses will be targeted at first home owners on modest incomes and 500 will be built for Housing New Zealand.

Another example of government taking the lead is the Tamaki redevelopment announced last week by the Minister of Housing.

Up to 3000 new homes will be built there, and as with the Hobsonville development, affordable housing for first home owners and renters will be a significant component.

Other countries have set up Urban Development Authorities to achieve these outcomes, and we believe such arrangements could work for New Zealand too. Officials will be reporting to government by May on how such agencies could be established in New Zealand for brownfield and greenfield housing developments, including through public sector-private sector partnerships.

We will also want to support the development of a larger non-for-profit housing sector. This could include working more closely with community-based organisations already active to scale up their provision of affordable housing, and creating new dedicated entities like Britain's housing associations. Officials will be reporting by mid-year on these options.

As immediate steps, we will:

* carry out a review of public land holdings, starting in Auckland, to see which areas are available to contribute to new urban housing projects.

* ascertain how much land presently zoned residential is actually available for housing development now.

* we will tackle issues in the building consent process which are adding unreasonably to the costs of building a house, beginning with simplifying the design and building consent processes for starter homes.

* in July this year, we will launch a shared equity scheme targeted at new builds to help people in high-cost areas get onto the home ownership ladder.

* we will progress the legislation before Parliament now which gives local government the power to require affordable housing as part of a development.

There is no simple, easy, or quick way to make home ownership more affordable. But by taking a range of approaches to increase the supply of affordable housing we can ensure that the dream of home ownership continues to be achievable for New Zealand families.

Major legislation was passed last year to make the criminal justice system more effective, particularly in providing alternatives to prison for low-risk offenders.
The new community-based sentences have been embraced by the judiciary, leading to a welcome reduction in prison numbers.

Our government believes that as long as public safety isn't jeopardised we should work to keep the lesser offenders out of gaol. The rate of recidivism of former prisoners is high and community-based sentences do have more effective outcomes.

* This year, the new Sentencing Council will be appointed and will move to finalise best practice sentencing and parole guidelines.

* A new agency to fight organised crime is being established within the police, and a new Organised Crime Strategy will be adopted.

* The Government will respond shortly to the select committee report on victims' rights. We will be developing a Charter of Victims' Rights and making amendments to the legal aid legislations. A nationwide 0800 line and an information website for victims will be established. We have asked the Law Commission for advice on the Select Committee's recommendation for a victim's compensation scheme and will make decisions on that after receiving that advice. We are also considering the introduction of victims' advocates in family violence courts.

* Passage of the Criminal Procedure Bill before Parliament would help speed up court processes.

* In response to the Ombudsman's Report on the criminal justice system, we will be appointing a group of highly qualified and eminent people to act as an Advisory Board to the justice sector ministers for the next three years.

This Board will meet with those ministers regularly to advise on further improvements to the system. It will be able to engage with the public. To facilitate informed debate, the Ministry of Justice will be producing factual information on the system. New Zealand's high imprisonment rates continue to be a cause for concern, particularly at a time when our crime rates are at their lowest in over twenty years.

In the health system this year our priorities are:

* setting new targets for increases in elective surgery

* driving more productivity and quality in the hospital sector. New Zealanders expect and deserve to get first class service in our public hospitals. We cannot tolerate the system letting people down

* progressing the Public Health Bill - which replaces legislation more than half a century old

* ensuring that the massive funding going into the Primary Health Care Strategy continues to result in affordable doctors' fees

* focusing on our public health goals, in areas like reduction of smoking and tackling obesity.

* Action on the wide range4 of major health strategies which now exist across age groups and communities and across key diseases and conditions.

National Identify

Taken together, economic, social, and environmental policies substantially define the kind of nation we seek to be - progressive, outward looking, inclusive and sustainable.

We project our values through our foreign and defence policies, and 2008 will be another high tempo year.

Our contribution to development assistance is growing steadily; we are about to host a major United Nations negotiating conference around the control of clluster munitions; and we are particularly active in regional initiatives in the South Pacific and East Asia.

This year we will be providing considerable assistance to Niue in its role as host of the Pacific Islands Forum to ensure a successful and well organised Leaders'
meeting.

Our significant defence deployments in East Timor, Afghanistan, Solomon Islands, and the Sinai will continue. Yesterday's attempted assassinations of East Timor's leaders were deeply shocking, and suggest that there can be no quick end in sight for the international security presence.

On the trade policy front, we welcome the United States' decision to join the negotiations with New Zealand, Chile, Singapore and Brunei for investment and financial services under our four way Free Trade Agreement.

I hope in the coming weeks to be able to announce the outcome of the FTA negotiations with China, which, if successful, will come to Parliament for scrutiny and enabling legislation this year.

Negotiations for FTAs with ASEAN and the Gulf Co-operation Council are ongoing and we continue to pursue a successful outcome of the WTO's Doha round as our top trade policy priority.

New Zealand is now making a contribution to international interfaith and intercivilisation initiatives where our voice is respected because of our country's reputation for dealing with injustice and being committed to inclusion.

Government will be releasing shortly the New Zealand Action Plan drawn up in response to the United Nations Alliance of Civilisation Report. It builds on work government is already doing to build cohesive communities in our complex multicultural and multi faith society.

Tackling inequalities overall has been part of our programme from 1999 and progress is being made.

The average Maori unemployment rate in the year to December 1999 - and progress is being made.

The same figure for the year to December 2007 was 7.7 per cent a drop of 54 per cent.

For Pasifika people over the same period, the drop is from 13.6 per cent to 6.5 per cent a drop of 5.6 per cent - down 47 per cent.

All relevant government agencies are working for better outcomes across all communities in employment, education, health status and other key indicators.
This work is complemented by Te Puni Kokiri's Maori Potential Strategy, and by the work of the Hui Taumata Taskforce involving representatives of Maoridom, Business New Zealand, and the Council of Trade Unions; by the Ministry of Pacific Island Affairs Pacific Economic Action Plan and Pacific Women's Economic Development Plan; and by the work of the Office of Ethnic Affairs and other agencies to support emerging ethnic communities.

Critical in moving our country ahead now is getting closure on historical Treaty settlements. The deadline for claims to be lodged is September this year.

The government welcomes the substantial steps made towards settlement of the Waikato River Claim and the Wellington Taranaki Whanui claim just before Christmas, and looks forward to progressing these and other claims this year.
The signing of the Heads of Agreement under the Foreshore and Seabed Act between the Crown and Ngati Porou is a hugely significant agreement. Other iwi are also in negotiation or exploring the possibilities with the Crown for foreshore and seabed agreements.

The Government also has major Maori Affairs legislation to progress this year:

* the Waka Umango (Maori Corporations) Bill which provides for legal entities tailored to meet the organisational needs of iwi and others who manage Maori communal assets
* The Maori Trustee and Maori Development Amendment Bill which aims to accelerate investment in Maori economic development.

As well, priority is being given to the Mauao Historic Reserve Vesting Bill, transferring title of what many New Zealanders know affectionately as ``The Mount' to local iwi while maintaining the public's right to enjoy that special place.

This year other priority areas for engagement with Maoridom will be around issues pertaining to emissions trading, water and coastal management and fisheries sustainability.

Our government has always put a big priority on sustaining the arts, cultural and heritage sectors, not least because of the role they play in expressing what is unique about New Zealand.

The main priorities this year will be ongoing sustainable funding for the sector; support for significant regional museum and gallery infrastructure projects; considering the next steps to take our domestic film industry ahead; and advancing legislation to provide for resale royalties for visual artists - a move which is overwhelmingly supported by New Zealand artists.

Other major legislation to be progressed this year is

* the Immigration Bill which overhauls the principal Act of 1987
* the new police legislation replacing the 1958 Police Act
* the Real Estate Agents Bill to set up a move effective regulatory regime
* the Financial Service Providers and Financial Advisors Bills to strengthen the regulatory framework in the public interest
* the Injury Prevention, Rehabilitation, and Compensation Amendment, improving coverage under the ACC system

Conclusion

In my statement today, I've addressed the government's key priorities for building a faire, more prosperous, inclusive and sustainable New Zealand.

We offer strong and proven leadership a record of delivery on our promises, and new initiatives which build on what we've achieved for New Zealand.
Our programme of change is about developing New Zealand's potential, and opening up opportunity for all.

We are in this to make life better for New Zealand's families through practical policies which enable everyone to get ahead.

This is a substantial government programme, looking to New Zealand's future, and tackling the real issues and challenges which face our families and our country. We look forward to advancing it in the months ahead.