Estimates Debate — Vote Economic Development

I would like the Minister in the chair, the Acting Minister for Economic Development, the Hon David Carter, to respond to the reality that the Government’s own Budget shows that the underlying structural problems in the New Zealand economy remain unresolved. This is shown by the projections on page 70 of the Minister’s executive summary—the Minister may want to look at the documents while he takes the time to respond—that show that New Zealand’s current account deficit gets worse every year from now.

We have just been through a recession in New Zealand, as have other parts of the world, and that is not all the Government’s fault. But during that period of recession, New Zealand’s current account deficit did reduce. That is because economic activity went down. People were buying fewer consumption goods and fewer purchases were made. As a consequence, there were fewer imports. Therefore, the current account deficit went down. This year, the current account deficit has been recalculated recently by Statistics New Zealand. At one stage it had wrongly included the reinsurance proceeds from Christchurch as being a current account payment rather than a capital payment, but, stripped out, the current account deficit is now on the rise again. The projections in the Budget showed that the current account deficit next year goes to 4.1 percent negative of GDP, then 5.2 percent of GDP in 2013, then 6.8 percent of GDP in 2014, then negative 6.9 percent of GDP in 2015. So by then the current account deficit as a percentage of GDP will have gone up every year for the 5 years to 2015 if this Government is re-elected. In other words, during that period more than $10 billion per annum extra in the current account deficit is added.

💬 Hon Steve Chadwick: How much?

Stevie Chadwick asks “How much?”. The amount is over $52 billion extra that effectively has to be funded by New Zealand borrowing money overseas. So New Zealand’s net investment position in the world over that period goes backwards every year. Under the Government’s prescription, if it is re-elected, according to its own projections come 2015 New Zealand gets poorer—and that is after the previous year where it has got poorer and the year before that where it has got poorer.

According to the Government’s prescription, after 6 years New Zealand will be poorer every year—every year. That is why Treasury has said to the Government that New Zealand has structural economic problems, and that is one of the reasons why New Zealand needs structural change in our economy caused by the Government pulling the levers it can pull to change the direction of our economy. What are those levers? Well, the problem for the National Government is it has ruled out virtually all of them. It has reduced savings to KiwiSaver through its constant tinkering with it and through changing the generosity of the scheme, so it will not get a marked improvement in New Zealand’s savings as a consequence of that particular change. It has ruled out a land tax to try to change investment patterns in New Zealand. Now it has ruled out a capital gains tax as being appropriate.

So this situation starts to look a bit like the Rudd Government in Australia that was so rudderless it was eventually penalised at the last election and only just squeaked in for a second term. It looks a bit like the Americans who cannot do what is so obviously necessary in America, which is to change its tax system to cure some of its problems. Members do not have to take my word on this. I want to quote a couple of the third party economists. The BNZ has said recently that New Zealand has an investment problem, as the investment signal is wrong because of the tax bias in favour of speculative investment. Westpac’s chief economist, Dominick Stephens, said: “New Zealanders are incentivised to borrow money to buy land rather than invest in productive assets. If we introduced a capital gains tax that incentive would be diminished and there would be a greater incentive for people to save via bank deposits or productive business ownership,”.

What Westpac’s economist is noting is that if we get the investment signal right, then some of that money that is currently over-invested in the speculative sector would go into the productive sector, and that would grow well-paid jobs for New Zealand. It would create more jobs for New Zealand and New Zealand would begin to turn round the ship. This is a problem that has gone on for two decades in New Zealand. Our current mix of savings, tax, and monetary policy has seen New Zealand get poorer, essentially continuously, for more than 20 years now. Unless there is structural change, that pattern will continue, as the Government’s own Budget projections show. It is not just Westpac’s economist who is saying that.

Gareth Morgan has said that the current exclusion of capital gains taxes is “the biggest tax rort in the country, and one that has cost us dearly in terms of efficient allocation of capital, economic growth and employment.” Again, there is another reputable economist saying that the current settings that the Government refuses to change that have led to this blowing out of the current account deficit going forward costs us dearly in terms of the allocation of capital, which suppresses economic growth and means that we have higher unemployment and worse-paying jobs than we would otherwise have.

It is not just the economists; virtually all of the commentators in the media are saying the same thing. The Dominion Post said: “There is a gaping hole in the tax system. Different sources of income are taxed differently. Earn $50,000 by working 40 hours a week and you will be taxed at the going rate for income. Make a $50,000 profit on the sale of a rental property and you will not be taxed at all,”. Mike Hosking said: “we’ve for years in this country placed an absurd advantage on owning property. And given it’s free of tax, you wonder why we’ve become so reliant on housing and why the economy has been so tipped towards real estate.” That is the question posed. It is a rhetorical question; we already know the answer. Anthony Hubbard said: “Capital gains taxes are perfectly ordinary taxes used by most developed countries. They are not recipes for instant economic ruin - otherwise these wealthy countries would be poor. A capital gains tax does not mean everyday Kiwis would be crushed. Capital gains taxes should not lead to panic in an election year: there is nothing in them to panic about.”

Well, National is, of course, panicking about this, because it knows it is on the wrong side of this debate. We have bad news internationally at the moment. The Government will be saying “Oh, poor they are! Oh, woe we are, because we’re having to deal with these circumstances.” The reality is that New Zealand’s circumstances are parlous, because our net investment position in the world gets worse every year. Yes, the Government deficit is a problem. It is made worse by the Government’s unaffordable tax cuts, which are so weighted towards the highest income earners.

But the greater problem is our current account deficit, which is growing ever larger and is leading to New Zealanders getting poorer every year. It is the lack of a plan from the Government to address that which stands out. New Zealanders and commentators are increasingly saying this. The Government has not pulled any of the structural levers at its disposal. Last week it said that our monetary policy is perfect and we do not need to change it. It says it has it right on savings, despite the fact that it ignored the Savings Working Group recommendations. The rate of increase of savings through KiwiSaver will be lower than it would otherwise be. Also, the Government will not pull any of the tax levers. So it will not touch monetary policy, it will not touch savings, and it will not touch the tax mix. It calls our tax switch “tax and spend”. For the Government, a tax switch is just a tax switch, but for us somehow changing taxes to have a capital gains tax to fund a tax-free zone, GST off fresh fruit and vegetables, and a research and development tax credit is not a switch; it is tax and spend.

This Government has no credibility on these issues. That message is getting through. It said our policy would put a dagger through the heart of the economy. It has been shown to be wrong. It thought this would be a suicide pill for the Labour Party, but that has not proved to be the case. It has not proved to be the case because we, under Phil Goff, are brave enough to take these important decisions that need to be taken for our country.

The Government’s own figures show that its plan for the economy, scant though it is, is not working. Structural tax changes are needed in order to make structural changes to the economy to grow our export base. I know the Minister in the chair thinks that agriculture is virtually the only game in town, but we are not going to get richer as a country by relying on agriculture alone. That is why the Manufacturers and Exporters Association and the Productive Economy Council are both in support of the tax changes we have proposed, because they know that that is right to get the investment signal and to get some of that money that is currently going to the wrong place into productive enterprise.

I follow Mr Parker, as the Minister in the chair, the Acting Minister of Economic Development, the Hon David Carter, has just woken up and realised that he should have exercised the opportunity to address the challenges laid down by Mr Parker. That inattention, that sort of soporific pose he ordinarily strikes, is reflective of his stewardship in this portfolio. Gerry Brownlee, to his credit, did not do a great deal other than try to mine Great Barrier Island and try to mine the Coromandel. On top of that, he ensured that New Zealand’s tourism industry would definitely fail after he decided to try to mine Tongariro, Ngāuruhoe, Ruapehu, and the national parks. But that man was inordinately more active than this character who sits here, who has distinguished himself by promoting water schemes that lead to endless questions in the House as to whether he should have anything to do with them. This is the most derelict Minister we have had in such a key portfolio.

Where are the jobs that this Minister is able to produce? Where are the thousands and thousands of jobs that young Kiwi families need for their sons and daughters? That is a reasonable question to ask of an Acting Minister of Economic Development. What does he tell us? He tells us that the Chinese should make and engineer the railway wagons for KiwiRail. What we will see as a result of that is such a level of hostility by patriotic Kiwis employed in that industry. I cannot imagine that they will be motivated to look after those wagons knowing that the wagons represent the blinkered view of this Minister, who wants to deprive Kiwis of the chance to manufacture, develop skills, and create things. What society can create wealth if the people’s skills are not being used or exploited? Not one idea has come from this man.

In addition to that, regional development is in a state of decay. There is not a regional council, and there is not a local council, that has any confidence that this Government has generated a policy or a programme designed to stimulate activity amongst small to medium sized firms in the provinces. All the Government believes is that by building larger roads, as the “Minister of Warkworth”, Steven Joyce, continues to do, and backing uncritically the intensification of agriculture—ignorant of the effects it has in terms of the worsening of the host environment—somehow that will generate the hundreds of thousands of jobs New Zealand families are looking for over the next decade. I realise that the Government treats the Australasian labour market as its primary focus of attention, but I never thought for a moment that the key element of its agenda was to drive people away from South Auckland and other areas into Australia, rather than to invest back in our own country.

What is the Government doing in relation to investment so we generate more jobs and exports? I accept that it does not believe that that is its job. Government members are of that discredited Milton Friedmanite approach to the economy—“Close your eyes, take your hands off the wheel, leave it on autopilot, etc., and Kiwis, through some Darwinistic process, will take care of themselves.” Well, Kiwis are getting poorer. More kids are going to school suffering as a consequence of malnutrition and are not able to learn properly. Why is that? Because there is no recipe to address the fundamental things people are looking for: a growing economy, I say to the Minister; jobs, I say to the Minister; and, most important, a living wage, which is something one would imagine would lie at the pith of an economic development strategy. But, as I said, those members do not believe in any of this; they believe that by doing very little, and by privatising the jewels in our crown, our State-owned assets, somehow a massive dynamic of creativity, imagination, and job creation will be unleashed by the Australians and the foreigners who own our assets. That reflects an incredible level of naivety as to how the international economy really works. We, under this Minister, are pursuing a foolish level of purity, while the people we trade with and deal with are far more pragmatic. We watch the Minister navigating us on to the rocks—rocks not so much of treachery, as the Government’s treachery is to the young people it has sold out, but rather those of the consequence of our being left behind while the rest of the world marches on, with no jobs and no innovation.

It is always a pleasure to follow the Hon Shane Jones, because although he speaks with passion and panache, one can certainly be sure, when one analyses the substance of his contribution, that there is very, very, little in it.

I take particular delight in having following Labour’s spokesperson on economic development, the Hon David Parker—the great Labour Party strategist who appears to have taken them from a solid base of around 30 percent in the polls to about 25 percent, and still declining. It is interesting to note that even though he is the spokesman on economic development, he did not actually speak to Vote Economic Development; he spoke entirely to Vote Finance, a debate we had last week.

I am very proud of the role the Ministry of Economic Development is playing in this economy. When we became the Government in 2008, the Ministry of Economic Development was described to me as an ATM; it simply doled out money all over the show, with no focus on the delivery of results. What we have done over the last 2½ years is very much to focus this agency on developing economic growth. We have a very simple agenda. There are six drivers that are important for the economic growth agenda. We have to support better science and innovation, and there is a huge story to tell there about what we have achieved.

💬 Hon Steve Chadwick: You’ve cut the research and development funding.

The member yells out that we have cut research and development funding. Again, Steve Chadwick is wrong—again, she is wrong. In respect of Vote Science and Innovation, in the last Budget, $170 million was made available to knowledge-intensive companies to grab a grant from the Ministry of Economic Development so that they can undertake research. What about the primary sector? That member said we have cut research, but $477 million has been spent on primary sector research and development today. What did Labour do? It talked about a $1 billion project. Do members know how successful it was? Not one company applied to take it up, because they had no faith in that Government. So Steve Chadwick is not right: this Government has not cut investment into research and development; we have increased it, and increased it substantially. We know the importance of spending money on science and research to get this economy moving.

The other thing that needs to be remembered in this debate is the mess that the previous Labour Government left at the end of 2008: a legacy of 10 years of deficits, which had to be addressed. The only way we can address this is to get the tradable sector of the economy—the export sector—trading properly. What had happened is that that Government had completely unbalanced the economy. It actually had the tradable sector of the economy—

💬 Hon Shane Jones: How?

Mr Jones ought to know: he sat around the Cabinet table. He had the tradable sector of the economy in recession from late 2004—late 2004. So he can stand here and blame the global financial crisis—no one had heard of it in 2004—yet New Zealand had its tradable sector in recession, masked by a massive increase in Government spending, which was completely unsustainable. I think that member knows it well.

When we examined Vote Economic Development in the Commerce Committee, I was pleased with the acknowledgment from that select committee that we were addressing the issues of the Christchurch earthquake. I get annoyed every day when we have the likes of Clayton Cosgrove coming into the House day after day trying to play politics with the situation that people are in down in Christchurch. What we need is this Parliament to work together to face the biggest economic challenge we face, and that is getting our second-largest city rebuilt. It is not helped by the Hon Clayton Cosgrove taking every opportunity to play cheap politics with this issue.

The final issue I want to mention is, of course, the fact that there are 32 days until the Rugby World Cup. This has been a real focus for Vote Economic Development.

💬 Hon Shane Jones: Helen Clark got the cup over here in Aotearoa.

Well, Helen Clark got the cup here; that is true. I am interested to see whether she bothers to come back and watch a single game; I bet she does not do so. I just take the opportunity to say to all New Zealanders to make the most of the Rugby World Cup.

In following the previous speaker, the Hon David Carter, I say that there was so much inaccuracy there. I will make a couple of points to start with. First of all, in relation to the 10 years of deficits, I do not remember 10 years of deficits. I do remember that this Government inherited a surplus, and now, less than 3 years later, we are $16.7 billion in deficit—$16.7 billion in deficit. I also point out to the Minister in the chair, the Acting Minister for Economic Development, the Hon David Carter—because he really does need to go back and consult his officials—that his research and development policy is worth less than half of what was already in place when National came into office. The tax credits that the Labour Government had put in in 2008 were worth double the amount of the vouchers and various grants this Government has decided to hand out. Fast Forward was worth $700 million, which is exactly double what the Minister just crowed on about that his Government has put into place. So when it comes to economic development, this Minister really does not know what he is talking about.

The Minister of Science and Innovation, Dr Wayne Mapp, often stands up and talks about Denmark and Israel as being the shining examples of what New Zealand could become. It is great that Dr Mapp is walking into the Chamber right now, almost on cue. Denmark has been held up as the shining light of what New Zealand could aspire to. We have an agricultural economy that is about the same as that of Denmark, but our manufacturing and high-tech sectors are minute when compared with Denmark’s. That is the reason why Denmark is in the top group of the OECD countries, and we are down the bottom—and dropping. Mr John Key talks about the Industrial Technology Research Institute, the technology and research park in Taiwan, which is obviously a place he has visited. Again, he holds up this place as being something we should aspire to. Yet when we actually look at what this Government has put in place to enable us to get there, we see that what he says the Government aspires to bears absolutely no resemblance.

The last Budget, in 2010, came out with that wonderful step change, the big policy talk about what the Government would be doing in science, research, and innovation. We had actually been waiting for that for more than 2 years. Finally the funding came out, and, as I said before, it was worth exactly half of what the National Government had taken away—exactly half of what it had taken away. This year, what has happened? There is $12 million less than what we had in 2010. Despite all the big talk and all the big noting about how this vote would drive the economy, and despite the speeches from Dr Wayne Mapp and the Prime Minister about Taiwan and the Industrial Technology Research Institute and all those things we should aspire to, we have actually ended up with a whole lot less than what we started with when this Government came into being. It is a whole lot less than what this Government started with—had in its hands—when it came into power. We have simply gone backwards. We have gone backwards.

We need a tax credit policy that rewards all companies, not just the favoured few that happen to apply for the grant and have some bureaucrat smile benignly on them, congratulate them on putting in such a good application, and give them the money. I was at a company last week, a high-tech company with fantastic growth potential, which had put in an application but had had it turned down. Under Labour’s tax credit, that company would have been rewarded for its effort.

This Government talks about trying to grow the innovation sector and it talks about research and development. But, as I said, what it has put in is worth only half of what we put in in the form of a tax credit and the Fast Forward fund of $700 million. That was transferred and taken away by Bill English, and it was replaced by this rather paltry, anaemic Primary Growth Partnership. This Government has not delivered on its promise to deliver high-quality research, science, and innovation.

It is a pleasure to speak on this, the economic development estimates, at the Committee stage. To listen to Labour members on the other side babble on about their record in power is almost laughable. It is laughable because for 5 consecutive years the volume of exports contracted under the Labour Government, and the biggest show in town was Government spending. The biggest show in town was Government departments, which were leasing some of the most-expensive real estate in this city of Wellington. That was the biggest show in town, but that game is over. That game is over because the National Government is now in power, and the National Government has brought a plan to this country in order to promote economic development—to promote economic growth and jobs in this country.

💬 Hon Member: Jobs?

My counterparts opposite have asked where the jobs are, yet not one of them has talked about talking to businesses. You see, in my electorate of Maungakiekie we have numerous businesses that are thriving, that are actually growing, and that are doing things to promote this economy. I was at the opening of the premises of New Zealand Gold Merchants in Penrose, in my own electorate. That company is refining gold and silver metals. It has international strategic relationships. Tony Coleman and the team are working to promote jobs and opportunities for those in my community, and I salute them. I can talk about other companies. I could go on about Rakon; I could go on about Sanitarium and Coca-Cola—those types of businesses that promote jobs in our communities. But there are also high-tech companies. One that started in Maungakiekie is Trifecta Global Infrastructure Solutions, which is led by Mr Steve Burnie. That company now exports its products to Ireland and the USA, and it has world-class, web-based—

💬 Hon Shane Jones: Yes. Fair enough.

—and Mr Jones knows it—geospatial asset-management software. That is a success story in Maungakiekie that I am proud of.

I do not know whether Labour members have actually seen what has gone on in global financial markets in the last 2 weeks, but the clear message from ratings agencies and the clear message from financial institutions is that the debt must stop. The debt, the borrowing, the taxing, and the spending that Labour is promoting as the solution to economic development, must stop. This National Government now has a plan to keep the amount of debt to under 30 percent of GDP, and we are doing that through the infrastructure spend and through savings in Government departments—through savings where Labour is promoting spending. We are doing it through upskilling our people in an education system that is robust and an education system that promotes standards—it actually has standards. It is positive about our children, and aspirational for our children to develop and grow. But those Labour members are all about negative, destructive behaviour. We see it in their blogs, we see it in their press statements, and we see it at every question time when Phil Goff stands up with very little in the way of questions—in the sort of hypocritical way those members go about their work—

The CHAIRPERSON (Lindsay Tisch): The member will withdraw that comment.

I withdraw. But this is really about the aspirational—

💬 Hon Steve Chadwick: I raise a point of order, Mr Chairperson. I think the member should withdraw and apologise. I take offence at that comment.

Speaking—

The CHAIRPERSON (Lindsay Tisch): No. The member has withdrawn on my instruction. However, a member has taken offence. I will ask him also to apologise. I ask the member to apologise.

Sorry, Mr Chair—you asked me to withdraw the comment and I did.

The CHAIRPERSON (Lindsay Tisch): I did, but a member has since taken offence, so I now ask the member to also apologise.

I withdraw and apologise.

But this Government is standing up for New Zealanders. We are standing up for New Zealanders who are aspirational, and who are not destructive, negative, and nasty. New Zealanders want jobs, and this Government is putting in place a plan that will promote jobs, promote opportunities, and promote economic growth. We will see that in the decision that New Zealanders will make on 26 November—whether they want a positive, affirmative, encouraging Government, or they want a negative, nasty Opposition.

Vote agreed to.

Vote Foreign Affairs and Trade