Public Finance (Fiscal Responsibility) Amendment Bill

on behalf of the Minister of Finance: I move, That the Public Finance (Fiscal Responsibility) Amendment Bill be now read a second time. I would like to thank the Finance and Expenditure Committee for its careful consideration of these important reforms. The committee has recommended by majority that the bill be passed, and has suggested some useful amendments. Fiscal responsibility, first and foremost, involves prudent management of the Crown’s finances, but it also means ensuring that New Zealand’s fiscal institutions and practices remain fit for purpose and as transparent as they can be. To ensure that our institutions remain a sound guide for future policy-making, we need to check regularly to ensure that we are learning from our real-world experiences and practices and adapting reporting requirements where incremental strengthening opportunities are identified. That is what the amendments proposed by the Public Finance (Fiscal Responsibility) Amendment Bill are about.

The bill amends the fiscal responsibility provisions in Part 2 of the Public Finance Act 1989. The fiscal responsibility provisions are perhaps best thought of as a set of guidelines for how the Government should conduct fiscal policy, combined with regular reporting requirements. The provisions currently have a focus on fiscal sustainability. This focus has served New Zealand well. Since the provisions were introduced in 1994, successive Governments have focused on maintaining low or prudent public debt. Public debt was at historically low levels in 2008, which put New Zealand in a relatively stronger position going into the recession of 2008-09 than we would otherwise have been in.

The genesis of this bill was a review conducted by Treasury of the effectiveness of the fiscal responsibility provisions in encouraging good fiscal policy decision-making. The review found that fiscal responsibility provisions had been very successful in encouraging Governments to focus on the need for low public debt, but the review also found that there was room to strengthen the provisions to encourage greater transparency around the interaction of fiscal and monetary policy and the impacts of current policy on future generations in managing resources efficiently and effectively. The additions to the fiscal responsibility provisions in the bill aim to address these and other gaps.

I will point out two of the changes the Finance and Expenditure Committee recommended in its report on the bill. The bill as introduced proposed a new principle of responsible fiscal management that Governments should formulate fiscal strategy with regard to its interaction with monetary policy. To avoid misinterpretation of the intent of this new principle, the committee recommended, by majority, that it be reworded so that it requires Governments to formulate fiscal strategy with regard to the interaction between fiscal policy and monetary policy. The Government supports this recommendation. The committee’s concern was that the original wording could give the mistaken impression that the relationship between fiscal and monetary policy is one-way—that is, that fiscal policy should take monetary policy into account but not the reverse. Of course, the relationship between fiscal policy and monetary policy is two-way, and the revised wording is clearer on this point.

By majority, the committee also recommended that certain other requirements in the current fiscal responsibility provisions be updated to reflect the fact that the internet is now the primary way that the public gets information on fiscal policy. The current Act requires a notice to be published in the Gazette upon the publication of certain documents, including the Fiscal Strategy Report and the Budget Policy Statement. As amended by the Finance and Expenditure Committee, the bill would remove this requirement and replace it with a requirement for these and other documents to be published on Treasury’s website.

The Public Finance (Fiscal Responsibility) Amendment Bill is an important step in ensuring that New Zealand’s fiscal institutions continue to be world leading. I commend the bill to the House.

The Labour Party is opposing the passage of this legislation, the Public Finance (Fiscal Responsibility) Amendment Bill, because it does nothing of substance to improve the fiscal responsibility of Government. Therefore, it is not worthy of further time in this House.

The Labour Government in power—and I was pleased to hear the acknowledgment from the Hon Chester Borrows in his second reading address—was fiscally responsible. We ran nine Budget surpluses in a row. We ran surpluses of 6 percent of GDP at a time when the then Opposition, the National Party, opposed those surpluses and called for larger tax cuts than we were putting through at that time. We did cut taxes for the corporate rating and we did reduce the tax burden of families with children, but we did not go as far as the National Party wanted us to go. Rather, we ran larger surpluses than it wanted.

Rather than doing as the then Opposition National Party said, we ran very substantial surpluses. The National Party would have had us following the suit favoured by the likes of George W Bush in the United States, where Budget deficits were run in a time of plenty, so that when the global financial crisis came New Zealand’s debt levels would not have been as low as they were. We had reduced net Government debt to zero and had reduced gross Government debt from 38 percent to 18 percent of GDP over that period, and that is the reason why New Zealand’s Government debt is not higher than it would otherwise be.

The history of the fiscal responsibility legislation is not quite as the Minister described it there. The reason that Treasury conducted a review of the fiscal responsibility legislation was that National promised ACT in their coalition agreement that it would do so. The coalition agreement between ACT and National, indeed, required National to give consideration to having a fiscal cap—something like a maximum percentage of GDP that could be spent by the Government. Unfortunately, the National Party did not check whether Peter Dunne would vote for it. Peter Dunne, the Independent MP for Ōhariu, would not vote for it, because he saw the folly of having a fiscal cap.

Indeed, there are two examples I will give as to why that was an absolute folly. The first is California. California has a fiscal cap, a spending cap that is set by its law, which the legislature, the local state Government, cannot breach. As a consequence, the quality of education in California has declined from being one of the—

💬 David Bennett: Oh, what a load of rubbish.

Rubbish? Yes, there is rubbish education in parts of California now, Mr Bennett. As a consequence of its fiscal cap, it has had to decrease spending on education. The education system in California has gone from being one of the best state-based education systems to being one that is far worse. That is what happens when you have inappropriate spending caps.

The other example, of course, is that if you had a spending cap and the global financial crisis hit and then you had a large earthquake in the Canterbury region, you could not spend the money required to keep your country operating properly. As a consequence of that reality, which is that sometimes Government spending increases, through no fault of anyone, beyond what might have been previously thought to be a prudent cap for a short period of time, those members saw the folly in their ways. It, of course, coincided with the fall from grace of the Hon John Banks—somewhat misnamed, some would say—as a consequence of the controversies surrounding him and the allegations of electoral fraud that surround him, and for which he currently appears on charges in court.

Against that background, we voted with some spirit of cooperation for the first reading of this bill, because we believed that we should have consensus around fiscal responsibility legislation. Certainly on this side of the House, we believe in fiscal responsibility, and every Labour Government you have ever seen has been fiscally responsible. We got to—

💬 Maggie Barry: Delusional.

“Delusional.”, says Maggie Barry. You know, Maggie Barry still does not understand that the ultimate test of fiscal responsibility is really whether you are reducing Government debt. We went to the Finance and Expenditure Committee and we asked: “Well, look, is this meaningful?”. We asked officials whether this new principle being introduced, which is to formulate fiscal strategy with regard to its likely impact on present and future generations, would mean that the current Government would have to look again at the age of eligibility for superannuation.

If there is one driver of Government expenditure that has increased in recent years, almost exponentially, it is the cost of superannuation. It is already more than the cost of all benefit classes combined. Within 2 years the amount that is spent by the Government on superannuation exceeds the amount that the Government spends on education—that is, preschool, primary, intermediate, secondary, and tertiary education combined. So if ever there was a category of expenditure where there is an effect on future generations, it is the trade-off between the cost of superannuation and the cost of education, and yet we were told by officials that this would have no effect on that decision. So it shows you how meaningless this piece of legislation is, that that is the effect.

💬 Dr David Clark: It’s a waste of Parliament’s time.

It is a waste of Parliament’s time.

The next area that we had a problem with was the interaction of monetary policy and fiscal responsibility legislation. There is new wording that is introduced in the bill that says that the interaction with monetary policy has to be considered when you formulate fiscal strategy. The Labour Party has concerns that we elevate, for ever, monetary policy above other important aspects of economic management. That is not to say that monetary policy is not important; it is just to say that you ought not elevate it to give it primacy above other important matters of economic management. So we suggested wording that said “formulating fiscal and monetary policy with regard to the interactions between them”, which was a more balanced articulation of the concept that the Government wanted to address. We were told by Government members and officials on behalf of the Government that they disagreed. They thought that we should not be talking about the effect of fiscal policy on monetary policy in this document, because monetary policy is delegated to the Reserve Bank.

Well, that just shows you the imbalance that is created by this legislation if you do not have some counteracting balance in some other piece of legislation. But, further than that, it shows how narrow the Government view of monetary policy is. It views all monetary policy as having been delegated to the Reserve Bank. It is true that that which has been delegated to the Reserve Bank is delegated to the Reserve Bank, but that does not mean to say that all monetary policy is. It is only the bit that is within the purview of the Reserve Bank that is delegated, and that does not mean to say that other things like policy advice and other aspects of Government policy that impact upon monetary policy are not left with the Government—they are. So we think that that is wrong.

We went further and we said: “Well, let’s have a look at overseas jurisdictions.”, and we thought we would have a look at the Australian equivalent. The Australian equivalent makes express reference to national savings, as opposed to Government savings.

The national savings position is expressed through the net international liabilities or assets of a country, and the effect on those from year to year caused by current account deficit. As many will have heard, New Zealand has the worst current account deficit in the developed world this year, according to the IMF—

💬 Dr David Clark: Worse than Greece.

—and the second worst, according to the OECD, and both of them think it will be worse than Greece’s. So national savings are a big problem for this country, and we would have thought that when you are having a look at fiscal policy, you should have regard to national savings. Indeed, Bill English used to say that the surpluses that were run by the Government under Labour came at the cost of private savings in some part and, therefore, had some cost to national savings, and there is something in that argument. There is something in that argument.

So we could not understand why, if you are going to have reference to monetary policy, you could not have reference to national savings. But the Government refused to agree, having refused to compromise on what were pretty reasonable requests on our part, particularly given the political genesis of this legislation in the ACT-National confidence and supply agreement. We said: “Well, the deal’s off. We’re not going to vote for it.”

It is vacuous legislation. The idea that we cannot have regard to these other factors is wrong.

It is my pleasure to speak on the Public Finance (Fiscal Responsibility) Amendment Bill. I must say that I am disappointed that the Opposition could not rise above daily politics and find it within itself to support this bill. I do hope that it will reconsider over the next stages. Certainly, that earlier generation of Labour Party leaders would not have gone down such a line on such an important bill.

There is no question that the public reporting and transparency provisions of the Public Finance Act 1989 have served New Zealanders well for the last two decades, in keeping the focus on maintaining low Crown debt levels. New Zealanders have not forgotten the horrors of the past, when, after each election, the true state of the nation’s finances was revealed—in 1984 and in 1990. It was the same with Mr Caygill. So the Fiscal Responsibility Act 1994, which was later folded into the Public Finance Act, was one of Ruth Richardson’s greatest achievements. That was followed by 15 years of Budget surpluses, something totally unthinkable in the 1970s and early 1980s. People could not believe that it was possible to get back to surplus, and we did.

New Zealand’s reputation has changed from being a basket case of a country to a place of quality public policy. And successive Governments have focused on maintaining low or prudent public debt levels. It is true that the Labour Government maintained those surpluses for its first two terms. But it is also true—and it is sometimes forgotten by members on the other side—that it did leave the country pregnant with debt for the next 10 years, according to the projections that it left behind. That is what we have had to grapple with in this Government, and that is why this sort of legislation is so important.

Why is fiscal responsibility important? Because quality public policy and practice and sound financial management bring confidence, and it is confidence that is so important for the private sector to be able to invest and to create jobs. Conversely, the absence of fiscal responsibility leads to a lack of confidence, a lack of investment, and a lack of growth. We see that all around the world today, and New Zealand is lucky that we are not in that circumstance.

There are a number of new principles brought out in this bill. The first one is that Governments should formulate fiscal strategy with regard to its interaction with monetary policy. There was a fair bit of debate about this during the course of the select committee, and we heard some submissions on this point. There were changes made during the select committee process. So to avoid misinterpretation of the intent of this new principle, the bill is reworded so that it requires Governments to formulate fiscal strategy with regard to the interaction between fiscal policy and monetary policy. The committee was concerned that there could be a mistaken impression that the relationship was only a one-way one, and that fiscal policy should take monetary policy into account, but not the reverse, and so the changes that the select committee brought in are meant to clarify that.

The Labour Party has gone further, and we do not agree with its changes. As we heard from Mr Parker earlier, the Labour Party focused on this issue of saving. I cannot quite understand why Labour would say that we need to increase saving in this country, and at the same time talk about introducing a capital gains tax, which is essentially a tax on savings. How would you be encouraging saving if you were introducing a capital gains tax, which actually takes all the benefit from saving away from you? And if you say that we have got a savings problem but your policies are all about allowing just a little bit more inflation by softening the approach of monetary policy—I have just been reading the new biography of Margaret Thatcher, and she pointed out quite strongly in the 1970s that it is inflation that robs the savings of the thrifty—why would you be encouraging saving but at the same time doing a little bit more to have a little bit more inflation, when money is no longer counted as the store of value?

The Greens are very keen to water down the milk by debasing the currency. Maybe they have changed their minds on that, but I do not believe it. If money can no longer be counted as a store of value, then savings and investment are undermined. That is why it is so important that we have a good, strong, sound system of fiscal responsibility, and that is why this bill and these changes to the Public Finance Act will, I have no doubt, improve the standing of New Zealand’s financial management and will benefit the country as a whole. So on that basis I commend this bill to the House. Thank you.

It is always a pleasure to follow that member, Paul Goldsmith. Despite several vacuous comments in that address to the House, I will still be supporting his campaign for the chair of the Finance and Expenditure Committee, the one that he has been running across Parliament. We think that he will have much to contribute from amongst the available talent on that side on the House. We look forward to his contributions.

I must first address the issue of the capital gains tax. We do not understand why members of that party across the House are so opposed to it, as they claim they want to grow the economy. We all know a capital gains tax has been recommended by the OECD, by the IMF, by most countries in the Western World, by the former Treasury head, and so on. Why would they on that side of the House not want to put in pro-growth tax reform? They seem so opposed to growth in our economy, because it threatens the interests of those who are the very wealthiest, those who are at the big end of town, those who have the vehicles for avoiding paying their fair share of tax. We know that that is really why they oppose it. We know it has nothing to do with any other economic principles. It is actually about preserving the interests of a very privileged few. If you ask any New Zealander in the street—not you, Mr Assistant Speaker; I do not mean to bring you into the debate—you will understand from that person that the economy is actually not working for all New Zealanders right now. It is working in the interests of a privileged few. The party across the floor is seeking to continue that, to make sure that it continues to work in the interests of those privileged few at the expense of the rest of New Zealand.

The Public Finance (Fiscal Responsibility) Amendment Bill in its current form is, arguably, another attempt to do that. What happens when Government spending is restricted, as my colleague David Parker has pointed out, is often a terrible outcome. For example, with the Canterbury earthquakes, if there is no flexibility to address a natural crisis like that, the Government is left in an awful hole, the residents of the country are left in an awful hole, and there is no obvious solution. There are states in the US that have gone down that path and have experienced terrible loss of infrastructure, downgrading of education systems, and the flow-on effects of that into future generations. So we know that in its current form this bill is a waste of Parliament’s time, but it is something that we are forced to debate here. But we must make it very, very clear from the start that Labour opposes this bill because it really does nothing—nothing—in the way of advancing the cause of fiscal responsibility.

My colleague David Parker has also pointed to the advice received from officials that this would not force the Government to rethink the spending in the area of superannuation, which we know is already more than the cost of all welfare benefits combined—all welfare benefits combined—and it is growing. The members opposite think it is no problem, but the cost of superannuation going from $7.3 billion in 2008 to $10.2 billion in 2013 is a very real problem. The growing expenses in the Government sector must be addressed when we consider that the school sector within 2 years—the whole education sector from preschool, primary, intermediate, and secondary, through to tertiary—will be dwarfed by the amount spent on superannuation very soon. We see that across the House we have a party that is not really addressing the core drivers of Government spending. What it is concerned with here is trying to limit future Governments in their choices in a very specific way that protects the interests of the most wealthy with little regard for the wider population. So that is another example of why we would not support this bill.

What we could see that would be more useful would be legislation that is more similar to what they have in Australia. If we look there at the equivalent legislation, it is very revealing. In Australia the equivalent legislation makes express reference to achieving adequate national savings. We see that this Government has no real commitment to savings. It has brought KiwiSaver back and now it has pushed it forward, but everything it has done has been incremental. Labour introduced KiwiSaver. It set up the Superannuation Fund. It is the party that has made a real effort to ensure that we are appropriately catered for in future generations. That is real fiscal responsibility. The thinking in this bill is not.

We see the problem of the current account deficit, which would be addressed by a higher savings rate. It is now the worst in the developed world—worse than Greece—and set to continue in that regard. That has flow-on implications for business in New Zealand. The cost of borrowing is greater because the ratings agencies understand that at the flick of a pen private debt can be converted into Government debt. They have seen it happen overseas as banks have been bailed out. That is why businesses in New Zealand are facing higher costs. It is because of the kinds of policies that this Government continues to carry on with. It means that the field is skewed against small businesses in New Zealand, against the average citizen who works hard to get ahead. They face higher tax bills than they probably should. They face a whole lot of borrowing costs. They face headwinds, more red tape. This Government has put through a lot of small-business red tape, and all in the interests of the big end of town. Those who already have the real wealth are protected by this kind of legislation. It is the same reason that the Government opposes the capital gains tax that would catch the 75 percent of New Zealanders with net wealth over $50 million who declare income below $70,000, below the top tax rate. They would be caught if we introduced a capital gains tax.

We in Labour believe that everyone should pay their fair share, and we should look seriously at the question of whether future generations’ interests are being preserved. That is the pretence in this bill, but it is not what is delivered, because the serious questions are not addressed in it. Instead, it is poorly drafted legislation that will do nothing to improve fiscal responsibility, and it is a waste of Parliament’s time.

Let us have a look at who is putting this bill forward. We know that it has come out of the confidence and supply agreement between Mr Banks, who is out there in his cabbage boat somewhere; his ACT Party, which for all intents and purposes may be defunct in the public mind but still retains one seat here in Parliament; and the National Government. The National Government wanted to put a spending cap on, but even Peter Dunne, Independent MP, saw that as part of an unnecessary right-wing agenda. And thank goodness—thank goodness—he had some sense. That is why that part of this bill has already failed. It is a failed part of a failed bill. Labour supported it going to the Finance and Expenditure Committee because we believe in the principle of having joint understanding around fiscal responsibility. But, unfortunately, this Government was not open to reaching any compromise, not open to addressing the really long-term issues. It was simply set on its agenda of putting spending caps into place that would replicate the experiences of Colorado and California, instead of actually addressing those real issues—like savings, like pro-growth tax reform, and like proper monetary reform—that can actually make sure that our economy works in the interests of hard-working New Zealanders, exporters, small businesses, and the man and woman in the street who go out to do their best for themselves and their family.

So we are stuck with this bill. We are stuck with this bill that has its genesis in the confidence and supply agreement between the National and ACT parties. That really is the only reason it is here in front of the House. It offers nothing of any use to New Zealand. It expands and amends the list of criteria to be taken into account by the Government when managing the country’s finances, but it does not really get to the nub of the issues that we ought to be dealing with. What is worst of all is that it has the potential to make the imbalances in our economy even worse, and those are those imbalances I spoke about earlier that mean that our current account deficit is now considered to be worse than that one in Greece.

💬 David Bennett: What was it under Labour?

Mr Bennett asks what it was under Labour. It was not so fine under Labour either, to be fair, Mr Bennett, but this Government has been in power now for 5 years—5 years—and the public of New Zealand are getting sick and tired of hearing excuses for not addressing the issues of the day. Those issues are becoming clearer and clearer and more entrenched. This Government is running away from them and running the economy in the interests of the wealthy few, and running away from the effect that that has on real New Zealanders who want jobs, who actually want the economy to grow, who want to see wages rise rather than fall consistently like they have under this Government. They are the people whom we care about on this side of the House. They are the people who value education, who value a future sustainable Government that can afford to spend money on education and the things that will give everyone the opportunity to get ahead, rather than protecting the interests of the wealthy few. For all of those reasons and more, the fact is that this is a waste of parliamentary time, and the Labour Party opposes this bill.

I rise on behalf of the Green Party to speak on the Public Finance (Fiscal Responsibility) Amendment Bill. This bill does have a poor political genesis but it is none the less a good bill and the Green Party will be supporting it. I think that most people who read this bill will be pleasantly surprised by a number of the provisions within it. I think it is worth going through and looking at some of the provisions and some of the good elements of the bill.

Some of the amendments that are going to be added are, for example, in clause 4, “when formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates;”. It seems to me that including terms such as “efficiency and fairness” around revenue strategy is a good thing to do in a fiscal strategy document, and, obviously, fairness includes things like a capital gains tax, which is a very fair tax because it is highly progressive. If you were to look at something around fairness, then you would introduce much more progressive taxation than we have in New Zealand at the moment, because, of course, the very wealthy get most of their income from capital gain, which is currently untaxed in New Zealand as opposed to pretty much every other OECD country. None the less, this is a good provision to put in a Public Finance (Fiscal Responsibility) Amendment Bill.

The bill also says: “when formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy;”. I know that my colleagues in the Labour Party have been concerned about this clause, and I understand their concern. None the less, I think that the clause, as it has been amended, is a fine clause in terms of looking at the interaction between the two. It does not say that one predominates over the other; it says that they interact with each other, and I think that is a reasonable position to take.

Furthermore, what the bill says is: “when formulating fiscal strategy, having regard to its likely impact on present and future generations;”. It is good to introduce into legislation looking at fiscal strategy—one would also hope in terms of economic strategy—a long-term perspective, and that perspective is introduced in this bill by talking about present and future generations. I think that a lot of legislation in front of this House could well benefit from looking at the long-term impact on present and future generations, and clearly the Labour Party’s arguments around the future costs of superannuation are perfectly legitimate arguments, and I think that these clauses support a more responsible future Government looking at the debate around the future costs of superannuation. So I think it is good that we are adding these provisions into the Public Finance Act.

I think that having the clauses around looking at the likely impact of fiscal strategy on future generations gives scope for Governments to consider those long-term impacts and look at what measures we should be taking today in order to deal with the generational or intergenerational impacts of policy that we are adopting, such as superannuation policy. There are other provisions within the bill that are pretty innocuous and hard for anyone to disagree with, such as: “ensuring that the Crown’s resources are managed effectively and efficiently.” These are some perfectly fine amendments to add into the primary legislation.

However, I think that perhaps the best bit of the bill is the stuff around the Investment Statement. This has been an innovation of this Government that I think has been a valuable innovation. It states that we should not, when looking at the Crown’s accounts, look just at the turnover, if you like, or the current expenditure and income; we should be looking at the overall investment position of the Government—that is, looking at the capital assets of the Government and how those capital assets should be changing over time. The Government has introduced an Investment Statement, effectively. Bill English introduced this, and I think it was a very valuable contribution, and now, within this bill, the Government is putting it in legislation, and I think the Government should be congratulated on doing that. “The investment statement”, as it says in new section 26NA(2) in clause 8, “must—(a) describe and state the value of the Crown’s significant assets and liabilities; and (b) state how those assets and liabilities have changed in value over time; and (c) forecast how those assets and liabilities are expected to change in value in each of at least the next 2 financial years … and (d) identify any significant differences”. I think that is a very useful exercise for the Crown to go through.

In some respects I know that this bill was driven by National’s desire to privatise assets. It wanted to look at an investment approach in order to justify some of its privatisation agenda, and, obviously, the Greens do not support that agenda. But the actual process of putting together an Investment Statement, which looks at the Crown’s assets and liabilities and puts them in one place—and now we are creating a statutory framework for that kind of Investment Statement—I think is a valuable one. The Greens think it is particularly valuable because it shares a deep commonality with green economics, if you like. One of the founding principles of green economics is that we do not look just at throughput; we actually look at the capital accounts. So when we are looking at the position of the Government we should not look just at the revenue and expenditure of that year, but we should also be looking at the broader issue of the capital position of the Government and how the capital position has changed over time. Likewise, when we look at the national accounts, we should not look just at our GDP or economic activity over the course of that year. We should be looking at the underlying capital position of New Zealand: have we built capital assets over the last year, or have we degraded our capital assets? Of course, one of the ongoing problems of New Zealand has been the undermining of some of our capital assets and their foreign ownership.

But the Green Party would take it further. Although we support this bill and we think it is good progress, there are other things we would like to have seen in the bill, but we recognise they were not going to be put in there by this Government. Those things concern broadening the capital accounts to look at natural and social capital. If we are to consider our capital we cannot consider just financial capital, if you like. We also need to consider social and natural capital. If, for example, in the course of a year we dug up some of our minerals, which is natural capital, and if we then spent the resource, we would essentially have turned natural capital into consumption. So at the end of that year we would look at our GDP numbers and go: “Well, there’s been a lot of economic activity driven by mining.” But if we were to take the capital position we would go: “All we have really done is degraded our capital assets, because we’ve dug up some of our natural capital and spent it on consumption.” That may be a perfectly legitimate strategy, but because our national accounts do not focus on capital accounts—they focus on economic activity or turnover—often we hide the loss of capital. It is not very clear in our accounts, because we simply look at economic activity. Sometimes economic activity looks like it is going great when all we are really doing is spending our capital, and that is a very short-term strategy.

One of the principles of green economics is that you need to look at capital accounts in all respects—not just financial capital accounts but also natural capital accounts, looking at what is the position of our natural capital, and also social capital. It is harder to quantify social capital, although the Government has made some attempts to do that with its investment approach, and although we disagree with some aspects of the Government’s investment approach, there are none the less some interesting elements of it in terms of social capital. We believe that if we degrade social capital and if we save some money in, for example, health or education by not investing in and looking after the next generation in terms of health and education, it might look like the Government of the day is saving some money, and it may well be.

But if you look at this from a social capital point of view, we are creating ongoing long-term social problems for ourselves further down the road because we have degraded our social capital, if you like. We would be creating generations of people who do not get access to education or have not had access to decent health services, and that actually puts a further cost further down the track. When we do not invest properly in obesity prevention and preventing ill-health, then the pressure on the health system further down the track is greater. It might look like we are saving some money today, but from a social capital point of view we have degraded our social capital and we are going to pay for it further down the track.

So although the investment statement approach that the Government has introduced in this bill is useful, along with giving it a statutory framework, it should not apply just to financial capital. In the Greens we think it would very useful to apply it to natural capital and social capital to give ourselves a much better perspective of what is going on in our society, so that we are not getting a sense of just economic activity but also a sense of the underlying wealth and whether we are building that wealth, or whether we are essentially degrading that underlying capital or underlying wealth in order to stimulate economic activity to make GDP numbers look good for 12 months. That is a great thing for Governments of the day. They like to look at GDP numbers, because we have this national obsession with GDP numbers and economic activity.

But from a green economic perspective we would ask what the fundamentals going underneath that are. Are we degrading our natural capital or, in New Zealand’s case, degrading our financial capital, as is very clear from our current account deficit problem? Or are we degrading our social capital? So although we support this element, it would be great in future, in both Government accounts and national accounts, to extend that accounting approach, the capital or investment approach, into areas other than financial capital. But, all things considered, and in spite of a very strange beginning, this is not a bad bill in the end and I congratulate the Government on it.

I sat there incredulous at that speech by Russel Norman. The first time the Green Party has voted for a bill in this House it is a John Banks, ACT-led bill. I could not believe that. I looked at the other side and at the faces of David Cunliffe and the young man in front of him, whose name I have forgotten at the moment—

💬 Maggie Barry: David Clark.

—David Clark, the leaders of the Labour Party economic team, and their faces when they saw Russel Norman stand up and say that he was going to vote for the Public Finance (Fiscal Responsibility) Amendment Bill were amazing. They could not believe it. The Labour Party members had spent half an hour in this House debating the merits of Labour’s economic policy, talking about superannuation, talking about a capital gains tax, deflating the impact of this bill, and saying how great Labour’s policies are, and then the economic guru of the left stood up and said that the bill is a good idea. What is happening?

I will tell you what is happening. What is happening is that Russel Norman has got a severe case—I will set the scene here, because he has had to reverse his print and spend policy. The Labour Party told him that print and spend will not work. It is costing too many votes out there amongst the public, because everybody believes that it is a dumb idea. So Russel Norman had to run back and come to the media in a adjournment week and say: “Look, I’ve given up on that policy. We’re not going to print and spend any more.” But the guru from the left then had to come into this House and make himself look like the economic genius he rates himself as being. He wanted to be seen as the economic statesman of the left, and so he came in and supported a Government bill on economics. That is what he is doing. He gave us a 10-minute rant on economics, which had no sense or sensibility to it—but that is Russel Norman for you, because he knows everything—and then he goes and votes for a John Banks, ACT bill on economics. Great stuff. That is when you know that the Labour Party and the Green Party are in disaster territory when it comes to economic management.

We look forward to that because this is not about being reasonable and understanding economics; the Labour Party and the Green Party just do not know where they are. The Labour Party and the Green Party talk about efficiency and fairness in their capital gains tax. When they go out there and talk about a capital gains tax, they always say that IMF reports recommend a capital gains tax. Well, it is a universal capital gains tax that is recommended, not the specific one that the Labour Party is talking about. That exempts the first family home, so it is not a fair tax. Labour has got an exemption in it before you even start. If it wanted to have a fair tax, it would tax everybody and anything, but it will not do that. It is not about fairness.

The Labour Party and the Green Party are fighting over economic policy. The guru came into this room again today to put his stamp on it by saying that he is “Mr Economic Reasonableness”, because he got a big, big slap around the face last week from the Labour Party. Now the Labour Party is dealing with the monster coming back in a more reasonable state than the Labour Party thought it could deal with, and he voted for an ACT bill. It is great to see the Labour Party and the Green Party when they cannot agree on economic policy. Thank you.

The deep and abiding irony of being lectured to by the National Party about the quality of one’s coalition partners! The Public Finance (Fiscal Responsibility) Amendment Bill arose out of a misbegotten promise from that lot of deficit-mongers to John Banks. The reason that he will not be here to prop it up is that he could well be in prison for lying about getting campaign donations from one Kim Dotcom. And as if life is not full enough of rich and enduring irony, one of National’s other coalition partners, the Hon Peter Dunne—perhaps slightly more honourable than the Hon John Banks—is not going to be here, because he leaked the paper about Kim Dotcom. That has seen him lose his ministerial post—indirectly, perhaps—lose his party’s status, and, just possibly, lose his seat in the House. So imagine being told by that economic genius, the member who has just resumed his seat, David Bennett, that Labour has got a problem with its coalition partners. I will take Russel Norman and the Greens any day of the week over the motley crew that that bunch of deficit-mongers has assembled over the years.

Labour does not support this bill, because it is not a bill about fiscal prudence. We have a proud record in fiscal prudence. We have never run a deficit in a decade; National has never run a surplus, New Zealand. This is a bill about who gets what. This is a bill that entrenches the primacy of monetarism over fiscal balance by making fiscal policy subservient to monetary policy. It is a bill that locks in low tax rates for the rich and erroneous GST for the poor by emphasising the “stability” of tax rates. It is a bill that does nothing to fix National’s behaviour in giving away superannuation and making intergenerational theft worse. It is a bill that does nothing to fix the savings gap—the build-up of total international debt that makes New Zealand’s current account deficit worse than Greece’s.

So what would it take to have a real approach to fiscal responsibility? Upon which pillars does Labour’s proud record of never having run a fiscal deficit rest? It is very simple—firstly, genuine prudent fiscal policy. Labour knows how to run a prudent book; National would not know a surplus if it fell over one. In this year’s Budget, National had to manufacture tax spikes to get within a bull’s roar. It had to put off $200 million of spending it had previously committed to—not perhaps wrong in itself, but added up with the other assumptions, it is absolutely ludicrous. It had to get its little filthy fingers in New Zealanders’ back pockets by hanging on to its overwrought ACC surpluses. It had to put up petrol excise. Only having done all of that and more could it claw its way to a tiny, little, paper-thin, imaginary $75 million “surplus”.

And all the while New Zealand’s total international debt rose and rose and rose, and our current account rose and rose and rose, because no one has explained to Bill English that it is not just his job to manage the Government’s books; it is his job to oversee the country’s books. New Zealanders do not look to their Government just to balance its accounts at the expense of their accounts; they expect a good Government to be there for them and to grow the pie for everybody, not operate for its benefit against New Zealanders’ benefit.

You cannot drive a fiscal surplus without having an economic surplus. That means having an economic growth plan founded on pro-growth tax reform, strong savings policy, sustainable superannuation, and real growth strategy right down to the regions and sectors. National has none of that. Its recipe has been putting off superannuation contributions, giving filthy tax cuts to its filthy rich mates, putting GST up for everybody else, and having an absence of economic strategy when it comes to growing the economy. It is shameful.

Look at those members. I hope the TV cameras pan and you will see them all hanging their heads and shuffling their feet. Paul Goldsmith, the new chairperson of the Finance and Expenditure Committee, knows jolly well we are right. He is shuffling his feet.

💬 Maggie Barry: No wonder your own party—

Now, in putative protest, Maggie Barry rises to her highest decitone. It is a sad and motley crew over the way.

This bill introduces some very unfortunate biases—biases that lock in who gets what, biases that actually ruin our history of bipartisanship on fiscal responsibility in favour of a creeping bias for the rich. Here it is—here it is. Present and future generations National talks about, but it is the party that has dissed New Zealand superannuation. It makes fiscal policy subservient to monetary policy because this bill requires the writers of fiscal policy to have regard to monetary policy, but not the other way around.

What would be wrong with the Reserve Bank and also those folks at Treasury who think about monetary issues actually having regard to fiscal settings and doing it? The answer at the Finance and Expenditure Committee was: “Well, you know, monetary policy is completely delegated, it’s completely hands-off.” Well, no, it is not. There is a thing called the policy targets agreement, which is written by the Minister of Finance. He calls the Governor of the Reserve Bank over for an explanation of how he is actually delivering on that. It is not completely delegated; it is—or should be—responsibly delegated. The Reserve Bank of New Zealand Act itself is a creature of the Government of the day, and the Government of the day retains overall responsibility for monetary policy.

Government members do not like it. They do not like it, because they know they are up an economic backwater without a paddle. They are staring at their fourth deficit Budget in a row, and their fifth next year. It will be their fifth straight deficit in a row, but Labour had nine straight surpluses—nine straight fiscal surpluses—and a higher growth rate. Here is an enduring politics of New Zealand economics. If you take a 30-year history of data and compare economic growth under Labour Governments with economic growth under National Governments, guess which comes out higher? Labour, by over 0.5 percent per annum, has a higher economic growth rate record than occurred under National Governments. As if that were not rich enough, there is another lovely statistic that goes with it that despite that, sometimes business confidence is higher under National. That is because it is purely tribal and because certain wealthy members of the community are able to rip off the system under National and feather their own nests. New Zealanders have had enough of it.

We need to measure this bill by what is not in it as well as by what things are wrong in it. Here are some things that, sadly, are not in it. There is no reference in the bill to total national savings or total national debt, only reference to Government savings. But Government debt makes up only 15 percent of New Zealand’s total national debt. The other 85 percent is private debt, and the bill ignores it. One cannot make sense of national debt without considering private debt. You know, it was not long ago that Bill English talked about rebalancing the economy. He does not now, because the economy is getting less and less balanced. Its current account deficit is growing, its savings gap is worsening, and households are borrowing again as banks are pushing their risky money on people chasing a runaway housing market. Is it any wonder that National is going back to the same old, same old approach of hands-off and hoping, letting the economic car go up and down the rollercoaster and seeing where it ends up?

Passing sham bills like this one will do nothing to cover for National’s lack of an economic plan. It does not matter how many glossy brochures Steven Joyce fires out the back door of the Ministry of Business, Innovation and Employment—

💬 Dr David Clark: The worst economic record in 50 years.

The worst economic record in how many years, Dr Clark?

💬 Dr David Clark: In 50 years.

In 50 years. It has been said so often it must be true. This is a sad bill. It is a sham. It is a waste of a good history of bipartisan cooperation.

It is with pleasure that I rise to speak to the second reading of the Public Finance (Fiscal Responsibility) Amendment Bill and to follow a member on the opposing side of the House, the Hon David Cunliffe, who actually proves that Labour members can get it right sometimes because they did not elect him as a leader. They had the good sense to spurn the unlikeable Cunliffe. So there you go: they are doing something right.

The Greens, of course, for their part, still retain the capacity to surprise. You have to hand it to them. Russel Norman, the obscure, extinct party guy that he is, has been backing a failed policy for a long time, and he actually had to try to spin his way out of it tonight. It was a pretty unedifying spectacle, I would have to say, and it really did not convince anyone, although our colleague David Bennett did try to give him the benefit of the doubt and say that he was trying to be very clever about it. But I think that, in fact, Norman was abducted by aliens, because what we saw tonight was a guy who is unrecognisable as the guy who has been trumpeting around the House for the past few months, claiming to be the next Minister of Finance.

But we come back to the measure of the piece of legislation that is on the Table tonight, the Public Finance (Fiscal Responsibility) Amendment Bill. It is a piece of legislation, of course, that is entirely consistent with this Government’s philosophy. The Public Finance Act of the past—in 1989 it came through—has served us very well, but it is time to update, and we do need to have the taxpayers of New Zealand getting a better deal. They need a decent report card to accurately measure what is going on with Government expenditure. They want the predictability and the stability, and they want efficiency and fairness in the tax rates, and that is why this is a good piece of legislation.

This bill requires the Government to be more transparent. There is nothing wrong with that—it is all part of what we do, which is to responsibly manage our finances. It is one of our main priorities, and this is an essential piece of legislation for us. The three main principles that it enshrines have been talked about, and I agree with other speakers. We have learnt, unlike other people in this House, from the problems of the global financial crisis. We need to make sure that this bill gives us the scope to make further improvements to our tax system, so I commend the bill to the House.

Having listened to the Minister for Courts and other parliamentary colleagues, I would like to raise my concerns by focusing on some specific clauses. If we look at the purposes of this bill, the Public Finance (Fiscal Responsibility) Amendment Bill, the new principles would require the Government to formulate fiscal strategy with regard to its interaction with monetary policy. That is contained in the proposed section 26G(1)(f) in clause 4. Secondly, it would require the Government to formulate fiscal strategy with regard to its likely impact on present and future generations. Thirdly, it is to ensure that the Crown’s resources are managed effectively and efficiently. One existing principle would be amended to require revenue strategy to have regard to efficiency and fairness, including the predictability and stability of tax rates.

The proposed section 26G(1)(f), “formulating fiscal strategy with regard to its interaction with monetary policy;”, is neutral enough to have little effect. However, if its intent is to subordinate fiscal policy to monetary policy, which are totally different things, that could significantly limit a Government’s social and economic options if the policies followed by the Reserve Bank were in conflict with the Government of the day. For example, a Government wishing to raise wage rates by various mechanisms could find its wishes neutered or undermined by a Reserve Bank that considers such efforts inflationary.

Treasury’s and the Government’s reading of this particular monetary policy in paragraph (f) is too narrow. We believe that the wording in paragraph (f) should be “formulating fiscal and monetary policy with regard to interactions between them”, but this proposed change was rejected by the Government, which has said that fiscal responsibility legislation should not influence monetary policy. If that logic were applied consistently, then fiscal responsibility legislation should not refer to effects on economic efficiency either, which this bill does exactly.

Secondly, the proposed section 26G(1)(g), “formulating fiscal strategy with regard to its likely impact on present and future generations;”, is sensible, as long as “impact” includes a full range of considerations, whether economic, social, environmental, or otherwise. Much has been reported in the media with regard to the age of eligibility for superannuation, for example. But it is clear from advice from the officials that an amendment would have no enforceable effect at all on National’s refusal to address the age of eligibility for superannuation, despite this being the most obvious example of Budget settings that have an effect between generations. Superannuation costs rose from $7.3 billion in 2008 to $10.2 billion in 2013. This is already more than the cost of all welfare benefits combined. Within 2 years superannuation exceeds the amount spent by the Government on all education, including preschool, primary, intermediate, secondary, and tertiary. The proposed amendment has no effect on this.

Further, the proposed section 26G(1)(h), “ensuring that the Crown’s resources are managed effectively and efficiently.”, should also be concerned about whether they are managed in a way that is consistent with the living standards framework. For example, as argued by the Council of Trade Unions, assets such as schools, hospitals, parks, and State-owned enterprises have the potential to impact most of the living standards framework’s dimensions. Judging whether they are managed effectively and efficiently requires explicit analysis being made along the living standards framework’s dimensions.

Moreover, the investment statement contained in new section 26NA in clause 8 focuses solely on the value—I can only assume that “value” refers to the financial value of the Crown’s assets—and omits all mention of aspects such as social value and social returns. The same can be said of environmental value and other aspects of the living standards framework, yet most of the Government’s physical assets are held primarily for non-financial purposes, such as education, health, research, economic development, enhancing the efficiency of the rest of the economy, conservation, or recreation. So to ignore those aspects and focus on financial values reduces those assets to financial ones, and thus makes it easier to justify their being sold on the basis solely of financial considerations. This is misleading and unbalanced.

To conclude, this piece of legislation is poorly drafted and will do nothing to improve fiscal responsibility. Based on the debate, particularly from this side of the House, it is concluded that this piece of legislation is poorly drafted and is a waste of Parliament’s time. It is, accordingly, opposed by the Labour Party members. Thank you.

I rise to take a very brief call to further indicate the Green Party’s support for this legislation, the Public Finance (Fiscal Responsibility) Amendment Bill. Sometimes in this House we find ourselves in unusual combinations with other parties, and I believe that this evening is one of those, but on analysis of this bill we find ourselves genuinely in support of it.

Dr Russel Norman has explained some of the reasons for that. We think that there are advances on several fronts. For example, we very strongly support this new element that appears in this bill to require the formulation of fiscal strategy to be made with regard to the likely impact on present and future generations, because it has been the short-term nature of much of our fiscal management and planning that has undermined many of the more important strategic directions for this country and for future generations. It is a bedrock belief of the Green Party that planning for and valuing the utility derived by future generations is incredibly important in making decisions today. It is the effective massive discount rate that we put on the utility for future generations that bedevils our attempts on many occasions to ensure appropriate services and appropriate decisions made for the long term.

As Dr Norman has also set out, the Green Party also very much supports the new section around an Investment Statement. It introduces, more or less for the first time, a requirement for capital accounting. As Dr Norman has indicated, although the Green Party would go further and discuss natural capital and social capital in addition to the capital that is addressed here, we believe that this is a very good start. So on that basis the Green Party is very pleased to support this bill.

The question was put that the amendments recommended by the Finance and Expenditure Committee by majority be agreed to.