Financial Review Debate — Financial Statements of the Government of New Zealand for the year ended 30 June 2013

I am looking to recognise some honourable member.

💬 Hon David Parker: Mr Chairman.

The CHAIRPERSON (H V Ross Robertson): Ah! I call the Hon David Parker.

I almost expected a bell for yourself. The financial review conducted in the Finance and Expenditure Committee of Treasury and the Minister of Finance highlighted one thing amongst many, which was that 5 years into this Government it has not yet run a surplus. Five years into this Government it has not run a surplus. Indeed, it is close to racking up an additional $60 billion worth of borrowing—

💬 Dr Russel Norman: $60 billion?

—$60 billion since it came—

💬 Tim Macindoe: And who caused that?

Who has caused that? Actually, that was contributed to by the Government’s unaffordable tax cuts, which were weighted in favour of the wealthiest in society, who needed them less than others.

Let us contrast that with what the Secretary to the Treasury acknowledged in Christchurch just 2 weeks ago. The Secretary to the Treasury is not known for his exuberance. He told a Christchurch audience that “Having a buffer in the Crown’s balance sheet helped New Zealand to manage the double blow of the Canterbury earthquakes and the global financial crisis.”—i.e., he was giving credit to the prior Government for creating a buffer on the Crown’s balance sheet.

We hear Mr English saying that there was a decade of deficits that the Government inherited—that terrible circumstance inherited from the prior Government—which, of course, is not true. The prior Government ran nine Budget surpluses in a row—6 percent of GDP at one stage, amongst the highest surpluses in the developed world, at a time when politicians like National Party politicians who were in power in countries in Europe or in the United States, or, indeed, the Labour Government in the United Kingdom, were running smaller surpluses or deficits in a time of plenty. So when the global financial crisis hit they already had high Government debt. The legacy of the last Labour Government was low debt—very low debt, nil net Government debt. Gross Government debt was down from 38 percent to 18 percent of GDP. That is why this Government has had room to move. That is exactly what the Secretary to the Treasury was saying last week in Christchurch.

We have just had turned down an urgent debate—somewhat surprisingly, given that the report I am about to refer to, the latest bungle by the Minister of Finance, was for a recent period rather than the period under financial review. But we have learnt, just in the last week, that there was a billion-dollar mistake by Treasury. It miscalculated income inequality figures in New Zealand by $1.2 billion by, in the main, double-counting the accommodation supplement that is received by low-income families. Treasury also made some mistakes around Working for Families tax credits. The effect of that is relevant to the Bryan Perry report into income inequality, which is the statistic that the National Government always reverts to because it does not want to talk about asset inequality, it does not want to talk about decreasing homeownership rates, both of which are measures of inequality growing, and it does not want to acknowledge that the only time there has been a substantial decrease in annual income inequality, a narrow measure though it is, was under the last Labour Government through Working for Families. The only statistic the Government was willing to talk about was the Bryan Perry report on income inequality.

We now know that the Government knew that that figure was wrong. We know that the Government has known since December. The Minister of Finance confirmed today in the House that he has known since 10 December, and that the Prime Minister knew on or about that date and so did the Minister for Social Development. Yet they were all, during the earlier part of this year, when we were having debates in this House about income inequality, using the Bryan Perry report that they knew was flawed. They knew it was flawed, not by a small amount, but by $1.2 billion of additional income that was attributed to low and middle income households, which they did not in fact receive. That report understated income inequality.

The Government does not talk about the other measures of inequality that show it is rising quickly. The census showed a between-census increase in the gap between household incomes in South Auckland—

The issue of the Government’s fiscal performance stands as the centrepiece of this debate. I think it is very important that we remember our history in this. During the 9 years of the Labour-led Government, every Budget paid down debt. It ran 9 years of surpluses. The current Minister of Finance voted against every Budget. The reason he voted against every Budget is that he said the surplus should be given away in tax cuts to upper income earners. That was the argument that Bill English and John Key made, day after day, year after year, during the years of that Labour-led Government.

You have to give credit to Michael Cullen and Helen Clark. Although we had differences with that Labour Government, the fact remains that the reason why the incoming National Party Government did have a buffer was that Dr Cullen paid down debt rather than giving the surpluses away as tax cuts to upper incomer earners. That is just an historic fact. Mr English voted against every one of those Budgets because they did not give the surplus away in tax cuts to the wealthy. Instead, they paid down debt. Then Mr English takes over as Minister of Finance. After the global financial crisis and the earthquakes he is able to use the fact that the previous Government reduced debt in order to buffer the effects of those two events, yet he continually criticises the previous Government. The only reason that Mr English has the buffer is that the previous Government ignored Mr English’s advice and paid down debt, instead of giving away tax cuts to upper income earners.

Then we move into the current Government, and now we have had these five Budgets. The Budgets that Mr English votes in favour of are Budgets that increase debt and give away tax cuts to upper income earners. The cost of the tax cuts to the top 10 percent of income earners is $1.1 billion every year, which has had to be borrowed every year to pay for those tax cuts for the top 10 percent of income earners. Think about the priorities of this Government. When we have 300,000 children living in poverty, the priority for spending borrowed money by the incoming Government and the finance Minister was to spend it on tax cuts for the top 10 percent of income earners—while we have 300,000 kids living in poverty. We have all of those kids who say they cannot get to school in the rain because they cannot afford raincoats, who are going to school without lunches, who are going hungry, and who are not learning in our education system because the Government’s priority, the National Party’s priority, is to give tax cuts to the top 10 percent, instead of putting food into the bellies of poor children so that they can learn properly.

When the Green Party puts up a policy that would put food in the bellies of poor children so that they can learn properly and get an opportunity to escape poverty by getting an education, the Government says it is too expensive. Our policy would cost $100 million a year. The tax cuts to the top 10 percent cost $1.1 billion per year. That is about values. The Green Party has values that say we should support poor kids to get an education. The National Party has values that say we should give money to the richest people in the country through tax cuts. That is about the differing values that are reflected in financial priorities between the National Government, the Government of borrow and borrow and give it to the wealthy, and the Green Party policy, which is to put food in the bellies of poor kids so that they can get an education, so they can get an opportunity, like we all had.

Lots of us in this House got an opportunity through education, so that we could escape poverty. Lots of people in New Zealand had that opportunity. This Government does not want to give it to poor kids. It has introduced national standards, for goodness’ sake, which mean that teachers are now having to neglect poor children in their classes in lower-decile schools. They cannot afford to spend the time on those poor children, because they have to try to get the kids who are near the national standard over the line. What it means is that poor kids not only are hungry at school but also they get less teacher time because the national standards policy tells teachers to focus their work on just the kids who might be pushed over the standard, so that their numbers can look good.

Once again poor children are left to rot by this Government. That is the Government’s priority. Instead of spending where it is needed, to help out those kids so that they can get a foot on the ladder of opportunity and get an education because they are not hungry all the time, the Government gives tax cuts to the top 10 percent—tax cuts that are costing $1.1 billion every year. That is $1,100 million every year. It is the cost of the tax cuts to upper income earners. All that money has to be borrowed. Is that really the right priority for New Zealand?

Bill English is doing a great job. He is a class act amongst Ministers of Finance in the OECD. If you do not accept that, then I ask you to invite the Parliamentary Library to give you some significant headline statistics about this country’s economic well-being over these last 5 years, where it has come from, and where it is at. The quickest way we can secure New Zealand’s future is to live within our means, and stop living beyond our means and borrowing the savings of others overseas for today’s consumption. The mind boggles at the post-Cullen leadership of the financial propositions on that side of the House, these last 6 years. The mind boggles at the thought of that crowd being on this side of the House, pulling the levers at Treasury, over these last 5 years. I put my hand on my heart and say that the only policy that I have heard from the Labour Opposition in recent days around the economic and social well-being of this country is for a baby bonus for people earning just $150,000 a year. That is the only public policy proposition that Labour has announced, apart from criticising every single cut, every single saving, and every single turn this Minister of Finance has made these last 5 years.

The deficit is down from $7.9 billion in the year ended 30 June 2012 to $4.4 billion this year. But we are still borrowing $110 million every week from the savings of people who do not live in this country. In other words, we are putting in hock future generations for our consumption today on silly propositions like giving universal superannuation to 65-year-olds or 66-year-olds. It should be 67-year-olds, and I will give you 1.8 billion reasons why it should be elevated over 20 years to 67-year-olds. The 1.8 billion reasons in today’s money is $1.8 billion a year in savings. If we had a reasonable—a reasonable—amount of interest on so-called interest-free student loans, then Treasury would gain by $2.2 billion a year, and that would stop us from borrowing $110 million per week, as we do now.

The baby bonus is the kind of poor structural policy thinking that defines this bankrupt Labour Opposition. If there is something that the Labour Party is proposing that will stop us from borrowing more money and stop this country from getting into its members’ hands, I want to hear it from them this afternoon. Last year Treasury published its 2013 statement on long-term fiscal policy. It showed that current spending programmes, particularly in superannuation and health care, are unsustainable without increasing revenue or cutting other expenditure, or both. But what do we hear from the Labour Party? It is proposing to increase taxes and have more borrowing. That is what Labour members are proposing if they get themselves to this side of the House. They have got no sensible propositions around investment, growth, jobs, and well-being.

Treasury describes our proposed spending programme as fiscally challenging, and it is. It is fiscally challenging, but let us give credit to this Minister of Finance, who I think is one of the best finance Ministers this country has ever had, and probably the best in the OECD right now. He has said taihoa on this expenditure. He has said we have to cut our cloth, and that is what we have done. We have got through this global crisis with $60 billion worth of debt—$60 billion. It is further evidence that we are spending beyond our means. The Fabians within the New Zealand First Party are just as bad as the Greens and the Labour Party when it comes to fiscal responsibility and bankruptcy around investment, growth, and jobs. We do not hear anything about that and I want to ask the leader of New Zealand First to tell us exactly what he would propose if he was sitting here come the end of the year.

I wish to speak on behalf of New Zealand First about the National Government’s economic failure. Despite having the best 40 years of trade because of the dairy boom that we are having, this Government has managed to put this economy in a perilous state. We have 150,000 unemployed people—significantly more than when the Government came into office—and now we have $60 billion in Government debt. Meanwhile, New Zealand’s net international debt has risen to $150 billion—a staggering sum. That Government debt of $60 billion is 10 times what the National Government inherited from the former Labour Government, which was supported by New Zealand First. It is 10 times the debt of $6 billion when National took office.

Meanwhile, what are we seeing? We are seeing Kiwi workers with virtually static wages. Those who are on low to middle incomes are seeing virtually static wages. Sure, the bosses and the very highly paid are getting significant increases, but those who are out there at the coalface are not seeing the same rewards. We have seen 154,000 work visas issued in the last year for people to come into this country, while there are 150,000 people on the dole. Those 154,000 work visas included 40 visas going to people who came in to work as supermarket checkout operators. It is hardly great policy on the part of the National Government to bring in people to work in our supermarkets.

We are also seeing the end of the homeownership dream for young Kiwis. The housing bubble in Auckland is now seeing foreign speculators buying up many, many houses. People who are not even living in Auckland are now pushing up the cost of housing for young Kiwi families and young Kiwis trying to get on the ladder. This Government refuses to step in and stop speculative purchasing by foreigners and people who do not even live in this country. New Zealand First will change that when we are in Government. We will ensure that people have to live here—be residents or citizens here—before they can buy property. They do that in Australia. They have the same restrictions in Australia, so why not here? This Government turns a blind eye to it and allows foreign speculation to drive up the prices, particularly in the likes of Auckland and Christchurch.

At the same time this Government is not putting a stop to the sale of land and other strategic assets, such as the 19 Crafar farms and other significant farms that are being sold. It is not stopping that. It is allowing ownership of some of the best of our productive land to disappear overseas. All the while the Government is selling off public assets that have been built up by my parents, my grandparents, their parents in turn, and all of your parents and grandparents. Generations of people have built up the assets of this country. The Government has sold off our silverware for a miserable $5 billion or less just so it can pay the next 6 months of debt.

The Hon John Banks says that debt is going up by $100 million a week. This Government is taking a miserable $5 billion from selling the best assets that we have so that it can help try to keep a lid on the debt. In so doing, it is losing some $900 million a year in revenue from these assets, and that is an absolute tragedy. It is like giving away your ATM machines. It is like giving away your best-earning companies, if you were in private enterprise, and then in a few years’ time wondering where all of those good, revenue-earning companies went. Those previously owned by the Government will have disappeared down the track.

At the same time, regional economies are being neglected. This Government has not been prepared to put in $4 million to keep the Napier-Gisborne railway line open—a miserable, small amount of money to keep a whole region vibrant, in terms of that East Coast area. It is an area that has high unemployment and that could do with the continuation of the rail link. At the same time, it is not retaining important infrastructure like the Hillside railway workshops in Dunedin, so we see this week that Chinese engines are being bought, full of asbestos—40-odd engines—while it is closing down the Hillside railway workshops. Those workshops, in conjunction with international providers, could have built those engines, assembled the engines, or, indeed, put a huge amount of componentry into those engines. I am sure that as a result we would not now be seeing asbestos in our trains.

At the same time we are seeing the likes of the Ministry of Foreign Affairs and Trade buying ferries in Bangladesh to go to the Tokelau islands. Where is this Government stepping in and saying we should be supporting very good local industry to build boats here to go to the Pacific Islands?

The proposition put forward by the potential Greens-Labour administration to get more food into the bellies of the poor seems to be yet more redistribution on top of what we do already. I heard Mr Norman say we leave the poor to rot. What nonsense. We have a tax system and a Working for Families system that, through cash payments to lower income families, for a family of two earning around $50,000 means they get more back in Working for Families than they pay in tax, as well as largely free education, health care, and superannuation. That is an incredible amount of redistribution. We do it because we value the vulnerable in society, and that is what this National Government has been committed to. The National Government’s approach to getting food into the bellies of young children is to create the conditions where their parents are more likely to have a job and to grow the economy so that we can afford good health care and education, so that we can afford the welfare to support those who are most vulnerable in difficult times.

It is ironic when you get members of the Greens standing up to oppose everything that we do in order to create more wealth in this country. They oppose every free-trade agreement that we try to do, notwithstanding the immense wealth that is being created through the New Zealand — China free trade agreement, to take one example. They oppose the dairy industry at every turn. They oppose oil and gas exploration. They always call for more regulation, and, over on the Labour side, those members are always wanting more taxes, such as capital gains taxes.

That is the nub of it. If you want to get food into the bellies of young children, we need to create conditions where the economy is strong and people have jobs, and so one important thing that this Government is doing is getting more people off benefits and into paid work. In the past 12 months this Government has helped 80,000 people off welfare and into work. Paid work is the best route out of hardship for families that are finding it difficult to make ends meet. That is what this Government has been committed to over these past 5 years and, if given the chance, over the next 5 or 6 years in Government.

Let us just go back over the claims and counter-claims about who left what in terms of deficits. Just remember that when we inherited this economy back in 2008, the current account deficit was almost 9 percent of GDP. It is now about 4.3 percent of GDP. The net external debt had blown out to 84 percent of GDP. That is now down to 71 percent of GDP. Inflation—that thing that robs the savings of the thrifty—was running at 5.1 percent. It is now only 1.6 percent. People can know the value of their money. Mortgage interest rates were averaging nearly 11 percent, and now they are at 5.9 percent. Yes, they will probably be going up some time this year, but they are a lot lower than they would be otherwise if we had had a profligate Government still in power. Government spending had gone up by 50 percent in the 5 years to 2008. Yes, we should commend the Labour Government early on for being reasonably disciplined, but it was that third term in particular where spending really got out of control and where commitments that were made for new spending were not funded properly, which this Government had to deal with, as well as all the pressures of the global financial crisis and the Canterbury earthquakes. We inherited an economy that had been going backwards for four quarters before the global financial crisis in 2008, and now the economy has grown by 3.5 percent in the past year—one of the highest rates in the OECD.

We are all aware of just how fragile the global situation is. Who knows what is going to come out of Europe over the next few months. It is not a time to be running off recklessly on a big new spending drive. It is about continuing and maintaining this disciplined, stable Government that we have had over the past 5 years, and that is the sort of thing that this country needs. I also remind the Committee that Treasury was forecasting never-ending deficits and debt that was likely to get to 60 percent of GDP and never come down. We are forecast to be back in surplus in 2014-15 and debt is expected to peak at 26.5 percent of GDP. Those are figures that we on this side of the Chamber are incredibly proud of, and on that basis I commend this bill.

I want to respond to a couple of issues that Paul Goldsmith raised. He tackled the Greens for criticising the poor distribution of income and wealth in New Zealand. What he did not mention was that the OECD in its most recent report into New Zealand said that New Zealand’s tax system is less redistributive than is normal in the West. So although he might say that there are some protections in the likes of Working for Families, he seems to forget that those sorts of improvements on the division of income—and, therefore, over time, wealth—were Labour Government policies that were opposed by National. He forgets that New Zealand is one of the few countries in the world not to tax capital gains, and then, in respect of his alluding to growth rates, he claims that we are some sort of rock star economy because growth is a bit over 3 percent per annum. When the effects of the Christchurch rebuild are excluded, New Zealand’s growth rate is a paltry 2 percent per annum. It is nothing that the Government can claim credit for. The earthquakes in Christchurch were, of course, a terrible event that adds to GDP because the rebuild costs a lot of money.

In respect of the external deficit that he referred to, now in New Zealand we have the highest terms of trade in more than a generation, and despite that, despite record dairy prices, and despite raging success in trade with China under the free-trade agreement—which the Labour Government, under Phil Goff, negotiated—we still have a current account deficit that is over 4 percent and is projected to get worse. So with the best terms of trade and with record commodity prices, we still are not achieving that need to improve our export balance or our total exports. The Government seems to have given up on its objective of increasing exports significantly as a percentage of GDP. It has made virtually no progress in that regard in the last 5 years. The export base of New Zealand has narrowed towards a decreasing bundle of goods and not only is more reliant on dairy, it is more reliant on milk powder going into China.

Against all that background we have got the Government being tricky on these statistics. Before I sat down last time I was saying that we not only now know that the statistics it was using in respect of income inequality exclude capital gains, it also overstated the incomes of those who are less well off by counting the accommodation supplement twice and by making mistakes around Working for Families. In the broader measures such as those used in the census, we know that the income gap between South Auckland and wealthy suburbs in Auckland grew by 19 percent between the two censuses—a 19 percent increase in the gap between family incomes of South Auckland families compared with those in wealthier suburbs.

So there is no doubt that inequality is getting worse in New Zealand, and that is one of the reasons why New Zealand is underperforming educationally. There are some problems that we have in our education system. Not all of them can be put down to inequality, but a substantial proportion of them, according to the OECD, can be tied back to the fact that people are so poor that they cannot take advantage of the educational opportunities that our State system provides to them.

This country needs a Government that is willing to improve the depth of capital markets. KiwiSaver, which was opposed by National when it was one of ours, is now held up as one of its successful policies. We think that we need to follow the Australians in having a universal work-based savings system. We need tax changes—both research and development tax credits, as well as a capital gains tax, excluding the family home, so as to direct that capital more efficiently to the parts of the economy that need it most. Through that we will get higher wages and more jobs with career structures, rather than committing too many of our young people into low-paid service jobs with irregular hours of work, no career prospects, and lower rates of homeownership, which is the pattern that we see under the current Government.

So I do not think that the Government has achieved what its objective was, which was to rebalance the economy. If the Minister of Finance does get to his feet and take a call in this debate, I want him to start by apologising for misleading the country in respect of the income inequality figures that he knew were wrong from December last year. In the middle of the inequality debate, including in this Chamber, he did not fess up to the fact that his Government had made a billion-dollar bungle that overstated the incomes of low and middle income New Zealanders.

Mr Chairman—

💬 Hon Damien O’Connor: What can we trust?

Well, it is interesting to hear the interjection from the Labour side asking the question: “What can we trust?”, because I can tell you whom those members cannot trust, and that is their leader with his trust. That is the answer to the question. Damien O’Connor asked, today of all days: “What can you trust?” The answer, if you are a Labour member who voted against David Cunliffe, as most of them did, is that they cannot trust their leader with his trust, because he—

💬 Hon Trevor Mallard: This is Bill English!

This is the leader who says: “I’m going to pay back the money to the people, whom I cannot identify, who gave it to me.” So that is what is going to happen. David Cunliffe’s contribution to the economic debate today is: “People gave me money confidentially to a trust so I could avoid declaring it on the pecuniary interests register. And now that I’ve said I’m going to pay it back, I’m going to pay it back to people whose names I don’t know.” His own members of his own caucus do not believe that. Of course, the real shame of all this is that many New Zealanders who used to rely on the Labour Party to protect and advance their interests, including those who show they are on below 60 percent of the median wage, now find that the Labour Party is enmeshed in a tangle of its own making over whether its own leader is trying to get around the pecuniary interests of MPs.

And who is left? Who is left to advance the interests of the lowest-paid New Zealanders? The John Key - led, National-led Government—that is who. We spend more time talking about the most vulnerable and those on the lowest incomes because we are the Government that last week, working with aspirational, low-income New Zealanders, got 1,200 of them off a welfare benefit and into a job. And if there is one thing Labour does not like, it is people getting off welfare and into work, because they might become ungrateful. They might become more interested in lower taxes than in higher benefits. Is that not a risk?

Those people might start saying: “We want decent education for our kids because we understand the power of work.”, whereas Labour would rather they stayed on welfare and accepted mediocre education, because if you are disadvantaged you cannot expect to learn. That is another big difference. The National Party believes that the point of a public education system is precisely to overcome disadvantage. The Labour Party believes that the point of a public education system is to make sure that those who are disadvantaged do not learn, because you cannot teach them. They are beyond hope. They do not deserve aspiration. They cannot learn. And then you can rely on them voting Labour, if that is their situation.

Well, the evidence is that more and more of the people who used to vote Labour when Labour was a working-class party now do not believe that Labour can advance their interests. In the old days Labour was a working-class party; now it represents the measuring class.

💬 Hon John Banks: Who?

The measuring class—people with tertiary education who spend all their time telling us how much misery there is in our community. Labour knows even less than ever about what to do about it. Who is doing something about it? The National Government. We are not sitting around spending and forever arguing over measuring the misery; we are trying to break the patterns that locked it in. That is what is behind the whole-of-Government approach to this financial review. It is a National Government focused on getting results and working with people who have got hope and aspiration, and this year we are going to get to argue with a party that believes that none of those things can be achieved because people are too disadvantaged to be able to get ahead. We do not write them off; we work with their aspirations and their hope.

Reports noted.

Parliamentary Commissioner for the Environment