Financial Review Debate — Financial Statements of the Government of New Zealand for the year ended 30 June 2006

One of the tasks that Treasury carries out with the funding that this House appropriates for it is fiscal policy. I wonder whether the Minister in the chair, the Hon Dr Michael Cullen, would be able to answer a few questions about Treasury advice on fiscal policy in some of the information that has been presented, based on Treasury analysis, in the last Reserve Bank Monetary Policy Statement. I am asking these questions of the Minister because he has developed an approach whereby he regards National’s fiscal policy as much more important than his own. His focus has been on what might have happened had National won the election and implemented the policies it campaigned on during that election campaign.

That debate is legitimate enough, but he is doing it as a way of avoiding an explanation of his own fiscal policy, which is increasingly confused. The story up until a few weeks ago was that fiscal policy was tight, and the measure of that was that the Government was running cash surpluses. But in the Monetary Policy Statement previous to this most recent March one, the Governor of the Reserve Bank used, for the first time, the word “expansionary”. He was referring to the prospective period, which is directly relevant to his forecasts for the next 3 years—roughly the time over which he is expected to manage inflation. The Reserve Bank Governor is always looking forward.

So it is not a commentary on other parties’ fiscal policies, it is about the Minister’s policies and whether he is willing to answer questions. A few weeks ago it was tight, then he came to the select committee and said: “Yes, it’s loose.” He could not really disagree with the Governor’s analysis that it was expansionary, but, since then, the Reserve Bank has laid out in significant detail just how expansionary the policy is. He has used the Treasury analysis of fiscal impulse. This actually is rocket science, I have to say. Calculating the fiscal impulse is a bit harder than understanding what the surplus means. Nevertheless, the picture is quite clear. The picture Treasury has painted is 3 years of positive fiscal impulse, which means that over the next 3 years monetary policy will be considerably looser than it has been.

The Governor of the Reserve Bank has put this in his document, but not because the Opposition thinks he should—it is up to him; he is independent. He has outlined it in great detail because it matters to his job of setting interest rates. The Minister of Finance needs to deal with this proposition because he has not done so, so far. His fiscal policy is significantly looser over the forecast period and that will have the effect, because the Governor of the Reserve Bank has said so, of keeping interest rates higher for longer. Maybe it did not cause him to put up interest rates just the other day; maybe it did—I do not know. The Reserve Bank Governor makes those decisions. But the fact that he has drawn so much attention to it tells us that it matters to him.

When he is sitting down to decide the interest rates that New Zealand households will be paying, not just on mortgages but on other forms of financing, such as overdrafts, credit card debt, hire purchase, interest-free offers from Harvey Norman, and all the other debt—the overnight cash rate affects all of them, not just the current obsession with housing—can Dr Cullen explain why he believes that his big spending plans are not fiscally expansionary, but that any tax cut would be? Can he explain whether he agrees with the Reserve Bank analysis, based on the analysis of his own officials? His own officials supply the data in the raw material. Does he agree with it? Does he agree with the Governor of the Reserve Bank, who says his policy is expansionary? Does he agree with the Treasury assessment that the next 3 years, 2007-09, will see significantly looser fiscal policy, as measured by figure 5.15, the fiscal impulse calculations, in the Monetary Policy Statement? Can he tell us whether it is sustainable to have core Government expenditure growing at almost twice the rate of nominal GDP—not real GDP, but nominal GDP—as table 5.2, total core spending and selected components, 2005-07, shows?

Does he believe it is sustainable? I want him to just answer that question. Given that the Government is now on about sustainability, where nominal GDP—[Interruption] Oh, he is going to ask me some questions. That is fine. I am happy to sit in the chair as Minister of Finance and answer those questions. That table shows that nominal GDP over 2005-07 has grown at 9 percent and expenditure has grown at 17 percent.

Can I try to explain to the member, because he really should not listen to the Brethren when it comes to fiscal policy. They are not good guides to fiscal policy. Even if they do wander into his electorate office by mistake, they are obviously not intending to discuss anything that might impact upon National Party funding. Let me try to explain to him what the measure of fiscal impulse is. It is not a measure of whether policy is tight or loose.

💬 Hon Bill English: Looser.

That is right—looser. So, basically, if the nuts are completely tightened up and they are untightened very slightly, Mr English would argue that they are loose nuts. Maybe the National Party does have a lot of loose nuts wandering around, but the fact is that in the Labour Party the nuts are still pretty tight, I have to say. Indeed, can I quote to him no better source than his co-leader, Mr Key, who says the Government has been running such huge surpluses—

💬 Hon Bill English: That’s right.

“That’s right”, he says. That is the problem with Mr English. He does not listen, even to his own interjections, from one second to the next. He says: “Yes, the Government has been running huge surpluses.”, and he says that the Government should not have been running such huge surpluses. That is what Mr Key says.

💬 Hon Bill English: No.

No, he does not say that? Well, Mr Key has been saying that the Government should not run such huge surpluses. Mr English is saying that it should run such huge surpluses. I could try to tell him about his policy, but that would be a very short speech indeed. I am going to concentrate on the contradictions in the various statements, because National does not have a policy. Its members went through a whole Agenda television programme saying: “We don’t have a policy on that yet, and we probably won’t before the election. But never mind, we’ll tell you sooner or later what it may be.” The smiling assassin, the “Muesli Bar Kid”, is making sure there is no actual substance in the muesli bar that comes out.

So the member does not understand that we are still running a cash surplus probably this year. That means we are funding all our investment spending out of current revenue. That is not a loose fiscal policy. The member does not expect us to say that we are going to be running surpluses of 7 percent of GDP every year. Is that what National said? That is not what National said at the last election. At the last election it said that it could continue to increase spending in all the core areas and have, by year 3, $4 billion a year of tax cuts. Mr Key said, very clearly, that fiscal policy was too tight and should be loosened. So where has the great growth come? The biggest proportionate growth is in spending on roads and public transport. It has gone up 52 percent in the last 3 years. Mr English would tell us—

💬 Hon Bill English: That’s right.

“That’s right”, he says. Which road would he not have built? Which bus would he not have run? Which train carriage would he not have helped the Government to purchase? That is what he has to answer. And then we have had a 21 percent increase in Vote Health, and a lot of that has been in primary health care. There are cheaper doctors’ visits and cheaper pharmaceuticals. Who would Mr English charge more to go to the doctor? Who would he charge more to get a pharmaceutical? His health spokesperson tells us that we should fund every drug that every pharmaceutical company thinks might do somebody any good and can drum up an interest group to come and march on Parliament about. That is what Mr Ryall has said. Every time any health group has gone on strike, Mr Ryall has said that the Minister of Health should step in and make sure the district health boards give away and grant them whatever they asked for in the first place in terms of a wage increase.

So although Mr English is playing with his nuts and trying to tighten them, all his colleagues have got the nuts completely off the thread at this point and they are running around on the floor of the Chamber being chased by his colleagues all over the show. The reality is that we are running a tight fiscal policy, and yes, it is more expansionary than it was last year—

💬 Hon Bill English: Aha!

Well, we were. Mr Key said that we were taking $11 billion more tax than we should. Does that mean we were running a loose fiscal policy?

💬 Hon Bill English: You are pushing interest rates up.

Oh, we are pushing interest rates up by still running a tight fiscal policy. That member says: “Yippee, we shouldn’t do anything about that, but just make sure interest rates go up.” He said that Dr Bollard had failed to use the mechanism of pushing interest rates up. Then when Dr Bollard did put interest rates up, Mr English said: “Oh, that shouldn’t have been done.”

That is the wonderful thing about being close to people like the Exclusive Brethren. One is surely going to be saved, whatever one does or whatever one says.

Anybody listening to Parliament would be forgiven for thinking that this debate is about a rerun of the last election, because National is talking about the affordability of tax cuts—but there is a modification to that, which I will tell members about shortly. The Labour Government is saying it wants to provide services. We saw that same debate just before the last adjournment when the National Party, and in particular Bill English, was looking for a reason to back down on its tax promises. It is National’s task to search and question the Labour Party, but backing down is what this is all about. National is now saying that the promises made at the last election by the Labour Party are expansionary. Its next words will be that tax cuts cannot be afforded. Then it will say: “Well, there you are! We promised them at the last election, but we will no longer be able to keep those promises for the 2008 election because Labour has spent the money.” In actual fact, Dr Cullen is running with the regime that he promised. He is fulfilling promises that he laid out at the last election, and that is what Governments should do—absolutely.

I was pleased to hear, in the financial statements of the Government, that the New Zealand Superannuation Fund is on target and even gaining momentum. The people of New Zealand are starting to understand the wisdom of savings as proposed by Winston Peters and New Zealand First years and years ago. In fact, we are experiencing the sort of thing that has happened in Australia with superannuation savings. It is so successful. Indeed, Australia has an abundance of money, and that money is coming to New Zealand to buy our businesses. That is where the money is coming from, and that is where the money will come from in the future.

Years ago, New Zealand First talked about superannuation savings and said that should happen. Years ago, Winston Peters said it should happen. I might tell members that when we were in coalition with National it withdrew its support from New Zealand First’s proposal. In fact, I would go so far as to say that National sabotaged that proposal at the time when New Zealand First was in coalition with National. Now the worth of those proposals is being proven, not only in New Zealand but in Australia. In fact, it is being lauded. I would like to hear someone at some stage say: “Yes, New Zealand First was quite right back then, and we should give them credit for that. We should look favourably on those sorts of proposals.” New Zealand First, of course, would go further with the superannuation fund and put it in named accounts. We proposed that back then and we propose that today.

I will say right now that I believe, and we believe, that National in some way or other will make a raid on that superannuation fund, if it ever gets into power. If it were not to raid it directly, it would borrow against it. In other words, it would rack up deficits and spend that money on ill-considered tax savings. That is what I believe the discussion has been about this afternoon, and it saddens me that National is still looking for an excuse to climb down from those tax promises. We will see more of that.

People probably do not know about Mr John Key’s contribution when we were discussing the financial statements of the Government of New Zealand in the Finance and Expenditure Committee. I am sure my chairman will confirm what I am saying. Mr Key was not the leader of the National Party at that time, but he was talking about the Auckland stadium.

Kia ora anō tātou. The 1st of April is going to be a great day, reflective of the brilliant work that our Government is doing. We are going to remind our key constituencies, as a consequence of high-quality economic stewardship, that the most vulnerable elements in society who totally pledge their support and their commitment to a social democratic approach are to be rewarded. At the time that they are being rewarded, they are witnessing Mr Key seeking to ape, and seeking to ride in the wake of, our successes. That man wanders around Aotearoa, attending every single opportunity or event, and pinching, aping, emulating, or borrowing, but never saying an original thing. Then he comes back and checks either with his caucus or with Mr English as to whether what he has said will actually be tolerable or can be embraced by the true-blue brigade, which Mr English hopes will eventually enable him to return to the area that he ruined when he tried for the big prize well beyond his years and experience.

Unfortunately it is not only Mr English or Mr Key who are making blunders and mistakes. My whanaunga here from the Māori Party made a tragic miscalculation over the last 24 hours, when they grossly misread the views of the Māori community in terms of tolerating, acquiescing to, or putting up with levels of family violence. What did I read in the newspaper, at a time when leadership and bold stands are required? I read that Tariana Turia was not only wavering but preparing to embrace the wretched amendment currently being peddled by the member for Whanganui, who, when he cannot read the data about traffic statistics and police business, is serving up an amendment that will only make it more difficult for us to stand against family and domestic violence. That was a very bleak day in terms of the number of Māori Party supporters—diminishing by the day, I have no doubt, when they watch their leaders at war with each other. Members may ask what that has to do with broad economic considerations. I say that for every family that witnesses the perpetration or the casualties of violence, there is an enormous economic cost to our society. And who is left to pick up the pieces? It is the poor, long-suffering taxpayer or community groups. I say to our colleagues from the Māori Party that they should not play short-cut politics while their whānau are getting an uppercut because of excessive family violence.

However, I will go back to the sterling work undertaken by the Finance and Expenditure Committee. As Mr Woolerton has referred to, we had the interesting spectacle of Dr Bollard being challenged by Mr Bill English as to whether the levers he has in terms of monetary policy were being misused, and were doing more harm than good. What did Dr Bollard say back to Mr English? He said: “As you know, Mr Bill English, when you sat in the meeting I outlined and elaborated on what the options are.” The coded message being given was that Mr English should not come to meetings with Dr Bollard, seize upon very sensitive, potentially confidential information, and then, when the heat comes on, move out of the meeting and not admit that Dr Bollard and National’s leader equally acknowledge that there are some flaws in terms of relying exclusively on monetary policy to deal with problems such as an enlarging currency rate and the expanding cost of housing. So it was interesting to watch the morose, highly wrought Mr English come back from the deep south and challenge Dr Bollard, who, with the style and poise of a consummate cricket player, just flicked him aside—as Mr English has been flicked aside by the electorate in earlier times.

R Doug Woolerton: That’s right.

Actually, I must agree with the kaumātua—no, I will not say the kaumātua; the pakeke, Mr Woolerton—one of the senior members of our committee, who recently pointed out that the savings policy represents a key plank for economic transformation. As a consequence of having the KiwiSaver scheme as an adjunct to the Cullen fund, our economic policy represents savings on behalf of those who are either unable or unwilling to save, or who hope to ride long and hard into the distance without savings. Kia ora tātou.

It is a great time to be speaking for the Government on this side of the debate. From the end of 1999, when the Labour-led Government came to office, we have been growing at an average annual rate of 3 percent. That is faster than the average of the developed countries that we like to compare ourselves with. We are growing faster than Europe, Japan, the US, and the UK, and as fast as Australia. In fact, the New Zealand economy is a quarter larger today than it was in 1999.

We also have one of the lowest levels of unemployment in the OECD and, despite the usual innumerate claims from members of the Opposition, this is not due to people shifting beneficiaries around to different categories, but because the absolute number of those on benefits has fallen dramatically since those members were last in power. Unemployment is now at levels that Mr Bill English once said would be unachievable.

Although we have strong growth, which we are debating in this debate, through increased prosperity throughout the country, there are obviously challenges on the horizon. The domestic economy has performed persistently much stronger than the export sector, and we are seeing the evidence of that in a current account deficit making up nearly 10 percent of GDP. One of the reasons for that, I believe, is that households are not saving enough.

Saving is a hugely important issue. Despite the Reserve Bank highlighting New Zealand’s poor savings rate in last week’s Monetary Policy Statement, this has received little focus in the ensuing discussions, including in the contributions from the Opposition in the House today. The Reserve Bank report in the Monetary Policy Statement notes that household savings rates are currently running at minus 17.5 percent, which means that for every dollar a New Zealand family earns, it is spending $1.18. The Reserve Bank describes this as dissaving, and notes that the current rates of household dissavings are unsustainable.

This dissaving is fuelling consumption and it is a major driver behind the Reserve Bank’s decision to increase interest rates last week and of course, as we know, the export sector suffers most of the burden when those interest rates go up. The resulting higher exchange rate makes exports less competitive and businesses have to pay more for capital, but it is not the export sector that is forcing these increasing inflationary pressures.

The Government, through fiscal policy, has an important role to play in supporting monetary policy, as well. To put it bluntly, there is no point in cutting taxes or in increasing spending in major ways if it results in higher mortgage costs or even in an inflationary spiral. Even Bill English managed to realise this when he stated that it is not a time to give away extensive tax cuts.

Of course, that is not what Bill English said in the Chamber this afternoon. Unfortunately, he did not get around to telling John Key this, because the very next day they were once again contradicting each other, proving once again that it is not a very happy time to be in the National Party. Mr Key is one of those who believe that every time the Government’s cash surplus is updated, the Government can simply spend its cash reserves. Mr Key usually calls for the Government to reduce its operating surplus while at the very same time, on the very same day, Mr English blames the Government for spending too much money—in effect, calling for larger Government surpluses. There is a word for that, of course.

Holding these kinds of mutually contradictory positions might be OK when one is in Opposition, but it is not a privilege we have while in Government. So the Government is trying to be active on a range of fronts to take the pressure off this monetary policy, increase the savings, and develop our export sector. Cash surpluses have been used to pay down debts steadily. Gross debt is now around 20 percent of GDP and we no longer carry any net debt at all—something I think New Zealanders should be very proud of, when we take into account the New Zealand Superannuation Fund. It is the first time since we have had responsible Government in New Zealand that this has been achieved.

New Zealand has better public finances than nearly all the OECD countries. According to Standard and Poor’s, due to our strong fiscal position and the Superannuation Fund, we are one of the best-prepared nations when it comes to dealing with the challenges that will come from an ageing population, which obviously the Government is very concerned about as well. The Superannuation Fund will ease that pressure on Government finances into the future.

We are trying to boost the savings rate with the introduction of KiwiSaver, as Mr Jones mentioned, which is a unique voluntary, workplace-based savings scheme for all employees. The introduction could hardly be better timed, given the Reserve Bank’s warning about household dissaving and the need to manage domestic demand pressure across the economy. I believe that this will be historic legislation, as workers are asked to set aside either 4 percent or 8 percent of their incomes into KiwiSaver.

Its unique feature is that it has automatic enrolment. With 700,000 people starting a new job each year, one would like to think that over the course of time that will be a catalyst to embrace KiwiSaver across the economy—particularly with the $1,000 contribution as part of the card commitment that Labour gave at the last election. There are very strong incentives for young people to join at the beginning of their workforce life, so that they can build up a strong savings habit, which, of course, will multiply their benefits in later life. By making employer contributions tax exempt, we are making it even more attractive for workers and for employers to see this as a positive economic tool in order to boost the New Zealand domestic economy and to make things easier across the export markets. KiwiSaver will deepen the pool of capital available for development, manage domestic demand pressure, and increase our household savings rate. KiwiSaver should help to take the pressure off our export sector and also off interest rates.

It is a pleasure to rise to speak in this debate as the newest member of the Finance and Expenditure Committee—[Interruption]; that is right—and to follow fine speeches such as that of the Minister of Finance, the chair of the committee, and Darren Hughes, as well as Doug Woolerton’s contribution, which was a notable one, in my respectful opinion. I would just remind the Committee that 1 April is an important date, as an earlier speaker said, not only for the reason that he mentioned, but also because it will see increases to the Working for Families payments made to families that require assistance. As the Governor of the Reserve Bank told the committee in the evidence he gave before us on Thursday on the Monetary Policy Statement, that package itself already has added 6 percent on average to the incomes of those families in receipt of it—6 percent in real terms. That is a real achievement for this Government. The KiwiSaver scheme, as has been mentioned, comes into effect on 1 April, and the minimum wage is increased, as well as 4 weeks’ annual leave becoming available to working New Zealanders.

Those are fine achievements by any judgment and they demonstrate that this Government’s record of responsible fiscal management is intact. We do not promise to spend more than we have in the bank and we are careful to make sure that any promises on spending are sustainable and well targeted. This is a drastic contrast with the record of the National Party in Government. I saw the National Party in the late 1980s, as the 1990 election approached, promise all things to all people. This was a hidden agenda.

💬 Hon Member: Sounds familiar.

Yes, we can remember the “decent society”, as my colleague said. Well, what a joke that was. In the 1990s, when National came into Government, its hidden agenda was revealed. I say to members opposite that that is not a record that they can afford to repeat if they want to see democracy preserved in New Zealand. Members opposite must not repeat that disastrous record if they ever again have the opportunity to be in Government.

One can already see the signs of that sort of agenda being laid out. Over 30 or 40 promises on spending have been made by Opposition spokespeople in the last year. All are against a promised framework of tax cuts from the Leader of the Opposition and the spokesperson on finance. Tony Ryall promised increased places in medical training. John Key promised bulk funding at the top rate for education, and funding for food in schools, and sports and community groups. Chester Borrows promised more police, and Wayne Mapp went along with him. There was a promise to abolish parole and all the required extra prison places that that would need, compulsory DNA testing of all convicts, merging the Ministry of Justice with the Department of Corrections, expanding rehabilitation programmes, work schemes, and prison health. That was Tony Ryall again. Chester Borrows and Anne Tolley promised more resources for youth justice, the provision of youth justice beds, and new Youth Court options. Bob Clarkson promised a new High Court in Tauranga. Chris Auchinvole promised a community law service for the West Coast.

Colin King promised electronic signage on all State highways. John Carter promised to fund local government for its leaky homes liability arising from court action. Funding a task force to determine Auckland’s future was John Key’s promise. David Bennett promised more core services in Hamilton. Tim Groser and Chris Finlayson promised increased budgetary expenditure in arts, culture, and heritage. Phil Heatley promised more fisheries officers. Paul Hutchison promised more investment into research and development, increasing the overall public and private investment from 0.68 percent of GDP. Colin King promised high-speed broadband access for the Hurunui. Shane Ardern promised to spend more money to eradicate varroa, improve biosecurity education, and introduce a new emergency response category and more container inspections.

The Bluegreens promised more money for emission reduction technology. Nick Smith promised to create an environmental protection agency, funding initiatives for thousands of volunteers and dozens of organisation and community conservation projects, and sharing the cost of a joint commitment with the agricultural sector to make progress on water quality through National’s proposed sustainability investment fund. Jackie Blue promised to fund the expansion of the Ministry of Women’s Affairs into an advocacy role within government. Judith Collins promised to put more money into homes for veterans, genetic testing of all veterans’ children, and tax refunds for those who served in the Viet Nam War. National cannot cut taxes and do all that.

Reports noted.

Government Communications Security Bureau

New Zealand Security Intelligence Service

Reports noted.

Ministry of Fisheries