Financial Review Debate — Financial Statements of the Government of New Zealand for the year ended 30 June 2009

Thank you for that introduction, and in keeping with past practice the Opposition would like to begin by commenting on the general state of the Crown accounts, reflecting on several of the important macro-aggregates, and then proceeding to look at individual departments.

New Zealanders are asking themselves three key questions in respect of the Crown accounts and the Government’s economic performance. Why is there no coherent plan for growth and jobs? Why is the Government talking down the recovery, rather than boosting confidence in it? Why is the Government raising GST after the election, when National certainly did not tell New Zealanders that was its plan before the election?

Let me talk first about the Crown accounts themselves. There is no doubt that these accounts show that the impact of the recession on New Zealand’s books was serious. But as economic conditions start to improve, the Minister of Finance and the Prime Minister need to ensure that all New Zealanders will benefit from the recovery. It is time that the Minister of Finance was frank with New Zealanders that the books are improving, to ensure that he does not talk down the recovery as cover for delivering a tough Budget that New Zealanders will not want to hear.

The recent Crown accounts show that New Zealand is doing much better than forecast. Gross debt was $2.9 billion lower than forecast and continues Labour’s legacy of trajectory towards lower debt, with gross Crown debt the third-lowest in the entire OECD. The operating deficit was $1.4 billion lower than forecast and is now only $630 million negative, and that closes the operating gap by around 70 percent. Net worth is $1.3 billion higher than forecast. The Labour Opposition does not pretend New Zealand’s economy is out of the woods yet. To do so would be irresponsible. But when the gap between the forecast deficit and the actual deficit has been closed by approximately three-quarters, we believe it is time the Government was frank with New Zealanders about the progress that is being made. New Zealand does not need to face a decade of deficits or anything like it. New Zealand does not need to forget about pre-funding superannuation, thereby risking the future of the scheme. New Zealand does not need to starve much-needed social services in health and education of the necessary funding to offset cost growth.

It is very notable that some of the most successful of the Crown’s investments were in the New Zealand Superannuation Fund and the Accident Compensation Corporation, both of which tracked above forecast. With those improved forecasts, Labour challenges the Government to resume payments into the New Zealand Superannuation Fund, noting that the Crown accounts would now be much better if they had not been suspended. New Zealanders have gone without during the recession. The Minister of Finance was kind enough to draw attention to some of the activities of the Labour Party’s tax tour of the country during the parliamentary adjournment. I can reassure the Minister that in the small towns up and down New Zealand, people are very clear about the tax package. They did not vote for an increase in GST, because National did not tell them it was going to do it. It told them the opposite. They are feeling shafted, I think is the word in the mining communities, by this Government. What they really cannot get their heads around is that even if they could believe the rhetoric from the Minister of Finance that they would be “no worse off after compensation”—leaving aside inflation, of course, which he would not discuss today—they cannot understand why it is OK for the middle class to stand still at best while the wealthiest New Zealanders get a major windfall gain from a tax reduction from 38c to 33c in the dollar, or perhaps as low as 30c in the dollar. That is a one-way street towards redistribution from the middle of our society and the bottom towards the top. It is Robin Hood in reverse. It makes no sense in terms of social equity, and even less in terms of good economics.

As we were going around during the adjournment, New Zealanders up and down the country were also asking what the game plan is for growth. What is the Government’s strategy for recovery from this recession? In advance of the May Budget, which the Minister of Finance knows well will compress new Government spending to the lowest levels in many years, he is trying to convince New Zealanders that the crisis is still as bad as it looked 18 months ago, and it patently is not because the gap has been closed by three-quarters of those original forecasts, as revealed in these Crown accounts. The risk in trying to keep New Zealanders gloomy so they will accept his harsh medicine is that he is not telling them the full story and he will talk down the prospects of recovery. It is no surprise that commentators and journalists—even those at perhaps the more conservative end of the media spectrum, people like Fran O’Sullivan—are increasingly saying they are frustrated with this Government that seems incapable of making decisions, and incapable of laying out a plan for New Zealanders that business can understand and investment can get behind.

We have a duality. Business says it wants to see a game plan, and ordinary New Zealanders say that the game plan the Government is showing them so far looks absolutely rotten to them. That is why this Government is stuck in a cold, hard place between the focus groups that the Prime Minister cannot take his eyes off and the reality of the Crown accounts, which is that the books are improving. They are improving because we are moving out of a cyclical recession. It is a recession we went into with some of the lowest debt and lowest unemployment in the OECD, thanks to the previous Government.

Just this morning Statistics New Zealand released productivity data that shows that for the years 2000 to 2008, labour productivity grew by a little over 1.5 percent per annum, but it declined when the recession hit in 2008 through 2009 and it has not shown the slightest hint of improving, according to the Government’s programme. I ask members what the Government has done. It has a cycleway to nowhere and a 9-day fortnight scheme that was good as far as it went but did not go far, which the Government has now cancelled, removing the sporran from the Scotsman—the fig leaf of activism—that it never had. New Zealanders are left wondering whether the Government has been doing any thinking at all about how to take the country forward or any thinking about how to get growth back in the economy. Businesses are asking why the Government will not get behind their efforts rather than staying on the sideline or, worse, talking the recovery down. Why is the Minister ignoring the fact that in these Crown accounts the operating deficit gap has been closed by three-quarters, yet still using the rhetoric of the dark early days of the global financial crisis?

I challenge the Minister to take a call and explain to New Zealanders exactly why it is that when the operating deficit forecasts have reduced by three-quarters, he has not changed his song at all and he is talking New Zealand into a funk. New Zealanders are still waiting for the answers to their three key questions: how will we get growth and protect jobs; why is the Minister talking down recovery; and why is this Government raising GST on ordinary people just to fund a massive tax cut for the few? Thank you.

The Green Party’s vision for Aotearoa New Zealand is one of prosperity without growth in resource use or waste. In fact, it is a vision of prosperity with declining resource use and waste, and declining inequality. We believe the Government should approach the raising and the spending of money with this aim in mind. On the revenue side, taxes should be structured to not only raise the money the Government needs but also move our economy in a green direction by taxing resources and waste. The Government’s books would be in a much healthier position by potentially billions of dollars if there were a levy on the commercial use of water and a levy on the production of greenhouse gases. At the same time, by increasing the price of water and carbon, the market would direct our economy to use water and carbon more efficiently. A country that uses water wisely will prosper in the 21st century as water becomes scarce globally—likewise for carbon. Sadly, the Government is doing neither of those things. There is no price on water for irrigation, which is the biggest user, and there is a scant price on carbon, as the emissions trading scheme is too weak. We miss out on the revenue that resource rentals could raise, and we lock in our economy to investments that use water and carbon inefficiently.

The one bright spot on the revenue side in the Government’s accounts is catching the banks’ attempt to steal $2.2 billion from the taxpayer. The banks got caught but suffered no penalties. I ask members to think about that. It is possibly the biggest theft of public money in New Zealand history. The banks got caught and had to pay it back, which helped the revenue side of the Government’s accounts, but there were no penalties. No one was sent to jail. In fact, some of the people who advised the banks were appointed to the Tax Working Group.

On the spending side, our accounts are weighed down by the ghosts of years past. The dramatic increase in inequality in the 1980s and 1990s has left our budget with huge legacy spending due to high crime and violence, a high prison population, high spending on social services and preventable illness, and an education system that is struggling to teach kids who are dragged back by poverty. Inequality is really, really expensive on the public purse, and we are living with that legacy and paying taxes through the nose to pay for the downstream effects of the Rogernomics experiment.

Also on the spending side, we are throwing vast amounts of treasure at new motorways—literally tens of billions of dollars. It makes the spending on buses, trains, cycling, and walking look like peanuts. It is Joyce’s think big project, with the inevitable production of white elephants. Clearly, Labour and National do not read the reports from the International Energy Agency that warns Governments that the era of cheap oil is over. I suggest that one way for the Government to save money is to stop paying for the International Energy Agency reports, because clearly no one in the Government is reading them.

Then there is the small question of our accounting framework for those accounts. When we consume natural capital by mining minerals to buy consumer goods, are we really richer? Our national accounts certainly say so, as GDP increases, but if we start selling off parts of our house in order to buy flat-screen TVs, are we actually richer? Of course not; we are simply consuming our capital. That is exactly what we are doing with our minerals. We are simply consuming the natural capital today that we will never have again. I ask members how much better our books would be today if we had invested a good proportion of the returns of the Maui gas field in a gas fund whose dividends would now be helping our chronic current account deficit and the Budget deficit. Norway turned a good chunk of its North Sea oil—its natural capital—into financial capital in the form of the giant half-trillion-dollar Norway Pension Fund, while New Zealand and the United Kingdom simply consumed their mineral resources, and now we have nothing to show for it except a few mothballed Think Big plants. Thinking long term to ensure prosperity is the Green way, and we encourage all parties in this House to steal our ideas instead of stealing the next generation’s inheritance.

I am not sure who it was, but someone famous said that he or she changed his or her mind when the facts changed—

💬 Craig Foss: Maharey?

No, Steve Maharey changed his mind regardless of the facts; it was not him—and I suppose that is my response to the Hon David Cunliffe. When the Government is in a much stronger fiscal position, the Government will change how it describes New Zealand’s fiscal position, but that has not happened. This idea that somehow most of the pressures on the Government’s books have evaporated because of small improvements in economic forecasts tells us more abut Labour’s attitude to the hard-won PAYE income that comes in every week from hundreds of thousands of New Zealanders who could use that money for different purposes themselves than it does about any kind of analysis of the Government’s books.

The Government has followed a pretty straightforward plan in a year when the economy was contracting fairly strongly. It maintained what were previously high levels of spending under the previous administration. Now that the economy is recovering, the Government has outlined a plan to lower the growth of Government spending, starting from 1 July this year. The new discretionary spending will be about $1.1 billion on average, when over the last 3 or 4 years it has been somewhere around $2.8 billion. The new spending has funded a lot more new activity than the current Government will be able to.

Small improvements have not changed that picture. At the moment these books that Parliament is looking at today show that if we take the forecasts ahead, it will take another 6 years before the Government is back in surplus. Even then, it will have accumulated a very significant increase in public debt. That matters because, as those who have been around the House for a while will understand, public debt cycles are quite long. New Zealand’s public debt started lifting in the early 1970s and it was about 35 years before it had gone through the full cycle of rising strongly into the mid-1980s, and then successive Governments brought that debt back down as a proportion of GDP through to about 2006—roughly 35 years. That was a somewhat difficult political time. In that period from the mid-1980s through to the mid-1990s, at various times, New Zealand faced threats of downgrades and a lot of difficult politics around containing Government expenditure and changing the mind-sets that go with the view that money grows on trees and it does not matter where it comes from. We do not want to do all that again. It would amount to a betrayal of many ordinary New Zealanders to allow our public debt to get out of control. That would be, as the co-leader of the Greens Russel Norman used the term, “stealing from the next generation”. He applies that analysis to any use of natural resources. I am applying it to monetary resources.

If the current generation believes that we have a right to leave a burden on people who have not left school yet and to make them pay for things that we believe we want now, even if we do not really need them, then the Government disagrees with them. So that is why, despite the member’s optimism about the improvements in the Government’s books, I would describe them as marginal. I hope we keep making marginal improvements; that would be good. I would like to see us getting to surpluses sooner, because then we have a few more choices. We would not have all the choices that he would like us to believe we would have, but we would have a few more. Even when we get to surpluses, we will then have this large stock of public debt, and even when it stops rising, we then have to start getting that stock of public debt down because we incurred it. We incurred it trying to maintain our standard of living through these times. We have an obligation to the next generation not to leave them with the burden of paying for what we wanted to have.

So the Government is working through a fairly measured process. We have said that over the next 3 to 5 years the Public Service should get used to having no new money. It needs to rethink how it delivers services and learn to do more with less.

I am pleased to speak following the Minister of Finance as we debate the Crown accounts this afternoon. I will pick up on some of the comments from my colleague the Hon David Cunliffe about GST. I address to the Minister some questions about the Government’s proposals for GST and ask exactly what increasing the GST rate will do to advance the rate of increase in jobs in New Zealand. What would an increase in the GST rate do to improve economic growth, the economic recovery, or, indeed, the Crown’s financial balance? The indications thus far from the Government are strongly that for every extra dollar it takes in from the GST increase, it will compensate New Zealanders. If one believes that, difficult though it may be, it begs the question of why the Government would bother to introduce a tax increase that was certainly not judged by our GST bus tour as being by any means popular—absolutely the contrary of that.

I think the answer to that question is simply this: it is payback time for the Government in terms of cutting the top tax rate again. We saw that in the rushed legislation prior to Christmas of 2008 where the tax changes were such that about 3 percent of taxpayers received a third of the gains from them. One suspects, from the newspaper projections of a cut in the current top tax rate from 38c in the dollar to 33c in the dollar, that we know which end of town that cut will fall in. On behalf of my electorate of Christchurch Central, which although it has its leafy suburbs is certainly not a wealthy electorate, I have to say I know where the impact will fall. The figures for my electorate show that 76 percent of people earn less than $40,000 a year. They spend every dollar they receive on the basics of life. They do not have discretionary income. They do not have overseas holidays, and they do not have much capacity to save. So they will be whammied by an increase in GST, effectively, of 20 percent. That is why people are concerned about that, and that is why they were turning out in large numbers in support of the bus tour that Labour recently took around the country. They know what that tax increase will mean for them and their families.

I say to the Minister that OECD statistics show that in terms of consumption taxes, already New Zealand has the fifth-highest rate of consumption tax with GST. We do not have the highest rate itself at the current 12.5 percent, but we have virtually no exemptions. So currently we have the fifth-highest rate of consumption tax in the whole of the Western World. Where does the Minister want to take us to? Do we want to go to second or third in terms of the consumption tax? What benefit will that bring to ordinary people?

I will touch upon the financial review of Radio New Zealand. During the course of the Commerce Committee hearing into Radio New Zealand’s financial year we were given a letter from the Minister of Broadcasting, Jonathan Coleman, to the Radio New Zealand board, in which he said the board needed to change its mind-set—

The CHAIRPERSON (Lindsay Tisch): We are concentrating on the Finance and Expenditure Committee’s report, not on Radio New Zealand. The member will have an opportunity to debate that later, if he wishes.

I think what has happened across the whole spectrum of the Cabinet spend is the Minister of Finance has remonstrated with some of his Ministers, and the positions they have taken in the past are now contrary to where they are at today. In the case of that particular entity, it had a charter introduced to the Parliament only last year, which said it would not go into the commercial sponsorship of programmes. But that is now specifically what the Minister is proposing to that entity. I think we are seeing that happen not just in Radio New Zealand but across the spectrum of Government departments. We also see in the broadcasting portfolio that the broadcasting Minister suggested to Television New Zealand that it now needs to look at funding—

The CHAIRPERSON (Lindsay Tisch): I have said to the member this is a debate on the Finance and Expenditure Committee’s report, not on Radio New Zealand. He will have the opportunity to debate that matter later on, so I ask the member to come back to the debate. He has 30 seconds remaining.

I pick up on comments today from the Prime Minister in relation to the funding of literacy, as funded through the Crown accounts and as reflected on in the financial statements of the Government. The suggestion today was that the funding of literacy has been improving. I know, again in my electorate, that the YMCA has lost its funding for programmes for literacy for the worst-off young people—for those youths who are at the bottom end.

I rise in support of the comments by my colleague Dr Russel Norman. The purpose of the Appropriation (2008/09 Financial Review) Bill before us today is to confirm expenses incurred for the 2008-09 financial year that are in excess but within the scope of an existing appropriation in accordance with the Public Finance Act.

I begin by recognising the Minister of Finance for his cautious custodianship of the country’s public purse for the period in review. I am aware that he is responsible for only 7 of the 12 months involved and that his Government would claim that was an insufficient time to make the mark it intended in battling the economic recession that it had inherited. But we have already had an additional 8 months since the end of the period under review. So our judgments are inevitably coloured by the passage of time since then, in which his Government has had sole responsibility for macroeconomic policy and financial management of this country.

This is no simple responsibility. I count, as constituting the Government reporting entity in Part 3 of the Public Finance Act for which he and his colleagues are responsible, some 41 departments, 19 State-owned enterprises, 70 Crown entities, and 23 other organisations, including the New Zealand Superannuation Fund and the Reserve Bank of New Zealand. We are talking of some $55 billion of revenue and $64 billion of expenses, a net operating deficit of $11 billion, a gross debt of $43 billion, and a net Crown worth of $100 billion. It is a major challenge to ensure that the economy is prudently managed and the financial statements are well prepared. As the Minister said in his covering statement: “By taking the shock on its balance sheet, the Government has helped to cushion New Zealanders from the worst of the recession”.

Given all this, why, then, does the Green Party oppose adoption of the appropriation review? Why will we be voting against the Government on this bill, which is essentially a serious annual exercise? It is because of the philosophical divide that separates this House. There is a numerical divide and there is a philosophical divide in this House. Numerically the House is divided between the two largest parties, between National and Labour; 69 votes square off, though not always, against 53. But philosophically, the House is divided 113 to nine.

What is the nature of this divide? It has to do with the fundamentals of economic and financial management, which go to the heart of government, and on which this financial debate rests. All other parties embrace the concept of unlimited economic growth. We heard that from the Minister of Finance, from Mr Cunliffe, and from Mr Burns just recently. In contrast, the Green Party alone repudiates this concept. The Green Party embraces the concept of a steady-state economy: economic development, yes; economic growth, no. There can be no more fundamental party divide in a political democracy than over underlying macroeconomic belief. This House, and, in a more general sense, this country, is divided between those who believe that human technology has freed us from the primitive grasp of nature and those who believe that indefinite economic growth on a finite planet is a logical impossibility, even allowing for technological growth.

It is important, therefore, that we explain, even in a technical debate of this kind, the theoretical tenets on which the Green philosophy rests and which prompt us to vote against the Government while acknowledging to some degree its financial stewardship. This has to do with the relationship between the biosphere and the economy. The Earth’s biosphere continues as a whole in an approximately steady state. Contrary to what the opponents of steady-state theory say, this does not mean that the Earth is static. Much qualitative development can happen inside a steady state. This has happened on Earth, and it can happen inside today’s modern global economy. But after millennia of relatively harmonious living on the planet, human society has changed within just the last 200 years, with the enormous growth of the economy relative to the encompassing ecosystem. It is as if the aggressive child is killing off its nurturing parent.

The distinction has to be made between growth and development. Growth is simply more of the same stuff. Development is the same amount of better stuff. The natural world is no longer able to provide the sources and sinks for the metabolic throughput necessary to sustain the oversized and overheated global economy. Yet with the global population growing from 6.7 billion to 9.2 billion and every country determined to increase its per capita GDP, the economic managers of our times call, none the less, for the mindless pursuit of more growth. We are locked in an economic asylum of circular logic that is incapable of accounting for the externalities beyond the perimeter’s limits. Those externalities in the 21st century will prove to be lethal to most, if not all, societies. Economic growth has, in fact, become uneconomic in the sense that it cannot be sustained indefinitely, which is, of course, its primary objective. We in the Greens advanced this critique of orthodox neo-liberal economic policy in our address in reply to the Prime Minister’s statement in February. We reiterate that critique today, and we will continue to do so up to, and into, the next election.

The financial statements contain the audited results for the 2008-09 year in comparison with two sets of forecasts. The first is the original Budget as published in the 2008 Budget Economic and Fiscal Update, and the second is the estimated actual forecast, as published in the 2009 Budget Economic and Fiscal Update. There is an obvious, intimate relationship between the budgetary planning of the Government and the final financial forecasts. It is therefore consistent with Green Party philosophy that governmental approaches to macroeconomic planning and evaluation adopt a broader set of indices than the purely economic and financial ones that we currently use, which are before us today. The Green Party has been prescribing this for at least a decade now, and it is finally becoming mainstream.

Last year President Sarkozy of France established the eminent commission led by Joseph Stiglitz and Amartya Sen. The commission was asked by the President what was the best way to measure economic health. It concluded that GDP was inadequate as the principal measure. Perhaps, concluded the commission: “Had there been more awareness of the limitations of standard metrics, like GDP, there would have been less euphoria over economic performance in the years prior to the crisis; metrics which incorporated assessments of sustainability … would have provided a more cautious view of economic performance, but many countries lack a timely and complete set of wealth accounts, the true natural balance sheets of the economy that could give a comprehensive picture of assets, debts, and liabilities of the main actors of the economy.” President Sarkozy has embraced the commission’s findings. He said, with his usual candour: “The world over, citizens think we are lying to them, that the figures are wrong, that they are manipulated. And they have reason to think like that.” Behind the cult of figures, behind all the statistical and accounting structures, there is also the cult of the market—that it is always right.

We have reached a stage where we must incorporate environmental and social indicators into our macroeconomic management and our national financial accounts. To that end, I have been working with colleagues recently to develop a member’s bill that could amend the Public Finance Act to ensure that our budgetary planning and our financial reviews take these indicators into account. It is my hope that I can submit this bill into the ballot within a month or two and that we can engage in a constructive dialogue on the best way to improve matters.

Debates like this are primarily about the Crown accounts. When we are talking about accounts, the most effective way is to show the actual numbers, or to show them by way of graphics. In that vein, I would like to offer my contribution by showing two cartoons from the Auckland Chinese media to illustrate the point. The point that the artist and the ethnic media are trying to make is that although Prime Minister John Key has maintained his beaming smile since taking office, his standing within the Kiwi Asian community has changed dramatically. Coincidentally, these cartoons accurately illustrate the points I want to make in relation to this debate.

This is cartoon No. 1, which was published shortly after the 2008 general election, as members can tell from the scoreboard, which shows National 1, Labour nil. This cartoon shows the approachable, energetic, and triumphant Mr John Key becoming New Zealand’s Prime Minister with an array of the promises that he will fulfil. Prime Minister John Key laps up the rounds of applause from the majority of the Kiwis—good on them!

The second cartoon was published early in 2010. This cartoon shows the same approachable, energetic, and triumphant Prime Minister John Key. However, the weight of his promises are becoming unbalanced. Tax cuts for the top income earners outweigh the gains made by lower-income earners. The rounds of applause now echo out only from the privileged few—as the cartoon shows—who can afford giant diamond rings. The title the artist gave to the cartoon was “Step forward, for the super rich; or tiptoe, for the low to middle income earners”.

That explains why Labour’s “Axe the Tax” campaign has struck a chord with the general public. I was at the campaign’s launch in Auckland and also in Christchurch last week, engaging with ordinary Kiwis. One cannot help but ask what on earth this National-led Government has been doing to help ordinary New Zealanders. More GST means higher prices, and no one voted for an increase in GST. Increasing GST to 15 percent means 20 percent more tax on the basics. The cost of living is already an issue, and having a higher rate of GST will just make it worse.

The Governor of the Reserve Bank, Dr Alan Bollard, indicated to Parliament’s Finance and Expenditure Committee recently that he agreed that an increase in GST to 15 percent would add 2 percent to inflation and living costs. Based on the Reserve Bank’s own forecasts in the recent Monetary Policy Statement, this means that with the introduction of an increase in GST, inflation is likely to outstrip wage growth, while the labour cost index currently looks to just remain steady without any additional inflationary pressures such as a rise in GST. It is not just the impact of GST and National’s money-go-round: most people get a rise in GST and small change, while the big cuts go to a few at the top. This will certainly raise a huge issue of equity.

The second issue I picked up while campaigning is the uncertainty in relation to the possible change to other aspects of the tax system. National has indicated that it may remove depreciation from buildings. This reduction in income to landlords will flow roughly as an increase in rent, possibly as high as $45 a week. That is on top of GST increases, inflation, minimal wage growth, job insecurity, and rising power prices.

With regard to another issue of how to catch up with Australia, as I argued in the House before, focusing on the bottom 50 percent, not on the top 5 percent, is more sensible. I borrowed the idea from my friend Keith Ng, whose research shows that New Zealand’s tax system is less progressive than Australia’s. That is, high-income earners in Australia pay more tax, both proportionally and in absolute terms.

This session is certainly off to a scintillating start. I look forward to seeing a translation of whatever the speaker from the Green Party was talking about earlier, because, with respect to that member, I had absolutely no idea what he meant. I would like to thank the members and officials who helped and assisted us to prepare the various financial reviews that we have in the report before us today. I think it goes for all members that we thank the people who produced these reports. I also join with the spokesperson on finance from the Opposition, David Cunliffe, in congratulating Mr English, the Minister of Finance, on the improvement in the accounts and in the forecasts, which the Opposition spokesperson alluded to earlier. It is true that there is no longer a forecast of a decade of deficits; in fact, it is 6.5 to 7 years at the moment. I will come back to that matter later.

The accounts clearly demonstrate the need for accountability, responsibility, and transparency, and to have a line-by-line expenditure review, because if the accounts had continued to straight-line in the way that they had been doing in the previous 5 years or so, this country would be in dire, dire straits. I again congratulate the Minister for at least putting the brakes on some of the negative impacts of the accounts, such as a potential blowout of the debt to GDP ratio. Budget 2009 began that clean-up process, and Budget 2010 will start to bring some fairness and equity back into the economic system of New Zealand, particularly with regard to the taxation field. If I have time, I will touch base on that matter, because some of the comments of previous speakers, with perhaps just one eye open, were totally and patently wrong.

These accounts show a deficit of $10.5 billion, from a positive $2.5 billion balance in the year before. Much of that deterioration comes from the recession and the global financial crisis, to be fair, but also much of it was locked in, stepped up expenditure booked up by the previous administration. For example, many Public Service salaries had been locked into 5 percent annual increases over 5 years, which is 25 percent. That is before compounding the increases, so they are obviously higher than 25 percent. So much of the problem with the accounts comes from having straight-lined expenditure increases yet variable or decreasing revenue, as members have alluded to, to be fair.

If we run a deficit, it means having debt. It means we have to borrow funds. It means we have to fund that borrowing. That money is quite simply not available for other services within the economy. It is not available to pay for health or education. It really surprises me that the Opposition goes on about more and more spending increases—I think of up to about $7 billion, which would actually mean $7 billion worth of more borrowing. Well, as other members have said, that is a theft from, or a tax on, future generations, which is simply not fair. To listen to earlier speakers, one would think the problem was all over. It is not as bad as it had looked to be; that bit is dead right. But the issue is all about confidence and eliminating the deficits; it is not about pretending they are all over with a bit of a snapshot.

One point to note is that the commentary says the previous administration did not pay off 1c of debt. The ratio of debt to GDP improved somewhat, but that Government did not actually pay off 1c of debt. I invite members to look at the numbers.

I would like to point members to page 13 of the transcript, because the Opposition spokesperson on finance had a bit of difficulty with some of the issues there. He questioned the Minister about the percentage changes. If we want to show a percentage change between year 1 to year 2, we need to have two columns. We compare the two, and we get one percentage change over 1 year. The Opposition spokesperson kept questioning the Minister of Finance, who had produced a press release. It had six columns in it that produced percentage changes over 5 years. The media that were present were flabbergasted. Everyone around the table was flabbergasted, because the most important issue for that member at the time during the review was how many columns the Minister of Finance had produced in a press release, and even then the Opposition spokesperson got it round the wrong way. As I said, if we want to show the difference between 1 and 2 years, we need two columns of data. Again, that may to be seem trivial, but that is what the Opposition spokesperson on finance said; it is on page 13 of the report.

One further thing I will say is in respect of superannuation. Basically, the Opposition spokesperson on finance was essentially saying the more one borrows, the more one makes. Supposedly, we should have borrowed more funds in order to put more money into the New Zealand Superannuation Fund. I think we put in $250 million, not the $2 billion that we would have needed to borrow in order to put into that fund. Members should look at the returns. They will see the returns are still not above the water. But the more one borrows, the more one makes, according to the Opposition member. Thank you.

Report noted.

Ministry of Economic Development