Financial Review Debate — Financial Statements of the Government of New Zealand for the year ended 30 June 2010

It is hard to imagine a fiscal circumstance where this debate of the Appropriation (2009/10 Financial Review) Bill could be more important for New Zealanders, because the Crown’s accounts, which this debate seeks to discuss, will take a hit to the tune of $8 billion to $10 billion from the recent 22 February 2011 and September 2010 earthquakes. That comes against the background of a recession that has gone on for months and months, and years and years, longer than it should have done, and a Government that has revised downwards its growth forecasts and revenue forecasts, sequentially at every Budget update and half-yearly update, making the budgetary situation worse. In these brief remarks this afternoon I will cover three key points: firstly, the fiscal baseline from which this debate springs; secondly, important issues to do with the earthquake response and how it is funded; and, thirdly, the implications for ordinary New Zealanders of the fiscal position, and what it means for the rising cost of living and the squeeze on lower and middle income earners, particularly.

On 18 December 2008 the Minister of Finance, the Hon Bill English—the Minister in the chair—said: “I want to stress that New Zealand starts from a reasonable position in dealing with the uncertainty of our economic outlook. We have room to respond. This is the rainy day that Government has been saving up for.” He was referring, of course, to the onset of the global financial crisis. The backdrop to that was that the Labour Government had left the incoming National Government with a net debt position that was actually a surplus, to the tune of 4.7 percent of GDP in 2008. There was a net credit position by the time the assets of the New Zealand Superannuation Fund—which the Government has done its best to run down since then—were added to the very modest amount of debt the Government was then carrying, despite the urging of the now Minister of Finance to give tax cuts that would have worsened the fiscal position and further inflated the bubble of the preceding decade. That was the starting point.

It is sad that today’s debate is against the background whereby that relatively sound position has been beggared by two Budgets, which have showed no more imagination than, firstly, the jeopardising of New Zealand superannuation and, secondly, the delivery of $22 billion over 4 years in tax cuts, two-thirds of which have gone to upper income earners who did not need it.

💬 Hon Parekura Horomia: How much?

Two-thirds has gone to the top third, who did not need it and who did not spend it all, and from whom it has been lost from the economy. It has been lost from stimulus, making the recession deeper and longer, keeping people out of jobs, and making the fiscal position more difficult in periods to come.

So it is no surprise to us that the recession has ground on. A little spark of hope in 2009 was snuffed out by our deteriorating position through all of last year, with a negative third quarter after a faltering mid-year, and with every prospect that we will have zero or very low growth in the fourth quarter—possibly even negative growth. This is not the global recession; this is National’s recession. This is the recession brought on by $22 billion of misdirected tax cuts and the lack of a growth plan. It is a human-induced tragedy fuelled by a lack of planning and a lack of imagination from that Government.

Then the earthquake hit. That was not the Government’s fault, and I think that all members of this House have been at pains to show that we are putting Canterbury first and politics second in respect of the response to that earthquake. Our top priority, all around this House, has quite rightly been to get resources flowing to Christchurch to stabilise and to support the people of Christchurch, and to commence the rebuild. We remain in support of the Government’s broad objectives in that respect.

But what is disturbing to me is that in the last week in particular, the Government’s fiscal response to that earthquake has been all over the map, all over the road like a drunk driver behind the wheel of a car. Last week the Minister of Finance told this House that it would be fine for the Government to bear the whole cost of the earthquake response, be it $8 billion or $10 billion—roughly half of out-of-pocket infrastructure costs and half of lost tax revenue that has to be made up—all of it on debt, none of it on expenditure reprioritisation, and none of it on a revenue response, be that a levy or a backing off from some of those tax cuts. It was an extraordinary position, and our colleague Dr Russel Norman rightly pointed out that it was a highly fiscally irresponsible position.

There was no surprise, then, that on Sunday on nationwide TV the Prime Minister confirmed that it was a highly fiscally irresponsible position, and he overrode it. He said that we would have a zero new-expenditure Budget in 2011. I ask New Zealanders to pinch themselves for a second. No, I tell them they are not dreaming. That is not the ghost of Ruth Richardson; that is a real statement by the current Prime Minister about a Budget that will be the most radical surgery to the public sector that we have known in two decades. Coming in the middle of a recession, it is a highly dangerous surgery from which the patient may not recover. It is dangerous because it will suck demand from out of the economy, it will prolong the recession, it will make tax receipts lower, and it will create and produce a doom-loop, from which this economy will be lucky to recover before the change of Government.

It is no surprise that it took the International Monetary Fund to raise the alarm on the ninth floor in order for the Minister of Finance to be overridden on Q+A on Sunday. The International Monetary Fund is calling the shots in the Beehive, not the Minister of Finance. He has been rolled in the last week—absolutely rolled. His “Whack It On the Bill, Bill” strategy has been canned by the Prime Minister, who has said “No, no—we are going to cut the lot to pay for it.”

What will that mean for ordinary New Zealanders? It means that, firstly, the Prime Minister is out of touch. He is a man who would have got well over a thousand dollars a week out of his own tax cuts because the man is a man of means. He is a man of independent and private wealth. How did he get there? It was by being one of those fancy-pants money men who brought the world to its knees in the global financial crisis. He was a paper shuffler and a money trader, and he took a cool $50 million for himself.

That is why he is out of touch today with the hard-working New Zealanders up and down the country, who every time they go to the supermarket are asking how it is that their trolley of groceries is costing 20 bucks or 50 bucks more than it seemed to cost last week, and how it is, when they go to the petrol station, it is costing them a hundred dollars to fill up a small car with gas—100 bucks. My little Toyota Prius cost a hundred bucks to fill up last week. It broke the hundred-dollar limit for the first time in history. I can afford that; I am an MP on 130 grand. That is not as much as the Prime Minister’s dividends, but it is enough to get by. But a hell of lot—in fact, about 90 percent—of New Zealanders are on less than that. In fact, 70 percent of New Zealanders are on less than the average wage, let us not forget. Seventy percent of New Zealanders are on less than the average wage, and I can honestly say that I do not know how people are bringing up families, with the cost of living rising in the way that it is at the moment, and with a Government that does not care. Families that can barely pay the bills and that are dependent on Government support to have low doctors’ fees, good-quality public schools, and good-quality hospitals have just been kicked in the guts by John Key. He has said there will be no new money in this year’s Budget—ah, except for the holiday highway; that is sacrosanct. There will be an exception for new missiles for the frigates; they are sacrosanct. Anything that goes to health and education will come out of something else. It will come out of stuff that ordinary people use, because that seems to be the way of the world.

In the last couple of weeks Steven Joyce has been running around cutting cosy deals with the broadcasting industry in an election year. Shame! I do not care whether he has sold his shares, but those deals ought to be a breach of the Electoral Finance Act. He has also done a cosy deal with Telecom to hand the telecommunications and broadband markets back to them on a plate and beggar the rest of the industry. He may know where his bread is buttered, but it is on a different side of the loaf from that of ordinary Kiwis, who are struggling and finding that with rising rents, power, petrol, and food, and with GST on everything, things are getting desperate.

The previous speaker today, the Hon David Cunliffe, issued a statement, and it shows why he is destined to be only the Opposition finance spokesman, and for quite some time. His statement is pretty scary stuff. It says: “Trying to balance the Government’s budget … is no recipe for success.” How scary is that for the rest of New Zealand? How scary is that for our credit rating? How scary is that for households across New Zealand that are trying to balance their own budgets? In fact, balancing a budget is a recipe for success. Showing open, transparent intentions to balance a budget is a recipe for success. But, to be fair to the previous speaker, his statement aligns with the policies Labour has announced so far, which, I think, add up to something like $6 billion or $7 billion of extra spending. We can read from that $6 billion or $7 billion of extra tax, or $6 billion or $7 billion of extra borrowing, which some day must be paid back—those are the only ways to fund the policies Labour has announced so far.

The rebalancing of our economy is happening. After out-of-control, rampant, economic mismanagement, after the 9 long Labour years, finally the rebalancing is starting to come to play. Households are rebalancing. They are spending less. They are borrowing less. Actually, they are saving more. They are responding to our tax switch of the last Budget. In fact, they are earning higher after-tax incomes. After only 2 years their incomes—that is, their real after-tax incomes—have gone up 9 percent versus the 3 percent over the total 9 years of the previous administration. The Government is also trying to rebalance its accounts and balance its budget. We are working hard, but it was because of rampant spending that interest rates in the previous administration were at record highs and floating interest rates were in double figures, and those exact statistics squeezed the rest of New Zealand into having to borrow against their own house to start to at least try to live. Labour’s $2.8 billion of extra spending, year after year after year, squeezed real jobs, real families, and the real economy, and, actually, has made the job of rebalancing the economy now so much harder. Unfortunately, the total bill for the tragic episode in Christchurch has been estimated to be between $10 billion and $20 billion. The cost to the Crown has been estimated to be somewhere between $5 billion and $10 billion. We are still learning about those figures. The previous speaker seems to blame events in Libya and the Middle East on this current Government. Sorry, we might want to be able to affect the price of oil and what is going on over there, but we cannot. The Government is doing with its accounts what it is asking every single New Zealander to do.

Every single tax dollar is a precious dollar. Every single tax dollar is a precious hard-earned dollar. It is imperative that households, which are rearranging their own affairs and rebalancing, witness and watch the Government do the same thing with the money it takes from them in the first place. Every single borrowed dollar—every single borrowed dollar—is a charge against all New Zealanders. Therefore it is imperative we optimise and prioritise all Government spending to get the best, most efficient, and most effective outcomes in this very capital-constrained world we live in. No one, of course, wanted the natural events that have come to pass around the world. No one, of course, wants the war-like events that are happening around the world. But we need a robust economy, we need a robust balance sheet, and we need robust forward projections to be able to sustain such shocks in the future.

This Government has found, so far, $4 billion in savings—$4 billion in savings after only 2 years. That is $4 billion that does not have to be borrowed, and it is $4 billion that does not have to be obtained through taxation. We can contrast that with the $6 billion of extra spending announced by the Opposition so far. Labour continues to confuse the cheque book with the balance sheet. Press release after press release after press release seem to say that Labour members must have failed Accounting 101, or sixth-form economics, or something. A cheque book is somewhat different from a balance sheet. Those members should take a bit of time to look that up, because their promises so far, and where they are going, will leave New Zealand in dire straits.

That speech made by Craig Foss was astounding. That member said New Zealanders are responding to the tax switch. Well, I will tell him how New Zealanders are responding. They are responding by going in ever-increasing numbers to food banks, by going in ever-increasing numbers for budget advice, and by going in ever-increasing numbers to creditor courts. If that is the sort of response the National Government wants from New Zealanders, then I am ashamed. It is a disgrace—an absolute disgrace.

I stand during the Committee stage of the Appropriation (2009/10 Financial Review) Bill to talk about the financial review of Treasury, and, more specifically, the $6 million spent by Treasury over and above the amount allocated in Budget 2009-10. I have only two points to make: the first is that the National Government has no plan; the second point is that Labour does.

Treasury is not a big department when compared with many others, but it is most important. Treasury provides financial and economic advice to the Government. I wonder what the $6 million worth of extra money spent on providing advice resulted in. I wonder whether it was the sort of advice that ended up with very wealthy New Zealanders—New Zealanders who earned over $1 million a year or more—getting a tax cut of about $1,000 a week. Yet those who are on the median wage in Napier, as in most cities, have ended up with a tax cut of about $5 per week. What sort of advice is that? There are 650 people in New Zealand who earn $1 million or more. Every one of those people received over $1,000 a week more, yet thousands and thousands of New Zealanders received around $5 a week. That is simply not fair. The National Government is not working for the vast majority of Kiwis; it is working only for its very wealthy mates. I say, as do the vast majority of people who come into my office, that the National Government is out of touch. Its members simply do not understand how hard it is for hard-working New Zealand families to make ends meet. They do not care about those who are on the median wage who receive just $5 a week in tax cuts, and who are facing an increase of $20 a week in their food bills. Those members are so out of touch, and they simply do not care.

The thing that astounds me is that the $6 million overspend by Treasury resulted in only two plans for economic growth. The first was to mine national parks, and the second was to sell State assets. When is a plan not a plan? When National is so desperate that it comes up with the plan to mine national parks and sell State assets. That is no plan, because this Government has no plan. It is as simple as that.

With an extra $6 million, Labour would ensure that advice sought is on how to create jobs, how to provide opportunities for the nation’s children, and how to create a future for the nation’s grandchildren. Labour believes in giving all a fair go, not just those who earn substantial amounts of money. Advice from Treasury to a Labour Government after November—if Treasury wants to be heard—will never ever include a suggestion to sell State assets, because, unlike the National Government, Labour will never sell State assets. Labour has a plan for the future that gives all New Zealanders a fair go. Labour has a plan for the future to make sure that everyone who wants to work has a job. We have proven that we can do it. When Labour left office, there was 3 percent unemployment, and now 160,000 New Zealanders are out of work—160,000 New Zealanders are out of work. I tell members that the National Government has no plan to get those New Zealanders back into work. It has no plan to create jobs for good, hard-working New Zealanders. Thank you.

The debate in the Committee stage of the Appropriation (2009/10 Financial Review) Bill is shaping up to be a classic debate between Labour and National. Labour does not have a plan, it has no direction, and its members come to this Chamber and try to use fear tactics on ordinary New Zealanders; that is what they do. They go out there and prey on the most vulnerable people in society. They try to scare them, although they are saying: “We’re here to help.” What does Labour want to do to help ordinary New Zealanders? It wants to tax them more. Labour’s answer to Christchurch would be to tax the good, hard-working people of New Zealand; that is Labour’s plan. That is not a plan. That would actually kill the economy. That is not the economic plan we need when the economy needs growth; it needs production, and it needs the tradable sector to be effective and to provide a future for New Zealand. That is the difference between National and Labour. Labour is based on fear tactics. It tries to keep people down, and says: “You don’t know what can be done. We will redistribute. We will take that money off you.” National, on the other hand, understands economics and through its coalition partners understands that we need a growing economy. A growing economy means more revenue coming to the Government, and more revenue to the Government means we can pay off our debts. More repayment of debt means that we can pay off what Christchurch will need to rebuild, and we can build an even stronger economy, a stronger country, and a strong Canterbury going forward. National provides a vision that will work. Labour provides a vision that is based on fear tactics, keeping people under the thumb so that Labour can control their votes at election time. That is the simple rhetoric Labour brings out.

Let us have a look at the reality of what economics demands. It demands prudent management, and it demands that we invest and have savings. Economics demands that we have a plan for the future that leads to growth, and a Government that can sustainably use that growth to—

💬 Hon Annette King: What is the plan?

The plan is that we will get savings and investment and we will not tax ordinary, hard-working New Zealanders just to keep in Government, as Labour did year on year. National does not believe in taxing people just to stay in power; we believe in giving people the opportunity to make this country stronger and better, and therefore able to pay for whatever we need to do as a Government or, as in this case, to pay for the terrible tragedy that befell the people of Christchurch resulting in the need to rebuild that great city. That is the fundamental difference between the two political parties.

At the next election that fundamental difference will be shown in the economic field, because the people will have a choice. They have a choice of being told that they do not know what they can do, that they need fear tactics, and that they need a Labour-Green approach where hard-working, ordinary New Zealanders are taxed to pay for things. Or they have a choice where they see a future for New Zealand—a future that is long, dynamic, and successful. Our future, the National Government’s future, is the right future and it is the future that will be sustainable long term. We need to invest in and grow this economy long term. Growth is not just a short-term requirement to pay for Christchurch. Growth is the long-term answer so that our people stay in this country and so that we can deliver the social services and the standard of living we want. It is the long-term answer; New Zealanders want that. They do not want a Government that will use fear and prey on the tragedy of Christchurch to try to keep itself in Government. New Zealanders want a country that is built on growth, that is successful, and that provides a future for New Zealanders so they stay here and do not want to go to Australia. That is the future National has and will continue to deliver through the rest of this year and going forward. That is a stark choice for New Zealanders—a choice they understand and very much support, because they know what is important long term. New Zealanders know that they need to have that kind of economic growth to enable a country to provide those services.

💬 Aaron Gilmore: Ambition versus scaring.

It is. As my colleague has said, it is ambition versus scare tactics, and that is the difference. It is an ambitious plan for a New Zealand that can be a successful country, where we can have pride in ourselves, and where we can deal with any situation.

This is a very strange debate we are having in the Chamber this afternoon. It is a very strange debate because the Government has no clothes. The Government is presenting itself on this occasion as being fiscally responsible. Actually, the Government is not being fiscally responsible. If we look at the options that the Government has in terms of paying for the Christchurch rebuild, we see that there are three basic options: to cut spending, to borrow more, or to raise more revenue. The most responsible approach would be to raise more revenue, because that would protect the Government’s books. If members’ concern is fiscal responsibility, then money should be raised to cover the costs of the rebuild. In fact, the Government plans to borrow the money. This is a borrow-and-hope Government.

Of course, the presentation of the National Party—and this is what is core to the National Party—is that it is the fiscally responsible party. It wants to present itself to the world as the party that will safely look after the books in Government. In fact, we have many quotes from the Minister of Finance where he talks at some length about the problems of increased borrowing. Just recently, on 1 February, Mr English said, in relation to the Labour Party plan, which he claimed would lead to $5 billion worth of more borrowing, that $5 billion worth of more borrowing would almost certainly lead to credit rating downgrades for New Zealand, thereby putting up interest rates for Kiwi families and businesses, and costing jobs. Well, that is a fair statement from the Minister of Finance.

The question, then, is why the Minister of Finance and the Government are proposing to dramatically increase borrowing to pay for the rebuild in Christchurch. The most fiscally responsible thing to do is strike a temporary levy. If the Government wants to pay for the rebuild, it should reach out to fellow New Zealanders, who actually want to contribute to the rebuilding of Christchurch, and strike a temporary levy so that everybody in New Zealand who can afford it would contribute to the rebuild. At the end of that process, we would not have Government debt to pay for it, because we would have paid for it out of a temporary levy. We would not have had to cut spending, as this Government is proposing to do.

When we look at what options the Government is choosing, we see it is going down the path that will increase borrowing and cut spending quite savagely. The Prime Minister’s comments at the weekend, for anyone who was paying attention, are very, very scary. The Prime Minister said that there will be zero new spending, in nominal terms. That means a very significant cut in real terms. If inflation is running at 5 percent—we will see what the price of oil does—then there needs to be a 5 percent increase to keep things where they are. The health budget tends to run higher than general inflation so there needs to be a higher increase just to stand still. So if the Government is proposing that it will keep nominal spending flat, then it is talking about a savage cut in real spending. Those are the kinds of cuts we have not seen since 1991. This will be a “black” Budget. We have not had a “black” Budget in New Zealand since 1991. If the Government does what the Prime Minister told the country on the weekend that he plans to do, we will have a “black” Budget this year, because the cuts in Government spending will be savage.

If people think that that is pretty bad, because there will be very significant real cuts, on top of that the Government has said that it wants to put more funding into health and education, even while keeping a cap on nominal funding overall. If $600 million to $800 million is being transferred out of the rest of the Budget to be put into health and education, that means the cuts in the rest of the Budget will be even more savage. Not only does the funding have to be cut, because in real terms it is dropping given that inflation is not being accounted for, but on top of that another $600 million to $800 million has to be found to transfer into the health and education budgets. It means that we are looking at multibillion-dollar cuts, maybe in the order of $4 billion, in the rest of the Budget. Those are very, very significant cuts.

People who think that it is easy to find that money—just to snip a little bit here, and snip a little bit there—are kidding themselves. If we cut Working for Families for everyone earning above $100,000, then we might save $20 million, or we might save $50 million, depending on how we calculate it. That is peanuts compared with the $4 billion worth of cuts that the Government is now talking about. It is not easy to find multibillion-dollar cuts in the Government’s Budget outside of health and education.

It is good that the Greens have got a position of some principle on the Government’s fiscal position, and that the co-leader of the Greens has set out the fact that there are some choices; they are quite legitimate choices and the Government will get to weigh them up one way or the other. As explained in question time, the Government has decided that it would be better to reduce spending, when it is low-priority, than to put on a levy. It is quite possible that another Government would make a different decision. That stands in stark contrast to Labour, whose views on this are—

💬 Craig Foss: Forming!

—forming, perhaps—still fluid. Labour’s views are certainly impossible to describe to anyone else who is not part of its own little internal squabbles over economic issues.

💬 Hon John Carter: And then they don’t know, either.

Well, I do not think those members do. It is a bit like the position on the GST increase when the Government went through a public debate. There was a high degree of understanding in the public mind about the increase in GST, well before it was announced—which was not the style of some of our former Ministers of Finance in this place, who just announced all the big packages on the day—so people understood the increase. Labour members understood what the Government’s position was, but even with the time since the 2010 Budget those members still cannot make up their minds whether they are for it or against it. They took the bus out, in the “Axe the Tax” campaign, but after a couple of stops no one would get on it so they started taking the axe to each other instead of to the tax. But we hear the axe coming back again with the worry about the—well, Labour almost lost the Mana by-election. That was meant to be about campaigning to get rid of GST, but Labour still almost lost a safe seat. I do not blame the candidate completely; I think it was the Labour Party rather than the candidate. So those members still cannot make up their minds.

💬 Hon John Carter: Aren’t they for and against it?

Well, they are for and against it. I think they are for and against income tax cuts, and I think they are against a GST increase; they are just not going to do anything about it.

I suspect it will be the same with the discussion about how the earthquake rebuild is financed. Labour will be unable to make up its mind about whether it supports the reductions in expenditure, and the more strongly controlled Government expenditure that will be required to get the New Zealand Government’s accounts back to surplus. But we are certainly aiming to do that. The earthquake has made the job more challenging. If it had not been for the earthquake, with tight Government expenditure we may have been able to get back to surplus, perhaps, as early as 2013-14. We will never quite know now. The Government set out on the path early in the year to control expenditure more tightly, then the earthquake came along. We have to meet the earthquake costs. They are not choices in the way a lot of our Government programmes are choices. The earthquake costs do not amount to choices, but we will aim to get back to surplus.

Of course, the fiscal discipline will not end as soon as we get back to surplus. By that time the New Zealand Government will have a higher stock of debt, which will sit alongside a very high stock of private sector debt. Both the private sector and the Government will face a challenge over the next 10 years or so to try to get their stock of debt down.

Why do we worry about that? It is simply because of the kind of events we have seen go on in the last 6 months, which none of us would have forecast 6 months ago: a large-scale earthquake in Christchurch, and a disaster on an even grander scale in Japan, which may affect us through its impact on the Australian economy, if not directly on our economy where it is a relatively small trading partner. So we are at the edge of our comfort zone. In fact, we are probably past the edge of our comfort zone, with the amount of debt the Government will be racking up over the next couple of years.

The Government accounts that we have been debating, and the Budget we will be debating in this House in a few months, are focused on getting the Government’s books back in order at the same time as rebalancing the economy to where it is going to earn more than it spends, through growth in the tradable sector and, relatively speaking, a shrinkage in the non-tradable sector. I have to say that it will be a fairly long job.

I thank the Minister of Finance for his intervention. He acknowledges the problem of debt that the Government has, yet the Government has chosen not to use the instrument that would have resulted in a reduction in Government debt, and that instrument is a temporary earthquake levy. The way in which a temporary earthquake levy would work is that if we were to strike it at 1.5 percent on incomes between $48,000 and $70,000, and at 3 percent on incomes above $70,000, and if at the same time we were to delay the cut to the company tax rate, which is due to drop shortly, we could raise around a billion dollars a year in a temporary earthquake levy. For someone earning $50,000 a year, that would be an extra 50c a week in tax. For someone earning $70,000 a year it would be an extra $6 a week in tax, and for someone earning $100,000 a year it would be an extra $23 a week in tax.

An extra $6 a week in tax in order to rebuild Christchurch is a very, very important way for us to do the rebuild without going into debt. An extra $6 a week for someone on $70,000 is 1½ cups of coffee. Literally, 1½ cups of coffee is what most New Zealanders would be willing to contribute if it meant that we could rebuild Christchurch without going into serious debt. If we go into serious debt of just under $5 billion, we find that the cost of servicing that debt is $250 million a year. So Government members are saying that they want to rack up $5 billion in debt, which will cost the taxpayers of New Zealand $250 million a year to service. Then, on top of that, as the Minister of Finance has repeatedly pointed out, it will drive up interest rates right across the economy because the Government is going into further debt. So every person in New Zealand who has a home mortgage will pay a higher interest rate because Government members do not have the common sense to have a temporary earthquake levy so that we do not have to go savagely into debt in order to pay for the rebuild.

A temporary earthquake levy is one of the options we have on the table. It is an option that the Minister of Finance and the Government have chosen not to take. I think that is a mistake, because we have an opportunity to reach out to New Zealanders who are willing to contribute to the rebuild of Christchurch so that everybody right across the country kicks in a few bucks a week, and, over the course of a few years, we pull together the money we need to pay for the rebuild. The alternative is that we go seriously into debt, which adds to the interest payments of the Government, which also puts upward pressure on interest rates for all mortgage-holders right across the country.

We actually have a choice here. We will end up paying a temporary earthquake levy or we will end up paying higher mortgages on our homes, so that we will pay the money to the overseas lenders or we will pay the money to ourselves and not go into debt to pay for the Christchurch rebuild. These are the genuine options that we have before us. We can have a temporary earthquake levy, we can cut spending, or we can increase borrowing. The Government has chosen to cut spending and increase borrowing. I think that they are poor choices and that we would do much better to have a much more fiscally responsible approach.

The other thing I want to touch on briefly in talking about the Government’s strategy is what came up during question time in relation to the price of petrol. The Prime Minister described the increase in the price of petrol as an unexpected one. There is nothing unexpected about an increase in the price of petrol. Not only is it expected but it is predictable; not only is it predictable but the Greens predicted it. In fact, I say to the Minister of Finance that the price of petrol will continue to go up, and we need to factor that into the building of our infrastructure. It is completely insane, in a world of rising petrol prices, to throw all of our money at new motorways. That is not a sensible, rational approach to increasing petrol prices.

When petrol prices go up we should invest in the alternatives to the private motorcar and the use of petrol. Instead, the Government is throwing billions of dollars at new motorway projects. There is a deep insanity and irrationality in the Government’s throwing more money at new motorways. In terms of the Pūhoi to Wellsford road, we can make that road safe for $300 million instead of the $2 billion new motorway project. We have done the costing to make that road safe, because it is unsafe. We can improve the safety of that highway for a fraction of the cost.

Where are we currently, economically speaking, and how did we get into our current position? In terms of income per person, if New Zealand were considered a state in the Anglo world, we would be 81st out of 82 such countries. We would be behind Prince Edward Island, behind Tasmania, and behind New Brunswick. Of these 82 countries, the only country with a per capita income lower than ours is Wales. We have to ask how we got to that position. We need to remember that 100 years ago we were first, and 50 years ago we were in fourth or fifth position. We might well ask what the heck has happened since. How did we get into the mess we are in? How have we managed to make ourselves so poor, in relative terms?

If we want to look at that, we might look at where we were a few years ago compared with Singapore, and where we are today. In 1960 New Zealand’s GDP was three times that of Singapore. By 2015—and probably earlier—Singapore’s GDP will be three times ours. Singapore has gone from having a level of GDP that was one-third of ours to having a GDP that is three times ours. We have to ask how that has happened.

In a word, it was productivity. In the end we get higher wages only through higher productivity. If we look at productivity per worker, we find that in Singapore it is $182,000; in New Zealand it is $93,000. In the period between 1984 and 1996 our productivity grew quite rapidly. It has been in the years since 1996 that we have had problems. Why is it that we have gone down and Singapore has improved so rapidly? In a word, I guess it is about policy. I will highlight some of the policy differences that have made the difference in terms of Singapore’s growth rate, its improvement in productivity, and, therefore its increases in wages.

First, there is taxation. Singapore has a zero tax on incomes up to NZ$21,000, then a tax of 2c on incomes from between $21,000 and $35,000. In other words, Singaporeans pay virtually no tax until they earn beyond $35,000. They reach the top rate of tax only when they earn $320,000, and that rate is 20c in the dollar. We, on the other hand, reach our maximum rate at $70,000, and that is a major difference between Singapore and New Zealand. It is one of the reasons they have shot ahead compared with New Zealand.

The other area is expenditure. Government expenditure in Singapore is 17 percent of GDP. New Zealand’s expenditure, by various measures, could be as high as 50 percent, according to one answer the Minister gave, but the figure I would use is about 42 or 43 percent. The thing that has killed New Zealand more than anything else is the massive increase in expenditure that took place in this country after 1996, and more particularly from 2000 on. If one looks at the amount of Government spending per person, one will see quite a big increase between 1970 and 1984. Government spending actually went down per person, in real terms, between 1984 and 1996, but then there was an absolutely massive increase in Government spending from 1996 to 2009.

I think that was outlined in an article I wrote called “How the Labour Government Robbed You Blind”. It sure as heck did. It was responsible for a massive transfer of about $25 billion to $30 billion from the private sector to the public sector. The increase in Government expenditure that took place during that period of 12 years was $7,567 per person. It had gone down by $320 in the 12 years before, but then it went up by over $7,500 per person over the 12 years from 1996. We saw, essentially, under a Labour Government, an increase in expenditure of $30,000 for a family of four. Members might well ask what this country got under a Labour Government when it increased expenditure by such a massive amount. It certainly went up quite dramatically under National between 1996 and 1999, but it went up primarily under Labour. I think a lot about what people could have done with that $30,000 for a family of four. What did they actually get for that money? Most taxpayers are not really sure what they got for that increased size of Government.

But it is not only in those areas. Certainly, tax policy and expenditure are important, but productivity has also hugely increased in areas such as health and education—it has hugely increased. In Singapore the Government spends only 3 percent of GDP on health. The private sector has a much larger role. In New Zealand we are looking at Government expenditure on health being 10 percent of GDP. It is 9 percent at the moment, but it will soon be 10 percent. Under Labour we did not see an improvement in productivity in the health area over 6 or 7 years; in fact, we saw the productivity of doctors in the health sector in New Zealand actually decline by 15 percent. We saw a decline in the productivity of nurses by 11 percent. Overall, the decline in productivity in the health sector was, I think, 8 percent. One might ask how the rate for doctors can be 15 percent and for nurses can be 11 percent, yet overall there is a decline of only 8 percent. The answer is that there were actually improvements in productivity in those areas that were largely covered by the private sector in public hospitals in New Zealand.

I think we need to look at where we are going, because unless we improve productivity we are going to fall further behind. In the public sector, in areas like health and education, we have the wrong focus. We are focused on the wrong things—for example, we are focused on class size. I have asked probably 100 audiences around the country—and it is my request to members in this House—to hold up their hands according to whether they would want to put their sons and daughters in a class of 35 with a quality teacher or a class of 15 with a mug teacher. I have not had anyone hold up their hands for the poor teacher yet. We need to improve our productivity in all these areas, and if we do not we are going nowhere.

I will go back to a few things raised by the Opposition—in particular, the complete ranting about the Government’s lack of a plan for the economy. I will go back to the six key things that people keep forgetting about. This Government is spending more on infrastructure than anyone has ever spent before. We are spending more on education than anyone has ever spent before. We are spending plenty more money on innovation, thanks to Minister Mapp sitting in front of me. We are spending plenty of money in turning round and getting rid of waste in terms of lack of resources and bureaucrats. We are putting plenty of effort into dealing with crime and getting things put in place. Those are the key parts of the Government’s economic plan.

The report we are debating today was released in early February. The key aspect of what has happened between then and now is that on 22 February the town I was born in and grew up in suffered a tragedy—a massive tragedy that probably cost the lives of about 180 people. New Zealand has changed as a result of that tragedy, and my home town has changed as a result of that tragedy. We need to think carefully about what that might mean for our fiscal accounts. There has been much debate by many people on the other side of the House about some of the options and choices that that gives us. From my perspective, we have limited choices. We have to rebuild Christchurch. Christchurch makes up about one-sixth of the New Zealand economy. Not only does it make up one-sixth of our economy, but it is a more productive part of the economy than other parts of New Zealand. More exports come out of Canterbury than almost any other part of New Zealand, and it has much higher levels of exports per capita than any other part of New Zealand.

The tragedy we have incurred will cost our country about $15 billion. We are very lucky in that most of that cost is insured money that will be paid for by people having been prudent and having put insurance contracts in place. Some money has to come from the Government, and I think that is one of the key reasons why we are starting to make some tough key decisions about our choices in the future. You see, we do not have a giant piggy bank of money sitting there to pay for things. I wish we did. We have made choices in the past that mean we do not have a giant piggy bank of money. So we have to make collectively some tough choices about how we will pay that $15 billion. There are options in place for us to make some tough calls, and spend it on the things that make the most sense.

We have had a series of community meetings in Christchurch in the last 2 weeks. They have been attended by about 3,000 people in total. I can tell members what the feelings of those people are. Those people have strong feelings about the future of Christchurch, and about the role of the Government in that future. I know that the gentleman currently sitting in the Chair, the Hon Rick Barker, sat in on one of the smallest of those meetings and listened to some of those people’s views and opinions. They are worried and concerned about their futures in New Zealand, and they want guidance from the Government to provide them with some clarity about what will happen to their jobs, their homes, their families, their schools, their roads, and everything else that makes up their lives in this country. This Government is one that will provide that.

Yes, that will mean that some time in the future there will be tough decisions made about things we probably do not really need right now, because there are some other things we do really need right now, and they will need to be rebuilt—things like schools in my area that kids cannot go to at the moment, or the sewerage system that is currently floating through the Avon River. About 80 percent of sewage from Christchurch is floating through the Avon River, through our wetlands, and out through the beach. It is like the forests that I normally go mountain-biking through. There are 240,000 tonnes of silt and demolition material in that massive recreational area, which 800,000 people a year used to go through. Those are the things we have to fix, before we can get back to growing our economy the way we want it to grow.

Despite all the things that have happened over the last 2½ years—global recession, global credit crunch, a series of one-off economic disasters ranging from our first earthquake to our second earthquake, and Pike River in between—it is remarkable that the Opposition seems to think that nothing has changed. It is a bit like a drunken sailor who keeps going from town to town, spending his money everywhere he goes, and, having spent everything, turns up to the next place and thinks he can borrow money from his mates. Then he turns round and thinks he can borrow money from another mate. He turns up at home and borrows it from his mum and dad, and still thinks he can keep spending the way he has been spending in every single town.

We cannot keep doing that; we have to think very carefully. That is the reason this Government has taken prudent positions and prudent decisions on the way forward. That is wise, not just for me but for my children. Those decisions mean that my children will stay in New Zealand in times to come. Those are the reasons why we have to rebuild our country—particularly, my home city—in the way we really want it to be. That will not be easy. The easy option is to jump on a plane and leave for Australia. The tough decision is to stay here and make New Zealand the way we all want it to be. For my home town, in particular, that will be a long, hard road.

Kia ora, Mr Chair. I wonder how many Government MPs were boy scouts or girl scouts when growing up. I wonder, because if they were, they have forgotten the Scout motto “Be prepared.” When it comes to New Zealand’s vulnerability stemming from its dependence on oil, we are as unprepared as we could be.

Oil is the lifeblood of the modern economy. We are so dependent on oil that when prices seriously fluctuate or rise, as seen in the previous oil shocks of 1973, 1979, 1990, and 2008, those fluctuations have preceded global recessions. Morgan Stanley says that sharp increases in global oil prices pose the biggest threat to the global economy, and in New Zealand we are particularly vulnerable. A parliamentary report entitled “The next oil shock?”, found that as a country we are reliant on oil imports, and heavily dependent on cheap oil for our major sources of income.

New Zealand is highly exposed to oil shocks. I recently released research showing that every US$1 price rise in a barrel of oil wipes out between $40 million and $60 million from New Zealand’s annual gross domestic product, and destroys between $22 million and $33 million in household spending. Oil is pervasive and is in everything from fertiliser, to food, to furniture. New Zealand is particularly vulnerable because of our transport sector, which is 99 percent dependent on oil. In total, oil makes up over 30 percent of our nation’s imports.

Right now we are just a few cents shy of the highest petrol prices in our country’s history. People are feeling the pain at the pump. The last time petrol was over $2 a litre in New Zealand thousands of people switched to public transport in their droves, but they found public transport lacking. In Wellington the sector literally went to the museum to pull carriages out of retirement to deal with the capacity crisis. So in facing another period of volatile and increasing price pressures, is our Government prepared? In the absence of a national plan, I asked the Minister of Finance whether he would finally support an inquiry into how New Zealand can best prepare its economy for the effects of high oil prices. His response was “Probably not.”

New Zealand is one of the few countries with no modern strategy to deal with oil price shocks. Last year the Government turned down a Green Party request for an inquiry that was made at the Finance and Expenditure Committee. Less than a month ago the UK Government released its carbon action plan, which has more than 130 actions to reduce emissions and that country’s dependence on oil. Yet New Zealand, an internationally outlying country, is unprepared and is relying on the “She’ll be right.” attitude. In short, the Government has no plan, and no plan to start planning to reduce our dependency on oil.

The Minister of Finance believes that the best strategy is for people to see the price signals and change their behaviour accordingly. I ask how people can have a real alternative to paying more to fill their car, like cycling more, when we lack safer cycling facilities. How will someone near the now-closing Muri railway station north of Wellington change their driving commute and catch the train when their station closes? How will an East Coast logging company transport logs to the port on anything other than trucks when their rail line closes? Without a clear plan, people lack alternatives to respond to those market signals, and on the flip side the Government has a plan to increase New Zealand’s dependency on oil and vulnerability. The Government still intends to invest some $10 billion on motorways, further locking us into a car and oil-dependent future and increasing our national emissions. The Government is idly standing by as New Zealand looks set to lose four regional rail lines from a sudden desire to extract a profit from the lines, which have faced decades of asset-stripping and under-investment.

We have asked the New Zealand Transport Agency what oil price assumptions were used in its latest models for the roads of national significance. We found that oil was not even factored in, at all. It is irresponsible, as petrol hits over $2 a litre, that the Government still has its head in the sand on the role of oil prices in its transport planning. The responsible solution to reducing our vulnerability is an inquiry, leading to a strategy, and the redirection of funding to public transport infrastructure, like the Auckland CBD rail loop or a light rail link for Wellington, and better walking and cycling options. We need to protect our economy by decoupling the economy from its addiction to oil. We are a resilient, innovative, can-do nation. Let us take a leaf from the Scouts and be prepared.

Report noted.

Ministry of Economic Development