Financial Review Debate — Inland Revenue Department

The Crown accounts have proven to be in a very solid state of affairs. Last year the Crown produced an operating balance excluding revaluations and accounting changes in the order of NZ$5.6 billion. That is the number the Minister of Finance himself demanded that this House recognise as the change of net worth as he became the Minister—$5.6 billion was the operating balance excluding revaluations and accounting changes number.

I want to reflect for a moment, if I may, on what that means. For the last 10 years—from 1993 to 2003—the New Zealand economy has grown about 2.3 percent on a per capita basis. So for every man, woman, and child, our economy has grown about 2.3 percent. That is a vast improvement on the per capita growth rate some time before that, where it was well under 1 percent and nearly 0.5 percent. That needs to move to 4.1 percent, if New Zealand is to move into the top half of the OECD.

I refer, as part of Vote Finance, to the reports from Treasury, which outline issues for economic growth in the next 12 months and beyond. This is the very kind of research that the Minister of Finance, through Vote Treasury, pays for. He pays to get that advice from his own department. That advice tells the people of New Zealand that Treasury is worried that New Zealand cannot achieve an economic growth rate anywhere near 4.1 percent over the next 10 years—nor, in fact, anywhere near 2.3 percent over the next 10 years. The Government will no longer talk about when New Zealand can move back into the top half of the OECD, because it cannot define that time in terms of the Treasury document I have in front of me.

Interestingly enough, one of the first things in the document is its advice to the Minister of Finance in the area of taxation. It told the Minister that a lowering of the top rate of personal tax would be one of the fastest ways to grow the economy.

💬 Dr Wayne Mapp: Did they do that?

The Government certainly did not. The first move it made when it came into office was to increase the rate of personal taxation. Did it need to, when the country is now babysitting the largest surplus it has had in 50 years? The Minister can get to his feet if he wants to and argue about the cash position—I say to the Minister that we all understand the cash position—but there is a $5.6 billion operating balance excluding revaluations and accounting charges.

When the National Party told the country last week that a National Government would reduce the level of company taxation, the Minister was somewhat scathing about that. He told the public that that would deliver a benefit only to offshore companies. So he too must have been absolutely stunned yesterday when his own, virtually Government-owned corporation Air New Zealand—the Government owning 87 percent—came to the Stock Exchange and told the people of New Zealand that the company now has a tax liability of $107 million. Why does it have that liability? Because it had chosen to base its own aircraft leasing operation in a jurisdiction where tax rates are lower at the company level. What an embarrassment to the Minister of Finance that a company of which he effectively owns 87 percent sends money to a jurisdiction where company tax rates are low—and he had the audacity to tell the people of New Zealand that the Government would do nothing for corporate taxation. What an embarrassing day it was yesterday.

I want to turn for a second to the area of trade, and talk just for a moment about the advice on trade that Treasury officials gave the Minister of Finance in the meeting they had on Wednesday, 8 October. Treasury officials told the Minister that the Doha round could provide significant one-off benefits, but that if the breakdown continued, then bilateral arrangements would be significantly important. The report next told us that New Zealand should lean on Australia’s Treasurer, Peter Costello, to try to help us get a free-trade arrangement with the US, because our Government has made such a botch-up of it that it cannot get one itself. We will go cap in hand across the Tasman to Australia, and we will beg for help on a free-trade arrangement, because this Government made such a botch-up along the way. That is the sort of advice we are getting from the Minister of Finance’s own Treasury.

I want to know when we will hear from the “great debater”.

💬 Dail Jones: Who is that?

The person who challenged the Government to go on the Holmes show tonight, but who, I have just been told, when challenged himself, would not front tonight. I said to the “great debater” that I would see him on the Holmes show tonight about his track record—him and me—and that we would go back over his history. I want to know when the “great debater” will debate.

💬 John Carter: I raise a point of order, Mr Speaker. These debates are about the Crown’s accounts, etc. They are nothing to do with who can or cannot debate, and the member should come back to the matter for debate.

I have just got going!

The CHAIRPERSON (Ann Hartley): The member needs to come back to the point.

I have just heard from the associate—

💬 Hon Member: The deputy.

Rt Hon WINSTON PETERS:—deputy is he? Deputy what?—who talked about the current aspiration to be in the top half of the OECD. He talked about the need for a 4 percent growth rate, and then forgot to tell us that last Wednesday the National Party announced its brilliant economic policy, comprised of one thing alone: to reduce company tax from 33c to 30c. Somehow, it will all go right.

He forgot to mention that this leader of theirs, the “great debater”—who will not debate, who will not front the Chamber, who appears 1 day in 3, who goes around stirring up apathy in the coffee bars, Rotary clubs, and tired audiences of this country—was a big supporter, back in 1997, of the Labour Party’s then Minister of Finance, Roger Douglas. Dr Brash said at the time of the proposed Kaimai by-election—because in the end there was not one, but he was mooted as a candidate—that he thought it would have been very difficult for him to get up with a straight face and denounce what the Government was doing.

In short, Dr Brash’s solution for this country is the same appalling medicine, but only more. He will shortly come out and make a comparison, as he endeavoured to do on the day of the leaders’ debate, between Australia’s growth of 35 percent more in real terms than ours since 1984, whilst denying that he was one of the key architects and supporters of the economic experiments that saw this country become—as the respected publication, The Economist of London, stated in 2001—the first country to head to the Third World from the First World. He and his colleagues are responsible for that.

I thought we would have heard from the “great debater” today, not from some new chap who is a more recent MP than he is. Dr Brash had TVNZ and the Holmes show trying to construct an image that he wanted to debate anyone, when I know for a fact now that that was never the case. So my question to the National Party is: why is it not here today debating this very important portfolio, of all portfolios? It cannot even front, and that is outrageous.

Where, may I ask, are the journalists—who are out there now with all this hype—who seem to make it their inevitable mission that New Zealand First, and myself in particular, have to make them look ridiculous every election night? They go out there and smash all their forecasts, demonstrating the old English saying that the malady of the ignorant is to be ignorant without knowing it. Why are they not here today, or do they know that the “great debater” is not going to debate? Unbelievable!

💬 Rt Hon Helen Clark: We’re all waiting.

Of course we are all waiting. Where is the press gallery? Well, it does not matter any more either, apparently—we just go with those polls. Let me tell members about polls. It is one thing to say: “We agree with you.”; it is something entirely different to say: “We are going to vote for you.” As the months unfold and we hear more and more of this blistering economic theory that will turn this country upside down—that will see the privatisation of health and educational institutions; that will see whatever State assets we have sold; that will see us become international global, and at the behest of any international investor, with all barriers removed; that will have us hearing that when we are 65, it is too early for superannuation, and that it will come at 68, then at 70; when we hear what they did last time when Shipley was leader—then we will see a different poll.

In the next 18 months we will have the chance to elucidate that, but here is the point today: where, oh where is that wonderful “great debater”—the new messiah of the National Party? He, apparently, is the person who fills halls with inspiration and drives women—and hardened men too—to tears, but where is he? Well, if ever I saw a stuffed-shirt affair, I saw it today.

Unlike the previous speaker, I intend to address the financial review—

💬 Rt Hon Winston Peters: I hope not.

I am sorry but I tell Mr Peters he will dead bored; he may as well go now. The period covered by this review marks the “end of the golden weather” for this Government—

💬 Rt Hon Winston Peters: I raise a point of order, Madam Chairperson. It is totally inappropriate for the Green associate leader, or whatever he is, to talk about someone being a dead boy, particularly when the polls say that that member is finished.

The CHAIRPERSON (Ann Hartley): That is a debatable point.

Thanks for nothing. In Dr Cullen’s opening remarks to the Finance and Expenditure Committee, he made much of the Budget surplus being well ahead of the forecast—never mind that the surplus is built on the back of 30 percent of our children growing up in poverty. Yes, it is good to see that the Government intends to take steps to address that indictment, through its foreshadowed Future Directions package in this year’s Budget, but $500 million will be nowhere near enough to lift those children out of poverty, place them in safe healthy homes, and ensure that their parents have sufficient income to give them the material well-being and quality of life they deserve.

The golden weather is over, because one of the main issues we debated during the financial review—I am talking about New Zealand’s overvalued dollar—is still far too high in the currency markets. During a hearing last November Dr Cullen said the value of the dollar was likely to correct itself in the near future. What is more, he said that he had tools available to reduce the dollar to more normal levels. What has happened since? The dollar has continued to climb, and it was only when the Reserve Bank took its initiative and said it wanted to take an active role in the foreign exchange market that the dollar ended its climb. Good on the bank for doing that, good on the Government for supporting its initiative, and good on Dr Cullen, I suspect, for giving it some gentle encouragement.

But the Reserve Bank’s intervention will not be nearly enough. It will only ever knock a couple of cents off the top of the dollar. It does not address the fundamental structural problems of the New Zealand economy; that is the Minister of Finance’s responsibility. Other than trying to talk the dollar down, he is not taking the problem seriously.

I agree with Dr Cullen’s statement at the hearing that the quickest way to get the dollar down to realistic levels would be if the Green vote went up to 20 percent.

💬 John Key: That’s a long way from Sunday night.

Unfortunately, particularly given Sunday night’s poll, I cannot see that happening in the short term, but I tell the member that I do see it happening. What Dr Cullen should be doing is taking up my suggestion to investigate a capital gains tax on all but the family home. He conceded that it might help, but he did not take it seriously then; I suggest he does, now. If the Government wants to avoid having its revenue fall because profitable companies start recording losses instead of paying taxes, due to the crippling effect of the dollar, if the Government wants to avoid companies laying off staff and its having to pay more unemployment benefits because of the high dollar, if the Government wants to encourage investment in the productive sector instead of in property speculation, and if the Government wants to recover some of the company tax revenue it will lose, then it needs to look into a capital gains tax.

During the financial review I also raised the issue of the poor performance of the Government Superannuation Fund, and asked some questions around the New Zealand Superannuation Fund. The Minister conceded that the last 2 or 3 years have been extremely bad years. In fact, he went on to say that if the next 20 years were that bad for equities, we would all be in “deep pooh”, whatever we do.

💬 John Key: That’s correct, actually.

Well, in the Green Party’s view, unless the Government stops gambling on the casino economy and investing New Zealand capital in overseas companies, thus strengthening their economies against ours, then we will be “in the pooh”, big time. The Minister shakes his head, but I draw his attention to the Government Actuary’s report, which came out only today, on the Government Superannuation Fund. In the year before Dr Cullen took it out of Government bonds and started gambling it overseas, it made an after-tax return of 5 percent. In the first year on the overseas sharemarket, it made an after-tax return of 0.02 percent. In the 2003 year, the one we are reviewing, it made an after-tax return of 1.03 percent—nowhere near the 2.5 percent above Government bonds that the Minister predicted the fund would make.

💬 Hon Dr Michael Cullen: Unfair market.

Well, the market is exactly the point. Why gamble on the market when there is a safe return in Government bonds? That is what the Government did not do—it did not keep it in Government bonds. What is the Government doing with the New Zealand Superannuation Fund? It is splashing that money around overseas, as well.

I would like to pick up on a few matters related to Treasury and the financial statements of the New Zealand Government in the 2002-03 financial review. The first of those concerns Air New Zealand. The Finance and Expenditure Committee was advised by the Minister that the airline is likely to need substantial investment over the medium to long term. That being the case, I suggest that at the time a request is formally lodged by the airline for new capital injection, the Government seriously consider selling down part of its stake in the airline to mum and dad investors of New Zealand. That could include the Guardians of New Zealand Superannuation, should it wish to take up that option.

My second point relates to the recent announcement by the Reserve Bank of its impending approach to the House for a capital injection aimed at both strengthening its balance sheet and enabling it, in tightly circumscribed conditions, to intervene in the foreign exchange market. I have an open mind with regard to those proposals, and look forward to receiving briefings and details in due course. I will view any such requests against the background of my desire to ensure that we continue to build New Zealand’s exporting capacity.

For the rest, I want to spend a few minutes talking about the Government’s fiscal management and the way in which it interacts with the growth of the New Zealand economy. Since we undertook the review, the Government has announced its intention to proceed with a family assistance package in this year’s Budget, which, when fully implemented, will cost around $1 billion per annum. For Rod Donald’s information, it has gone up from the $500 million we were talking about at the time of the review to the new figure of $1 billion—double the amount. The Reserve Bank is relaxed about that fiscal stimulus and believes that it will act as a stabiliser, given that economic growth is forecast to decline during the 2004-06 period. Indeed, if it were not for the stimulus that will be provided by that package, it is likely that we would be looking at a hard landing for the economy, with a rapid decline in economic activity, the emergence of growing unemployment, and many other negative results.

However, United Future believes that two further immediate steps could be taken. The first of those is the cancellation of GST on rates. That would cost around $250 million to $300 million—money that would then remain in the pockets of all New Zealand property owners, be they residential or commercial. Sometimes the shape of fiscal stimulus is every bit as important as its quantum. It seems to us that no GST on rates is an idea whose time has come. Consider the benefit it would give all property owners, including farmers who have been hit hard both by the rise and rise of the New Zealand dollar and by adverse weather conditions.

Similarly, United Future seeks a tax rebate for those many New Zealanders who regularly give time to voluntary work in New Zealand. When we think about it, we can see that efficient and effective work undertaken by volunteers is the ultimate in productivity—the very thing that our economy so desperately needs. Accordingly, we will continue to call on the Government to give those two ideas further in-depth consideration.

For those who are a little bit confused about the effect of removing GST on rates, ratepayers would have money left in their pockets, as I have said. For those who are confused about the system, it could be done through a zero rating mechanism. That is the clear intention of the policy, which we are asking the Government to look at and to pursue. Indeed, as I have said, it would give every single property owner in this country an immediate lift in the amount of money that is left in his or her pocket. It is the kind of fiscal stimulus that is affordable for the country at this point in time and that would act as a stabiliser, thus giving us a softer landing for the undoubted downturn that our economy is going to experience as we go through the next couple of years.

I think it is important in this debate—given that we are looking at the whole question of the Government’s balance sheet—to give consideration to those kinds of points and to bring them solidly to the attention of the Minister of Finance. I will conclude with those few remarks and save the Committee a few moments.

I want to go back to the document that I quoted in my earlier speech, Issues for Economic Growth: the Next 12 Months and Beyond, a document that the National Party managed to get under the Official Information Act. Contained in that document are a number of statements that the Minister of Finance would not like to be made known in the public arena. I say that because, in the Crown accounts, the Government has allocated more spending over the next decade to fix the roading problems around New Zealand. At best, the Government’s effort could be described as pathetic—absolutely pathetic. There will be $500 million - odd over the course of about 10 years, and the rest of it will come from New Zealanders paying an increase in petrol tax—despite the fact that the Government is babysitting a huge surplus. I want to quote from this document, which was “in confidence” to the Minister of Finance: “The Auckland transport situation is critical.” It is absolutely critical. The report goes on to discuss not only the lack of funding, but also the complete disaster that the Resource Management Act is and why the situation cannot be fixed. The Minister would be well served to spend some time in Auckland and to go and talk to companies like Beca Carter Hollings and Ferner, which will tell him quite clearly that the Land Transport Management Act has completely failed to deliver a better solution.

I ask him to reflect on the actions of the Auckland Regional Council last Thursday when it decided to co-opt every councillor on the Auckland Regional Council on to the Auckland Regional Land Transport Committee, which meant there were another 15 councillors on the committee. There are now 32 people on the committee. It is a complete joke and if anybody thinks that we will fix Auckland’s transport problems with a lack of funding from a Minister who does not want to listen, with a Resource Management Act that is not designed to fix the problem, and with an Auckland Regional Council that simply wants to bog down the process, then he or she is frankly in la-la land. It is a great shame because the problem is costing Auckland over a billion dollars a year. The Minister should have been addressing it, but we know that he will not address it in any great way in Budget 2004 because he will be attempting to buy a few more votes.

Before people become a little too excited, I want to highlight one simple issue. Last week the Minister came down to the Chamber and told people that hard-working families in New Zealand, on the latest OECD measurement, would be improving from ninth to third position, because he would be delivering $2,000 per household—or those were the numbers we backed out, and he agreed with the Dominion Post journalist. What he forgot to tell the people of New Zealand was that he would not be delivering that until 2008. If Gordon Copeland in United Future thinks that the Minister is about to deliver anything really good for hard-working families in New Zealand, then he needs to have a look in the Crown accounts and see exactly how much has been allocated in Budget 2004. The Prime Minister shakes her head, but the truth is that there will be very little indeed. Money will come, but it will come later on down the track, and that is despite the fact that since this Government has been in office, it has put up no fewer than 15 taxes and has raised the amount of tax taken from hard-working families and businesses by a billion dollars a year.

That is the truth of it. This Government knows how to put up taxes, it knows how to slow the entrepreneurial spirit, and it knows how to spend other people’s money, but what it does not know how to do is how to grow the economy. That is why we are no longer allowed to talk about when New Zealand will be back in the top half of the OECD. That is why John Whitehead at Treasury has had to break into print in Issues for Economic Growth: the Next 12 Months and Beyond. That is why that document cannot define when we will be back in the top half of the OECD—because we will not be back. There are pages and pages and pages about the problems with Government policy—everything from infrastructure to energy to taxation. Pick one and it is in here, but not one of those issues is being addressed by this Government. It will set up another working productivity group and it will put a little more money into the growth and innovation framework, but around its ears the economy is imploding.

The Minister went to a slap-up Labour Party function a couple of weeks ago, on Saturday night, and told the people there: “We’re in for some bad times, because if you think the polls are bad now, they will get worse. The economy is slowing down and there is nothing we can do about it because our policies will not deliver a higher standard of living for New Zealand. If you want that, vote National.”

I will deal briefly with some of the points that have been raised. In response to Mr Copeland, no, the Government will not be removing GST on rates. I am afraid that local authorities are strengthening the argument for GST being on rates by moving more and more towards specific charges, rather than property-related rates as they used to have. I remind him that Mr Dunne probably made the crucial swing vote to impose GST on rates in 1984-85 in a Labour caucus decision that had a margin of one. I also point out to him that we would not be raising any capital for Air New Zealand by selling shares to mum and dad shareholders. It is only if new shares are issued that new capital will be raised. Mixing up the shareholders does not raise the capital for the company.

In response to Mr Donald, no, we are not imposing a capital gains tax. As for his response about playing on the market, I come back to the essential point: if the member really believes that over the next 30 or 40 years all international equities markets will collapse, then we can forget all our plans about anything over that period of time. In relation to the New Zealand Superannuation Fund, contrary to what Ms Clifton said in the Listener some 2 or 3 weeks ago—I have no idea where she gets her information from on these kinds of matters—when she said that we lost lots of money on the superannuation fund, in fact, in the first quarter that the superannuation fund went to market last year, it significantly outperformed any benchmark measure that can be put forward. We made money out of that deal. On the Government Superannuation Fund, we lost money on markets, as everybody else did, including the member—except, of course, for that famously subsidised property scheme that the Green Party runs as part of its so-called superannuation policy.

Now I will turn to Mr Key. He tells us that we do not know how to grow the economy. That is funny because in the last year we outgrew Australia, the United States, Europe, and Japan. I ask him to name me any other year when New Zealand has managed to do that in recent decades.

This country, under this Government, has been growing faster than the OECD average in almost every year it has been in office. The member can do the cute sums about reaching the top half within the next period of time, but I invite him to do the same sums on his own leader’s promise to pass Australia by 2010, given the rate of economic growth in Australia, which was a lot more than 4 percent per capita growth—and he nods his head in agreement. Australia has been outperforming the OECD almost every year for the last decade or more.

We also learnt about the National Party’s fiscal policy. On the one hand the National Party said, in response to Mr Copeland, that one could not afford to take GST off local authority rates—$1 million amongst 253 authorities—but, on the other hand, on anything else one could spend what one liked. Mr Key’s policy is that even when the economy is growing fast, one should still be borrowing to pay for tax cuts. At least it is no longer tax cuts for the rich. It is only a year or two since Dr Brash told us that the key to growth was to lower the top tax rate.

💬 Dr Wayne Mapp: Yes.

“Yes.”, says Dr Mapp. Dr Brash said that unless the top tax rate is lowered, there would be no growth, and last week he said: “Oh, wait, no cut in top tax rate; we’re going to cut the company tax rate and the lower tax rate, even though we don’t believe that’s any good.”—indeed, even though National believes that cutting the bottom tax rate will lower growth. That is the National Party’s view of economics, but, because of the politics, Dr Brash said that National would not lower the top tax rate. So much for U-turns within Parliament! At least when some of us change any position, we are in the Chamber to defend it. Dr Brash is a phantom figure around this place these days. He is never here to tell us what the National view is.

💬 Gerry Brownlee: He’s out there talking to the people.

He is out there talking to both people at once, we are told by the deputy leader of the National Party—a man who is disappointed in life because he sits there with a dagger in his hand but never has Dr Brash’s back next to him to stick it in. Probably why Dr Brash is never sitting there is that it would be far too unsafe for him to do so with Mr Brownlee next to him pondering his own potential future.

This Government has got growth up to near-record levels in terms of comparison with other OECD countries, unemployment is down to the lowest figure since 1987, we have strongly growing household income growth, we have particularly large reductions in unemployment amongst Māori and Pacific peoples, and we have, still, despite the problems of the dollar, high levels of consumer confidence. We are seeing a growing New Zealand economy, a growing future for this country, and a strong, prudent fiscal management.

Reports noted.

New Zealand Security Intelligence Service