Public Finance (State Sector Management) Bill

We are engaging in the title debate on the Public Finance (State Sector Management) Bill. There are a number of parts of this bill that I think New Zealanders, when they reflect on them during their Christmas holidays, will have major concerns about. The first concern will be around the Fiscal Responsibility Act, which is now to be embedded in the Public Finance Act. We should take just a moment to reflect on our history and on why the Fiscal Responsibility Act played such an important part in the backdrop of New Zealand’s financial management. Let us remember that in 1990 when National came into office, the then Minister of Finance, Ruth Richardson, was delivered a set of books by a Government that, frankly, had cooked them. Those books were full of lies and deceit. They were not accurate, not correct, and not a reflection of the financial health of our country. They were quite the opposite of that, and they were delivered by a Labour Government that was very happy to have a set of books—

Hon David Carter: Dr Cullen had his fingers all over them.

JOHN KEY: That is right. Dr Cullen’s fingerprints were all over those books, and they were a disgrace.

Ruth Richardson stood tall, and she said that books like that would never be presented to the public of New Zealand again. She said a future Government should never have to come in and inherit a situation that was so badly portrayed to the people of New Zealand, and an incoming Government should not be cheated and deceived by a set of accounts that it should be able to rely on. That was the history of the Fiscal Responsibility Act, which was a tremendously important piece of legislation. That legislation went on to set out a whole number of conditions that are met today on everything, including the Fiscal Strategy Report. There is some transparency about the way the Government is to spend money, and, more important, about its debt levels and its intentions as it goes forward in managing the Crown accounts.

What this Government is going to do if it passes this legislation is to surrender the position that the Fiscal Responsibility Act had as a pre-eminent piece of legislation, by burying it deep in a 500-page document so that it does not see the light of day. It was embarrassed by the fact that the Fiscal Responsibility Act was brought in by a National Government because of the actions of a Labour Government in years gone by. It does not like the fact that it presented a cooked set of books to an incoming National Government, and now it is going to render the Fiscal Responsibility Act not into stand-alone legislation, not into something that stands proud and tall to guide our country, but into something that is buried within a 500-page document that is being rushed though in urgency. When New Zealanders think about the implications of that, they will be not only alarmed but concerned and very disappointed, indeed.

I think that New Zealand is taking a retrograde step with this move. The Government should reflect on that and leave the Fiscal Responsibility Act as independent legislation, so that it can do its job, and do it properly. The Government of New Zealand has a huge responsibility to get this stuff right. Every day the Government is out there, taxing New Zealanders. It has $46 billion of taxation revenue coming in. Every day the Government is out there, stripping New Zealanders of the incentive to work hard and be paid a fair day’s pay for doing a fair day’s work. This Government is an overtaxing Government. That is what it is, and it is not proud to have the Fiscal Responsibility Act show exactly that.

There are some other elements of the Public Finance Act that I want to make particular reference to, in terms of the aggregation of output classes. When the Public Finance Act came in, in 1989, it was landmark legislation. It set out best practice for the New Zealand State sector to follow. That Act played a significant part in the transformation of the economy. We reap many of the benefits of having a stronger economy today because we have managed to get a very important part of our economy, the State sector, working properly and firing correctly. What is to happen is that under the new legislation we are to abandon the specific output classes, and we are to start moving towards a measurement term known as outcomes. We all know that those outcomes will be woolly and grandiose. They will sound fantastic, but when the day of accountability comes—

Hon David Carter: All spin.

JOHN KEY: It is all spin. This is a Government that likes spin. That is why I know for a fact that yesterday the library bought a new book on weasel words. Steve Maharey is putting out a grandiose document on what he has done over the last 5 years, and the library needs to detox it and understand it.

In speaking to the title of the Public Finance (State Sector Management) Bill, I think we have to reflect back over the history of this legislation. I was one of the few who was in this Parliament in 1990, prior to the passing of the Fiscal Responsibility Act. I was one of the Ministers who faced the consequences of the dishonesty of the outgoing Labour Government. That Government presented a Budget, and Dr Cullen was one of the finance Ministers involved. It was Mr Caygill who presented the Budget but Dr Cullen was his Associate Minister. They presented a Budget to this Parliament that claimed, from memory, a $79 million surplus. When the books were opened after the election, far from a $79 million surplus, this country faced a deficit, climbing to $5 billion. Back in those days that was a large chunk of our GDP, because it was a smaller GDP in those days. The consequences of that were just colossal.

The incoming National Government determined that that should never happen again, that it should not be possible for a Government to deceive the taxpayers of this country, the public of this country, the way the outgoing Labour Government did in the late 1980s. That is why National introduced the Fiscal Responsibility Bill, and that Act has served this country well. It has provided the opportunity for everyone involved in the process of Government, for taxpayers and citizens of this country, to see the Government’s books opened regularly, to see how the financial affairs of their country are going.

What we see with this bill is a moving of that iconic legislation and the burying of it within the Public Finance (State Sector Management) Bill. We have to ask ourselves: what is Labour trying to do here? We know that Labour does not like scrutiny and transparency. We know that Labour likes to be able to fudge things. We know that Labour likes to be able to interfere. If we look at this bill we see it coming through. The Minister will be able to give more directions than has been possible in the past. Our State sector reforms in this country during the 1980s and 1990s were recognised worldwide as being at the cutting edge of good government. What we are seeing now is this Labour Government saying: “Oh, we want to have more opportunity to meddle here.”

It seems that the Labour Party loves getting its political tentacles into these things, and this legislation provides for much more ministerial direction. It will enable the Government to fudge things much more because the output classes can be aggregated with this legislation. There will be less transparency. We know that Labour likes handing out money. Look at its Community Employment Group handouts that have embarrassed it so much, with the hip-hop tours, and so on. We know that Jim Anderton’s handouts, his corporate welfare, have had the Audit Office saying there are some real problems around the handing out of this money. We know that Labour loves doing it, and wants a legislative framework that fudges all of this much more.

National is saying that it is bad for this Government to be making our financial affairs in the State sector less transparent, to be providing for greater political interference. It is sad for this country that we are dealing to iconic legislation like the Fiscal Responsibility Act. I suppose, when we think about it, Dr Cullen hates the fact that the Hon Ruth Richardson was the author of the Fiscal Responsibility Act. Dr Cullen hates to have an iconic piece of legislation with the name of a Minister like the Hon Ruth Richardson on it. The best way to change that is to repeal the legislation and bury it in this Public Finance (State Sector Management) Bill that will bear his name. That kind of pettiness does not serve this country well. The Fiscal Responsibility Act was serving this country well. It could have been amended slightly, perhaps to sharpen up some of the procedures, but the transparency was hugely important. Its iconic status was hugely important. I suspect what we are going to get from Labour, if it ever wins another election, is something like a “Social Responsibility Bill” that will have all the soft, woolly, wonderful stuff that these left-wing Labour politicians want to have.

Brian Connell: The PC Act.

Dr the Hon LOCKWOOD SMITH: My colleague Brian Connell says it will be the PC Act. It will be politically correct diatribe. National is opposed to this legislation, not because of some of the ideas being sought but because the detail is bad.

I rise on behalf of New Zealand First to speak to the title, Public Finance (State Sector Management) Bill. New Zealand First sees this legislation as an all-embracing, controlling, inquisitive framework, developed under the present group of Ministers. This could take effect from 25 January 2005 and indeed is an important Act in the innate traditions of the controlling Labour Party. To a degree, many of the organisations that were created by the Labour Government in the late 1980s, and that continued through the 1990s, will not find a great deal of change in some sections. But there is one group in this country that does believe earnestly that there is change—the tertiary education institutions. I want to take the Committee back to why that might be so.

The Education Act of 1989 very clearly expressed the intention under that Act of giving as much independence and freedom to make academic, operational, and management decisions, as needed. Section 161 states: “(1) It is declared to be the intention of Parliament in enacting the provisions of this Act relating to institutions that academic freedom and the autonomy of institutions are to be preserved and enhanced.” Section 161(4) states: “In the performance of their functions the Councils and chief executives of institutions, Ministers, and authorities and agencies of the Crown shall act in all respects so as to give effect to the intention of Parliament as expressed in this section.” The question is: where is the statutory duty to preserve and enhance institutional autonomy and academic freedom?

I quote Professor McCutcheon, who was reported in the New Zealand Herald this week as stating: “In a democratic society we cannot allow state control of our free-thinking institutions.” When the Minister in the chair last night was queried as to the intention of Part 3, “Preliminary provisions relating to Crown entity reform”, and the actual impact of that provision, there was no answer. There was no answer to the questions about clause 46 in that part, which talks about reforming the law. The questions: “What law, what intentions, and when?” were not answered at all. Again I turn to the comments made by Professor McCutcheon. His answer to that question was this: “No nation in the Western world has universities under state control. The pillars on which New Zealand academia is built are being eroded by creeping Government control.” That was his answer.

We know that this move is but part one of a two-phase action on the part of the Government. It is proper that universities should be very, very concerned as to where part two will take them. Advice has been given to Ministers and changes have been proposed that are not revealed in this bill, and that is the unanswered part of the preliminary provisions in Part 3. That will be revealed in time—probably a year from now, should the Government, unworthy as it is, be returned to where it is now. The conflict that those proposals would cause in our community and our academic society will take place for the first time then. That intention in this bill is dishonest in regard to academic institutions. Personally I cannot conceive as to why that should be so.

It was so strange to hear Mr Mallard, one of the three Ministers involved, say that most taxpayers would think that the spending of taxpayers’ money should be transparent and there should be accountability. We have been in the House week after week and have heard those very issues raised here. It has been shown that under the present provisions, the accountability of some institutions has not been at all clarified and it has not been an issue for Ministers. The Hon Bill English, who sits to my right, has said over and over again, in regard to the case in Christchurch, that that is not so. This deserves further attention.

I rise to speak on clause 1 of the Public Finance (State Sector Management) Bill, which should rightly be called the “Public Finance (State Sector Control) Bill”. The Government thinks that control and management are synonymous. The honourable member Jim Peters was absolutely right when he argued on behalf of academic freedom. This legislation breaches the spirit of the Education Act 1989. No good reason has been put forward as to why sections 160 and 161of the Education Act 1989 should be overridden by this legislation.

The Vice-Chancellors Committee has met with the Government on innumerable occasions on this matter, but it has not been listened to, and yesterday in the Chamber the Minister of Education dismissed that committee as a bunch of fairies. That is how the Minister of Education, who has had the privilege of a tertiary education, treats academic freedom. It is an absolute disgrace. The Minister argued that the status quo is preserved. If the status quo is preserved, why do we have page after page of amendments to the Education Act 1989 in this legislation? If the status quo is being preserved, why do we have those amendments? Why are we bringing tertiary institutions under the same executive control as other Crown entities for which academic freedom and autonomy are not an issue? They are an issue with tertiary institutions.

Adequate measures are already in place for accountability and transparency in the spending of taxpayers’ money, it is just that this Government has not bothered to ensure that that accountability is put in place. For example, Christchurch Polytechnic, The Open Polytechnic, and various wānanga are under investigation in relation to conflicts of interest. Nothing ever happens unless an Opposition member brings it to the attention of the public and the media, and then the Government steps in with the appropriate audits that should have been conducted properly in the first place. That is one major issue in this legislation.

The other major issue is that no good reason has been put forward for the Fiscal Responsibility Act not remaining as a stand-alone law. The bill as it is now is considerably better than the bill that went to the Finance and Expenditure Committee, and New Zealand taxpayers have the Clerk of the House to thank for that. He made a very strong submission because under the bill that this Government sent to the select committee, it wanted to be able to spend public money without the authorisation of Parliament. Because of the Clerk’s strong submission and his arguments we have at least got back to the situation where money should be spent only with the authorisation of Parliament.

However, the executive has not been restricted enough. It still has the unfettered power to spend money. No measures have been brought in to prevent that. We could have built on the Fiscal Responsibility Act. We could now be debating a taxpayers’ Bill of Rights under which every bit of Government spending of public money is subject to a value-for-money test, and where there are constitutional restraints on the spending of public money, like targeting it to not increasing the rate of inflation or population growth, and ensuring that to go above that there has to be a referendum with more than two-thirds of the population in favour. We could be debating those issues, but, instead, we are passing legislation that considerably waters down the Fiscal Responsibility Act. Yesterday the Minister of Education and Minister of Finance blathered on about the need for transparency and accountability in the spending of public money.

As we debate the title and commencement of the Public Finance (State Sector Management) Bill, I want to say at the outset that this bill will deliver less transparency to the spending of taxpayer money. This bill delivers less transparency because this Government has been embarrassed so many times by the rorts and rip-offs that have occurred under its policy. The Committee needs to realise that what we are talking about here today is really the “Fiscal Responsibility (Abolition) Bill”. I feel very strongly about that because I was the member who came in at a by-election after Ruth Richardson had shepherded through this House the Fiscal Responsibility Act of 1994. I know the history of that legislation.

National won the general election in 1990 and Ruth Richardson was appointed the Minister of Finance. When the National Government got to see the country’s books, it found that the New Zealand people had been hoodwinked. What had been declared by the Associate Minister of Finance, Dr Michael Cullen, to be a Budget surplus of some $79 million was, in fact, a massive Budget deficit of around $5 billion. Without doubt those facts had been kept from the New Zealand public. When Ruth Richardson saw them she was determined to ensure that the people of New Zealand would never be hoodwinked in that way again. So the last piece of legislation that she wanted to see passed in this House was the Fiscal Responsibility Act, which I think finally passed in July 1994.

That legislation was iconic. Not only has it served New Zealand exceptionally well for a decade, but also Ruth Richardson was then invited to countries all around the world—to other democracies that saw the benefit of being honest with people and showing them the true facts as to the health and robustness of the economy. Ruth Richardson took that legislation to a number of other countries, which have followed us and enacted similar fiscal responsibility legislation.

We see now, after 5 long years of a Labour Government, that the Government does not want transparency. It is totally embarrassed by the rip-off that has occurred at the Christchurch Polytechnic, with $6.5 million going to a company of which one Vicki Buck, the well-known former mayor and large Labour Party supporter, was a significant shareholder. More recently, we saw this headline in the Dominion Post only a week ago: “Jobs machine out of control”. That headline was referring to the way Jim Anderton has absolutely wasted around $50 million of taxpayers’ hard-earned money on corporate welfare. Audit New Zealand asked Jim Anderton’s “jobs machine” what study had been done to evaluate the success of the $50 million that Mr Anderton splashed around the country, earning himself photo opportunities in our newspapers. It was staggering to learn that no evaluation has been carried out. The major reason for that admission is that Jim Anderton and his officials do not even have a list of the people who have received the money. That is just a staggering admission that his Government has no respect for the spending of public money.

I say to members today that history will repeat itself. After the next election, when the new National Government resumes the Treasury benches, we will see—as happened in 1989 and 1990—that the legislation we are debating has been largely designed to make sure that the public of New Zealand do not know the truth. The Fiscal Responsibility Act has worked well, and it should remain.

I would like to cover a few points that the member Deborah Coddington mentioned during her contribution on the title clause of the Public Finance (State Sector Management) Bill. Firstly, I think there are a number of different issues in relation to tertiary education. We need to face the reality that unless a tertiary education facility is privately owned, then the only other option is that it be publicly owned. If it is publicly owned, then obviously the Crown accounts, which capture on a consolidated basis all assets and liabilities of the Crown, must record the assets and liabilities of our various universities and tertiary institutions. One of the submissions the Finance and Expenditure Committee received from the tertiary sector basically suggested that that should not happen. But the select committee explored that suggestion in some depth and found that it has no factual basis. Therefore, the assets and liabilities of tertiary institutions obviously must go into the Crown accounts. There is no doubt about that, at all.

To link that to the question of academic freedom is, therefore, purely a nonsense. Just because the Crown incorporates in its accounts the assets and liabilities of those institutions, it does not ipso facto follow that the Crown is interfering with academic freedom. [Interruption] I have read the whole bill, and I was also at the select committee when we heard the submissions.

Deborah Coddington: Read the Education Act.

GORDON COPELAND: The member suggests that I read the Education Act. I was just about to say that the relationship between the institutions and the Government is, of course, set out in that Act. As far as I am aware—and members may correct me if I am wrong—nothing in that Act suggests in any way that the Government has the ability to interfere with the academic freedom of our universities. That is the very point I was making.

The third point concerns accountability. Here I find myself in strong agreement with Deborah Coddington and Bill English. It is a major concern that when taxpayers’ funds are paid across to tertiary education institutions—Christchurch Polytechnic included—there ought to be proper accountability. Looking at outcomes really goes to the very heart of what this legislation is about. What outcome, at the end of the day, has the taxpayer received from Christchurch Polytechnic for the money that has been put in? The answer is: a lemon. That was a rotten deal for taxpayers. Therefore, they are quite legitimately saying that the legislation is in place, but the next step is to make sure that we implement it properly and use a bit of common sense in terms of not putting money into dopey ideas for programmes that are run by dopey people and have dopey outcomes. That is really an absolute no-brainer.

The other issue Deborah Coddington touched on that I thought was quite interesting is whether this legislation should make reference to certain other things. One of those things is what should happen when the Crown collects more revenue from taxpayers than it needs for its budgeted expenditure. In the state of Colorado, in the United States, the equivalent legislation has a clause stating—I have not actually read it, but it goes something like this—that if the state collects more tax revenue than it had budgeted at the beginning of the Budget cycle to spend, it can use that revenue in only one way: to compensate for shortfalls from prior years. The law then states that once that condition is satisfied, any surplus must be given back to taxpayers by way of a tax cut.

Would that not be a great idea for New Zealand? The ACT party should fully support that proposition, because it is a low-tax party. How would we ever get there? In Colorado, they got there through a citizens initiated referendum. That is a cause some party might like to take up: a citizens initiated referendum in this country about legally stipulating—and this would go way beyond even Ruth Richardson’s legacy—that the Crown should set its Budget at the beginning of the year and live within it; that the Crown has the right to collect the revenue necessary to satisfy the Budget, but that if there is something over, as has been the case in previous years, it should give it back to the hard-working taxpayer.

I move, That the question be now put.

I start by saying that I believe that the correct title of this bill is the “National Party Envy Bill”. That is the only explanation I can offer as to why the Government is repealing the Fiscal Responsibility Act. That Act, as we have heard from other speakers, is seen as iconic. It puts the brakes on Government expenditure, provides some control, and provides some confidence to the general public that the Government is spending money in accordance with some conditions and restraints. That it is being repealed now is an absolute travesty. Let me make it clear to the Committee that the Fiscal Responsibility Act is outstanding legislation, and the reason it is being repealed is simply envy.

We are told by the proponents of what is taking place that we should not concern ourselves, because parts of the Fiscal Responsibility Act are being incorporated into this Public Finance (State Sector Management) Bill. I say to those people that perception is reality, and that if we repeal this Act we will do a lot of damage to investor confidence. I think that is something New Zealand simply cannot afford to have happen. Our international reputation as a place where people can invest with confidence is intact at the moment, but unless people continue to have confidence, that reputation will be damaged.

We should be in no doubt that Michael Cullen and his cohort are enthusiastic spenders. Some members of this Chamber will recall the fact that the books in 1990 were cooked by the outgoing Labour Government. The person at the heart of that was none other than Dr Michael Cullen. [Interruption] It is right. Now he is asking this Committee to accept that the Fiscal Responsibility Act is no longer needed. He is asking this Committee to condone it being repealed. That is why the National Party will vote against this legislation.

The other point I raise is the arrant, PC nonsense around leadership and management capability in the public sector. We are now being asked to legislate for standard human resource management practice. Any organisation worth its salt would engage in succession planning, career planning, equal opportunities, and minimum ethics standards, but this Government says that we now have to legislate for that. That is the major reason why this bill is 500 pages in length. The amount of repetition and arrant nonsense that I find when I look at this bill leads me to believe that an alternative title could simply be the “PC Act”. This Government is pushing its own political agenda and PC nonsense through this bill, and the rest of the country is being asked to swallow it. I can tell members that the National Party certainly does not accept that.

I move, That the question be now put.

The title of this bill is the Public Finance (State Sector Management) Bill. [Interruption] If the member of the Labour Party wants to make a constructive contribution, he should stand up and do more than move the end of the debate.

The title of the bill is the Public Finance (State Sector Management) Bill, yet I think the Government, or the Minister in charge of this bill, has forgotten the meaning of public finance. It means taxing the public and accounting for spending.

I will raise two points about Part 1 that have become quite obvious during the Committee stage, although we have not received answers from the Minister. We found out that the Clerk of the House had saved the day for the supremacy of Parliament by forcing a raft of changes to Part 1 in the first draft of the bill. As it stood, the bill would have given the executive unbridled power to spend without accountability.

The second point that National felt equally strongly about was the collapse of the independent legislation, the Fiscal Responsibility Act. We learnt from the Hon Lockwood Smith, a former Associate Minister of Finance, that the real reason why the Hon Michael Cullen is so hell-bent on collapsing the Fiscal Responsibility Act is it was introduced under the name of the Hon Ruth Richardson. That bill has served New Zealand well for the last 10 years by keeping various Governments accountable for how they have spent the public’s money. Although we are grateful to the Clerk of the House for forcing a substantial rewrite of Part 1, we are still not very happy with the fact that the Fiscal Responsibility Act is losing its independent status.

Part 2 of the bill, which amends the State Sector Act, raises serious concerns because of the use of the phrase “whole-of-Government approach”. When the Labour Government talks about a whole-of-Government approach, it sends a very strong message about interference in the independence of the public service. The public service is supposed to be apolitical and supposed to be accountable for achieving outcomes that can be expressed and translated into outputs that are meaningful, and that can also be assessed as to whether they are successful. The phrase “whole-of-Government approach” should lead to major concern. It has the connotation of mega-ministries being created, or of the State Services Commissioner, together with Treasury, simply overriding the independence of various Government departments as they carry out obligations and responsibilities under their charge.

We are not convinced by a Labour Government whose policies have, in the first instance, caused some of the worst scandals we have seen. They were unravelled by two hard-working National MPs. The Hon Bill English unravelled the Christchurch Polytechnic Institute of Technology case concerning community education, and Katherine Rich looked into all those hip-hop tours.