Public Finance (Fiscal Responsibility) Amendment Bill

I move, That the Public Finance (Fiscal Responsibility) Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the Public Finance (Fiscal Responsibility) Amendment Bill. The bill proposes to amend the fiscal responsibility provisions in Part 2 of the Public Finance Act 1989. The changes proposed in the bill aim to ensure that the fiscal responsibility provisions remain a sound guide for fiscal policy now and into the future, and, in particular, into a future where the Government will have surpluses again.

As honourable members know, the fiscal responsibility provisions of the Public Finance Act have guided the formation and disclosure of Government fiscal strategy for over a generation. The provisions require Governments to pursue their objectives in accordance with defined principles of responsible fiscal management. Among other things, the principles require public debt to be reduced to, and maintained at, prudent levels. These provisions have served New Zealand well. It is partly thanks to the provisions that successive Governments have focused on maintaining low or prudent public debt, putting New Zealand in a relatively strong position in having relatively low Government debt going into the international financial crisis of 2008 and 2009.

However, experience tells us that there is room to strengthen the fiscal responsibility provisions to encourage greater transparency around the interaction of fiscal and monetary policy, the impacts of current policy on future generations, and managing resources efficiently and effectively. The additions to the fiscal responsibility provisions in this bill aim to address these and other gaps. The amendment bill introduces three new principles of responsible fiscal management, extends an existing principle, and introduces some new reporting requirements, some of which codify existing practices.

The first new principle of responsible fiscal management proposed in the bill is that Governments should formulate fiscal strategy with regard to its interaction with monetary policy. As honourable members know, the Reserve Bank of New Zealand takes changes in fiscal policy into account when it independently sets the official cash rate. The new principle will require the Government to be explicit about the interactions between monetary and fiscal policy at different stages of the economic cycle, facilitating greater transparency in policy making and encouraging greater focus on, and discussion of, the cyclical factors impacting the economy’s performance at any given time.

The second new principle introduced by the bill is that the Government should formulate fiscal strategy with regard to its likely impact on present and future generations. Fiscal responsibility provisions currently have a focus of around 15 years. Many decisions, of course, have longer-term effects. This new principle will require Governments to be more transparent about any intergenerational trade-offs their policies imply.

The third new principle is that the Government should ensure that the Crown’s resources are managed effectively and efficiently. This principle is supported by a reporting requirement for Governments to set out their priorities for resource allocation and explain how these priorities have influenced and will influence their decisions. The idea behind this principle and reporting requirement is that it is not just aggregate amounts that matter—total spending, total assets, total debt, or total tax revenue—but also the allocation of resources within those aggregate amounts. The principle also aims to facilitate a greater level of public scrutiny of the Crown’s management of its balance sheet.

As well as introducing these three new principles, the bill extends the existing principle relating to the tax system. The existing principle is that Governments should pursue policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years. The bill would strengthen the principle to require Governments to formulate revenue strategy with regard to efficiency and fairness, including the predictability and stability of tax rates. This extension acknowledges that there are important and desirable features of tax systems beyond the level and stability of tax rates, including raising sufficient revenue to meet Government priorities, minimising behavioural distortions and administrative and compliance costs, and sharing the tax burden fairly in a way that is perceived to be fair. These features can be captured by the words “efficiency” and “fairness”. Although there are no universally accepted definitions of “efficient” or “fair”, the inclusion of the terms in the fiscal responsibility provisions will allow the Government of the day to elaborate on what an efficient and fair tax system means for it, and to bear in mind efficiency and fairness considerations when assessing changes to the tax system.

The bill introduces a new requirement for the Fiscal Strategy Report to contain an assessment of the extent to which the fiscal performance of the Government is consistent with its own published fiscal strategy. This requirement introduces a backward-looking element into the Fiscal Strategy Report, which currently is mainly about communicating current fiscal policy and its likely future effects. More of a backward-looking focus will increase disciplines on Governments to stick to announced plans and provide a platform to communicate lessons from past successes and failures of fiscal policy.

The bill proposes to codify the established practice of including a revenue strategy within the Fiscal Strategy Report. The revenue strategy would be required to include the Government’s objectives for the tax system and tax policy.

Finally, the bill also codifies the emerging practice of publishing a Government Investment Statement. The bill would require Treasury to produce an Investment Statement describing the Crown’s significant assets and liabilities at least every 4 years. The first Government Investment Statement was published in 2010, and we consider that it was a useful tool for informing the public and the politicians in Parliament about the state of the Crown’s balance sheet.

The fiscal responsibility provisions of the Public Finance Act are constitutionally significant. The Government recognises that any proposed change to the provisions is not to be undertaken lightly. Can I thank members from other parties of the House who have constructively discussed the issues addressed in this bill. The Public Finance (Fiscal Responsibility) Amendment Bill will ensure that the fiscal responsibility provisions remain a sound guide for fiscal policy, and in this context it is important to see these changes in the context of the economic cycle that New Zealand has just been through. In some respects our fiscal responsibility Act is better aligned towards Governments getting on top of difficult fiscal conditions and high levels of debt, which was certainly the case in the early 1990s when the fiscal responsibility Act was first brought in. Experience has shown us, I think, that it has been less suited to dealing with the temptations and opportunities provided by sustained surpluses. It is certainly the wish of the Government that the House in considering these amendments bear in mind that with economic growth and continuing discipline on spending, there will be fiscal surpluses in the future, and New Zealanders would expect Parliament and the Government to treat that situation in a responsible manner. I commend the bill to the House.

I rise on behalf of the Labour Party to speak on the first reading of the Public Finance (Fiscal Responsibility) Amendment Bill. The Labour Party will be supporting this bill going to the Finance and Expenditure Committee. Can I thank the Minister of Finance for the consultation that was provided in respect of earlier drafts of the legislation, which was proposed pursuant to the ACT Party confidence and supply agreement with the National Party. It is fair to say that the original drafts of this bill that were brought to us by Treasury were completely unacceptable to the Labour Party. They were fundamentally flawed, in our opinion. I am not blaming the National Government for that; it was promoting policy that was being pursued by John Banks at a time when he had, perhaps, more political force than he now does.

Amongst the proposals that were in the draft that was described to us by the Treasury officials who were sent for a discussion with us was the fiscal cap that was referred to by the ACT Party in its election materials. ACT said that the country needed to have a fiscal cap imposed under the Public Finance Act that was binding upon Parliament, including future Governments. So I am pleased to hear the Minister of Finance, Bill English, agreeing that it is inappropriate that this Parliament try to bind future Parliaments in respect of how a country is to be governed.

The history of fiscal caps around the world is fraught. You need only to have a look back at recent history in New Zealand to think about how difficult it would be to legislate for an appropriate fiscal cap. New Zealand came through a period of strong economic growth and a period of surplus after surplus. Really, no one around the world, or very few people around the world—there was the occasional person, I have to say, such as Mr Roubini, but other than the occasional economist who thought that the paradigm was wrong and unsustainable, most economists thought that that paradigm could continue for ever and that the world was on a stable growth path and did not have extreme debt problems. The global financial crisis proved that wrong, and since then Governments around the world have had to increase spending counter-cyclically in order to, as the Deputy Prime Minister says, take the sharp edges off recession, as Governments around the world are finding that in order to make their economies work and not sink into a declining whirlpool of decreasing output they have to stimulate their economies through fiscal policy. This has meant that Governments have had to increase spending at a time of recession, put simply. If you had a fiscal cap, the fiscal cap, if it was set during the good times, probably would not allow that. It would be a nonsense and it would have led to far worse outcomes than have been achieved in New Zealand without a fiscal cap.

The other example I would use would be the fiscal cap that has been in place for some time in respect of Californian spending. California at a referendum agreed to a cap on certain levels of taxation, which effectively capped the ability of California to spend. There were certain classes of taxation that by law, until there is another referendum that changes that rule, could not be increased. The effect of that is that the Government in California has not had enough money to do what it needs to do. As a consequence, it has had failing corrections policy—it has got terrible prisons and prison outcomes. But even worse than that, California, which used to have one of the best state education systems in the whole of the United States of America, has had a decline in its educational system because the Government has not been able to collect enough revenue in order to pay for a decent education system.

Those two examples show just how lunatic the proposals from the ACT Party were that New Zealand’s Public Finance Act should actually include a fiscal cap. So I am pleased that that policy has been ditched, and this legislation, as a consequence, can have the support of the Labour Party at its first reading.

There are a couple of other points to be made. None of these changes are actually necessary for the Government to conduct sound economic policy. It is pretty much window dressing. Let us look at the first change. The first change changes the fiscal responsibility set out at section 26G(1)(e) of the Public Finance Act, which currently says: “pursuing policies that are consistent with a reasonable degree of predictability about the level and stability of tax rates for future years.” It replaces it with these words: “formulating revenue strategy with regard to efficiency and fairness, including the predictability and stability of tax rates;”. Is that a great change—a great, significant change? I do not think so.

💬 Hon Clayton Cosgrove: Tinkering.

Tinkering, as my colleague Clayton Cosgrove says. I do not think there is any problem with those new words, but there is not that much difference, either. It is motherhood and apple pie. It is not going to change much.

The three new principles that are added are, firstly, “formulating fiscal strategy with regard to its interaction with monetary policy;”. I agree that that is appropriate—“with regard to”. It does not give monetary policy primacy over fiscal policy, and neither should it. If it went further and said “formulating fiscal policy so as to coordinate with monetary policy.” and had a requirement on Government, that would be wrong. That would effectively be saying that Government decisions as to the management of the economy had to be subjugated to what was being done with monetary policy through the Reserve Bank. We can live with “with regard to” its interaction with monetary policy, but we again make the point in the context of this debate that we have some problems with the current iterations of monetary policy, whereby the interests of inflation targeting always trump other aspects of economic management. In other words, other aspects of economic management, like the health of your export sector, are subjugated to the interest of inflation when there is a contest between the two, which, in our view, is wrong, given New Zealand’s 40-year current account deficit.

The idea that Governments current and past have not had regard to monetary policy in setting fiscal policy is a nonsense. The last Labour Government ran surpluses. In fact, one year we ran a surplus of 5 percent of GDP.

💬 Hon David Cunliffe: Who opposed that?

Oh, that was opposed, Mr Cunliffe, by the National Party. That $10 billion surplus that year was one of the largest as a percentage of GDP in the Western World. At a time when other Western countries like the United States, like England, like most of the countries in Europe were running Budget deficits in a time of plenty, the New Zealand Government under Labour’s leadership on the Treasury benches ran very, very significant surpluses. They were so difficult politically to achieve because the Opposition—the then National Party Opposition—was saying: “Tax cuts. Tax cuts are the way forward.”

💬 Hon Clayton Cosgrove: They accused us of being mean.

Yes, they accused us of being mean and that we were keeping people’s money from them. In fact, what we were doing was in a time of plenty putting money away. That is why when the Labour Government left office we had reduced gross Government debt from 38 percent to 18 percent of GDP, and net debt down to zero, including financial assets.

The next new principle is “formulating fiscal strategy with regard to its likely impact on present and future generations;. Again, Governments should already be doing that, and I think it is somewhat galling to have the Government saying that it should put that into the Act when it is denying the need to address the age of eligibility for superannuation. The biggest cause of increasing Government expenditure going forward—actually, there are two cost centres. One is rising health expenditure and the other is rising superannuation costs. Within 4 years the cost of New Zealand superannuation exceeds the cost of preschool, primary, intermediate, secondary, and tertiary education, plus trade training and the costs of the education ministry. All of those are exceeded by the cost of superannuation. If the Government cannot see that it is time to give advance notice of the need to increase the age of eligibility for superannuation, then formulating fiscal strategy with regard to its likely impact on present and future generations is just hot air.

In respect of the next principle, “ensuring that the Crown’s resources are managed effectively and efficiently.”, who can disagree with that? Is the Government really saying that it is not doing that currently?

This legislation is largely inoffensive. There may be some details in respect of the requirement to produce a report reporting against prior Governments’ fiscal strategies. I have a bit of a problem with that, and we will be looking at that at the select committee. But, in general, this bill is much less offensive than if it had tried to impose a fiscal cap, and the Labour Party will be supporting it going to the select committee.

It is my pleasure to speak on this, the Public Finance (Fiscal Responsibility) Amendment Bill. I am very pleased to hear the support of the Labour Party for this legislation, and I would like to pass my congratulations to the Minister of Finance on introducing it to the House. There is no question that the public reporting and transparency provisions of the Public Finance Act have served New Zealanders well for more than two decades in keeping the focus on maintaining low Government debt levels. New Zealanders can quickly forget the horrors of the past when after each election the true state of affairs was revealed—

💬 Hon Clayton Cosgrove: Remember Muldoon?

1984. Yes, indeed, in 1984 and 1990 the situation was ugly. The Fiscal Responsibility Act 1994, which was subsequently folded into the Public Finance Act, was one of Ruth Richardson’s great achievements. New Zealand’s reputation changed from the late 1980s to the 1990s from being a basket case to a country of quality public policy of a robust and disciplined Government. Successive Governments have focused on maintaining low or prudent public debt, putting New Zealand in a relatively strong position going into the international financial crisis of 2008 and 2009.

It was interesting to hear Mr Parker talk up the record of the Labour Government during that decade, and it should be commended for the surpluses that it brought through in the middle of the decade. But I am bound to say that he did forget about the fact that the decisions that were made in the third term left Government books pregnant with debt for a decade to come. That was the problem that it left us. So it may have been quite good in the first two terms, but certainly not in the third.

There is scope to make further improvements as we learn lessons from the crisis. This bill, as the previous two speakers have talked about, strengthens the principles of responsible fiscal management as listed in section 26G of the Public Finance Act. I will focus on what is in the bill rather than what is not in the bill. We have talked about the three additions, the first principle being that Government should formulate fiscal strategy with regard to its interaction with monetary policy. That makes good sense. The second one is Governments should formulate fiscal strategy with regard to its impact on future generations. The third principle is that Governments should ensure that the Crown’s resources are managed effectively and efficiently. These are not motherhood and apple pie. They are actually very tough disciplines. I have no doubt that the Government in New Zealand will be the stronger for it. Why is fiscal responsibility important? Because quality public policy and practice and sound financial management bring confidence, and confidence for the private sector to invest and to create jobs. Conversely the absence of fiscal responsibility leads to a lack of confidence and we see evidence of that all around the world today.

There are a couple of other important aspects to the bill, but I want to briefly focus on the revenue strategy in the Fiscal Strategy Report, which will have to include the Government’s objectives for the tax system and tax policy. We have mentioned that this idea of formulating its revenue strategy with regard to efficiency and fairness goes some way to addressing the 13th recommendation of the recent Tax Working Group report. I will be very interested in the select committee consideration in drilling down to the detail on these two very important concepts, efficiency and fairness. Efficiency talks about having taxes that are the least distortionary and introduce the fewest dead-weight costs to the economy. This bill will not stop future Governments bringing in silly taxes, but it will force them to explain themselves to a greater degree. I would imagine if you were going to open up a gap between the top income tax rate and the trust rate, you would have to explain how that was going to promote an efficient tax system. If you were going to start fiddling around with the GST, explaining how that is efficient would be an interesting way to deal with that question. On fairness, I prefer, probably, the concept of horizontal and vertical equity, but again these are two important concepts to introduce into the tax policy and I am sure that they will encourage Governments to articulate the basis for their tax policies in future years.

On the basis of that I think this is a very interesting bill and will make a great difference over the period of the next few decades. I commend this bill to the House. Thank you very much.

As my colleague David Parker said, we will support this piece of legislation, the Public Finance (Fiscal Responsibility) Amendment Bill, going to the Finance and Expenditure Committee.

It is noteworthy that this is the bill that rolled John Banks. That was John Banks’ former biographer—the man who is now writing his political obituary—who got up. He must have been part of the team to roll John Banks because, of course, John Banks wanted a fiscal cap that bound future Governments. Even the National Party—and I give some credit to Bill English—could not swallow that dead rat.

Old “Brown Bag Banks”, a man who at the start of the electoral cycle after the cup of tea and the election win was a person at the pinnacle of his powers—the pinnacle of his powers—pushed and demanded to be the Minister for Small Business, and demanded that there be a fiscal cap in a piece of legislation like this, and then came a gutzer. Of course, that is why we call him “Brown Bag”. We know why “Brown Bag Banks” came a complete gutzer to the point where Trans Tasman—I think it was Trans Tasman—said the following: “Banks has overseen the complete destruction of ACT’s political brand, taking over where Don Brash left off.”, and “scandals and police investigations over donations have left his political reputation in tatters.” Things are so bad that “Even if National did not run against him in Epsom again he would still lose.” So what we know is that a cabbage could be painted blue and stand in Epsom—a cabbage off a cabbage boat—and it would take the Epsom seat.

What I will say, and commend National members for, is that for once in their political lives they slithered out of the caucus room and made a decision. They said “No, this is unconstitutional, this is fiscally unpalatable, this is morally wrong.”, and they rolled “Brown Bag”. They rolled him—they rolled him. They slithered out of the caucus room, and for once in their measly political lives this Government actually made a call and a decisive one. So on that basis we look at this bill.

You would think, listening to the Minister of Finance, that this was some groundbreaking piece of legislation. In fact, colleagues, we have been here before in the law and order portfolio and in the health portfolio with announcement after announcement—and the housing portfolio—of groundbreaking legislative moves and reforms, which, when you read the legislation, actually come to nothing. Let me read you, if I might, a sentence or two from the explanatory note on Part 1 of this bill where it says: “The Government must pursue its policy objectives in accordance with the principles of responsible fiscal management,”. Right? Nobody would disagree with that.

💬 Hon Dr Nick Smith: Absolutely.

Dr Smith says “absolutely”. I agree with him. I agree with him—“absolutely”. Nobody would disagree with that. Then it says: “The amendment”—

💬 David Bennett: Have you asked Russel?

Settle down. Take a powder—take a powder. Your turn will come. “The amendment extends an existing principle of responsible fiscal management and adds”—here is the good bit—“3 new principles.” Wait for it. This is probably not a bad thing. This is probably a groundbreaking reform from this tinkering Government. But then you read it, as my colleague David Parker did, and the new principles are the following: first, “formulating fiscal strategy with regard to its interaction with monetary policy”. Who would disagree with that? Not us. Not the communities. Not people—maybe John Banks would because he wanted something different. And then you try and match that principle with the practical groundwork and the practical actions of this tinkering Government.

Of course, it does not believe that there is a problem with our exchange rate. It does not believe that there is a problem or any need for change or reform of monetary policy. It does not believe, as we do, that we should change the structure of the Reserve Bank of New Zealand Act and the make-up of the board, and should focus not only on inflation but also on the exchange rate, as this party believes. The National Party believes, as the Minister of Finance said before the Finance and Expenditure Committee, that all is well, that the IMF is wrong, Treasury is wrong—everybody is wrong—and the Reserve Bank is wrong when all three say we are headed for the rocks with the current account deficit, but that the finance Minister is right. We have got this wonderful principle that may well be chiselled on tablets of stone, but, actually, if the bill is passed, the Government does not believe the principle, because it has not acted on it. It does not believe in the principle. This is a sap to buy off “Brown Bag Banks”.

Then we look at the second principle, which is “formulating—”

💬 Hon David Parker: Clayton, SOE sales.

Oh, and State-owned enterprise sales, of course—State-owned enterprise sales. This is the Government that in the Pre-election Economic and Fiscal Update, of course, banked the revenue from the sale of assets, which a year later have not been sold. It is going to be another 6 months or 12 months—or, hopefully, by the time we get to an election the Government is gone and it will not be able to do it. It banked the revenue from sales that have not happened, but did not bank the loss in dividends. That is how honest the Government is about the fiscal measures and how fiscally responsible it is.

Then we look at principle two: “formulating fiscal strategy with regard to its likely impact on present and future generations”. Well, who again would argue with that? It is not a bad principle. But then you look at what the Government has done in respect of tinkering with KiwiSaver and undermining it. Then you look at its stance on compulsory superannuation. Then you look at its stance, as my colleague David Parker said, on the age of eligibility for New Zealand superannuation, and again it denies there is a problem. It denies that future generations will be impacted on. It is all rosy out there for New Zealanders, it says. So it is a great principle, whittled into tablets of stone, I am sure, but this Government does not believe it, because it will not act on it.

Then we have the third one: “ensuring that the Crown’s resources are managed effectively and efficiently.” Well, look at some of the programmes that have come a gutzer. There was the “Road to Nowhere”, the cycleway, which was supposed to generate hundreds, if not thousands, of jobs—gone. Mining of national parks, a pipedream, was stuffed up by this crew—gone. Then there was the financial centre of excellence, or whatever it was called. That was going to be the next silver bullet. It did not happen—gone. No plan.

What we have got here is a nice little political pamphlet, which, I have to say, we do not disagree with in principle. These are sort of eminent principles and goals that Governments should follow. What I would put to the Government is simply this: why does it not follow them, if it believes in them? It has had an adequate opportunity in respect of monetary policy, superannuation, and KiwiSaver, etc., etc., etc., and it has done nothing, because it believes that there is no problem with our economy, no problem with 175,000 people out of work, no problem with 90,000 young people not in education, training, or work—no problem at all. Everything is rosy, and the people of New Zealand should be grateful for it.

Well, I say that if the Government believes in these principles—it is the Government’s bill, after all, and it has the numbers to pass it—then we await with interest to see whether it will actually act on those principles: safeguarding future generations, monetary policy, those key issues that will, if dealt with appropriately, effect Government policy.

I have got to say, when you are recasting history, that I remember getting up as Associate Minister of Finance and making a speech about the surplus that Labour had—we had nine of them. I never thought in my 30 years in the Labour Party that I would stand in Parliament and be attacked by a National Party for not spending money, for being frugal, and for squirreling away the dollars for a rainy day. Bill English got up and said that we were mean, that we were Scrooges, that it was the “chewing gum Budget”, and that we should spend the lot, dish it out—that is what we should do. I never thought in my wildest dreams that I would be attacked by a National member for not spending the dough and for creating surpluses, as our Government did, but that is what the National Party did, and now it recasts history. I just say to members over there let us compare 9 years of surpluses with National’s record—record borrowings and the second-worst current account deficit in the world, which is soon to be the first, the worst, in the world.

When we asked Bill English before the Finance and Expenditure Committee why he thought he was right and the IMF, Treasury, and the Reserve Bank were wrong, in terms of forecasting how bad it would be, his strategy was “I don’t think the rest of the world will allow our current account deficit to get really bad.” That is sort of like saying “Well, eventually, the bank manager will cut off the oxygen and stop lending us money.” That is basically what the strategy was from the financial guru the Minister of Finance: “The world won’t let us, you know, keep injecting the serum. They’ll stop it. They’ll cut the cable on us.” That is a wonderful strategy, is it not, to reassure the people of New Zealand?

We will support this bill. We will support it, but I say to the National Party that if you want to write a bill with some principle in it—after you have rolled “Brown Bag”, John Banks—you have got to, actually, practically demonstrate that you are committed to the principles in the bill.

I rise to speak on behalf of the Green Party on the Public Finance (Fiscal Responsibility) Amendment Bill. It is with great pleasure that I speak to this bill, which I think is an excellent bill. I think the Minister of Finance should be congratulated on putting the bill together. It was great that we got rid of the spending caps, which were a silly ACT Party intervention into the debate, but now that sense has been seen and we have got rid of that one, actually we have ended up with a good bill. There are a lot of good things about this bill.

The first part is about being explicit about how fiscal policy settings will interact with monetary policy. Of course, this is something that has always been implicit, but putting it explicitly into the Public Finance Act seems to me a very responsible and sensible thing to do. I would argue, in fact, that those of us who are supportive of a capital gains tax, excluding the family home, would have quite a bit to say about the way a capital gains tax could influence monetary policy and actually take some of the pressure off monetary policy in terms of trying to control housing asset bubbles in the future. I would be very interested to see Treasury’s analysis, given that it has for a long time been supportive of a capital gains tax, of using this bill and the new requirements in this bill to look at the effect of a capital gains tax on the interaction between fiscal policy and monetary policy. We believe, as Treasury does, that a capital gains tax has a very positive effect on that interaction.

Another part of this bill is that the Government must state how the Government’s fiscal policy will impact on present and future generations, and it is expected to take a 40-year perspective. I think this is a very healthy development for our democracy. From the Green Party’s point of view, we try to take a long-term, intergenerational approach to policy—for example, around climate change, which is a classic, if you like, environmental issue, but, of course, is a highly economic issue and social issue as well. Having the Government required to take a 40-year view, to take a long-term, intergenerational view, seems to me a very positive development. I want to come back to that shortly with regard to public-private partnerships.

Obviously, the Government has included the principle that tax revenue needs to be raised “efficiently and fairly”. The Minister of Finance made a point in his speech that, clearly, this is a subjective thing—what is efficient and what is fair. But I think he rightly made the point that the Government will be required to explain what it thinks is efficient and what it thinks is fair in terms of raising revenue. Getting that on the record and getting it transparent is, I think, a positive thing.

The next part of this bill is the retrospective or looking-back element. I think this is a very healthy development. Often we find when we read the Government statements that they cover the present and they have these projections, and the projections are always wonderful and about how everything is going to get better. So I think it is quite good that there is an element of looking back that will be required in the reporting elements around the Budget. Having that backwards-looking element is, I think, a very positive development. It requires the Government and Treasury to look at what the Government said it would do, then what it actually did, and, hopefully, to make some kind of assessment about how things worked—whether they worked well or whether they did not.

The other part of it is about instituting or formalising the Government’s Investment Statement. This was a great innovation by the current Government and Minister of Finance—to put out the Investment Statement. Obviously, it was linked in part to the Government’s asset sales programme—which we do not agree with—but the Investment Statement itself is, I think, a positive development in terms of reporting.

Taken together, I think these provisions are really good and this is a really good bill. Obviously, we still have a lot of criticism of some of the Government’s strategy, and we would argue that it is not meeting, if you like, some of the good principles that are actually in this new bill. None the less, in terms of a reporting requirement, it seems to me quite sensible.

I want to talk a little bit about PPPs and debt, and how they might be covered by this reporting requirement, because I think it is important. PPPs are public-private partnerships. There are many variants, but we could look at motorways. The Government has got a problem with motorways at the moment. It has this extraordinarily large motorway building ambition, but the revenue source for that motorway building ambition is drying off, because State highway volumes have remained flat now for over 5 years. So the Government’s problem is how it funds it. Traditionally, in the past it would have done it through debt, and there is a very clear way to record debt on the books, so we would have had a clear view of that. The Government is now exploring using public-private partnerships. So, essentially, if we were to look at a project—one of the motorway projects—the Government would get a private corporation to build the project, and then the Government would pay it a certain amount every year to run that highway for any number of years into the future. Essentially, it becomes the Government paying this private corporation this payment every year for many years.

The Government’s and Steven Joyce’s aim in this is to sign up contracts so that future Governments cannot stop these major motorway projects. That is the political ambition of the Government. The Government wants to lock any future Government into large motorway projects, whether it supports them or not. That is why the Government is going down the public-private partnership route, from the point of view of a political reason. From the point of view of a financial reason, and related to this bill, it is to try to hide the cost. If the Government had to go out and borrow a whole bunch of money to build these motorways, we could all point to the debt and say “Hey, you’ve taken on this debt. There’s a certain cost of servicing that debt.” So what the Government wants to do is sign a contract with a private provider, which then builds the motorway, and the Government pays it an income stream over 10 or 15 years further down the track.

The question I have is how the Government books will treat these things, because it seems to me that if you borrow money and then you pay it off over a certain period, you are, effectively, committing yourself to pay a certain amount of money every year for 15 or 20 years—however long it takes. If that is a debt trap to pay for the motorway projects, compare that with a public-private partnership. Effectively, it is the same thing—that is, the Government is committed to paying a certain amount of money every year for a certain number of years. So it seems to me that if the Government is going to be straightforward and honest in its reporting of these kinds of public-private partnership instruments, it should report them as a liability, essentially, on the Government, because the Government has to pay these payments, in a public-private partnership, well into the future as if they were debt. So I would be very interested to explore in the Finance and Expenditure Committee how the Government proposes to account for public-private partnerships on the Government books. I am not sure how this bill will affect that. I hope it will have a positive effect in the Government being transparent that, actually, public-private partnerships are effectively the same as taking on giant wads of debt.

The other part of it that I think is kind of interesting—it is a very interesting bill, this one—is that it is like Treasury’s redux against Labour about student loans and Working for Families payments, in a way. What Treasury liked about the last Labour Government was that it paid down debt, and it did it in a big way. It was hard to criticise it. National was totally wrong in all its criticisms of the last Government in terms of it paying down debt. The one great thing, the positive thing, that the current Government inherited from the last Government was the fiscal position, which gave it a lot of leeway. But what Treasury really hated was the Working for Families payments and the interest-free student loans. The reason it hated them was they did not appear on the books as debt but, effectively, had kind of long-term fiscal impacts on the Government books. So what they are trying to do with this bill is to lock in some kind of accountability—from its point of view, accountability—for what are the long-term fiscal impacts of making decisions like interest-free student loans or Working for Families, and trying to make the Government of the day account for those out-years the very significant, long-term effects of making decisions like interest-free student loans or Working for Families.

Bill English kind of hinted at this in his speech. He did not want to say it explicitly, but there is an inherent criticism from Treasury in that on the one hand it liked the last Labour Government because it was responsible on debt, but, on the other hand, it made these commitments, which from Treasury’s point of view locked in future Governments and the fiscal position going forward, and Treasury wants the accounts to reflect that. I think that is reasonable. Although I am a supporter of these policies, I think it is reasonable that we need to factor in the long-term fiscal impact when we make decisions like that, because I do believe that, you know, responsible Governments need to look at the impact of their decisions on future generations. I wish that the current Government would take this to heart in a lot of its decisions. For example, if we were to look at the current Government’s decisions on the emissions trading scheme, we see that they have very long-term and very, very significant fiscal impacts on the Government. It is very hard to account for them properly, and Treasury has kind of struggled to do that, but even the last round of changes, according to Treasury’s own Cabinet paper, cost $300 million. So the decisions that the Government makes around climate change not only have very significant environmental and social effects in terms of the broader or the real world; they also have very significant fiscal effects going forward. It will be very important to us to make sure that this bill and the existing arrangements properly account for the true fiscal impacts of decisions like the Government’s decision around climate change, because that has such enormously significant impacts.

I am also interested in the concern of Treasury about pro-cyclical fiscal policy. I am also very interested to see what the matching side will be in terms of monetary policy. What are the macro-prudential tools we will introduce to prevent pro-cyclical monetary policy from the Reserve Bank side, if we are going to be keeping a close eye on pro-cyclical fiscal policy? Because those two things do need to be aligned and matched together.

But, anyway, it is a good bill and I look forward to the select committee hearings.

I need make only a brief contribution on this bill, the Public Finance (Fiscal Responsibility) Amendment Bill, because it is such common sense and the fact that it is being supported so widely across Parliament indicates what a sound bill it is. Just to briefly comment on the contributions that have been made, it is not surprising that the media are openly speculating on Russel Norman as a Minister of Finance in an alternative Government when you contrast the speeches we have just heard from Clayton Cosgrove and from Russel Norman. It is not surprising when we contrast the sort of nasty negativity, which does not speak anything of the values or vision that Labour has, with, yes, a very different vision that the Greens have. It is a vision that I think would be a disaster for New Zealand, but at least we have some idea of what the Greens might stand for.

We need look no further than the social disaster that is unravelling in the southern parts of Europe and the fiscal crisis in the United States of America to recognise the importance of good fiscal policy to New Zealand’s future. In my 23 years in this Parliament I would say that the single most important Act that changed the prospects for New Zealand was that 1994 Fiscal Responsibility Act. In the 20 years prior to that, New Zealand’s books were very poorly managed by both National Governments and Labour Governments. In the 20 years since, New Zealand has moved from being one of the worst performers in the OECD to one of the better performers.

In typical Bill English style, though, this bill is about making those incremental improvements in that Act, and I want to comment on the three major ones. The first is that fiscal policy has got to be better aligned with monetary policy. New Zealanders have so often been punished with high interest rates, not because the Reserve Bank is not doing its job in controlling inflation but because Governments have spent up big and there has been a high price for New Zealanders to pay for that. I say when I read Labour’s big-spending policies that among the biggest losers will be those New Zealand families who are aspiring to own their own home, because of the interest impact that those policies will have.

Secondly, this bill makes good sense to be focused on the level of fiscal responsibility not just today but looking out into the future. When we came into Government in 2008, we were looking at a decade of deficits, and I will not be lectured by members opposite about fiscal discipline, given the level of projected debt and spending that the Labour Government had built into the bottom lines of New Zealand that saw ever-ballooning debt and deficits going out for 10 years. That left the Minister of Finance, Bill English, with a nightmare. He is going to have to spend the best part of his career actually pulling back on the extravagant spending that occurred in the term of the last Labour Government.

The third big change in this bill is in terms of focusing on the efficient and effective spending of public money. There are so many areas in which Government money was poorly expended. I really look forward to the discipline that these reforms will apply. Let me give you just one simple area in closing. I spent the best part of the last 3 years trying to improve the solvency of ACC. It was down to 45 percent. Members opposite laugh, but it was at 45 percent solvency. If it was an insurance company, it would literally be broke. We have improved that up to 75 percent. Judith Collins is doing a great job of continuing that work. We are determined as a Government to get to 100 percent solvency. What worries me is that Labour’s spokesperson on ACC said Labour wants to go back to pay as you go. It wants to go back to pushing the cost out into the future. That sort of policy will be held in check by these sorts of provisions, which will expose the fiscal nonsense of those sorts of changes, which we would not support.

This bill is just part of the package of the sensible financial policies that this Government is adopting, which protect New Zealanders from the sort of loose fiscal policy that can cause so much social harm, as we see in so many parts of the world. I urge the House to support the bill.

I take a call on the Public Finance (Fiscal Responsibility) Amendment Bill on behalf of New Zealand First. We will be different from the other parties in that we will not be supporting this bill. The reason we are not supporting it is mainly that we think it is irrelevant and totally unnecessary.

This Parliament currently has something like 64 Government bills on the Order Paper—64 Government bills. It is incredible how much legislation should be coming before this House instead of irrelevant bills like this that are basically just again moving the deckchairs around on the Titanic and tinkering around the edges in terms of finance and taxes. We believe that if the Government was doing its job correctly and as it should be, this bill would absolutely be totally unnecessary. Basically, this is just another waste of parliamentary time when the Government should be getting on with a lot more important things on the Order Paper.

We have only to look back to things such as the Rena disaster, where there was legislation on the books that was sitting there for something like 2 or 3 years waiting to be put through. It had buy-in from every party in this House and the Government did not move that legislation on. And because it was tardy and did not move that legislation on, the Rena hit the rocks and we were then caught with our pants down, literally, and as a result it cost the New Zealand taxpayer another $30 million or $40 million because that legislation had not been put through.

At the same time, there are things such as the war pensions review, which sat around for 2 years under this Government, and finally has been moved on in the last couple of months. But, again, with our senior veterans getting longer and longer in the tooth and older and older all the time, and desperately waiting for this Government to move on the 170 recommendations of the Law Commission, it took 2 years to get that review finally into action. We commend the Government for doing it, finally, but it took 2 years, while rubbish like this bill, which is totally unnecessary, is put before the House. If the Government was actually doing its job properly, and if it was overseeing, managing, and governing the Public Service as it should be, then this bill would be totally irrelevant.

The bill proposes to amend the Public Finance Act to include three new principles, the extension of an existing principle regarding revenue, and a new reporting requirement to assess past fiscal strategy. These changes are unnecessary. The principles are, in fact, common sense. There is no need to write them into legislation. It goes without saying that people elect a Government to manage resources effectively and efficiently. Anything else would be wasteful, even reckless. Any Government that cannot manage resources effectively and efficiently will soon be found out and punished by the electorate.

It also goes without saying that a Government should formulate fiscal strategy with regard to monetary policy. By definition, macroeconomic policy has to take into account the whole economy. There is something seriously wrong with a Government that does not see the bigger picture. In that respect, we have heard other speakers tonight allude to the Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill, which was brought to this House by the Rt Hon Winston Peters, in terms of having a full review after 30 years of having the Reserve Bank of New Zealand Act and seeing what other mechanisms the Reserve Bank could put in place to have our economy performing better in terms of the New Zealand dollar and the overvaluation of the New Zealand dollar. That bill was dismissed outright by this Government—absolutely dismissed outright by this Government. It did not want a bar of it. It did not even want to put it through to a select committee to consider looking, after 30 years, at a review of the Reserve Bank. This is absolute hypocrisy on the part of this Government. On the one hand, it is not prepared to look at the Reserve Bank, but, on the other hand, it wants to tinker around with the Public Finance Act.

The third principle states that Governments should be “formulating fiscal strategy with regard to its likely impact on present and future generations;”. Well, that, in fact, is an admission by the Government that it has failed to take these matters into account in the past. If it is having to put that into legislation now, what was it doing before? We do not oppose the need for Governments to be explicit about any intergenerational trade-offs their fiscal policies may have. We are simply saying that it is unnecessary to write this into legislation. It is nothing more than another symbolic gesture from the National Government.

The Public Finance Act also provides a legal framework for the financial management system of the New Zealand Government. It controls the manner in which Parliament keeps a watch on Government expenditure. This is fundamental for our democracy. It provides an essential check and balance, which ensures transparency and accountability. We believe that the Act, in its current, present form, is fit for purpose and does not need further amendment. If it ain’t broke, don’t fix it.

This Government should have jobs as its priority, such as the parliamentary inquiry into manufacturing. Again, this Government dismisses what is a cross-party parliamentary inquiry into the manufacturing sector in this country, which has seen 1,300 companies go out of business in the 4 years that National has been in power, and has seen more than 40,000 jobs go out of the manufacturing sector while this Government has been in power. So while it tinkers around, playing around with the Public Finance Act, it ignores a very vital manufacturing inquiry that has been put forward by the Opposition parties to seriously look at how we can get manufacturing in this country back on its feet.

We need policies to stimulate growth. This bill does nothing to get New Zealanders back into work. It does nothing to boost exports. Again, as we have seen with the Reserve Bank of New Zealand Act situation, this does nothing to address the seriously overvalued New Zealand dollar.

It also does nothing to develop new industries or broaden the productive base of the economy. We had only to look at the Q+A session on the weekend and look at the suggested ideas that were put forward there. You know, some of them were a little bit extreme, but others were interesting concepts. But, again, what did we see from the Minister Judith Collins? Basically, cold water poured on any good ideas that any New Zealanders who came forward put to her. Basically, typical of this Government, it was: “Let’s not listen to anybody else. Let’s just do what we want to do.” This bill is a reflection of that. Government members want to just tinker with an existing Act, instead of getting on with new business, new growth, new opportunities, growing the New Zealand economy, and looking at real ways to improve the economy.

New Zealand First will not be supporting this bill. We think it is a waste of time. We think the Government should be getting on with some of the other 64 Government bills that are on the Order Paper that have greater impact on New Zealanders and on the New Zealand economy. This is only window dressing, and another glossy attempt by National to just put nice words and nice rhetoric around a Government bill. But at the end of the day it is just plain tinkering around the edges.

I just want to take a short call. I think Nick Smith gave a very good speech outlining some of the fundamental arguments on what this bill, the Public Finance (Fiscal Responsibility) Amendment Bill, is about. But I am a little bit perplexed by the Opposition parties here tonight, and especially, first of all, New Zealand First. It is a party based on principle, I would imagine—

💬 Andrew Williams: We certainly are.

They certainly are, are they not, Andrew. It is a principled party that will not support a bill that sets down the principles of how you would run the finances of New Zealand. That is something that just goes without mention. On the one hand, members of the New Zealand First Party advocate principles, but when it comes to the practice of actually implementing them in this House they run a mile. They just cannot live up to what they say. Then you have got the Labour and Green parties. It is very unusual for the Green Party to support a bill. This is all part of the Russel Norman approach of being seen as a moderate economic person. The Green Party, finally, is going to support a financial bill in this House, but the Green Party and the Labour Party would not be able to satisfy this bill. Any of the policies that they have put up in the last year or so—there are not many of them, but any of them that they have, like their capital gains tax, their emissions trading scheme reforms, and their housing policies—would not satisfy this bill. The Labour and Green parties would not be able to satisfy it, because they are not in the best interests of New Zealand’s position going forward. It is amazing that the Opposition parties are now supporting a bill that they would never be able to satisfy. Thank you.

Mr Deputy Speaker, tēnā koe. I stand, along with my colleagues, to say that we will support this bill, the Public Finance (Fiscal Responsibility) Amendment Bill, going to the Finance and Expenditure Committee. Unfortunately, it is a pale imitation of what it could have been. But I want to direct our attention to an irony—and, hopefully, it will enjoy some serious consideration at the select committee, because it actually does raise some grave issues. There is an irony that part of the bill’s architecture is designed to strengthen the connection between monetary policy and fiscal policy, yet this is a Government that has taken a very laissez-faire approach to the relevance of monetary policy in the operation of the economy.

I will come back to monetary policy, but before I go much further, the bill talks about managing the impacts of current policy on future generations. Nowhere is that more relevant than in dealing with the difficulty of New Zealand and its roughly 4.5 million people and an ageing population. It is an ageing population that is going to create a further burden on the ability of future taxpayers to meet not only the costs of the pension, but also the medical costs—and they will grow—associated with our ageing population. I bear no ill will to anyone over the age of 65. Indeed, we need to cherish that part of our legacy—that we have got respect and a willingness to care for those who leave the workforce. But unless a bill of this nature impels the Government of the day to take tough fiscal stances in relation to such an issue, it is a sop. Unless we deal with the age of eligibility, and unless we deal with the long-term costs of our current pension policy, then we are creating a set of fiscal constraints and fiscal difficulties that future generations are going to struggle with.

Therein lies a further conundrum within this bill. The people we are asking to bear the cost of our ageing population are the very ones in many respects who have been starved by the current Government’s approach to human capital formation, education, training, and vocational development. When we talk about the efficient and effective usage and allocation of resources, the bill is totally silent on how this Government is using the levers of fiscal policy to invest in the current generation of school leavers—the current generation of, as we might say in Te Ao Māori, the rangatahi—to ensure that they have actually got educational attributes, applicable applied skills, to meet the costs of this ageing grey bomb. We cannot actually overstate the importance of that challenge, which is why, despite the fact that from a machinery point of view we look forward to dealing with this bill in the relevant select committee, we are disappointed that, actually, the bill is silent on such large challenges as the one I have briefly adumbrated.

Monetary policy is now a key battleground. Unfortunately, up and down the maraes, the halls, the villages, the shopping malls, etc., of Aotearoa it does not rate very highly. But the reality is that those of us who seek to influence and transform the nature of the trajectory that the country is on are going to delve deeply into the operation of monetary policy. So although the bill correctly acknowledges that the Reserve Bank has exclusive authority there, the bill avoids making an improvement that my colleagues David Cunliffe, David Parker, and Clayton Cosgrove have reminded me about, and that is too much power being in the hands of one individual. I believe that the current co-leader of the Green Party is entitled as a parliamentarian to express his exasperation and his views about the probity, the independence, etc. of the current Governor of the Reserve Bank. It is not a view that I have about that individual. Mr Norman is entitled to do that, but the deeper problem is not to do with the independence of the personality; it is to do with the principles upon which that person is operating, and this bill is spectacularly silent on how the current monetary policy operation is imperilling our ability to grow.

The Government, whilst it makes this sop to, I guess, one of its coalition partners, misses an amazing opportunity to point out that unless you change the parameters, unless you change the writ that the Reserve Bank is required to work to, then you are going to straitjacket the ability of fiscal policy to play a more meaningful role, because it is going to be conquered by an unnecessarily high dollar and also a very narrow set of monetary applications. This bill either avoids that or reflects the fact that it is not part of the belief system of the current Government. Government members are entitled to run the economy in that fashion. It is a type of operation that I thoroughly disagree with, that we do not endorse, but as much as it pains us, they currently have the democratic authority to do that. It is only a shame that employees will be deemed to be superfluous, businesses will fail, and exports will diminish whilst they keep going on this irrelevant and most egregious course of action.

In relation to the impact of fiscal policy in key social areas, the bill needs to ensure that it does not constitutionally condemn one Parliament to unwisely follow the fiscal priorities and the fiscal strategic areas of interest that the current Government is pursuing. Rest assured that come 2014 there will be a happier mix of policies and there will be a more vibrant mix of ideas that will comprise fiscal policy on this side of the House. Although this bill does codify a set of standards that a future Government might need to observe, this bill must not defeat the key constitutional principle that in our version of the Westminster parliamentary democracy one Parliament cannot bind a future Parliament, because woe betide that we should be condemned to follow on what Bill English and his colleagues are doing at the moment. We see record numbers of young people with no hope in relation to the job market. I do not need to state again how many of us have watched fellow Kiwis disappear over to Australia. A fiscal policy has to ensure that they find a reason to continue to commit to their own country. They will do that if firms invest, communities are vibrant, and people have an economic purpose for wanting to continue to give to their own country and find a little bit of sunshine, create a family, and build a better place for their children.

This bill says nothing about that. All this bill really does is regurgitate a whole bunch of things that Treasury does on a regular basis. Much of it is arid and likely to be of no interest to the average voter. At one level it is facile, but it does remind us that the stewards of the nation, in terms of fiscal policy, do need to have a set of transparent standards. But that fiscal policy has to be relevant to the economic and social challenges of the time. The current fiscal policy is not driving us in the wrong direction; it is driving our people out of New Zealand. It is driving out the very young men and women who are, as the Aussies would call it, tradies—those with valuable skills who are disappearing over there—whilst at the same time those who are left behind and want to acquire valuable skills are being starved out of opportunity and a place in our various tertiary institutions.

Unfortunately, the bill says nothing about that. The bill, however, does codify a set of principles, and they flow in a direction that the majority of us see as being sensible. It is disappointing only that this bill is totally silent on the issues that count. However, we look forward to dealing with the bill and those redoubtable souls who might find time to come and give us their views about this bill in the future. Thank you very much.

I rise to speak to the Public Finance (Fiscal Responsibility) Amendment Bill at its first reading. This is a piece of legislation, of course, that is entirely consistent with this Government’s philosophy. We are all about responsibly managing the Government’s finances. It is one of our main priorities, along with ensuring that the Crown’s resources are managed more responsibly, which are alien concepts to the Opposition benches.

We have outlined already the three main new principles. The Minister of Finance set them out at the outset of this debate and I will not go over those again. I agree with the other speakers that although the Public Finance Act 1989 has served us well as a nation for more than two decades now—the public reporting and transparency side of it—we do need to take up the lessons from the global financial crisis, and this bill gives us further scope to make improvements. I certainly believe, unlike the Opposition forces, that the taxpayers in New Zealand deserve better. They need a decent report card to accurately measure what is going on with Government expenditure, they want predictability and stability, and they want efficiency and fairness in the tax rates. I think that our Government’s fiscal performance is consistent with its strategy, but this is a piece of legislation that will ensure that other Governments in the future adhere to these principles of fairness.

I commend this piece of legislation for all the reasons that have been outlined. I think it is important that we formulate a fiscal strategy that does recognise the likely impact on current and future generations. It is for this longer view, this broader vision that cannot possibly be appreciated by the narrow purview of the opposing forces. This is the kind of long-breadth vision that National under John Key aspires to, and this is a perfect piece of legislation. I commend the Public Finance (Fiscal Responsibility) Amendment Bill to the House. Thank you very much.

The Hon David Cunliffe—5 minutes.

I rise to speak to the Public Finance (Fiscal Responsibility) Amendment Bill and to concur with colleagues that the Labour Opposition will be supporting the bill to go to the Finance and Expenditure Committee. But the select committee will have quite a job to do because there are a number of interesting kinks in this draft that may well need ironing out. In my remarks tonight I propose to briefly summarise what is in the bill, what is not in the bill, what it will not do, and what are some potential fish-hooks that the select committee may wish to consider.

In line with colleagues I can say to the House that the Labour Opposition would most definitely have opposed any version of this bill that contained a mandatory or rigid fiscal cap. The reason for that is quite simple. If it were set at a level where it actually had some practical effect—that is, it was able to bite against fiscal policy in the future—then it would create an ideological barrier to a potentially appropriate response to circumstances that could not be foreseen at the time of writing. Who in 2004 knew that the global financial crisis was going to happen in 2008? And who knew that the Christchurch earthquakes were going to happen before they did? Christchurch was not even considered a high-risk zone, yet that is a $30 billion problem, which the Government has, quite rightly, had to invest significant fiscal resource in solving. So the fiscal cap was very bad policy. Even Peter Dunne described it as “an unnecessary right-wing agenda”, which the National Party had introduced simply pertaining to its coalition agreement. Mr Dunne in a flash of sanity and courage said he would not vote for the bill. Hence the cap is no more, and good job too.

We would also have opposed some of the language in earlier drafts of this bill. We do appreciate that the Minister did through his officials consult with the Labour Opposition and that there has been serious discussion about the content of the draft, and we wish to acknowledge that. We think the current draft is much better than the early draft, and I thank officials for their role. The early draft flew in the face of precedent in the UK and in Australia, and contained language that would have biased the Act towards a very fiscally conservative—an unduly fiscally conservative—standpoint, rather than having the degree of balance that the current draft has. We think it is a substantial improvement. That is not to say that the select committee upon taking submissions might not further improve it.

So what is new in the bill? There are three new principles espoused for what fiscal responsibility should mean to any Government—and I mean any Government because this is a long-term piece of legislation that will guide and, in fact, bind both sides of the House. The first principle is that fiscal policy must have regard to monetary policy. As previous speakers have said, who can argue? It is implicit, anyway, and it is one of the key reasons why the Labour Party has supported a capital gains tax—that is, to take some of the heat out of the already re-exuberant property roller coaster and thus to take some pressure off interest rates, and to allow the Reserve Bank to govern for a more appropriate, nationwide, cross-sectoral balance of stimulus and retrenchment.

But beware an auto-pilot response, because there are some on the far right of politics who say that whenever you cut Government expenditure, GDP will increase. President Reagan imported that argument from a Professor Laffer. It was known as the Laffer curve. The monetary policy response to a tight fiscal stance would be so wonderful that cutting Government expenditure would, indeed, grow the economy. The problem is the Laffer curve never worked. There was no evidence in practice.

To the second point, to formulate fiscal strategy with regard to the likely impact on present and future generations, we say “Exactly.” That is why we have championed the sustainability of superannuation and an aggressive long-term savings plan, similar to Australia’s.

So what, if those are the three new principles, are the fish-hooks? The first one is section 26G(1)(a) of the Public Finance Act. It says: “reduce total debt to prudent levels so as to provide a buffer …”, and until you have done that, you have to spend less than you take in taxes. Here is the problem: total debt is 85 percent private debt and only 15 percent public debt. So what this provision says is that until we get private debt down, the Government has to keep cutting the fiscal spend. That is simply illogical, and I commend that to the select committee—I am getting the time signal here.

💬 Mr DEPUTY SPEAKER: Yes, time is up.

Tēnā koe. I rise to speak on the Public Finance (Fiscal Responsibility) Amendment Bill on behalf of the Green Party. As my colleague Dr Russel Norman said earlier, the Green Party will be supporting this bill. He has outlined a number of measures in the bill that the Green Party strongly agrees with—namely, the requirements for greater transparency of Government. These measures should broaden Government fiscal accountability to the public, and require it to explicitly lay out a long-term plan and what the impact of that long-term plan will be on future generations.

We received a briefing from Treasury on this bill some months ago. It is interesting to note that in the graph given at the briefing you could see quite clearly that during the last Labour Government, from 1999 till 2008, core Crown net debt was steadily decreasing. Although we had our differences with the last Labour Government—of course, we were not a part of that Government, and it could have done some smarter things like introducing a capital gains tax or spending money more intelligently on transport infrastructure—one thing it did well was reduce core Crown net debt.

Although previous National speakers have said that this bill, as it is about fiscal responsibility, is directly in line with their philosophy, I have to say that what is becoming increasingly clear is that although their rhetoric and slogans are about fiscal responsibility, their actual policies are the exact opposite, and you could see that in the briefing from Treasury. Core Crown net debt is increasing even as essential social services are being cut, and that is fiscally irresponsible. I mean, one can blame the global financial crisis, but the reality is that there are more responsible ways to respond to it that would both have a softer impact on the economy and protect the most vulnerable in our society. When the National Government came to power, for example, it spent billions on tax cuts to high-income earners, and now it is looking to do things like cut financial support for tertiary students. So even though cutting that tertiary support for fourth and fifth year students does not make much of a big difference to Crown debt, it does make a huge difference to New Zealanders who are out there trying to get educated and who are going to be massive contributors to our economy in the future.

That is an example of a transfer of wealth where this Government has been extremely irresponsible. It is giving money to top income earners even though, as my colleague the Hon David Cunliffe was explaining, there is really no evidence to support the ideology that, for example, cutting tax rates increases economic productivity. In fact, if you look around across the world, the most comprehensive research shows quite clearly that there is no correlation between top tax rates and economic productivity. In fact, by cutting top tax rates, although you will not increase economic productivity, you will increase economic inequality, and that does have a definite impact on economic sustainability in the long term.

There is one thing that I do not think is clear in this bill, and that is how public-private partnerships will be accounted for. I think that is an interesting question, because although the Government says that it is for increasing—and this bill will purportedly increase—the transparency around the Government’s spending, in fact, what we can see right now is that the Government is looking for ways to keep debt off the books. One of the ways it is doing this is by getting us into long-term contracts, or public-private partnerships, for some big infrastructure projects—infrastructure projects like Transmission Gully, which does not have a good business case and will not increase economic productivity, even though the Government says that it would like to increase economic productivity. You would have to be extremely naive or ignorant to believe that duplicating or replacing an existing road link was going to have any impact on economic productivity. So the Government is getting us into long-term financial commitments that will potentially not be recorded as debt, but will in actuality require repayments from future generations of New Zealanders for projects that are white elephants.

So we support this bill, but we hope that it will bring greater transparency to some of the Government’s extremely irresponsible infrastructure investments.

I am pleased to take the last call on this bill, the Public Finance (Fiscal Responsibility) Amendment Bill. I enjoyed the contributions from the House today. This bill does enjoy wide support, and for good reason. The Hon Shane Jones, of course, always makes a great contribution in the House, not necessarily because it makes too much sense but because it sounds so good when he talks. He is really the sort of Barack Obama of the New Zealand Parliament in so many ways, is he not? If he is tuning in now, I am sure his chest is puffing broadly within his jacket.

On monetary policy, it is rather ironic that last night on TV3 there was a showcase of the stand-off between the Labour Party and the Green Party in some potential coalition of the left and the extreme left, and the three-way play-off for the finance Minister’s role, between David Parker, David Cunliffe, and Russel Norman. I know whom I would put my money on. But the interesting line-up, I thought, was Russel Norman—for him it would be the finance Minister’s job; for David Shearer it definitely would not be—finance; Metiria Turei, social development; Kevin Hague, health—a good guy—Gareth Hughes, energy, which would be interesting; and Catherine Delahunty taking out the prize for education. I am sure that would have had some fairly interesting impacts with viewers at home.

This is exactly why this bill is so important. Monetary policy, good, common-sense policy, is so important to the future financial condition of this country. This bill makes further improvement to the Public Finance Act 1989, and our having learnt many lessons from the global financial crisis and still seeing that playing out, particularly in Europe, it is very much a salient bill. It strengthens fiscal responsibility and encourages greater transparency in three areas: fiscal and monetary policy, impacts of the current policy on future generations, and managing resources efficiently and effectively. This bill enjoys wide support. I certainly am happy to commend it to the House. Thank you.