Public Finance (Fiscal Responsibility) Amendment Bill

Kia ora, Mr Chairman. Thank you for the call. I rise to speak to this bill, the Public Finance (Fiscal Responsibility) Amendment Bill. Labour will be opposing this bill, and we do so with some concern, given that, generally, there is a history of bipartisan conversations on these bills, and given that it is about the long-term health of New Zealand’s finances. We had hoped that an agreement could be reached between the two sides of the House, which have over many years shared concern for fiscal responsibility.

I have a number of questions for the Minister in the chair, the Minister for the Community and Voluntary Sector, so I hope that she will take a call on some of the finer aspects of the bill. They relate directly to Part 1, because that is the part that we are now debating. Part 1 lays out the principles of responsible fiscal management. These principles in one sense are motherhood and apple pie. It seems to me to be a complete nonsense to say that past Governments have not had an eye or regard to these issues.

I can hold up this graph to the Committee. I am not sure whether members will be able to see it, and whether you would be able to see it from there, Mr Chair, but it is a graph of New Zealand’s debt track. It has a particular cut on it, and I might like to cut it differently, but the general trend shows that the National Government in the early 1980s had brought New Zealand’s debt very high up. It dropped down over time as the Labour Government intervened in the 1980s, and the National Government of the 1990s brought the debt down a little further. Of course, we know that the last Labour Government ran 9 years of surpluses and really brought New Zealand’s debt under control. Then at the end we have this flick in the tail where we see the global financial crisis kicking in. We do not blame the Government for all of the irresponsible borrowing that has gone on. Some of it, in fact, was quite responsible, and, as Bill English said of the Labour Government’s efforts, this was the rainy day that we were waiting for. This is why we saved—so that we could indeed spend when we were in a difficult spot.

That spending, though, seems to have gone on without a real plan for the economy, and we do not see the growth that we might have expected from it. But it seems to me a nonsense that these principles in Part 1 were not considered by the previous Governments that brought this debt track down—Governments of both stripes, actually. I mean, the real concerns that we have are at the beginning with the National Government of the 1980s throwing the debt up, and the current Government throwing the debt up, both without a real plan for the economy. But it is true that in between there was one National Government that was more responsible in terms of the debt track, and two very responsible Labour Governments.

These principles, as we read here in clause 4, include from new paragraph (e) of section 26G(1): “formulating revenue strategy, having regard to efficiency and fairness,”. We can debate whether efficiency and fairness are being adhered to and what precisely those words mean. That would be a political debate, I suspect, because I would not find that the tax cuts in 2010 were particularly fair. Forty percent of the value of the tax cuts that the Government brought in went to the top 10 percent of earners, and those at the bottom—the bottom 20 percent—got just 2 percent of the value of the tax cuts, and then all that was swallowed up in the cost of living and GST increases. We all remember GST going up to 15 percent after the Prime Minister said it would not go up. So we can debate what efficiency and fairness mean in new paragraph (e), but these same principles were being, I am sure, debated by various previous Governments, as we observe in that debt track, including the predictability and stability of tax rates.

This current Government may be an exception and it may be that Treasury, with this legislation and other drivers of this legislation, is trying to rein in the current Government. It may have concerns behind the scenes, and it may be trying to impose a little discipline on this populist Government by saying: “Look, if you are going to spend this money, you must have a forward picture. You must”—not you, Mr Chairman, but this Government—“have a forward picture in respect of the predictability and stability of tax rates.” Let us move through to the next principle in new paragraph (f), which states: “formulating fiscal strategy, having regard to the interaction between fiscal policy and monetary policy:”, and particularly the principle about the impact on future generations in new paragraph (g). I think that what perhaps sits behind this wording is actually a concern from Treasury as to how this Government is performing. That is wonderful and ironic, but I do not think this piece of legislation will stop that.

The provision about having likely regard to the impact on present and future generations is a genuine concern that we in the Labour Party share. However, again, this Government has taken some calls on superannuation. The Prime Minister has said that he will not increase the superannuation age while he is the Minister in charge of the Government. That is appalling—that is absolutely appalling. We know that the cost of superannuation is overtaking the cost of education in our country, and that is education before school, education in the compulsory sector, and education in the tertiary sector. It will soon cost more for our superannuation requirements.

We need a superannuation scheme in this country that is affordable and has longevity. On this side of the House we are concerned that everybody can have a fair retirement where their basic needs are looked after. We encourage other people to save more—there is no doubt about that—but we have a regard to the long-term impact on future generations. This current Government, ironically, seems to be the one that does not, and that is why I say that maybe this legislation is an attempt by Treasury to rein it in. We used to talk about the debt anchor when I worked at Treasury—the idea that Government debt would go down through 20 percent, and the last Government pretty much got there and left zero net debt for the current Government. So there is some irony that these are the objectives being put forward by the current Government.

I would ask the Minister in the chair for her view on whether these particular principles have been ignored by past Governments, because I think facts suggest that they have not, and I think this legislation brings nothing new. In fact, the Government is using parliamentary time to pass legislation that does not add much that is new and that does not have agreement across the House. That, to me, seems wrong. That does not seem like what we should be doing here as parliamentarians. It ought to be, in my view, that we can agree a long-term strategy for the health of the country in order to take this forward.

The other thing that needs mentioning, certainly in respect of this, is that part of the proposal—in terms of the sustainability of spending over time that the Government was bringing, along with its support party ACT—considered putting in a spending cap across Government finances. That spending cap, should it be implemented, would have devastating consequences. I am very pleased that that was thrown out along the way as a ludicrous idea. I am sure that it was considered further at the Finance and Expenditure Committee, but I am glad that it has not made its way back into the bill, because that type of cap has been demonstrated overseas to lead to a lack of investment in infrastructure, education spending, social infrastructure, and those other things that are actually about that long-term sustainability. I am sure the Minister in the chair would agree that that long-term sustainability does not warrant that kind of spending cap, or at least I hope she would. It does seem possible, though, that there is an expediency thing here. Peter Dunne was the man who stepped away from that clause. It was something that National and ACT had agreed before the election, in their proposed arrangements, the confidence and supply agreements. So, again, there is a bit of an irony in these principles sitting here, when the kinds of suggestions that have been put forward by the Government in its confidence and supply agreements would undermine these exact principles. So that covers the principles that are there.

The last principle is in new paragraph (h), which states: “ensuring that the Crown’s resources are managed effectively and efficiently.” Well, who would disagree with that? I do not think anyone in this Committee would disagree with that. I do not think, again, that the previous legislation would have precluded such a thing from taking place. I think that that is, again, what this graph I held up earlier for members demonstrates—that various Governments of different stripes, both Labour and National, have had concern for the long-term debt track of New Zealand. Of course, the National Governments that have sent us in the wrong direction outnumber the Labour ones that have sent us in the right direction, I would argue. But I am not making a blanket statement here. I am saying there are good National Governments and bad National Governments, and that it does not matter what has been in the past legislation—that has still happened.

So with those thoughts I will take my seat and look forward to what the next speaker has to say.

The issues that David Clark, who has just taken his seat, referred to were all relevant, but I want to hear from the Minister in the chair, the Minster for the Community and Voluntary Sector, why it is that she thinks this bill, the Public Finance (Fiscal Responsibility) Amendment Bill, has the credibility to introduce a provision that says, in clause 4, new paragraph (g) of section 26G(1): “when formulating fiscal strategy, having regard to its likely impact on present and future generations;”.

First point: is the Minister saying that her Government until now has not done that? Because if she is saying that, well, that shows you what an irresponsible Government this is. Secondly, if she is saying it has already done it, does that not show that this legislation is meaningless? Thirdly, if you want an example of irresponsible failing to take into account the effects between generations, look no further than the Government’s head-in-the-sand attitude in respect of the age of eligibility for superannuation. The cost has gone from $7 billion to $10 billion per annum since 2008 till this year. That is more than the cost of education within the next—

💬 Paul Goldsmith: What are you going to do about it?

We are going to increase the age of eligibility to 67 over time.

💬 Paul Goldsmith: It doesn’t solve the problem.

It does not solve the problem, says Mr Goldsmith, another Luddite on the other side. What an absurd statement that actually increasing the age of eligibility does not have a substantial effect on the fiscal consequences further down—

💬 Paul Goldsmith: Look at the Treasury report.

I have read the Treasury long-term report, and it says that if the age of eligibility is not put up, then unless Mr Goldsmith cuts other services he would have to increase GST from 15 percent per annum to 17 percent per annum. That is what the Treasury report says, Mr Goldsmith. So that is the first point to be made.

The second point is that it is very, very interesting that the genesis of this bill was with the confidence and supply agreement with Mr Banks. I want Mr Banks to take a call to explain how he has got any credibility on fiscal sustainability. When he was last Mayor of Auckland City he tripled council debt—tripled council debt when he was last Mayor of Auckland City. That is quite apart from the extra debt that was taken on as part of the formation of the so-called super-city. A fiscal cap is a nonsense. The Christchurch earthquakes showed that if you had a fiscal cap, the Government could not have paid for the rebuild, or part of the substantial cost of the rebuild, in Christchurch because of a fiscal cap in legislation—what a nonsense. What a nonsense.

We have seen the effect of that on things like education services in California. It once had amongst the best State-based education systems in the United States. It had a fiscal cap, and, as a consequence, it could not keep increasing spending for education in the way it needed to and, indeed, it had to cut its spending on education because it spent so much money on prisons. As a consequence, the Californian State-based education system is a shadow of its former self. That is the sort of policy that we get from the ACT Party—ill-thought-out, and it would take this country backwards even faster than this current National Government is.

The third point I want to make is that in respect of this sort of legislation, there should be agreement across the major parties, if it is possible. We asked for some pretty minor concessions in respect of this. We thought that the wording around monetary policy was one-sided and showed how ridiculous it has become that Treasury and the Government think that the only thing that is relevant in respect of monetary policy is what the Reserve Bank does. We said: “Well, that’s ridiculous.” We think that there are obviously parts of monetary policy that are delegated to the independent Reserve Bank, and they should be, but there are other parts relating to monetary policy, including policy advice that the Government should get from Treasury—

💬 Dr David Clark: They don’t believe in contestable advice.

Well, that might be the case, Dr Clark. I cannot understand the Government’s unwillingness at a time when monetary policy is in a state of flux around the world with these enormous trade surpluses in some countries and big trade deficits and current account deficits like New Zealand has—currently the worst in the developed world. Yet the Government will not conceive that in respect of fiscal responsibility you have to have an eye on that as well, because fiscal settings do affect monetary policy and trade balances. But the Government refuses to agree.

The second area where we thought we should be making an amendment, if the Government wanted cross-party accord on this, was something like the Australian equivalent legislation, which refers to adequate national savings. Of course, New Zealand has national dissavings through our current account deficit—the worst in the developed world. So I would like the Minister to respond as to why those issues could not be accommodated.

I too want to pick up where my colleague David Parker left off. Looking at Part 1 in clause 4, new paragraph (e) of section 26G(1), of the Public Finance (Fiscal Responsibility) Amendment Bill, the other interesting thing here, of course, is that it says: “when formulating revenue strategy, having regard to efficiency and fairness, including the predictability and stability of tax rates;”. Well, again, as Mr Parker said, is this Government so bereft that it needs a piece of legislation to ensure that it achieves fairness? It may well be that it does, given that in the so-called tax switch we know that the top 10 percent of income earners got a massive 40 percent of that tax switch and the bottom 20 percent got 2 percent. So maybe it actually is important that there is a clause in here that reminds this Government that formulating revenue strategy should have fairness, should be predictable, should have stability of tax rates, and should be fair. I am glad the word “fairness” is included in this, because, of course, nowhere in the Government’s tax cuts has there been any fairness.

I have got to say, coming from Christchurch, that the ludicrous, idiotic proposal that was originally in this bill—the henchman from Epsom, “Brown Bag Banks”, trebled expenditure in his time as Mayor of Auckland City, as my colleague David Parker said, and the biographer, Mr Goldsmith, who wrote the book about the great man Mr Banks is over there. Mr Banks trebled expenditure in his time as Mayor of Auckland City, yet comes to this Committee trying to gain some credibility before his problem with Dotcom and demands a spending cap, which is then torpedoed by the other sort of termite-ridden leg of the stool, Mr Dunne—who, of course, has no credibility either—who actually, to be fair to him, realised that that was a load of bunkum and completely unworkable. You know, we had a thing called an earthquake in Christchurch. If you have a spending cap, what happens there, with a natural disaster? It just shows that this Government is reliant on two rotten piles—rotten piles—in the form of Mr Banks and in the form of Mr Dunne, and it plays them off against each other, like Tweedledumb and Tweedledumber, to try to navigate through what it needs.

This bill is simply a political pamphlet. If a Government needs a piece of legislation that says it is to ensure the Crown’s resources are managed effectively and efficiently, if it really needs a piece of legislation to tell it to do that, then something is wrong. But, as I say, I am pleased that the word “fairness” is in clause 4, new paragraph (e), because those tax cuts were not fair. The GST that the Government put up, which it said it would not, was not fair to people. So it is good that at least one clause pulls on the small pangs of conscience that one or two of these Government members may have from time to time as they put through their polices that, as we know, benefit the top end of the street—the “Parnellites”, Mr Goldsmith’s people, of course—with the top 10 percent getting 40 percent of the tax cuts.

Well, I do not know. Will that contravene this law that talks about fairness? Because, of course, the Government defines fairness as that—where the bottom 20 percent gets 2 percent. It is utterly meaningless. If it does not know what fairness is and what inequity is, then it should not be there. But, oh, the top end, the one from the North Shore, the one from Epsom, and Banks’ biographer think—

The CHAIRPERSON (H V Ross Robertson): Order!

I said: “Banks’ biographer”. I do not know what you thought I said. I would not go that low—Banks’ biographer. They think that is fair. They think that is fair in a taxation sense.

So, really, this is another John Banks special. This is political piffle. This is like writing down: “I should be a nice person. I should make sure I send Mum a birthday card and a Mother’s Day card. I need to be reminded of these basic human things.” This is piffle. This is political posturing, and even Mr Goldsmith should be ashamed of this sort of stuff. We are wasting Parliament’s time on this. If that member and that Minister need a piece of legislation to say that they should manage the Crown accounts effectively and efficiently, then they have got a problem. They have got an absolute serious problem. It would be nice if they did manage them effectively and efficiently, as we did when we had 9 years’ worth of surpluses and zero—zero—Crown debt. We had zero net Crown debt—zero. That is called managing effectively and efficiently, and we did not need a piece of paper—as the Minister scowls at me—that said: “Dr Cullen, you need to manage the Crown accounts effectively and efficiently.” We just did it because it is the right thing to do.

I note my colleague Mr Cosgrove’s reference to the biography I wrote. He, of course, is jealous that I would never write one about him. I have written about successful people over the years, and so that is the problem there.

I am very disappointed—

💬 Hon Clayton Cosgrove: How many copies did it sell?

A lot of copies, actually. I am very disappointed that the Labour Party has walked away from this bill, the Public Finance (Fiscal Responsibility) Amendment Bill. I would like to acknowledge the work of the former chairman of the Finance and Expenditure Committee Mr Todd McClay, who worked very hard to get bipartisan support for this bill. We heard a lot of very lengthy monologues from David Cunliffe as he worked his way through this bill. We listened, we listened, and we listened, for hours and hours, and there was a lot of talk about just how well he understood all these issues. We listened and we thought, as a result of all that, that we may have some support across the table for this bill, but we were disappointed to find that Labour could not find it in itself to support what in the past has been something for which there has been bipartisan support.

I suppose this is part of a pattern that we see from the Labour Party. It is pulling away from coherence and consistency in its support for the Reserve Bank legislation that we have. It has pulled away from bipartisan support for national security, and now from support for fiscal responsibility. It is not my job, of course, to offer political advice to the Labour Party, but I would not have thought that leaving the middle ground of politics was necessarily a wise idea.

💬 Hon David Parker: I raise a point of order, Mr Chairperson. This sounds like a third reading speech, not a Committee stage speech. He has not addressed the bill. Part 1 is what he should be addressing.

The CHAIRPERSON (H V Ross Robertson): Thank you for bringing that to my attention. The honourable member might like to—relevance; relevance, Mr Goldsmith.

My apologies, Mr Chair.

The CHAIRPERSON (H V Ross Robertson): But it is Wednesday morning—or, I should say, Tuesday.

Quite right. I want to refer to some of the points that the previous speaker, Clayton Cosgrove, made in relation to clause 4 of Part 1, which amends section 26G(e) of the Public Finance Act, where he talked about efficiency and fairness. It is important to be reminded of these basic principles, because we did have a glaring example in the previous administration where the 39c tax rate opened up a gap between the top tax rate and the trust rate, which led to massive inefficiency. Suddenly, as we saw in the long-term graph of Treasury’s report, there was this great blip of people earning $59,000.

It is that sort of lack of understanding of how tax works that leads to problems, and it is why this legislation is here. Legislation is never going to force a Government to act responsibly, and it is never going to require political parties to act in a responsible manner, but it does lay a groundwork and a framework that can guide people. This legislation is about updating that.

The main aspects that are part of this bill are introducing a new principle that will require the Government to be explicit about the interactions between monetary and fiscal policy at different stages of the economic cycle. I think that is a significant contribution. The second principle is that the Government should formulate fiscal strategy in regard to its likely impact on present and future generations. Again, we had Mr Parker on his hobby horse about superannuation, saying that the world is going to come to an end. “Chicken Little” is running around. Here we have doom and gloom at the prospect that New Zealanders are going to live longer. Oh dear, what a terrible thing that is! New Zealanders are going to be living longer and healthier lives, but this is apparently something that we need to worry about.

Treasury’s fiscal proposal is that the amount that we spend on superannuation—

💬 Hon David Parker: Why didn’t you say that the other day at the super conference?

—I did—goes from about 4.6 percent up to about 6.4 percent. Well, at the moment we are looking at Germany at 10 percent, so I would not have thought that was the end of the world.

There is a decent debate about how you measure that. We saw a recent report from Michael Littlewood at the University of Auckland where he thought that Treasury had overestimated those figures, and that around 2030 we would probably be looking at closer to 5.5 percent, because GDP will be bigger because people will work longer and live longer and healthier lives. If Labour thinks that that is the big issue that we need to be grappling with, well, that is fine. You can have that debate. That is indeed what this whole process is about with the Public Finance (Fiscal Responsibility) Bill—that we should be having those debates. I appreciate Labour’s point of view, but I happen to think it is wrong on that one. That is why we are working where we are.

The third principle, if I can just return to Part 1 of this bill, is about reporting requirements for Governments to set out the priorities for resource allocation, and explain how these priorities are influenced and how they are influencing decisions.

💬 Hon Clayton Cosgrove: Wow! Amazing!

It is easy to mock. It is easy to mock, but it is an important principle. Thank you.