International Finance Agreements Amendment Bill

The Labour Party will be supporting clause 3 of this bill, which amends the International Finance Agreements Act 1961. We are not, in the Labour Party, selective in the advice that we take from the International Monetary Fund. I think it is appropriate at this point to record that although the current Government is giving effect to the changes that are recommended by the IMF Board of Governors to the amounts to be contributed to the IMF by different countries, it seems to be rejecting advice that it is getting from the IMF on other quarters. The International Monetary Fund has moved on considerably in relation to settings that are important for an open, small economy such as New Zealand’s. It has noted that countries like New Zealand are suffering the vicissitudes of changing practice around the world arising from currency manipulation and changing monetary policy settings in other countries in the world. Indeed, Mr Olivier Blanchard, the chief economist at the International Monetary Fund, is on record as saying that countries that are performing better than New Zealand in respect of their external balance—that is, their balance with the rest of the world—are using more than one instrument to target more than one objective, rather than as New Zealand does, which is to effectively use the official cash rate to control inflationary pressures in the economy to the exclusion of virtually everything else, pursuant to legislation that requires the Reserve Bank to give primacy to the targeting of inflation ahead of other important aspects of economic management like the exchange rate. Rather than the New Zealand regime, other countries are pursuing an alternative path.

Even if the path that originally was taken by New Zealand was necessary to stamp out inflation, which was so entrenched in the 1970s and early 1980s, the primacy that is still given in New Zealand to targeting inflation ahead of other matters of economic management is now causing more harm than good. So, although the theoretical objectives of inflation targeting were right for their day, their time has passed. Even if they were right—if everyone in the world was still pursuing that same course—when other countries in the world, as has been noted by the International Monetary Fund, are pursuing a different course, then the effects on a country like New Zealand are that we suffer the consequences of their policy until and unless we change our own. At the moment, because New Zealand does not change the settings under this Government, and just puts up with what we had previously, we are seeing a narrowing of our export base.

Members will recall that Bill English, and the National Government at the time it was elected, said that the primary objective was to rebalance the economy away from consumption towards savings in export growth.

💬 Dr David Clark: How’re we doing?

Not well, Dr Clark, not well. New Zealand this year is predicted to have the worst current account deficit in the Western World. The National Government jumps up and says “Well, the current account deficit is not as bad as it was for 2 years under the prior Labour Government”—

💬 John Hayes: Stick to the bill.

I beg your pardon?

💬 John Hayes: Stick to the bill.

I am, actually. I am saying that the Government is a bit inconsistent in its acceptance of the help and advice that comes from the International Monetary Fund. The Government says that because the current account deficit has been higher, it has somehow fixed the problem. The problem for the Government is that it has not. The current account deficit is getting worse—

💬 John Hayes: Look at unemployment.

I beg your pardon? Unemployment? Unemployment has got worse as well, actually.

💬 John Hayes: Why’s the exchange rate so high?

The exchange rate is—

💬 John Hayes: The economy’s being managed well.

The exchange rate is so high, in part, Mr Hayes, because New Zealand refuses to react to the change in world practice, where other countries are actively intervening in their economies so as to maintain a competitive exchange rate for the benefit of their exporters. New Zealand is not doing that. As a consequence, we hear them say “Oh, well, look, manufacturing is OK.” Actually, manufacturing is OK in the primary sector—there are still as many litres of milk to be processed and still as many livestock to be processed—but outside of our primary sector our exporters are not thriving. Construction manufacturing is coming again in New Zealand on the back of the Christchurch rebuild, but our rebalance towards exports—

I want to build on what my colleague Mr Parker was saying, because I think he makes the valid point that the IMF advice is generally pretty good. What we have here is a Government that picks and chooses which advice it chooses to implement and which it does not. A good example is a capital gains tax. This Government has, I am sure, heard or read from the IMF that it suggests that a capital gains tax is a sensible way forward.

💬 John Hayes: No, it’s not.

New Zealand is one of only three OECD countries that do not currently have a capital gains tax—Mr Hayes knows that—and we know that one of those three, Switzerland, is a tax haven, in effect. Another is Turkey, and then there is little old New Zealand. Those are the three countries in the Western World that do not have a capital gains tax. The unfortunate thing with the absence of a capital gains tax in New Zealand at the moment is that it distorts investment decisions. It is part of the picture as to why our manufacturing sector is losing jobs. The primary sector is fine, because, indeed, the investment bias is towards land and capital assets. We have farmers who are farming for capital gain, which, unfortunately, they can realise only at the end of their careers, and that is an unfortunate incentive.

💬 John Hayes: It’s not a bad time to realise it.

There are lot of farmers whom I have spoken to who say it would be better—it would be better—to be farming on the basis of a competitive environment, where the farmers who farmed best made the best profits, not those who amassed the most capital gain over their lifetimes; rather, those who adopted the farm practices here and now that generated returns and that participated in international strategies that saw New Zealand’s product rise up the value chain. But, instead, we have a lot of farmers who are resigned to the fact that this Government is condemning them to farming for capital gains that they will not realise until they retire, or, if they are old and tired and they die on the job, that they will never see. Their families might get some benefit through the capital gains. So there are a lot of farmers who see that the current situation is not ideal and who would actually welcome a capital gains tax, because they understand the importance of growing our economy and having an economy that rewards those who engage in effective business practices here and now.

Of course, with a more neutral investment signal we will also see people weighing up decisions as to whether they take what is, effectively, a tax break, in investing in residential property, or whether they choose instead to use their expertise in the business sector, to invest in good manufacturing industries and in other good, innovative business ideas. We in the Labour Party want more export jobs.

This National Government seems to have its hands off the wheel when it comes to the economy, and we see the results of that: the worst economic growth record of any Government in the last 50 years. This Government has a shocking—a shocking—record on economic growth, and I contend in the context of this debate that that is precisely because it chooses what advice from the IMF it will put into practice, what it will sign up to, and what it will not sign up to. By cherry-picking according to immediate political considerations, it misses the wider objective of economic growth for the benefit of all of New Zealand’s citizens. A capital gains tax is illustrative of this approach by the Government and the costs on New Zealand. We see real wages dropping in New Zealand. We see manufacturing jobs going. We see unemployment as high as it was in the 1990s, when we last had a National Government, and we see a shocking balance of trade that is projected to be the worst in the developed world next year, all because of decisions—

💬 Hon David Parker: Balance of payments.

Balance of payments, Mr Parker corrects me, and he is right. It is projected to be the worst balance of payments in the Western World. And it is because Mr Hayes and others like him are not comfortable with entertaining the solutions from the IMF that do not suit their current political narrative. At least, I have got to assume that. I have got to assume there is good intention in there somewhere, but it is not immediately obvious why the National Party seems to be against business, seems to be against manufacturing, and seems to be against growing the economy. This Government talks about business, but it seems to do nothing that supports New Zealand businesses, and New Zealand businesses, as we know, are crying out.