Financial Review Debate — Financial Statements of the Government of New Zealand for the year ended 30 June 2005

Let me start by saying that the financial statements in relation to the year ended 30 June 2005 will make a lot better reading than the financial statements for the year ended 30 June 2006. As we know, this Government has presided over an economy it inherited—that it did absolutely nothing to create—and over the 6 years that it has had the economy under its control, it has done nothing to improve it. It squandered the conditions and failed to pick up the most fundamental of challenges around our economy—the ability to make sure that New Zealand is competitive and goes forward with a spring in its step, and the ability to cope with the down cycles that happen in every economic cycle.

I contrast that performance with the performance in Australia. What I saw, and what New Zealanders see every day, in Australia is a Government committed to lowering taxes and the tax burden, to pouring billions of dollars into infrastructure, to welcoming the private sector, to fixing tertiary education, and to fixing outputs from skills. What have we seen from this Government? We have not seen a single private toll road constructed in New Zealand. The energy sector is in complete disarray. The Minister of Finance, or the Minister for Tertiary Education—wearing one of his many other hats today—is finally coming out and recognising that there is a major blunder in the tertiary education sector. We had a growth rate that was zero for the 6 months of last year and is likely to be considerably poorer for the balance of this year. Yesterday Treasury told the country that growth would be weaker than it thought. All of this has come from a Government that has had all of the revenue in the world to do some decent things, but has failed miserably.

What is even worse, and is probably even more alarming than that—and I know that it privately worries Dr Cullen a great deal—is a report in the “Business Herald” today about Fletcher Building, one of the icons of the New Zealand business community, that it is looking, with its advisers Credit Suisse First Boston, to move its head office to Australia.

New Zealanders might wonder why a company like Fletcher Building, which has been very successful, is considering joining many others like Lion Nathan and Nufarm that have picked up their head offices and moved them to Australia. Dr Cullen knows exactly the reason for companies doing that: our company tax rate is higher than the company tax rate in Australia. Our tax revenue is being hollowed out because Australian investors are snapping up New Zealand companies left, right, and centre. Those Australian shareholders want imputation credits and fully franked dividends. So a company like Fletcher Building, which can be and has been a very successful company, providing an enormous amount of ancillary business and growth in our economy, is looking at moving to Australia when it should be staying in New Zealand. I say that move, if nothing else, is a sheer sign of this Government’s failure in the last 6 years. The fact that Fletcher Building is looking at moving its operation is clear and demonstrable evidence that this Government has failed in the last 6 years. That company is not alone; many other companies are doing the same thing.

Today we came down to the House and we asked Michael Cullen, the Minister of Finance, the most simple question of all on the very same topic: does he support a business tax review that would be revenue neutral—that is, one that he has to take from one hand and give to the other. We asked whether that was the reason he is exploring these crazy options, such as a payroll tax, and looking at all these unusual things. The Minister of Finance—the man who has said: “The fiscal buck stops with me.”—could not even get up in the House today and tell us whether the whole aim of the business tax review is to be fiscally neutral.

When we asked him the question a couple of weeks ago, he came out with what I thought was a pretty interesting answer. When I asked him whether the review would be fiscally neutral, he said: “The review will determine what the review will do.” It was not one of Dr Cullen’s greatest lines, I have to say. He is known for saying better one-liners than that. Even though I may not have agreed with the comment about the “ideological burp”, at least it was half-amusing when he said it. He told us that the review will decide what the review will do—even though he told us that he actually decides whether these things happen and that the fiscal buck stops with him.

Well, the Minister of Finance is losing it because he does not even know whether he will still be the Minister of Finance when Budget 2007 and Budget 2008 roll around. I do not think Helen Clark was trying to give him the message publicly. Journalists asked me that question yesterday and I answered that it was a bit unkind to say Helen Clark was trying to move Michael Cullen on permanently—she just does not know whether he is coming or going.

Yesterday Treasury warned us of a possible recession. Treasury says the economy has stalled. We know it stalled in the second half of last year, and Treasury says it does not look as if it will grow much this year. I think it is fair to say that all the barriers, hurdles, bureaucratic red tape, and the huge tax grab of this Labour Government are finally catching up and throttling our economy.

A classic example of one of the things that is throttling New Zealand’s economy is Transit New Zealand’s assumption of the role of the ultimate dictator of development. I could do no better than to read to this Committee what the Rodney Economic Development Trust has said. The trust is a group based north of Auckland that contains some of the serious business hitters north of Auckland, including some of the major business players who have business investments around most of the North Island. The trust states: “It is not the people of Rodney who are determining our district’s future, but Transit New Zealand. They now decide where people will live, where people will work, where we will develop our infrastructure, where our children will go to school, how we use our land, where business will locate.”

Transit is now dictating totally the development of the Rodney district. Yesterday I met with a constituent who has a proposal for a major investment in part of Rodney. It would require the purchase of land. He does not know whether to go ahead and buy that land, because he is worried that Transit will say he cannot go ahead with that development and, therefore, he cannot afford to buy the land if he cannot go ahead with the development. That is the extent to which Transit now totally dictates investment north of Auckland. That example is the tip of the iceberg. At present there is $2 billion worth of investment ready to go ahead in Rodney, which would create a lot of growth. Do people know how much of that growth can go ahead because of what Transit dictates? One-tenth of that investment can go ahead, because of Transit’s dictating and saying no to 90 percent of it.

The Rodney Economic Development Trust also said that only 15 percent of the knowledge economy zone in Rodney—which is the largest industrial development in Auckland—can go ahead, because Transit says it will not construct off ramps because it cannot connect that development to its motorway. So the rest of that development will not be able to go ahead.

I want this Minister, the Hon Dr Michael Cullen, to explain to this Parliament how New Zealand’s growth can go ahead when Transit is dictating and controlling so much development. Even in Helensville—in my good colleague John Key’s electorate—Transit has said a birthing unit cannot expand because it will not be allowed to have extra vehicles come on to Transit’s highway. That is how dopey this situation is becoming.

The economy and growth are being throttled. The Rodney Economic Development Trust has said Transit’s control has now cost Rodney 6,251 jobs. In just one area 6,251 jobs have been lost, and $129 million worth of export earnings are gone because of Transit’s dictatorship and Transit’s saying no to all developments. The President of the Labour Party, Mike Williams, is on the Transit board, and that is the extent to which cronyism and the Labour Party are now crippling and throttling our economy. It is not just the high taxes or the high interest rates that people are labouring under with this Government; it is also the direct control over and the throttling of investment by Transit New Zealand.

Do members know what Transit has said to the people of Warkworth? It has said that 50 years ago it built a bypass there and, because those stupid people have dared to build houses on the other side of that bypass, it will not build them another one. Imagine if Telecom had that attitude. I invite members to think back to the telephones of 50 years ago. In my patch we had party lines. One picked up the telephone receiver and said: “Working?”, and if no one said: “Yes I am working.”, one would ring the handle. If Telecom had said it would not put in any more infrastructure compared with what it had 50 years ago, we would still be on party lines and Telecom would be saying we could not have any more people live, invest, and work in an area because it would not put in any more infrastructure. That is what Transit is saying. Michael Cullen cannot hide behind Transit because, at the end of the day, this Labour Government funds Transit, so it cannot complain about loss of growth opportunity when Transit is crippling this economy.

In speaking to the set of statements, I want to focus on three themes. Although members of the Finance and Expenditure Committee did not, obviously, have the pleasure of agreeing with each other, we had the pleasure of the Minister of Finance’s company, and that of the senior civil servants from Treasury. In particular, I want to direct members’ attention to an element that reflects the very moderate, if not conservative, approach that has been taken and that we are likely to see a great deal more of. I direct members’ attention to page 5 of this very lucid document, which reflects quite a great deal of sensible discussion.

A great deal of nonsense has been spoken about in relation to whether there is a ballooning number of either wages or bureaucrats, and about how we, as the Government, are doing precious little about it. I direct those members’ attention to page 5, where it is quite clearly stated that the Government and the senior advisers from Treasury have injected a tone and a note of moderation into future discussions to do with the personnel costs of the State.

Of course, this issue takes me on, as well, to respond to those unwise remarks made in relation to productivity. Yes, over recent time we have seen a great deal of growth and improvement in fortunes on the basis of labour utilisation rates, but there is now a great deal of focus on productivity. I have no doubt that, during the upcoming 12 months, when we exercise and show the moderation reflected on page 5, we will remind the key people—as Treasury and, indeed, the Minister of Finance have reminded people—of the importance of achieving more productivity.

But let us remind the many New Zealanders who are either listening or who remain concerned that a more balanced account is given as to what is happening in terms of our strategy to drive fine ideas. We had a fantastic tranche idea to use the use the term “dividend day” to describe 1 April, when the third tranche of our family assistance package was rolled out. It is something that was a key part to the election contest, but, indeed, it has been well and truly built into our fiscal projections. The group of people on this side of the House, when they conceive of the role of the State in relation to our economic stewardship, believe there are very few things more precious than those who have the role of raising children. The education, productivity, attitude, and aptitude of the next generation we are raising—I have more than a passing interest in this, having enjoyed the pleasure both of fathering and rearing seven children, and I look to many mokopunas on the way. However, Working for Families is an element that clearly distinguishes the way in which we conceive of our role in the wider debate about political economy.

A great deal of nonsense, including unwise statements made on websites, etc., has been spoken about our interest-free student loan programme. I can tell members that people up and down Te Taitokerau, throughout Auckland, and in a variety of far-flung places, are completely and utterly over the moon with the bold step our Prime Minister took in relation to the student loan scheme. It will cause a whole host of people to enjoy coming back to Aotearoa to join the great march of achieving productivity outcomes, but, more important, it will also remove a great deal of burden from the minds of parents and grandparents as they watch their children and mokopuna move on to university.

In relation to business tax changes, it is unfortunate today that a great deal has been said and that rather emotional and inaccurate words such as “secrecy” have been used in respect of the business tax change reform agenda. The reality is that when the civil servants are providing advice and when the Ministers are looking at options, they need the space, the scope, and, indeed, a small measure of privacy so that when public documents are being prepared for consultation, that process can be done on the basis that no injudicious or unwise things are thrown out into the public before the appropriate time. I hope that the very people who have been making those accusations and using, in a very silly fashion, emotional words such as “secrecy” bear in mind that a key element to our system is that officials must be able to give free and frank advice and that Ministers have the scope to take or reject it.

We have had the election, we have identified and have been very public about those things that we will spend our time on, and business tax changes and policies are an important element into the future. I look forward to the not too distant future when the sentiments that the people invested in can be shown to have been true.

Where do we stand on the Appropriation (2004/05 Financial Review) Bill? We oppose it, of course. Why? Are we against investment in the economy? No. Are we against quality spending? No. But given the track record of this current Labour Government, of course we oppose the bill. We have to oppose it.

There has been a massive growth of taxpayer funds. We have referred to its misappropriation—to turn a phrase—which the Finance and Expenditure Committee discussed at some length throughout its deliberations. Even in spite of what we have just heard from the previous speaker, we have recently had Treasury’s forecast that the economy is stalled and has shrunk. That is not an ideological burp. They are hard economic numbers and the chickens are starting to come home to roost. How can that be? How can we be going into recession, as warned by Treasury and numerous other forecasters, after we have had a nominal GDP growth of 43.1 percent over the last 6 years, according to forecasts for 1999-2000 to 2005-06? The economy has grown 43 percent. Congratulations to the dairy farmers and lamb producers on helping us grow, but here is perhaps a clue. Core Government revenue grew 55.7 percent over the same period. That core Government revenue was taken from the productive part of the economy.

But why on earth are we going into recession, given the policies and the accolades that the previous speaker was talking about? This Government is spending and taxing us into recession. Again, it is not National Party doomsayers who have made those accusations. This is not spin from some public relations unit. These are hard economic statistics and fact backed up by Treasury and numerous other producers. Growth in the last quarter, December 2005, was negative 0.1 percent. Combine that with September 2005, which was plus 0.1 percent, and members will see that we are already in a flat economy of 0 percent.

There has been a lot of talk lately in various speeches around the place from various Ministers about economic transformation. What a massive admission of defeat! After 6 years of 43-odd percent growth, we have to somehow transform the economy? I tell Mr Cullen that that is a massive admission of defeat. I say to Mr Mallard that he is about to get a hospital pass, because he is about to inherit a bit of a lame duck, I feel. There is nothing to show for the 43.1 percent nominal growth we have had over recent years, which, again, was no thanks to, and in spite of, the current policies of the Government. We have nothing to show for it. Is this as good as it gets after such growth? In the 1999-2000 year $41.6 billion in revenue was taken by the Government. The 2005-06 forecast is $69 billion—money that the Government has decided it needs to take out of the economy to run affairs as it thinks it should. Yet hospital waiting lists are as bad as they have ever been. There have been no new roads and no real roading infrastructure has been invested in. Again, this bill is not an appropriation bill; it is a misappropriation into the welfare for families package. It should be called the “Kiwislaver Bill”.

With regard to electoral spending, there has been a large growth in misappropriation of public funds for election spending, which is under review by the Auditor-General. Where has that money gone? Is the 10.3 percent growth in Government administration in the December 2005 year not a mass misappropriation of funds? What on earth are all those people doing? Even given the growth and the statistics, with $69 billion - odd about to be taken from our economy by this Government to be redistributed, our OECD standings are exactly the same as they were about 5 or 6 years ago. In spite of about $18 billion more being taken by the Government out of the economy and in spite of the 43 percent growth in GDP, our OECD standings have not moved.

Other nations are rocketing up behind us. Previous socialist economies are rocketing up behind us and are totally rejecting the idea that someone earning $480 a week should have some of his or her taxes redistributed to some family earning over $100,000 per annum. People will reject that model; they know that it does not work, and, for the life of me, I cannot understand why this current administration keeps looking back to the past to find some solution to the future. That administration is wrong. If we keep looking to the past we will stay in the past. With growth at that rate there will be nothing left to redistribute. Is this the utopia that the current administration has taken us towards?

We know from this Government that it has run out of puff, just like the Minister of Finance has. That is why Helen Clark does not know whether the Minister will be in the job in another 12 months or 24 months. I can assure him that he will not be in the job in 30 months, because by then, at least, there will have been an election and he will be gone, along with a whole lot of his colleagues. They are destined to sit on some park bench somewhere to reflect on 9 years—6 years when they inherited an economy with which they could have delivered substantial changes to New Zealand, and 3 years when they sat around contemplating their navel, unsure of what to do.

My parliamentary colleague the Hon Dr Lockwood Smith talked very eloquently about the issue of infrastructure. Infrastructure is a very interesting issue as it relates to New Zealand. New Zealand’s infrastructure is failing us, and not just in roading. I heard a very interesting example just the other week about the New Zealand Herald, whose sales force used to achieve something like 14 calls a day around Auckland and now achieves six. That is not a productivity gain. Mr Jones can read some sort of clapped-out piece of research on productivity that ignores half the economy—the fast-growing bit around the public sector. He can ignore at his peril if he chooses to, as Dr Cullen has, the research from Treasury that told him: “We don’t know quite where you’re spending the $4 billion a year, each and every year, in health; we don’t really know what you’ve got for it, but we think you’ve got nothing, we think it’s delivered nothing, and we think that fundamentally you’re going down the wrong track.” We think that is called a productivity disaster. We are not surprised that Dr Cullen referred to the Treasury report as an “ideological burp”, although, funnily enough, Dr Cullen himself has made it quite clear that he will not keep funding a health system that is clearly out of control. He demands results from it, because he knows it is on the wrong course and it has failed miserably.

But my colleague Dr Lockwood Smith made a point around infrastructure that I thought was absolutely right. New Zealand cannot drive productivity and greater growth without infrastructure in our community. It is not just roading, it is around all sorts of areas of infrastructure, such as energy. We have a lakes system that is low. We are not building power generation in this country at the level that we should, that we demand, and that we need. The Government has no solutions at all. We are starting to see some very interesting mutterings and utterances coming out of places like the Commerce Commission, which runs the risk, I think, of frightening off some New Zealand businesses in relation to the amount of investment they might make.

It goes on and on. It goes around the area of telecommunications, and ultimately goes around the issue of water. New Zealand’s infrastructure cannot cope with the kind of growth that New Zealand needs. Yet we are seeing a Government that is quite happy to trade that position for a position that says: “We would rather have the support of the Greens, and therefore we will let the Green Party negotiate and draft probably one of the most important pieces of legislation in New Zealand’s history, the Land Transport Management Bill, even though we know that it will do very little.”

I want to make some comments in relation to Working for Families and the Inland Revenue Department. The department made a number of comments when it came before the Finance and Expenditure Committee. One of the comments that I think will prove very interesting over the next 12 to 24 months related to the number of New Zealand families that find themselves debtors of the Inland Revenue Department. I say that because “Welfare for Families”—the package the Government rolled out on April Fool’s Day—requires New Zealand families to estimate exactly their level of income. If they incorrectly estimate their income and therefore underestimate their paid income, they will be overpaid under Working for Families. A very similar policy was involved in Australia. That policy was rolled out, and Australian families ran up about $1 billion in debt. After 24 months those Australian families had to have their debts written off because they could not afford to repay them. When we raised this issue with Dr Cullen, he was kind enough to tell us that the Inland Revenue Department had made numerous changes and that those issues would not occur in New Zealand. The only small problem is that although the department has invested a little bit in technology, it does not seem to have the people who can ring to tell New Zealanders that they have been overpaid. They will be ringing past tense, so the families will be in debt anyway.

By the way, Dr Cullen might be a little alarmed to know that people in the department have been emailing to tell me that they are under huge pressure from the Minister to try to comply, even though they have no hope of doing it. These emails are telling us that those people cannot comply with the issues, and that New Zealand families will become debtors. What a disgrace it is to put families in debt.

One of the interesting questions, as we look at what might be Dr Cullen’s final Budget, is what will his legacy be as Minister of Finance. I struggle, during my time in Parliament, to think what Michael Cullen’s legacy, as Minister of Finance, will be. What will he be known for? Will it be for hiking taxes to 39c in the dollar? Perhaps the “chewing gum Budget” might be the one that sticks in people’s memories. It might be the dopey Cullen fund that is his legacy. It is a struggle to think what Michael Cullen’s legacy will be for the financial health and financial management of this country. That shows that the Clark-Cullen Government has lost any sense of vision, any sense of purpose, and any policy programme.

We know that Michael Cullen is one of the only competent Ministers that Helen Clark has, and that is why Michael Cullen is exhausted. He is absolutely exhausted because he has to do everything. He has to come to the House and rescue his ministerial colleagues. He is the one who has to mop up when a Minister is in trouble. What is the reward that Helen Clark gives Michael Cullen for those years of service? It is this: “Well, he is in his early sixties, and he will do this Budget, but maybe no more.” Helen Clark does not say something like that by mistake. She sunk the knife into her own Minister of Finance; that is what she did. How can New Zealand have confidence in the Minister of Finance, Michael Cullen, when Helen Clark herself, the Prime Minister of New Zealand, has said: “Well, he is in his early sixties. He may not do any more Budgets.” That is what she said. She has wrecked what little vestige of credibility Michael Cullen had. Helen Clark is signalling that he will not be around for much longer.

By the way, what difference would it make if Michael Cullen were not the Minister of Finance or the Treasurer? It would not make any difference at all, would it? Last year’s Budget was a “nothing” Budget. Mike Williams tried to talk it up, and he talked it up rather well. The problem was that there was nothing to talk up. That is why I think Helen Clark has come along, ladies and gentlemen, boys and girls, and stuck the knife deep into Michael Cullen’s side. How like Helen Clark it is! I guarantee she has not sat down with Michael Cullen to discuss his future with him. I guarantee she has not sat down with Michael Cullen and said: “Michael, we have been good friends for 30 years.” Oh no, she would not say that, would she? She could not say that. It would be: “We were terrible friends for 30 years, and we’ve been working together for a few.” She would say to him: “What are your plans?”. But no, Helen Clark has gone public and said that this year’s Budget could be Michael Cullen’s last because he is getting to be an old man. That is what Helen Clark has told the nation.

I have to ask what Michael Cullen did as Minister of Finance when he was young, when he was fresh, when he was new, and when he had enthusiasm for the job. The only thing I can recall is his putting up taxes rather than letting ordinary, hard-working Kiwis keep the money. And there was the New Zealand Superannuation Fund. Oh, and he accidentally bought an airline. He said: “I didn’t mean to end up being the owner of it, but I sort of accidentally found myself being the owner.” Michael Cullen’s legacy will be a sad, empty legacy—a legacy of lost opportunity. The best economic growth conditions in my adult lifetime have been squandered. We are now facing growth of next to zero, a possibility of some negative growth, a loss of economic confidence, and a Minister of Finance whom Helen Clark has no confidence in.

That member has had his one call in the debate, and as usual he has wasted it. At least, for once, he managed to exit from the sewer for a brief moment to talk about the state of the economy. How his cheeks must be blushing—all four of them—from the attacks on him by his previous leader and founder of the ACT party, who has accurately summed up Mr Hide’s contribution to politics in this country.

But one thing that happened this afternoon is that I did not hear a single call from Mr Key—who has become the Tony Ryall of fiscal policy more and more in this House—for massive borrowing in order to fund tax cuts. That is another policy being prepared for dumping by the time of the next election, because that was the core of National’s policy at the last election. But of course Mr Key will not be the finance spokesperson by the time of the next election, if he achieves that ambition, because he is spending every week white-anting Don Brash, trying to take over the job of Leader of the Opposition. Well, bring another one on, and another one down, and another one up, and another one down. It is a bit like National’s policy on trade in honey and apples. It depends where one sits as to which side one is on.

We inherited an economy that had been through nearly 2 years of sub-zero growth under National, with 7 percent unemployment under National. That is what we inherited. We have delivered not merely 43 percent nominal growth but also the lowest unemployment rate in the developed world. If that were my only legacy I would be damned proud to leave it, because none of the members opposite can claim that. Nor can the previous leader of the ACT party claim that as his legacy as a Minister of Finance. Unfortunately for them, I will be around for a lot more years yet. I have seen off so many National Party finance spokespeople in the last 15 years I have lost count, and I expect to see off a fair few more yet, as Mr Key gives up his great hope to save New Zealand and goes back to being merely a very rich man.

What else do we have to show for our growth? We have seen real income growth for New Zealanders—not just for the rich, as under National, but for the great bulk of New Zealanders, who are seeing real income growth. We have seen a massive increase in infrastructure spending, particularly in roading—and more is to come. We have seen the creation of the super fund, and the Government saving for the long-term future. We will see the creation of the KiwiSaver scheme. We have reduced spending on benefits as a proportion of Government spending and a proportion of GDP. We have increased spending on health, education, science, and roading. And what does National come here and call for every day? It asks us to spend, spend, spend. Half National’s questions every day are about why the Government is not spending more in some area or another. Well, it will take a large pot of indigenous honey, spread as thinly as the National Party thinks it needs to be spread, to pay for all the promises National is implying at present.

The National Party has discovered the bottom of the cycle. Dr Lockwood Smith has discovered a particular interest in the bottom of the economic cycle. Let me tell him that National’s bottom was a lot flabbier than the bottom will be under the Labour Government. National’s bottom was sub-zero growth for nearly 2 years. Its bottom was rising unemployment. Its bottom was increasing poverty. Its bottom was cutting the level of New Zealand’s superannuation. That is what we saw in the last 2 years of the previous National-led Government. I must say that my cheeks are firm and rosy compared to the bottom under the National Government in the late 1990s. We are very proud of our record and our success.

Business is telling National to stop talking the economy down. Business is telling National that we will not have a recession; this economy is healthy. The chief executive of Fletcher Building—which is not planning to go offshore—has told National many times that he prefers New Zealand’s corporate tax system to Australia’s corporate tax system. But Mr Key will not listen, because he has no respect for the people who actually produce and make things. His idea of an economy is people who make money out of nothing by shuffling paper around and speculating on the foreign exchange market. That is the kind of Minister of Finance he would be—a Minister of Finance for international financiers, not for New Zealand’s productive sector.

Reports noted.

Office of the Auditor-General