Estimates Debate — Vote Revenue

I rise to speak in support of these estimates. I think that what these estimates prove is that this economy is in very good heart despite the international conditions. If we look at the statistics in respect of the economy, we see, as Minister Maharey outlined, that we have the lowest unemployment since 1988, at about 5 percent. We have a $4.4 billion surplus, as was outlined in the Budget, and we have a Minister of Finance who is, as many Opposition members have accused him of being, tight on the fiscal purse. Given the international situation, I think that is a good thing.

I repeat what I said in my Budget speech, and that is I could not quite believe the response of the National Party to these estimates. On the one hand the finance spokesperson, Dr Brash, said that Dr Cullen’s spending promises and fiscal constraint were about on target, and on the other hand Mr English, a Tory leader, accused a Labour Government, probably for the first time in history, of being too tight on the purse strings. I see Mr Peters grinning and nodding; I know he has a sense of history, as other members do. As I said in my Budget speech, normally Labour Governments get accused of blowing the Budget and spending. For the first time, we have a Tory leader who says that our Minister of Finance is too tight on the purse strings, which I think should be noted down in history.

It should also be noted that we have net Government debt below 15 percent of gross domestic product.

💬 Darren Hughes: What?

It is below 15 percent of gross domestic product. We have total Government debt below 30 percent, which, I believe, is one of the commitments we made. If we go back to unemployment and compare our unemployment rate—5 percent—with the average unemployment rate under a National Government, we see that it was, for 9 years, in the order of 8.2 percent. In examining these estimates, we note that this economy is in good heart. This Government is a tight fiscal manager that believes in providing a stable platform for businesses and for our commodity sectors to advance and grow.

But I want to refer briefly to page 7 of the Finance and Expenditure Committee’s report on the estimates—the minority report of the National Party and the ACT party. I note: “The National and ACT members are concerned at the increasing involvement of Government in business, both through grants and taking ownership interests.” I think, to translate the double Dutch, that means they are concerned that we are not going to sell assets. I know that Dr Smith, Mr Hide, and others on the committee have expressed concern that we are not going to sell assets—and Dr Brash; I should give him credit for stating his view. On the other hand, National members have firmly put their position, especially in respect of the Tranz Rail purchase—if and when that occurs—that they would sell those assets. I think it was Mr Sowry who said that the New Zealand public would have to wait and see whether the National Party in Government, if it ever got across the line, would sell that particular asset, and others. With regard to Air New Zealand, the National Party has stated its position, as has ACT—that it would go back on the chopping-block. I think that is something that should be highlighted and noted. I think the National Party and ACT wanted to bury it in the last two lines of the select committee report, but we owe it to the New Zealand people to make that position very clear.

Again, there is a stark difference between the parties. The Labour Government is committed to asset management, to getting growth and revenue out of those assets—Landcorp, for instance, has record growth—so that we can then redeploy that revenue for the good use of our people and our taxpayers. Contrast that with a National Government, which would go back to the tired policies for which it was rejected in two elections—that is, the sale of strategic Government assets. For what purpose we are yet to find out, but I am sure Dr Brash will take up the cudgels and the challenge and outline it to us. I am sure the people of New Zealand, as Dr Brash will also know, are vehemently opposed to asset sales, and that is outlined in Labour’s poll rating of 51 percent and a poll rating for Dr Brash’s party in the order of 20 percent.

I think it is also worth highlighting that these estimates build on a stable platform of—[Interruption] Listen to them. They babble like a bunch of headless chooks. There is one less head today, I am told, with Maurice Williamson gone. But instead of babbling, interjecting, and bubbling away over there, like a lot of ninnies, it would be nice if they made a positive contribution and told us what they would do in respect of their estimates, if they had any, and in respect of their alternative budget, if they had one. As I said in my Budget speech, we could then have a proper debate. The problem is that when we are debating Vote Finance, when we debate these estimates, it would be nice, it would be productive, and it would be helpful to the listeners and the people of New Zealand if some Opposition members stood and proposed some alternatives. If they say we are wrong, if they believe that we are wrong, they are entitled to that view. But, in order to frame that view, surely they have to have a solution or an alternative.

💬 Darren Hughes: What would they do with the cash?

That is very interesting.

💬 Mark Peck: Give it back to the rich.

That is probably true, given that that is their track record. What they say is they will have tax cuts, which the people rejected. What they say is they will have asset sales, which the people rejected. But they do not tell us how they will spend the cash. I wait with bated breath for Dr Brash and Dr Smith to tell us about that.

We are building on a strong platform in respect of these estimates. These estimates continue our commitment to the people to provide an environment where they can grow their businesses, and where we can look after our people in respect of health and education—but we will not go into those areas, of course. They build on a platform of 4 percent growth. What these estimates show is we do have a Minister of Finance and a Government that are prepared to tighten the fiscal purse strings in anticipation of a rocky road internationally. I would have thought, and given the poll rating I think the people of New Zealand share my view, that that was the prudent thing to do in respect of our economy, and that that was the prudent management structure we should adopt when we do not really know what is going to happen internationally. I would have thought that a Tory party would agree with that. But, of course, we saw in Budget speeches and in other places that it does not. On the one hand, National has a leader who says we should spend more. On the other hand, its official spokesperson on finance, Dr Brash, says we are on the right track and we should spend less.

I conclude by endorsing these estimates. I think they are sound. I think they answer the critics across the board, and they provide a platform whereby people in this country can prosper, and whereby we can be socially responsible and look after some folk at the same time as we build a foundation where businesses can grow.

I finish with a small piece of advice for Opposition members. I am sure they could win some brownie points from the members of the public who are listening to this if they got up, as their next speaker will—I am sure it will be their finance spokesperson Dr Brash—and told us in this Chamber and the people of New Zealand exactly what they would do. I respect their right to be critical of us. That is the role of an Opposition—weak as dishwater as it is. But part of the role of an Opposition, I would have thought—not having been part of one—is to propose.

💬 Rt Hon Winston Peters: Won’t be long now.

Some genius over there said we will be the Opposition. I say to that genius, whoever it was, not to be so arrogant, and to listen to the people and look at the polls. I wait with bated breath, on the wings of angels, to hear Dr Brash and his alternatives for this country as he tries to demolish a substantial, fine, and solid set of finance estimates.

Mr Cosgrove made reference to the fact that the economy has been buoyant in recent times, and indeed that is absolutely true. But as I have pointed out a number of times in this Chamber, the reasons for that good growth have nothing at all to do with the present Government’s policies. The latest strong growth, last year, was due to the fact that in 1999, 2000, and 2001 the exchange rate was at an all-time record low. It started falling in 1997, when Mr Peters was Treasurer, and it declined right through 1997, 1998, 1999, and into 2000. That was the first reason we had strong growth. Secondly, we had strong immigration, caused by the very uncertain world economic environment—September 11, and similar factors. That had nothing at all to do with the present Government. Then we had good growing weather, and even Dr Cullen would not claim credit for that.

I will claim credit for the fact—often ignored in this Chamber—that through 2000 and 2001 we had damn good monetary policy that kept the economy moving at a brisk pace. None of those things have anything to do with the present Government’s policies.

We are debating an appropriation of roughly $57 million for funding the Minister’s Treasury advisers. My worry is that the Government appears absolutely hell-bent on ignoring Treasury’s advice. In 2001, a Treasury economist estimated that if this country were to overtake the top half of the OECD within a decade, it would require per capita growth in income levels of between 4.5 and 7 percent per annum. What did we get? We have a Government that appears to have abandoned any attempt to reach the top half of the OECD. In fact, it has explicitly denied ever aiming at that objective. The Government did aim at that objective, but it has now had to acknowledge that there is not a dog’s chance of meeting it. Far from trying to meet that objective, almost every single policy the Government put in place is designed to slow down the economy.

For example, Mr Cosgrove referred to the fact that this Government is committed to holding on to all State-owned enterprises. Yet we have Treasury advising the Government that the case for doing that is relatively weak—reported as recently as in last Sunday’s Sunday Star-Times. This Government puts its finger in the air and says what does the public—the lowest common denominator—want? There is no attempt to explain to the public why it makes sense to sell most State-owned enterprises.

Mr Cosgrove referred to the fact that Government debt was down because the Fiscal Responsibility Act had mandated strong surpluses, which he says this Government has continued. But most of the public sector debt reduction occurred during the term of the last Government—a result of large fiscal surpluses and the sale of certain State-owned assets. Instead of explaining to the public why that made good sense, the Government simply says: “Whoops, the public have not understood this issue. They do not understand why Treasury is telling us to continue this policy. We will simply stop the policy because that is what the public wants.” There is no attempt to explain to the public that unless the growth rate of the country is picked up, this society will not survive.

What do we have? Over the last 10 years we have had per capita growth in incomes of 2.5 percent. As Treasury pointed out, that is not as good as we need, but it is nevertheless better than it has been in the past. Looking forward, what do we see? We see an economy that the Minister’s own Budget documents suggest will gradually slow down. It is based on an assumption that productivity per person will continue growing at about 1.5 percent per annum. That is about enough to get 1.5 percent per annum growth in per capita incomes—about one-third of that estimated to be required by Treasury in 2001.

What on earth is the point of spending $57 million on Treasury advice when the Government simply ignores that advice? It listens to what the public is saying in their partial ignorance, and says that whatever the public wants, we will do—even if that is suicidal for the long-term future of this society. That is an abrogation of responsibility. It is focus-group politics—do whatever the lowest common denominator of the public wants; do not try to explain to them why different policies would make sense. As recently as last Sunday, the Treasury reported in the media a relatively weak case for holding on to most State-owned enterprises. The Minister simply says that we said we would not sell them, therefore we cannot. What on earth is the point of paying for good Treasury advice when the Minister routinely ignores it?

In some cases the Government does not even seek Treasury input. The other day my colleague Bill English made the point that when Mr Mallard announced $34 million for the America’s Cup, he did so with no evidence at all that Treasury had been consulted. Cabinet papers apparently make no reference to any check with Treasury in respect of that $34 million. Why? I suspect it is because the Government knew perfectly well that Treasury would suggest that it was an ill-advised use of taxpayers’ money.

This Government talks about the need for economic growth. It has had it very easy for the last couple of years, for reasons beyond anything it could control. It is forecasting a slowdown in growth, and it is doing nothing discernible to increase that growth rate. That seems to me a serious indictment on what the Government is doing.

Let me talk briefly about tax. The Government said in 1999 that it would increase the income tax rate from 33 percent to 39 percent, but that would affect only 5 percent of taxpayers. We now know that that increase in the tax rate affects 10 percent of all taxpayers, and the almost 20 percent of full-time earners who are now in the 39 percent tax bracket. We know that many New Zealanders paying less than that are hardworking, diligent workers, but we also know that the people in that 39 percent tax bracket are, by and large, those with the most skill, the most incentive to innovate and invest—and those are the ones who have the most option to leave. If we are serious about economic growth, we cannot afford a situation where roughly 20 percent of full-time taxpayers are into the 39 percent income tax bracket—which means that almost half the income earned above $60,000 goes in a combination of income tax and other taxes. This is a Government that talks about a need for growth, but at every step makes it less likely.

Quite apart from that increase in tax—which was at least acknowledged by the Government before it was elected in 1999—there has been a whole plethora of other tax increases that it did not talk about at all before the election. We have seen the tax on income from trusts going to minors increased from 19.5 percent to 33 percent, and there was no advice of that before the election. We saw the tobacco excise tax increased in 2001 by 23 percent. We saw an increase in the excise tax applying to petrol last year.

The Government is very happy to debate the advice it receives from Treasury. As Minister of Finance, I get hundreds of recommendations each week from Treasury. It is not like being Governor of the Reserve Bank where every 6 weeks he or she gets to make one decision—I get to make hundreds of decisions every week, and in the vast majority of cases I agree with Treasury. But the member is quite correct, every now and then I disagree with Treasury.

Let us sum up Dr Brash’s prescription for growth, and let us measure it against the past and what has happened, and whether it will work, and why I do not get the advice he seems to think I get all the time. His first prescription is to flog off the State-owned enterprises. That has been a great success for Tranz Rail, has it not? That piece of movement has really been dynamite in terms of generating growth! [Interruption] It must be coming up to lunchtime, the member opposite has woken up. Second, he would flog off New Zealand Post. How would that drive stronger growth when New Zealand Post is doing very well already? Of course, we saw it work with Air New Zealand, as well, did we not? We saw our national airline going down the tubes following privatisation.

💬 Rt Hon Winston Peters: Who did that?

The fourth Labour Government did that. Mr Prebble did that. It was a stupid mistake to do it.

We pass on to the second prescription for growth: do everything Treasury tells us. The Minister should just become an overpaid rubber stamp, paid about $180,000 a year to plonk “ Yes” on the page. Why not just buy somebody out of Work and Income New Zealand to do that particular job and save $150 to $160 a week? That person could be on a work scheme, and all he or she would have to do would be to sign off every Treasury recommendation, while being called the Minister of Finance.

Sometimes Treasury makes recommendations that I do not agree with. Sometimes Treasury makes recommendations contrary to Government policy. Lo and behold, we do not always agree with them. But in the vast majority of cases we do, because Treasury officials offer good, solid, independent advice. But they would not claim to be absolutely always right in every instance.

💬 Rt Hon Winston Peters: They must have changed!

They have changed since that member was the Treasurer. Treasury does not now believe that it holds all the knowledge in the universe. The people who thought that have long since departed this life.

The third prescription for growth is not to listen to the public. The public do not know what is going on, especially those people paid under $60,000 per year. Their opinions do not count for anything in the world in which Dr Brash lives. The fact that they happen to be 90 percent of taxpayers is neither here nor there; they are just the public, and the public are mean and self-grasping. As far as Dr Brash is concerned, they put their interests first—unlike the situation in the pure market economy, which is supposed to work because people put their interests first. But never mind, we are not worrying about the logic as we work through all of this. Public choice theory states that the public have a right to be wrong, and politicians might occasionally listen to them if they want to. If the member wants to run on a platform of flogging off the State-owned enterprises, doing everything Treasury tells him, and not listening to the public, 21 percent will seem a very, very high target for the National Party at the next election. The 5 to 6 percent that ACT gets is about what that policy rates in terms of public support.

Then there is the bit Dr Brash did not mention, which is to slash public spending. This Government holds to a policy of Government spending growing at about the same rate as nominal gross domestic product (GDP) over the medium term. The figures show that Government spending has remained constant as a proportion of GDP, and is projected to continue to do so, declining slightly as time goes on. Dr Brash says that we should increase it by the rate of inflation only, which is 2 percent on average, versus 5 percent. It does not sound much, but it is $1.25 billion cumulative on top each year. By the end of 3 years, we are looking at $3.75 billion per year in spending cuts.

As Dr Brash said to the National Party conference, one cannot do that by fiddling around the edges, especially when his colleague Mr Ardern called for big increases to Department of Conservation spending today. Dr Lynda Scott is always calling for increases to health spending, the law and order spokesperson is always calling for more spending on courts, prisons, and police. I have yet to find anybody in the National Party who calls for a reduction in spending in his or her area; it is always in somebody else’s area. Even Georgina te Heuheu does not call for a cut in Māori spending. A sum of $3.75 billion has to be carved out, and that has to come out of the big votes, which are health and education.

I pick up where my honourable colleague Don Brash left off. When we look at the tax revenue figures in this year’s estimates and compare them with what this Government inherited, it is interesting to see that when this Government took over, it took $32 billion, in round figures, in tax. This Budget, over the next 12 months, plans to take $40.5 billion, in round figures. That is a huge increase in tax. I want to have a brief look at that.

We all know that the Government has put up the tax on people earning over $60,000. The Government stated that it would be 5 percent of taxpayers only, but, of course, as we now know, it is 10 percent of all taxpayers, and 20 percent of those are full-time earners. The Government said that it would do that, but what about the fringe benefit tax going up? What about the income tax on trusts going up? What about resident withholding tax on interest and dividends? All that is going up. The Government did not talk about that, prior to being elected this term.

We know about the tobacco tax going up, we know about the petrol tax and road user charges going up, we know about the accident compensation levies going up. On my business alone, since this Government renationalised the Accident Compensation Corporation, my accident compensation payments have trebled. Dr Cullen frowns. He does not run a business, so he would not know. That is all revenue. Even the cost of getting married has gone up. Marriage licences and drivers’ licences have gone up almost 50 percent. Government taxation and revenue is going up and up.

One lot has come down, and that is the tax on Māori businesses; the tax on Māori businesses has come down to 19.5 percent. But the doozy of them all was the sherry tax. Jim Anderton came to this House and said that the Government aimed to put up the tax on the drinks that young people drink—the alcopops. What happened? The alcopops got off scot-free, and the Government taxed the old folks’ sherry. One could say that that is a joke, but it is actually serious, for the reason that, clearly, the Government did not do its homework. It was a knee-jerk reaction. The Government was concerned about public reaction to young people’s drinking—which is a serious issue, there is no doubt about that—and thought that it could do something about the problem by a tax on young people’s drinks.

I can see some members opposite who know that that is what was supposed to happen. But what happened? Jim Anderton came to the House with a bill that did not do what the Government thought it would do. It did not tax the alcopops. It taxed the old folks’ sherry.

I want to focus on the latest move by this Government, which is the flatulence tax. The Minister in the chair, Michael Cullen, may claim that it is not a tax but a levy, but when it looks, sounds, moves, and smells like a tax, and everyone thinks it is a tax, it is a tax.

I want the Minister in the chair to tell the Committee what research he or his advisers have done on this tax. Is it like the alcopops tax? Is it a politically correct move with no basis to it, at all? I want the Minister to tell us what study, research, and advice the Government has had on the half-life of methane in the atmosphere, how long methane stays around, the stability of the background levels of methane in the atmosphere, what causes most methane to be in the atmosphere—which is certainly not ruminant animals—and what advice the Minister has received on the chances on altering, through that tax on ruminants in New Zealand, the level of methane in the atmosphere by any measurable amount, at all.

I challenge the Minister to tell us what advice he has had on the ability of this tax to alter the level of methane in the atmosphere in a measurable way, at all. I suspect that, if he talks to some scientists who know something about the chemistry of methane, he will find out that, first, it does not last long in the atmosphere. Methane is very unstable and degrades very quickly to carbon dioxide. It does not produce any more carbon dioxide than the methane that we already have. Secondly, there is a background level in the atmosphere that probably is largely the result of forests rotting. It is certainly not the result of eructation from ruminants. I want to know whether it is just another cock-up like the sherry tax.

The balance sheet of the nation is in great shape. Gross and net debit debt levels are better than target, and the international rating agencies have continued to award the New Zealand Crown a triple A rating, equivalent to that of the USA, Japan, and Germany. However, the same cannot be said of the nation’s balance sheet. New Zealand is already the most indebted country in the OECD, and the Budget projections forecast a deteriorating current account deficit over the next 4 years, totalling a whopping $26 billion. Media commentators and others have asked me whether we should be concerned about those trends. I believe we should.

It is as simple as asking oneself whether one is better off with or without a large mortgage on one’s house. We all know that freehold property is a desirable objective because we are then freed from the ongoing cost of servicing the interest and principal repayments on the mortgage. The same is true for New Zealand as a nation. According to the OECD report of 2001, servicing charges paid to overseas investors in New Zealand during that year totalled around $9 billion. That absorbed some 21 percent of our export income. As our debt level rises, that percentage will also rise, so that more and more of the funds that we earn by exporting will go into debt servicing.

Further, increasing debt means that New Zealand will face higher interest rates than other OECD countries in the future. We already have the highest rates now, and that trend is likely to continue. In the short term, that will appreciate our foreign exchange rate, but in the longer term it is bound to depreciate it. Simply stated, debt is not the route to wealth or sustained economic growth unless it is wisely invested to achieve a rate of return to our economy over and above the cost of the funds borrowed.

If we are to turn that situation around and move on to a path of sustained economic growth for the New Zealand economy, I believe we need to address a number of issues. Firstly, greater encouragement needs to be given to private savings. The New Zealand Superannuation Fund, supported by United Future, makes a contribution to national savings, but I believe that, in addition, greater encouragement needs to be given to private savings. Secondly, I believe that personal income tax brackets need to be adjusted, at the very least, to reflect inflation. That would move the present bands from $9,500, $38,000, and $60,000, to about $10,500, $42,000, and $65,000. I believe that the Government has erred in not making those adjustments, which would have meant tax reductions for all taxpayers. As a result, New Zealanders are now over-taxed.

For a similar reason, we should immediately reduce the company tax rate to 30c. Since interest rates are higher in New Zealand than in Australia, we cannot, in my view, afford to continue to run a higher tax rate. Companies are the engine of the New Zealand economy, so we need to depress the accelerator a little and speed that engine up.

I strongly believe that New Zealand’s economic interests would have been better served by the Government had it chosen to adopt United Future’s policy of indexing the tax brackets and cutting the company tax rate to 30c, in the new Budget year. [Interruption] I note that the ACT party, apparently, is in opposition to those two commonsense measures, and I will remind them of that at the next election.

This would have provided fiscal stimulus to the New Zealand economy at the very point at which it was most needed. Budget projections clearly indicate that we are looking at a halving of the growth rate—from 4.4 percent in 2002-03, to 2.2 percent in 2003-04. Surely in those circumstances, and given the size of the surplus—which, incidentally, continues to run ahead of forecasts—we have a perfect opportunity to use fiscal policy to cushion the downturn, minimise its duration, and establish a pathway back to strong growth later this year. In the absence of fiscal stimulus, we are now entirely reliant on monetary policy—a much more indirect route.

I note that in interpreting these economic trends a number of economic commentators have suggested that the Minister of Finance act sooner rather than later to stimulate the economy through tax cuts or equivalent—perhaps as part of a Christmas package. Should he choose to do that, he would certainly have United Future’s support. I am also deeply concerned that New Zealand has saddled itself with an unbalanced process in relation to the conservation estate.

What is in a comma? There is not a lot in a comma. One can miss it out easily enough; there is not a whole lot. But in this Minister’s vote there is a comma that moves an amount that, in my opinion, should be $4 million, to $4 billion. That is right—$4 billion! And where is it going? It is going to the New Zealand Superannuation Fund, otherwise known as the “Cullen fund”. How much of the $4.018 billion will be staying in New Zealand? Absolutely zippo is my suggestion—absolutely zero. Why? Because the New Zealand Superannuation Fund has a target of 9.4 percent as a rate of return—9.4 percent on $4 billion. There is more chance that we will see Elvis in the debating chamber tonight than that the Government will achieve 9.4 percent. That is a blended average of 11 percent on equity, and 6 percent on bonds. I do not think so. Last time I looked, New Zealand Government stock had a big handle of 4 percent on it and it is going down. The Government will not be earning 6 percent there. It will not be earning 11 percent on equities, and it will not be earning 9.4 percent as a blended average.

This has all the hallmarks of the Government Superannuation Fund about it, and we know what happened when the Government got that money. It sent it off shore and lost $353 million before one could say: “Elvis Presley”. That is how quickly it lost $353 million. This is a disaster. Why has the money not gone to Auckland’s roads? I will tell members why. They are not a priority for this Government. Before Transit was nobbled on its 10-year plan, Auckland had 11 of its top 20 projects. Now it has three. The only reason it has three is that the projects have already started and it is too late to stop.

So which projects have gone up the list? Let me have a look. The Rimutaka corner-easing project has flashed up from No. 92 to No. 14. Whose electorate is that project in? That is right—the Hon Paul Swain’s electorate. Let us move up a bit to Waikato. That project has gone from No. 82 to No. 60. What electorate is that project in? That is right—the Hon Mark Burton’s electorate. Let us move up a little bit more to project No. 25, which has gone to No. 9. Whose electorate is that in? Jim Sutton’s! I am watching a trend here. Then what did I find when I had a look the other day at Transit’s board? Here is a rhetorical question. Who is on the board of Transit?

💬 Rodney Hide: Who is it?

Mike Williams—Labour Party president! Well, do not tell me it is a coincidence that Jim Sutton’s pet project has all of a sudden gone from No. 25 to No. 9. Do not tell me that it is a coincidence that the Hon Paul Swain’s project has gone from No. 92 to No. 16. So that is what is happening to the New Zealand Superannuation Fund. It is not going on Auckland’s roads, because Auckland is not a priority. That is why projects are not taking place.

I want to speak for just a moment on the advice that Treasury gave the Minister of Finance regarding Track Co. We had the Minister in front of the Finance and Expenditure Committee and we asked him the hard question: will $100 million be enough? We asked him whether Treasury was giving him any advice that might indicate that $100 million to repair the rail-track network, when he took it over from Track Co., would be enough. “Hmm”, said the Minister. No, he was not sure whether that would be enough. “It sounds a bit light.”, he said, as he wiped the sweat from his brow, knowing that we, the aggressive Opposition parties, were on to it. “Ah, yes. I have had some advice,” he said, “from Treasury. That’s why I pay them—”

💬 Darren Hughes: This is a fairy tale.

No, it is not a fairy tale, “Dazza”. “That’s why I pay them $57.061 million. I pay Treasury for some very sound advice.” What Treasury told him—but he would not tell us, because he pays the bill, we know—was that $100 million would not fix up the bridges on the West Coast. The sum needed is not $100 million. It is not $200 million, $300 million, or $400 million. It is hundreds of millions of dollars. So where will that come from? I know. It is a good idea to raise the top personal tax rate—again!

Well, after that rather light-hearted contribution from Mr Key, I would like to reflect on Vote Finance, which is under the capable responsibility of Dr Cullen, the Minister of Finance and Deputy Prime Minister. The adequacy of the management of his responsibilities can be gauged from the $4 million Budget surplus before capital obligations that is estimated to be the outcome of this Budget. That surplus is before capital obligations, which include $1.8 billion going into the New Zealand Superannuation Fund in order to fund superannuation more sustainably, well into the future. That leaves a $1.4 billion surplus after those capital adjustments, and that is after substantial additional votes going to the areas where taxpayers want to see that money focused.

Health is getting an increase of $737 million, which is a 9 percent increase in funding—well ahead of inflationary increases. Education is getting $481 million, which is a 6 percent increase—again, well ahead of inflation. This is being done in an environment in New Zealand in which growth is about 4 percent, which is one of the highest rates in the OECD, and unemployment is at a very low 5 percent—one of the lowest rates in the OECD. Crown debt levels are at their lowest since Treasury began collecting data in 1971. Gross debt was at 36.8 percent of the gross domestic product (GDP) when the Labour-led Government took over from National, and over the next year or two that goes down to 23 percent of GDP, which is a very substantial decrease. Net debt drops even further to 14 percent of GDP.

Now, against that background, I wondered what Dr Brash was going to come and say to us today as we debate Vote Finance. He gave us again his edited view of the growth prospects of New Zealand, and when I hear that, I like to reflect on what he said at the time of the Budget. On 15 May 2003 Dr Brash stated in the Dominion Post that the rate of projected growth is too slow to narrow the large gap between us and Australia. He said that the rate of projected growth “is too slow a rate to narrow the large gap in living standards between New Zealand and Australia that emerged during the 1970s and 80s.” I read that, and I thought it seemed very strange that the 1990s were not mentioned in that quote, so I went and had a look at the statistics, which make for interesting reading. Comparing New Zealand with Australia, I find that Australia was No. 10 in the GDP rankings within the OECD in the 1980s, and New Zealand was 18th.

The 1980s were, by and large, the decade of Labour Government. During that decade New Zealand went back by one place, as against the Australians who went back by six places, from 10 to 16. Clearly, the New Zealand performance was better during that decade of Labour Government stewardship.

I look at the next decade of the 1990s, which seems to have escaped Dr Brash. It was the decade of National, and the decade when Dr Brash was in charge of monetary policy, strangling the productive parts of our economy. During that decade New Zealand started at position 19, and went back a position, to position 20. During that same decade Australia—to which Dr Brash now doffs his cap—charged forward from position 16, up to position 12. During the period under the National Government, Australia went forward and New Zealand went back.

What is Dr Brash’s prescription for an alternative? His alternative to the very wise Budget under the direction of the Deputy Prime Minister and Minister of Finance, Dr Cullen, is to go back to those failed National policies, which would see New Zealand charge backwards in comparison with Australia. This Government will not allow that to happen. These appropriations are most appropriate, and I recommend them.

It is time for Labour to listen, and it should start by listening—

💬 Rodney Hide: To the Greens?

—to the Greens, too; I thank Mr Hide for that. However, let us start with the advice of the Government-dominated Finance and Expenditure Committee, of which Mr Hide is a member. And I am actually talking about last year’s advice, because it is always important to look at what we were proposing in the previous year, to see how well the Government has done in terms of what it is predicting for the coming year.

Last year the Finance and Expenditure Committee said: “We would expect the Government Superannuation Fund Authority to reconsider its investment strategy in the light of its recent losses to determine whether its level of investment in overseas equities is appropriate, and whether to amend its strategy to reduce its exposure to less reliable investments.” Has it done that? I would say no, because the Minister of Finance stuck his neck out 2 years ago, and said that investing on the overseas sharemarket would make more money than keeping the Government Superannuation Fund in Government Bonds.

The Government Superannuation Fund Authority is still planning to invest 42.5 percent of its fund on the overseas sharemarket, despite suffering substantial losses since embracing this strategy. Yes, we are grateful that it has reduced its target from 52.5 percent to 42.5 percent, but that is cold comfort to the country, the members of the fund, and all the rest of the taxpayers who have to make up the difference. The consequence of ignoring the Finance and Expenditure Committee’s advice last year is that the unfunded liability of the Government Superannuation Fund has gone up by $2.4 billion in 1 year. I know that Dr Cullen will say that that is mainly due to the discount rate, and that is true. But the fact is that the fund itself was estimated to be worth $2.99 billion at the end of June this year—that is what the statement of corporate intent says. That is $590 million less than when Dr Cullen set up the authority.

Dr Cullen said the Government Superannuation Fund would earn 2.9 percent more than Government Bonds—that was his whole rationale for doing this. What did Government Bonds earn over the previous 5 years? They earned 8.96 percent. What is the Government Superannuation Fund Authority’s new investment target for 2003-04? It is a 9 percent return on its overseas investments.

Can even that target be believed? Last year the target was 9.6 percent on the overseas investments. Overall, for all investments, the forecast net return from investment activities was $272 million. What is the authority’s new investment estimate? It is a $6 million return on investment activities—that is the total, overall estimate for the year ended June 2003, compared with the projection of $272 million. That is an absolutely appalling result, which exposes the disaster of this Government’s policy of taking the Government Superannuation Fund and putting it on the overseas sharemarket.

Last year the authority predicted a net increase in net assets of $83 million; its new estimate is a decrease of $193 million in net assets. I am sorry to say it, but “We told you so.” We are telling the Government that the same thing is about to happen to the New Zealand Superannuation Fund, which is commonly known as the “Cullen fund”.

The Government is planning to hand over $3.8 billion in this financial year to the so-called Guardians of New Zealand Superannuation—to do what with it? To invest it on the overseas sharemarket. Given that the Government Superannuation Fund has failed to meet its own performance targets, why follow the same investment strategy for the New Zealand Superannuation Fund? We urge the Government to think again, and to listen to its own advice, and I am referring in particular to the recently released social report.

As one of the two examples of significant cross-sectoral issues that are highlighted in the report’s conclusion stated: “It is common knowledge that the New Zealand population is ageing.” It goes on to state: “What the social report makes clear is that outcomes for those currently young, who will be the workforce when the baby-boomers retire, are not good. Youth suicide, youth unemployment, and children living in families with low incomes do not bode well for the skills and resilience of New Zealand’s future workforce.” Here is the key point: “Counter-intuitively, one of the best ways to prepare for an ageing population may be to invest in the young.” That is exactly what we want this Government to do.

I say to the member who preceded me, and also to the National Party members opposite who have been chortling throughout the previous contribution, that I am surprised at their lack of confidence in capital markets. I would have thought that John Key, in particular, would understand that it is important for this Parliament to send very strong signals about the importance of capital markets in our economy. Indeed, I say to the member who preceded me that I am looking forward to the time when he retires and is sitting in a rest home, when he will say to Dr Cullen: “Thank you very much for actually thinking about my future.” The Superannuation Fund is there to ensure that we can meet our obligations about decency, which we have determined as a nation.

When we say that at age 65 we get 65 percent, it has to be paid for. We know that the demographic change in this country has set in in such a way that unless we pre-fund that even in the partial way that this fund does, we will be in trouble in the future in terms of meeting our obligations for superannuation for our population.

I also say to the member who preceded me that he should read today’s Dominion Post and look at the comments about the need for people to save, which will be made at a superannuation conference that I believe will be held on Wednesday this week—Dr Cullen may well know more about that—by someone who worked in Dr Cullen’s office.

What I find fascinating in this debate is the lack of confidence in capital markets. Capital markets have no memory at all. What John Key and others are talking about is putting money into housing and getting it out of capital markets. Well, Don Brash, who led off for the Opposition in this debate, made some considerable comments in his time as Governor of the Reserve Bank about people putting money into productive enterprise. That is what he wanted to see. Indeed, in response to a question from Dr Cullen at one Finance and Expenditure Committee meeting, he really held out the hope that one day we would have a capital gains tax. He thought that that was a great idea. I notice that he has not espoused that today.

When we look at the report of the Finance and Expenditure Committee on the finance estimates, the Fiscal Strategy Report, and so on, we note in the headlines that a number of the issues that that committee has to grapple with are directly the result of the poor planning of previous Governments. I look through here and see the accountability processes for Air New Zealand. As Dr Cullen said, what a great success the privatisation of Air New Zealand was—to such an extent that we nearly did not have a national carrier! It is good to see that the select committee is now seized of the need to look at some accountability measures. That is progress. At least the select committee has some interest.

We then look at Tranz Rail—what another absolute cracker for privatisation! Anybody with half a brain looking at a country the size of New Zealand with a long skinny corridor would realise that a company such as Tranz Rail is probably a very good national monopoly, but it has been flogged off. We are now in the position as a Government where we have to do some things to make sure that at least we have a track for trains to run on, into the future. It is good to see that the select committee has been seized of that.

We then look at Auckland’s infrastructure. I come from Invercargill, and ever since Zinzan Brooke scored a try against Southland that was not a try, and admitted at the after-match function that he never got the ball down, we in Southland have not had a great love of Auckland. However, when we see that the regional council in Auckland has to put rates up by 600 percent, it tells us that there is a problem. People in Southland understand that if the gridlock in Auckland is costing the nation $1 billion, then something needs to be done about it. The fact that this Government has taken on board the need to do something about infrastructure in Auckland is a good thing.

💬 John Key: Why didn’t the Government spend anything in the Budget on it?

The numbers in the Budget are very good indeed. They have shown a Government that is committed to keeping the country growing in a sustainable way, and to using the money that it collects in a wise and prudent manner, as it provides the services that the public believe to be necessary. We have done enormously good things in health, in education, and in the social services. I know that with Dr Cullen at the helm into the future this will be a very good Government for the people of this country.

Now that the Minister, the Hon Dr Michael Cullen, is back in the chair I would like to question him about the quality of the advice he has received from Treasury in respect of certain revenue policy matters. It is common knowledge in this Committee that when the Government introduced its increased tax on alcohol, which took the tax from $21 to $38 per litre on beverages with an alcohol content of between 14 and 23 percent, it was aiming at the alcopop market.

💬 Hon Dr Michael Cullen: No.

Dr the Hon LOCKWOOD SMITH: If members check Hansard they will see that Jim Anderton said, when he introduced the legislation, that it was aimed at combating youth drinking. Quite clearly, the policy has failed totally, because it did not hit the drinks that young people drink—unless Dr Cullen thinks that young people drink sherry. That tax increase hit sherry drinkers instead of young people.

When I was formerly the deputy Minister of Finance, the Treasury advised on increased taxes. I want to know from the Minister in the chair whether Treasury advised the Government on that increased tax and on its effectiveness in dealing with youth drinking issues. If Treasury advised the Government on that, did its advice point out that the tax the Government proposed to bring in would not even hit the drinks that young people drink? If Treasury did not point that out, what is the Minister’s assessment of the quality of its advice—or was it the case that Treasury did point that out, and the Minister took no notice?

We are debating important issues this afternoon—the $50 million - odd that this Parliament appropriates for Treasury to advise the Government. That tax was clearly a cock-up. Whichever way we look at it, no one on the Government side of the Chamber can claim that the Government planned to hit the old folks with a sherry tax. That was clearly a stuff-up. As we appropriate $56 million to the Treasury, we as a Parliament have a right to know what the advice of Treasury was on that matter.

My second issue in respect of Treasury advice is that I want to know what Treasury has advised with regard to the “flatulence tax”. I want to know whether Treasury has advised the Government on the time that methane exists in the atmosphere. I want to know whether Treasury has looked at what the Government has proposed to impose on our primary agriculture industry in terms of revenue gathering, and whether it has advised the Government that it has the remotest opportunity at all to change the level of methane in the atmosphere through playing around with ruminants’ eructation levels. If the Government is to go ahead with that tax without Treasury advice it is worth us knowing that, because we will then know we are spending this money on Treasury for no purpose. If Treasury has advised the Government on that tax, then I want to know the quality of its advice.

Has Treasury looked at the level of methane in the atmosphere? I know that it used to do that kind of work. It would advise the Government on all those sorts of things, and would not just rely on other departments. Has Treasury looked at the length of time that methane lasts in the atmosphere? Is it a few hours in daylight hours? If a ruminant animal belches out some methane this afternoon, will it still exist in the atmosphere tomorrow morning? The answer is that probably no, it will not. Yet millions of dollars will be taken from farmers in this country, putting them at a competitive disadvantage, when the methane that they are supposed to damage our environment with does not hang around.

What is more, has Treasury advised the Government on the background level of methane in the atmosphere? Has Treasury advised the Government on our ability to change that level one iota? By that, I mean change it perceptibly at all—not just change it by 1, 2, or 3 percent. If the Government is to go ahead and tax New Zealand’s farmers millions of dollars that Australian or American farmers do not have to pay, this Labour Government is just imposing more anti-competitive policy on New Zealand. What is the quality of the advice that the Government is receiving? Is it that the Government has gone headlong into the Kyoto Protocol, and is now so caught up in it that it does not know what it is doing and what damage it is doing to this economy? Is it just that the Government has to be seen to be doing something, because it is determined to implement the Kyoto Protocol, come hell or high water?

Someone has told the Government that ruminants eructate methane into the atmosphere, and that methane is a terrible greenhouse gas. The fact that it does not stay in the atmosphere for very long has not occurred to the Government. I want to know what advice the Government has received on methane emissions, and what the quality of that advice was.

I want to take up where I left off, by saying I am deeply concerned that New Zealand has saddled itself with an unbalanced process in relation to the conservation estate. Since the enactment of the Conservation Act it comes as a surprise to most New Zealanders to find that, effectively, no new hydro schemes or tourist facilities have been built on conservation land, even in circumstances where the proponents of such desirable activities, which would boost our economy, could readily have agreed to conditions that would have led to a net gain in conservation values. That makes no sense. We are shooting our own economy in the foot and closing off win-win situations, sight unseen in many instances. For that reason, United Future has formally asked the Government to undertake a review of the Conservation Act, in the interests of balance and common sense.

I also want to refer to the decongestion of land transport in Auckland. United Future believes that the nation must assign urgency to the resolution of Auckland’s congestion. The prize will be a gain estimated to be in the region of between $1 billion and $1.5 billion each year. On current projections, completion of the decongestion network could extend beyond 10 years. In view of the high stakes involved, that is unacceptable. For that reason, United Future favours a speedy commitment by the Government to the funding of Auckland’s land transport needs through borrowings. That could take the form of private-public partnerships or—this may, indeed, be a cheaper route—borrowings by the Crown itself.

The opportunity to borrow is presented to us because of the strength of the Crown’s balance sheet and its triple A credit rating. Both bridging and, say, 30-year-long borrowing mechanisms should be explored and employed. Let us remember that we will save between $1 billion and $1.5 billion in each year that we are able to accelerate the completion of the network and see transport in Auckland once again moving freely. There is a great deal of debate in this Chamber about our inability to fast track a free-trade agreement with the United States, and estimates were that that would yield a billion dollars a year to our economy. Here we are looking at saving a billion dollars by decongesting Auckland.

I appreciate that funding the repayment of the loans would need to be thought through carefully. Where funds are borrowed and can be repaid at the other end of the bridging period, then the only cash-flow requirement will be for the interest payments. Where longer-term loans are involved, then a source of both interest and principal repayments will need to be found. That could take the form of tolls, an increase in petrol excise duty, congestion charges, or something similar. We must, for the sake of our economy, be creative, get on with the job, and realise the economic benefits as soon as is practically possible.

Another point I want to mention once again is that United Future believes that our economic growth can be both sped up and smoothed by endeavouring to grow New Zealand’s annual population in a way that will add at least 0.5 percent per annum to gross domestic product (GDP). That area has been woefully researched to date. We have failed to establish the linkages between economic growth and population growth, or to adopt a highly flexible immigration policy based on the resultant net population increase goal. For too long we have followed a boom-and-bust policy, which in recent memory has actually seen negative net migration in some years when the number of departing Kiwis has comfortably exceeded the number of new immigrants. By contrast, in 2002 we saw a huge boost to our population and to our GDP growth rate, as returning New Zealanders boosted near-record numbers of new immigrants.

There is a truism about setting goals. If one has no goals one will, by definition, never know whether one has achieved them. United Future believes, therefore, that we are better to set a population-growth goal, including immigration, on the basis of robust research, so that we can plan our future on a systematic basis.

I want also to mention the important role that increasing research and development expenditure can make to our economy. United Future will support the efforts of the Government to incentivise research and development by private industry in New Zealand, and we would even look at changes in the tax system, if that is the way to do it. There is another aspect, too, that would be in our policy mix, and that we need to see greater effort given to. This time it is really a matter for the Minister for Economic Development and his Associate Minister—that is, to foster sector cooperation, so that the necessary critical mass is created for joint marketing and pricing initiatives by New Zealand, in order to penetrate markets and maintain our exports of value-added products.

I thank the Minister of Revenue, who is the Minister in the chair, for giving me a chance to whack him for 5 minutes.

💬 Darren Hughes: Someone’s got to help the ACT party.

Well, someone has to point out for the benefit of Darren Hughes what is happening in this country. For the Minister’s information, I am looking at page 1117 of the Estimates of Appropriations, which provides $113 million for audit functions.

We have a Government that wants our country to become richer, yet its very policy is to punish the rich. Members should ask themselves how that works. We have heard today from the Government that it does not want to give taxation cuts to the rich. Indeed, what it did was to put up taxes for the rich. What was the Government’s definition of “rich”? It was that anyone who earns over $60,000 is rich, and should be punished with a tax rate of 39c in the dollar. We on the Opposition side of the Chamber oppose that. We say that the way to run a proper tax policy is to have simple rules that are enforced, and those simple rules are to have a low, flat tax.

I want to point out something quite serious that is going on, and I am pleased to see the Commissioner of Inland Revenue here. However, I want to speak directly to the Minister of Revenue, because I believe that this country is in danger of shooting itself hard in the foot. The Inland Revenue Department is targeting taxpayers simply because they are rich. It goes through the rich list, finds out who is rich, and then hassles those people in terms of the audit function.

We on the Opposition side of the Chamber say that people should pay their taxes, but we ask why people should be hassled simply because they are successful. Why should the demands be harder on those people than on anyone else? They are the people who create the wealth in New Zealand, who provide the goods and services that we enjoy, and who provide the jobs that we all aspire to. It is bad enough that we are taxing them at the rate of 39c in the dollar, but how bad is it if the Inland Revenue Department comes along and asks them to justify their very existence, simply because in the capitalist economy that we have they have achieved some success?

I remind the Minister of Finance that he spent something like a million dollars on the McLeod tax review in 2001. The report on the review contained a very good proposal, which was that the maximum level of tax imposed on a single individual in any one year should be capped at $1 million. The ACT party says that that is a good idea. One should ask oneself whether anyone in New Zealand actually receives $1 million worth of services from this Government. Never! I ask the Minister why we do we not do as the McLeod report recommended. We should say that any fair sir or fair lady who generates sufficient income in a year to be paying more than $1 million of tax has done well, and that his or her reward is to have his or her tax capped at $1 million. That is more, probably, than most of us will pay in a lifetime, and that should be it for any person.

Instead, what happens in New Zealand is that if people are in the fortunate position of being successful, not only will they pay tax at the rate of 39c in the dollar but they will be harassed and hassled by a deliberate policy of targeting people—not because they are tax dodgers, and not because they have broken the rules and done something that is wrong, but simply by virtue of the fact that they are successful. If we do that, we will drive the bright, successful people to sunnier places, where their enterprise, money, skill, and aptitude will be welcomed by the Government there. They will go somewhere where they will not be penalised with high taxes, and certainly will not be hassled and harassed by a Government department.

It is hard enough to do business in New Zealand now, with the Resource Management Act, the Health and Safety in Employment Act, and accident compensation, without the Inland Revenue Department coming down on people simply because they are successful.

Very briefly, I would like to respond to one thing the member said. There is a yawning gap between the ACT party and the Labour Party. I do not accept the notion that the only people who contribute to generating wealth in this society are those in the top 10 percent of income earners, or the top 1 percent. What the member said was that those on the top tax rate create most of the wealth in this country. That is despicable rubbish, compared with the way that most people spend their lives, working hard year after year with no hope of ever earning $60,000 in a year.